The Procurement Economy in 2019: Bracing Yourself for the Future
As we’ve explored in our last two blog posts, economists are predicting a decline in global economic growth due to policy and trade issues both in the United States and the European Union, bringing an increased risk to supply chains and procurement organizations. This increased risk requires organizations to be proactive and innovative if they are to successfully navigate 2019. Those that are able to react efficiently and quickly will be well positioned, and must implement measures to safeguard supply chains, even in a challenging economic climate.
Research on supply chain following the 2008 economic recession found that supply chain executives took several major steps to deal with the decline, each of which is particularly relevant as we enter 2019. Executives monitored markets for potential changes, providing them reliable information that they needed to make agile shifts in their strategies. This also required creating a flexible supply chain by creating preferred responses to possible changes, as well as realigning inventory in order to free up cash. Monitoring supply and preparing for alternate suppliers allowed procurement teams to quickly pivot when they lost suppliers to bankruptcy or downsizing.
While it’s impossible to control economic events, one of the best ways to prepare for change is with technology. As firms shift focus to increasing operational efficiency, digitizing operations can mitigate cost risks. According to IDC, two thirds of Global 2000 enterprises put digital transformation at the center of their strategy as early as 2017, yet only 32 percent developed a strategy for getting there. In the past few years, advances in technology like machine learning, natural language processing, and AI have moved into the spotlight. While these technologies offer large potential benefits, understanding their specific value is key to developing your digital strategy.
Natural language processing and machine learning are expected to bring a rise in the use of smart contracts. Increasing on-contract spend and supplier compliance both reduce the risk of getting locked into long-term contracts that might cause financial problems during a potential economic downturn. By generating more flexible contracts with suppliers, your organization can position itself to better respond to changes in both supply and demand.
It’s expected that one third of manufacturers will be using big data analytics by the end of 2020. Cognitive analytics can increase service performance by 5 percent and cost efficiency by ten percent. In the cost-conscious environment of an economic downturn, these savings will put procurement teams in a position to remain successful while limiting cutbacks in other areas.
During the 2008 market recession, many companies suffered because they failed to reduce capacity as demand plummeted. Additionally, they failed to establish alternate suppliers, losing supply when their existing vendors went bankrupt or made cutbacks. Without the talent or capacity to fill the increased demand once the market picked up again, these same companies continued to lose market share. However, organizations can avoid many of these problems in 2019 by monitoring market changes and requiring transparency. By keeping tabs on changes in their specific market’s conditions as well as the global economic climate, organizations can better anticipate shifts. With operational transparency, teams can establish early warning procedures based on their data, revealing potential hiccups in their own supply chains.
The Source-to-Pay market is strong, making a full suite digital supply chain platform a wise investment. By improving your organization’s digital maturity, you can create automated procedures to deal with and minimize risk, and anticipate upcoming financial challenges. To learn more about the economic procurement outlook for 2019, read our white paper, The Impact of Current Economic Events: A Guide to Procurement in 2019.