Procurement leaders must tackle operational hurdles to find new sources of value

The procurement function has reached a critical point—dealing with operational issues, challenges related to data quality, a lack of clarity, and a need for more digital talent. Despite these challenges, procurement leaders can make a difference by engaging with internal stakeholders and external partners to enhance the value delivered to the company and identify new sources of value.

In the HFS Horizons: Sourcing and Procurement Service Providers 2024 report, HFS interacted with 30 procurement leaders to uncover the main challenges to achieving their goals. The report highlighted (see Exhibit 1) that balancing day-to-day operational issues and strategic thinking is the most significant obstacle. This is followed by poor procurement data quality from different departments, legacy systems, and unstructured data formats.

Operational challenges and data quality issues remain perennial problems

What is operational firefighting in procurement? Several operational issues can significantly reduce productivity, including delays, sudden price increases, quality problems, and urgent requisitions. Other challenges include end customers interacting directly with suppliers without involving the procurement team, ensuring internal and external compliance, and managing crises during unforeseen events such as natural disasters or geopolitical tensions. Procurement teams regularly tackle these operational challenges in their day-to-day activities.

Exhibit 1: Top 10 enterprise challenges to achieve procurement goals

Sample: 30 Procurement clients and partners
Source: S2P Horizon Report; HFS Research, 2024

One of the challenges the procurement leaders emphasized was poor data quality, which results in inaccurate reporting and decision-making. During a conversation with a procurement executive, it became apparent that the lack of a common taxonomy for classifying procured products creates reporting challenges. For example, the procurement of printers may be classified as “electronic assets” in the requisition form, referred to as “office supplies” by the supplier, and categorized as “technology equipment” by the order management system. This inconsistency in product classification across multiple systems leads to inaccurate spending analytics.

Procurement is key to building an ecosystem that effectively resolves operational issues

The HFS Horizons: Sourcing and Procurement Service Provider, 2024 report reveals that 73% of the surveyed procurement professionals agreed that the function acts as an ecosystem builder (see Exhibit 2), balancing internal functions and requirements with external challenges and opportunities.

Exhibit 2: Procurement as an “Ecosystem Builder” at the enterprise level

Sample: 15 interviews with procurement leaders
Source: S2P Horizon Report, HFS Research, 2024

To establish this ecosystem, it is essential to collaborate with internal departments, partners, and suppliers to develop a solid strategy that minimizes operational challenges and enhances productivity. To address the taxonomy issue, creating a unique catalog to be used across all systems is crucial. Additionally, procurement staff should be trained on utilizing technology platforms effectively.

Focusing on change management and educating internal stakeholders about how to raise order requisitions are also vital. Initiating an order requisition correctly will likely lead to successful payment clearance; if done incorrectly, challenges may arise. The entire ecosystem should work together to create a unique catalog, learn new procurement methods, eliminate manual processes, and educate one another on troubleshooting operational challenges.

Some procurement strategies to build OneEcosystem™ to identify new sources of value

• Share procurement insights: Share the spend analytics, supplier metrics, and savings insights with the respective internal functions and leadership to align with the business strategy. For example, a procurement leader said they worked with internal functional leaders and understood the requirement of obtaining procurement insights from their lens. They discussed this requirement and collaborated with their existing service provider, WNS Procurement, to provide bespoke persona-based dashboards for a sourcing leader, a category executive, and a compliance manager in different ways, depending on their focus areas. This created traction from other functions to make procurement as relevant as possible.
• Support ESG practices: Every enterprise seriously considers environmental, social, and governance (ESG) practices and sets specific objectives to achieve them. The chief procurement officer needs to grasp these objectives and collaborate with external suppliers and service providers that can assist in achieving them. For instance, Genpact’s sustainability solutions around ESG assessment, supplier diversity, responsible sourcing, and scope 3 data management solutions can aid any enterprise procurement organization reach its sustainability goals.
• Communicate the value: Procurement leaders must communicate their value—especially the savings achieved—to enterprise leaders. This makes them realize the importance of partnerships and collaboration. For example, one of the global manufacturers partnered with GEP to create a roadmap for an AI-led procurement process to manage their billions in spending. With their GEP-SMART platform, they saved over $500 million in three years, reduced operating expenses by 15%, and increased spend visibility to 98%.
• Create an environment for co-innovation: Procurement leaders should be the torchbearers in co-creation and co-innovation within procurement functions. Collaborative approaches offer distinct advantages for addressing complex challenges in specific industries. For instance, one of the large industrial gas companies worked closely with TCS to develop an innovation success fee-based contract. This enabled them to create a compliant centralized spot buy sourcing service that can be scaled up or down on demand.

The Bottom Line: Procurement leaders must focus on educating talent, managing transactions, and leveraging technology to achieve operational excellence and meet the procurement objectives.

Procurement leaders must develop strategies using the OneEcosystem approach that minimizes operational issues by streamlining the procurement process, from requisition to receipt of goods. To achieve this, they should raise awareness of procurement tech platforms, including order requisition, accounts payable, available taxonomies, and budget holders for internal approvals. This proactive approach can prevent many operational challenges from internal and external stakeholders.