The biggest lesson procurement leaders took out of the 2020 pandemic is that change is vital to survival. This year, the biggest lesson is that change will now be constant. Looking forward to 2023, how will we adjust to this new normal of constant change?
I recently chatted with members of the Coupa Customer Executive Board (CEB), a group of standout procurement leaders that we’ve recognized for their leadership, expertise, and ongoing contributions to the Business Spend Management (BSM) community. The session was intimate and covered a few key topics related to this new normal in depth. Here are my top 4 procurement insights from the discussion.
1. CFO and CIO must be aligned every step of the way
I opened the session with some thoughts about the challenges in the market. Not surprisingly, the two words that I narrowed in on were fear and uncertainty. Fear is driven by uncertainty as we don’t know what the next six to twelve months will bring. Because of this, Coupa has seen a greater dependency and alignment between the Chief Financial Officer (CFO) and Chief Information Officer (CIO) roles. We now live in a world where one widget can shut your plant down, so CFOs partnering with their CIOs to gather the information needed is more important than ever. Organizations that have these two roles working together step-by-step are driving a competitive advantage over their peers.
CEB insights on this point varied across industries. Those working in the financial sector are tightening their budgets, while others remain committed to their longer-term plan. For example, a CIO in the shipping industry is driving a global Internet of Things (IoT) program. The current situation is expected to continue to play out differently across sectors. However, there is a constant approach within many Coupa clients: scenario planning.
This means annual budget plans are now quarterly revisits. Furthermore, there is an increase in interactions between the CIO, the CFO, and CPO. What were once quarterly touch points are now monthly working sessions where decisions are now being made in an agile framework. This is allowing businesses to adjust to changing circumstances quickly. It also means organizations are being more strategic with their resources, or what I like to call, doing less with less.
2. We need to start doing less with less
Organizations are increasingly selective with which projects are funded. They must genuinely matter to an organization’s objectives of driving profitability and improving productivity. In the past, organizations may have had 25 to 30 possible projects and would probably select 15. The top five or so are now being selected, with resources concentrated on these projects rather than being spread across a broader program of work. With the stakes much higher on the success of such few projects, CIOs must navigate what suppliers they should partner with beyond their technical pedigree. Are those partners doing the “right thing?” Are they the best team to solve the problems we have? Will there be a meaningful benefit for the company as a result of this new partnership?
These are the questions CIOs should consider because they understand that every node within their supply chain is vital. These nodes must be visible — such as considering manufacturing or supplier locations, distribution centers, and industry nuances. This data is critical in navigating various geo-political events and driving an understanding of how the supply chain provides intelligence to consider better optionality. Supply chains are being discussed with internal customers, and options are explored to maintain supply chain integrity.
3. Providing optionality will be critical to survival
The Coupa CEB also shared a significant difference in how procurement now operates versus in the past. The past involved understanding the 20%; being the big suppliers or the areas of greatest risk. This has changed to drilling down into an organization’s tier two and three suppliers to identify any possible problems.
Coupa CEB members emphasized that new product creation must, in many cases, have less dependence on China and integrate more local suppliers. Energy prices in Europe are also another factor to be considered. I explained how an ex-China strategy is front of mind for many CIOs now, and they are helping their organizations explore Asia and Latin American options. Consider that manufacturing is now occurring in India. Many would not have considered this several years ago. World-class tier-four data centers are being set up in Vietnam, Penang, and Lahore to prepare organizations for alternative manufacturing and supply chain arrangements. What does all this mean? CIOs who know the macro issues need to partner with CPOs who understand the micro factors to determine how best these arrangements are leveraged. Resilience is becoming more critical and, when combined with the monitoring pricing evolution, there is a greater dependency on data and AI for modeling.
4. We will continue to see tech innovation in spend management
The ongoing use of technology to improve security and data analytics for decision-making is the one area I predict where spending will not reduce. Security is a no-brainer due to the ongoing threat vector and frequency of attacks. While the use of AI and machine learning by non-technical practitioners is increasing, thus helping organizations navigate earlier decision-making. Here are the ways we’ll likely see innovative technology change BSM in the future:
- The Metaverse: Consider the Metaverse, which is likely to have multiple use cases, including virtual procurement stores or within professional services as a platform for training. I forecast that the Metaverse will scale within businesses two to three years from now.
- Data Lakes: During our discussion, members of the CEB acknowledged that spend management has been and will continue to be a priority, but a potentially overriding priority is supply assurance. Data Lakes are being deployed where Enterprise Resource Planning (ERP) solutions may have been historically considered. These Data Lakes have been particularly beneficial in a multi-landscape enterprise since they provide better visibility into supply chains and spending.
- Blockchain: Blockchain technology (an independent externally validated ledger) has been deployed within supply chains where organizations have a particular concern, possibly regarding the location and use of labor. I noted how Smart Contracts integrated Blockchain technology in this way, and we’ll likely see the use of blockchain technology continue to grow.
- Process Automation: Process automation and digital twin technologies are helping with optionality. These technologies assist with scenario planning and, in a sense, are being used as a flight simulator for testing, thus reducing the risk of crashing and facing consequences for an organization.
We will continue to see growth in innovative procurement solutions
To keep up with the world’s new normal of constant change, organizations need to ensure their CIO and CFO are working together to bring down costs, focus on the sustainability of a supply chain, and drive innovation through technology, which requires a level of simplicity enabled by digitization and ongoing investment in cybersecurity. The big takeaway is that the relationship between finance and IT is more critical than ever to the future success of organizations in 2023.