Procurement predictions for 2019

Supply Management‘s Lucy Patchett takes a look at some of the key trends for 2019…

Adaptability will be key to managing risk
Procurement is operating in an uncertain environment, with negative impacts from Brexit, trade relations and general economic instability. Being ready to react to change efficiently will make all the difference. IHS Markit predicts “the continuing turmoil around Brexit will hurt UK growth, which will fall from 1.3% in 2018 to 1.1% in 2019”. Concerning commodities, IHS Markit notes that “volatility in commodity markets will continue” but end-of-year prices will be “on par with current levels”.

John Perry, Managing Director at SCALA, says that “with the challenges associated with the continuing rise in e-commerce, mergers and acquisitions, and the all-consuming Brexit, supply chains need to be agile and responsive, ready to adapt to any swift marketplace changes”.

Perry recalls 2018’s KFC chicken crisis as a clear lesson for supply chains in terms of staying primed for unprecedented events. He notes that while the transition between contracts can be a risky period in a supply chain’s lifecycle, “by identifying improvement opportunities and working closely with customers, businesses can prepare and adapt to changing requirements as they emerge, ensuring they stay relevant and customer-centric for the foreseeable future”.

The march of technology will continue
Innovative technologies, including artificial intelligence (AI) and the Internet of Things (IoT), are all investments that procurement leaders will recognise as vital to revolutionise supply chains. Immaturity has held back AI but there will be advances in the technology as well as better integration with procurement platforms, according to Ivalua. This smart approach to procurement strategy will help meet customer needs, create real-time efficiency, capture vast data networks and manage improvement plans. Research conducted by Forrester shows that 55% of organisations are set to make a major investment in AI before the end of 2019.

Alex Saric, Chief Marketing Officer at Ivalua explains that “integrating AI with smart procurement platforms will give procurement leaders better insights into opportunities and allow them to evaluate supplier risk”.

“AI will help to automate tasks like ordering and invoice processing, predict supply chain disruptions and create quick access to information for stakeholders, via chatbots and digital assistants.”

The rise of partnerships
From strategic alliances to joint ventures (JVs), to mergers and acquisitions (M&A), the rate of companies partnering up is at an all-time high. In order to address the changing market and match disruptors, many businesses have joined forces, utilising combined expertise, a wider reach to drive growth and greater efficiency in supply chains. A study by PwC shows that the “combined number of alliances and JVs has increased in the past two years and is now at its highest level since the start of the century”.

“The traditional lines between industries are blurring, with consumers increasingly expecting goods and services to be interconnected, and businesses seeking to make their supply chains more efficient and effective”, said PwC.

“Mergers and acquisitions remain the most common path for companies pursuing inorganic growth. But alliances and JVs provide a way for a company to supplement internal assets and capabilities with access to needed resources, such as distribution channels, capital equipment and intellectual property, with less investment and risk than the typical M&A.”

There will be a need for strategy planning and assessment
Strategy planning and more regular assessments will become necessary to ensure the continued smooth running of supply chains. Smart procurement systems and regular supplier assessment “mean organisations can continually review risk and ensure the critical supply of goods can continue uninterrupted during times of change”, says Saric.

“In 2019, organisations will need to be assessing if they can innovate, save or source new components from these global manufacturing powers.”

Perry notes that “in the case of KFC’s chicken-gate, the essential planning hadn’t been put in place early enough to ensure the transition was seamless”.

“The partnership between DHL and QSL was a new one – QSL had been working with KFC for a number of years – DHL and QSL didn’t plan, or work together enough in the long run up to the critical switch-over.”

Supply chain transparency will become a must-have
Companies are becoming increasingly transparent, with many pledging to ensure transparent and sustainable supply chains. Saric highlights that “sustainability and social responsibility are having an increasing presence on the news agenda”.

The fashion revolution movement, after-effects of the 2015 Modern Slavery Act, and government and UN environmental schemes have all had an impact, with brands, including Adidas, Reebok, Unilever and Cargill, making pledges. Pressure is being applied to publicise supply chains and there is increased accountability around the ethics of factory workers.

Saric concludes: “in order to decide what’s best, organisations need to have visibility across their entire supplier base, including international prospects. By pulling information from suppliers, internal stakeholders and third parties, procurement can provide 360-degree supplier visibility”.

Supply Management

Read about the Procurement Predictions for 2018