Procurement must break free from its transformation dilemma

Sourcing and procurement modernization isn’t failing because of a lack of investment but because enterprises are still solving the wrong problems. Procurement is no longer just about squeezing costs. It’s a strategic lever for resilience, innovation, and sustainability. Yet, despite decades of transformation and billions spent on platforms, services, and AI, most enterprises still haven’t realized the full promise of Source-to-Pay (S2P).

We have automated many processes and outsourced several tasks. However, we continue to face a significant challenge in procurement due to the persistent gap between our strategic goals and their actual implementation. The disconnect between data and decisions, sourcing and supplier collaboration, and talent and technology hinders procurement’s ability to drive positive business outcomes (see Exhibit 1).

Exhibit 1: Top enterprise priorities for the year 2025

Source: HFS Pulse, 2025 (Sample: 305 Forbes companies)

The blind spots and divergence between the S2C and P2P create the noise

A deeper analysis of the Source-to-Pay (S2P) ecosystem exposes structural weaknesses that undermine procurement’s strategic potential. Fragmented upstream sourcing (Source-to-Contract or S2C), limited supplier risk visibility, under-leveraged AI, and persistent talent gaps form a pattern of disconnection that no amount of downstream (P2P) automation can compensate for.

While enterprises have streamlined invoicing, vendor portals, and digital payments, the upstream remains inefficient, lacking the integration and intelligence required to inform execution. As a result, sourcing insights and negotiated terms rarely cascade downstream, leading to measurable value erosion in the form of contract leakage, non-compliance, and unrealized savings.

This is not a theoretical issue. A global CPG enterprise, for example, reduced contract leakage by 22% and improved supplier compliance by 30% within a year simply by integrating contract lifecycle management (CLM) with P2P workflows.

This is a clear example for enterprises that, without embedding intelligence and linking upstream strategy to downstream execution, procurement will remain reactive and efficient but not effective.

Strategic procurement needs more expertise than integration and automation

Enterprises keep throwing automation at procurement, but a deeper problem is the erosion of category expertise.

CPOs want procurement to fuel revenue growth, manage risk, and drive supplier-led innovation. However, most service providers still peddle transactional efficiency, not strategic advisory. They lack the industry-specific knowledge and category depth to drive smarter sourcing decisions.

Enterprise leaders must stop outsourcing strategy. The future belongs to those who rebuild in-house category intelligence, upskill procurement talent, and embed AI into sourcing, not as a bot that mimics human tasks but as an engine for predictive, strategic decision-making.

Supplier collaboration remains transactional, not strategic

In a world marked by geopolitical instability and increased scrutiny of Environmental, Social, and Governance (ESG) practices, businesses cannot afford to manage their suppliers using spreadsheets and static scorecards. Unfortunately, many procurement departments still lack real-time visibility into multi-tier supplier networks. As a result, risk signals go unnoticed, and ESG violations slip through the cracks. This leads to fragile supply chains and a reactive approach to procurement.

Implementing AI-driven supplier intelligence tools that can continuously evaluate financial stability, compliance, and performance beyond the first tier of suppliers is essential. This approach should include integrating ESG criteria into sourcing and contracts. Businesses that view ESG merely as a compliance requirement rather than a critical component of their sourcing strategy will be excluded from resilient, future-ready supply chains.

AI and automation are still underutilized in procurement strategy

Procurement leaders have misunderstood AI. Most have deployed it for low-hanging fruit, such as invoice scanning and chatbot support, while ignoring its potential to transform decisions. The actual value of AI lies in predictive sourcing, intelligent contract negotiation, and proactive risk mitigation. It should augment human judgment, not replace it.

AI-enabled procurement platforms are emerging as game-changers in optimizing sourcing, contract intelligence, and supplier risk management, as discussed in our recent HFS Research highlight. Startups and AI-driven platforms are reshaping procurement, helping enterprises transition from operational execution to strategic enablement. Companies leveraging AI-powered sourcing, category intelligence, and contract analytics report higher efficiency, cost savings, and improved supplier resilience. However, broader AI adoption requires better integration, strategic partnerships, and workforce upskilling.

Agentic AI opens new frontiers such as real-time contract drafting, AI-assisted negotiations, spend intelligence, and the creation of dynamic category playbooks without any manual effort. However, AI will remain underutilized without a shift in mindset from efficiency to intelligence.

The procurement talent crisis is a primary barrier

Strategic sourcing, supplier intelligence, and AI fluency are now table stakes. However, most procurement teams lack structured upskilling and continue relying on service providers struggling with attrition and knowledge drain.

Enterprises must own the talent agenda. This means investing in procurement academies, AI learning platforms, and new roles focused on data-led sourcing strategy. Your tech investments will fail if your procurement team can’t interpret AI signals or co-create value with suppliers.

The Bottom Line: Enterprises must stop confusing procurement transformation with technology deployment.

Closing the gap between intent and execution requires radically rethinking procurement operating models, talent strategy, and supplier engagement. For enterprise leaders, this means owning category intelligence instead of outsourcing, embedding AI for decisions, operationalizing supplier collaboration, and investing in procurement talent.

Procurement can potentially be a growth engine, not a cost center. However, this is only possible if enterprise leaders are willing to confront the structural flaws that transformation programs have ignored.