Gordon Donovan

Recent supply chain challenges have compelled organizations to reconsider business strategies. Delays in deliveries and rising prices have required more adaptable models to guarantee operational stability.

Yet, the July jobs report unveiled the next crisis, as weaker-than-expected results sunk stock prices and raised fears of a recession. Businesses will likely concentrate on limiting losses, ensuring they do not overspend if revenue and consumer spending dip.

The previous shifts presented an opportunity for procurement, as C-suite executives are finally acknowledging its critical role in engaging with suppliers and vendors. This current crisis could further enhance procurement’s organizational influence.

A recently released SAP-sponsored study from Economist Impact titled “Across the procurement-verse: Changing trends in the procurement function” reviews how extenuating circumstances have elevated procurement’s status and that the confidence levels in chief procurement officer’s (CPOs) internal collaboration capabilities have risen to 75% from 53%. As a result, procurement is now crafting, shaping and executing key business strategies.

Procurement’s remit is expanding beyond cost mitigation to easing risks, and it’s illuminating that the longer-term (three to five years) strategic priorities surround diversification, multisource and reshoring/nearshoring. Now, with a new and more prolonged crisis on the horizon, procurement must identify new and additional sources of supply to mitigate risks, identify cost reduction opportunities and help organizations navigate the turbulence that seems to be a constant occurrence.

This will involve investing in technology that can profile markets, identify, qualify and engage with various suppliers, and manage complex category strategies. To realize the full value of digital transformation, procurement executives should embrace advanced technologies like AI and data analytics, integrating these tools into processes to help streamline and optimize decision-making.

Effective response requires cross-functional collaboration

The possibility of a recession could pose several issues for procurement teams — customer demand could decrease, supplier performance may become more volatile, inventory movement may become stagnant and inventory management could become even more challenging. All these issues will significantly impact the bottom line of the broader business.

That is why procurement teams are often relied upon during economic instability. With inflation already a pressing matter for most businesses, the Economist Impact report revealed that monetary uncertainty is the chief priority for the next 12-18 months, so it’s no surprise that the expectations for procurement are already increasing.

This has driven further focus on communication with other departments, as the report shared that 75% of respondents said procurement collaborates effectively with the rest of the organization – up from 53% of respondents in 2023. Yet, there is evident room for improvement: only 18% of executives this year strongly agree that procurement collaborates effectively, down from 28% last year.

“Procurement has often operated in this bubble that was in service of its own goals as opposed to in service of the goals of the wider business,” the report states.

Whilst procurement insights are valued by the business — 84% stated that they were essential for implementing organizational strategies, only 64% stated that they were effectively applied. In a period of reduced demand and increased supplier volatility, procurement’s ability to help organizations apply these insights will be necessary to inform the wider business of supply changes.

By implementing technology, procurement can collect and analyze data to identify trends, forecast demand and optimize decision-making to drive better strategic alignment. CPOs can also build stronger relationships with internal stakeholders through open dialogue and collaboration on shared objectives.

This element of constant feedback is essential for correcting mistakes and navigating disruptions.

Transforming Procurement and Supply Chain Dynamics

Technology can also play a vital role in developing contingency plans. For example, if a rubber manufacturer suddenly has a decrease in quality, a tire producer who utilizes this supplier and is equipped with advanced and innovative technology can immediately identify an alternative supplier who can deliver alternative materials on time and at the right price.

Many CPOs have already made key steps in that journey, as the Economist Impact report shared that 84% of executives are confident in procurement’s ability to apply technology successfully to automate processes. The research also showed that the top technology priorities over the next 12-18 months include generative AI (34%), intake management (33%), autonomous procurement (27%) and category management (25%)

Developing these capabilities will ease the burden of day-to-day tasks, allowing procurement departments to focus on breaking down silos and integrating new technology across the organization. AI, in particular, is transforming procurement into a proactive, data-informed, and agile operation that can navigate economic uncertainties.

Innovations in AI are making procurement more efficient, responsive, and cost-effective. For example, new AI capabilities can enhance the buyer journey by conducting a market analysis within minutes to profile key market challenges and trends to help make informed decisions.

This will be critical considering current economic uncertainties, which will create new obstacles for supply chain and procurement managers. Internal revenue may dip and limit purchasing power, while product availability could vanish, resulting in dilemmas that appear unsolvable.

But data-driven strategies can improve efficiency, strengthen supplier relationships and increase visibility. In a period where growth may be limited, automation and technology can conserve revenue and increase flexibility as the market continuously shifts.

Navigating the Path Forward

As businesses navigate economic uncertainty, procurement’s role has never been more critical. By leveraging AI and data, procurement departments are evolving into proactive agents who drive resilience across the business. The Economist Impact report highlights growing confidence in technology’s ability to increase efficiency and responsiveness, empower procurement professionals and optimize processes.

In the face of reduced demand and supplier volatility, procurement’s use of technology can conserve revenue and improve organizational agility. By breaking down silos and integrating new platforms, procurement is not just adapting to change – it’s steering organizations toward long-term success in an ever-changing economic landscape.

About the author:

Gordon Donovan is global vice president for research, procurement and external workforce at business software company SAP SE. He has over 30 years of procurement experience, leading procurement teams in the health, rail, finance and public sector industries in the United Kingdom and Asia.

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