Elevating Procurement’s Role in Risk Management and Sustainability

_{Feature by Gordon Donovan}

The 2024 Economist Impact report highlights the strategic importance of procurement in managing risk and driving sustainability. As previously reported, procurement is gaining prominence in the C-suite, and it can play a critical role in driving resilience, including with environmental, social, and governance (ESG) objectives.

In the Economist Impact report, titled “Across the procurement-verse: Changing trends in the procurement function” and sponsored by SAP, surveyed executives share increased confidence in procurement to deliver against risk-mitigation objectives. Particularly when it comes to internal risk, which involves stakeholder management and strategic alignment, confidence levels rose to 83% this year, from 64% last year. This illustrates that procurement is becoming more aligned with key stakeholders across the organization.

However, a “state of permanent crisis” has shaken executives’ confidence in procurement’s ability to manage external risks such as geopolitical shifts, supplier threats, and liquidity risks.

Procurement’s role in business strategies is ever-growing, but it is imperative to maintain agility.

Heightened Attention to Risk Management

Ongoing inflation, global conflicts, and fluctuating commodity prices have placed risk management at the center of business strategies. Procurement plays a pivotal role in this effort by identifying high-quality alternative products and services while limiting costs.

Yet, respondents noted concerns over procurement’s ability to manage external risk factors, as only 41% of respondents said they are highly confident in its ability to control vulnerabilities. Comparatively, in 2023, 62% of business leaders expressed assurance in procurement’s handling of these factors, like supplier shortages, market fluctuations, and supply chain disruptions. Several drivers are pushing this trend, as the report notes that organizations experience four supply chain disruptions every day. Also, inflation continues to influence organizational decision-making, as monetary uncertainty was listed as the top organizational risk priority for procurement. Additional key external factors impacting organizational strategy over the next 12 to 18 months are macroeconomic (71%) and legal and regulatory risks (70%).

Diversifying Supplier Relationships

Businesses have looked to ease fears of shortages by moving away from sole sourcing suppliers. According to the survey, 40% of executives aim to prioritize supply chain diversification to build trusted and long-lasting relationships. In fact, three of the top five strategies listed in the survey are focused on mitigating risk, including reshoring/nearshoring and multi-sourcing.

Visibility has also been listed as one of the highest two priorities for a second consecutive year, proof that it is an urgent need for organizations to invest in technology that increases access to supply chain metrics, develops connections with suppliers, and identifies alternative sellers. Platforms that utilize automation, AI, and advanced analytics are another way to enable procurement teams to make data-driven decisions that improve efficiency and reduce risk.

Sustainability: Procurement’s Green Thumb

ESG ranked second on the list of priorities for the next 12 to 18 months, an increase from fifth in 2023.

“Procurement’s work at the convergence between the business and wider supply-chain ecosystem thus offers it a unique strategic opportunity to lead the sustainability agenda,” the report states. By engaging with sourcing and suppliers, two critical stakeholders in achieving sustainability KPIs, procurement can use its role to translate companies’ green ambitions into tangible results.

New regulations such as the European Sustainability Reporting Standards (ESRS) and Corporate Sustainability Reporting Directive (CSRD) have driven companies to enhance their sustainability practices.  According to the Economist Impact report, procurement has capitalized on this opportunity to gain the confidence of executives across the C-suite, with 68% of business leaders expressing belief in procurement’s abilities to deliver against ESG objectives. This is an increase from 49% in 2023, signaling that procurement’s remit has expanded beyond cost management.

Sustainability has also become a critical risk category, as 39% of respondents listed compliance as a driver to becoming greener. A failure to conform to governmental policy can lead to penalties and fines that limit growth.

SAP recently hosted a webinar to discuss strategies that leading companies are using to develop sustainable supply. The discussion also includes insights into how procurement can add value to ESG initiatives beyond compliance and reporting.

Leveraging Technology for Sustainable Sourcing

Procurement’s role in engaging buyers and suppliers to drive sustainability is pivotal. CPOs can set standards for sustainable sourcing and supplier practices, reducing carbon footprints and helping reach ESG benchmarks.

The increasing alignment of procurement with C-suite priorities is seen through the increased focus on sustainability and risk management. The shift in reporting lines toward COOs and the greater involvement in strategic discussions highlight the growing influence of procurement in organizational decision-making.

The expanded role of procurement has placed it at an inflection point, with heightened expectations to deliver results beyond cost mitigation. How will procurement leaders meet these new demands? Investing in technology offers a solution for uncovering valuable insights that to demonstrate procurement’s value. Coupled with developing people and processes, this approach allows procurement leaders to successfully fulfill their increasing remit.

Utilizing SAP Business Network for Strategic Priorities

Business leaders should look for a platform to bridge the gap between companies and buyers and suppliers, enhancing visibility, collaboration, efficiency, and compliance. By leveraging such a comprehensive solution, companies can streamline their procurement processes, reduce silos, mitigate risk, and achieve substantial time and cost savings.

SAP Business Network can align these benefits with the strategic priorities of risk management and sustainability. The technology has facilitated 780 million B2B transactions and $5.8 trillion in annual commerce, highlighting its vast influence across 190 countries. There has also been a 13% growth in transacting relationships and a 7.3% increase in B2B transactions over the past 12 months, a testament to our growing global community.

Embracing the Future of Procurement

With growing confidence from executives and risk-focused strategies, procurement is well-positioned to lead organizations through today’s complex business environment. The Economist Impact report underscores this belief, but procurement teams must aim to ensure long-term success by leveraging digital transformation.

Through in-depth interviews and targeted research, the Economist Impact report provides a broad analysis of the state of procurement.

View the infographic and download the report.

_{Gordon Donovan is global vice president of Research, Procurement & External Workforce at SAP.}