Introduction „Only 22 % of professionals fully incorporate procurement tools to generate cost savings or drive mitigation!“
Understanding our customer's situations and needs is essential. To conclude on the industry's current situation, ivoflow asked over 300 experts and professionals in the manufacturing industry working at corporations between $500M and $10B+ in annual sales. The intention is to identify significant challenges the procurement teams have to face in 2022 and to provide a short outlook on how digitalization can help overcome those challenges. All findings and key takeaways are summarized in this report and indicate common challenges in the industry.
About The Report ivoflow surveyed experts and professionals in the manufacturing industry, with the intention of finding significant challenges, Procurement organizations faced in 2022. This Report aims to showcase and illustrate manufacturing companies' current situation and further consolidate an understanding of the procurement industry. All findings and key takeaways are summarized in this report and indicate common challenges and issues the industry faces at the moment.
The covid-19 pandemic, the Ukraine war, supply shortages, rising raw materials, energy costs, and inflation - the crises are rapidly picking up speed and influencing our everyday lives. This makes it all the more important to strategically manage procurement organizations to overcome all these challenges.
About The Data The data is based on various industry contacts and through an extended partner network of procurement specialists and executives of major and small manufacturing companies.
In total, 300 qualified experts and professionals have participated and contributed to this survey.
The majority of the participants can be categorized into the following sectors:
The Results All results have been checked and evaluated on their authenticity to maximize the trustworthiness of the output.
About the Participants
Procurement Organizations Today, we work in a fast-evolving and ever-changing environment with new challenges and tasks. At the moment, the industry is facing several challenges. According to our survey, these are the top challenges:
What are your main challenges of managing a global strategic procurement organization?
44 % of the professionals in the industry acknowledge that they have too many unfilled positions to cover the high amount of workload. But do you need more people? Or just the right tools to take off workload? This screams for Digitalization!
10 % of the participants mentioned that they do not even have a strategic procurement department in place; this could be related due to the high workload of operational tasks. Therefore it's crucial to find partners with a high level of expertise who can guide procurement organizations throughout the process of modernizing the procurement landscape without occupying internal resources. And this is our mission says Nicolas Neubauer, Co-Founder of ivoflow: „We want to make strategic procurement easily accessible for everyone.“
Transparency Transparency is undoubtedly important and it has become clear that companies already have decent visibility and transparency over their spend data on a higher level, e.g. at commodity and/or supplier level. Nevertheless, organizations have big issues getting detailed visibility at a part number and cost driver level and missing an in-depth understanding of their complete commercial potentials and risks.
What are your biggest challenges in generating transparency? Transparency is generated through dashboards. But are Dashboards the solution to our problems? The answer is Yes and No! The survey confirms that for most organizations, transparency is mostly lacking on a part or even cost driver level. Dashboards are nice; the benefit is visualization. But procurement organizations have the ability to provide better actionable insights. This means that a dashboard without real procurement intelligence or applied analytics is just a dashboard. We need in-depth procurement intelligence to break down those nice and shiny dashboards and go the next step and interpret the data in order to unlock its full potential. This will give every company real advantages and a much healthier grip on all procurement-related topics.
In combination with live market intelligence, it's possible to unlock transparency for risk potentials, savings, inflation, and supplier performance, down to the part level and more!
Strategy We asked our participants where they currently see the biggest challenges when it comes to working on in-depth Commodity and Part Family Strategies. The following challenges were identified. Can these challenges be solved by driving digitalization?
What are your main challenges in defining detailed Commodity & Sub-Commodity Level Strategies?
In our mind, this table elaborates on the urgency for digitalization and proper tools. Dirty data and operational issues are eating up time for the most important work: Strategy. To successfully steer procurement through such turbulent times, solid strategies should be the number one priority to drive resilience and profitability. The good news is that by utilizing the right technologies and machine learning capabilities, you can clean your data, automate manual tasks, and unlock potential to implement and drive efficient processes to bring strategic initiatives forward.
Let's talk about inflation mitigation and cost-saving tools.
Procurement Tools The industry can rely on a powerful procurement toolbox and negotiation excellence. In the following chart, you will get an overview of the Procurement Tools and levers that are mostly used among the survey participants.
What are the procurement tools you are using in order to generate Cost Saving Ideas and to drive Mitigation?
When we asked about what tools and to what extent professionals are using them, we learned that the procurement teams are one hand side very selective and also not applying all possible tools to their spend. The tools and analysis are done manually and not automized yet. Another fact is that almost no one uses all of the tools covering 100% of their spend. On average only 24% of procurement professionals deep dive into opportunities and mitigation levers. This indicates a massive loss of potential for the remaining 76%.
But do you need to choose and pick your tools? Wouldn't it be great if the most common Procurement Tools were automatically triggered without any human interactions and already mapped to each of your part numbers? There is a way.
Challenges
What are currently the main challenges strategic procurement departments in the manufacturing industry have to tackle? 70% of the participants stated that the increases in Raw Material and Energy costs put tremendous pressure on procurement departments. Furthermore, 63% outline that price increase mitigation is a big challenge for most companies in today's market. Interestingly, Only 13 % of procurement professionals think digitalization is a focus area within the current market situation. Could digitalization be the answer to drive mitigation of increasing part costs?
Digitalization That digitalization is one of the key drivers in running an efficient and cost-optimized procurement department is essential. But what is the perception of the industry?
How important is digitalization for your procurement organization? The good news is that everyone believes that digitalization is important. But 15% of the participants have no resources, and 11% have no budget available. Suitable tools can free up resources and substantially reduce costs, which helps businesses, in the long run, to enable new budgets for the right departments.
The majority, 53%, find it very important to get a holistic overview of the tools and possibilities on the market. Thus it's important to find the right tool that suits you the best and has the biggest impact on your procurement.
Insights from the experts
We gave the participants the opportunity to share their thoughts on:
What improvement opportunities do you see to get your procurement organizations to the next level and to become more efficient?
Here are some of the quotes:
"Easy access to the global forecasts down to the part number level would be nice."
"Improvement of data quality and availability.“
"Reduce effort to manage and process data, increasing available time for strategic tasks."
"Fast/effective tools/systems and fewer excel files to be edited and maintained are key."
"Simpler, faster, easier, more efficient systems and processes."
"More control of overall spending with past and future outlook."
"The administration job needs to go away."
Conclusion This survey illustrated that there are critical challenges out there. Rising energy, raw material and logistic cost paired with organizations spending most of their time on operational vs. strategic initiatives. We truly believe that digitalization and innovation are key drivers for reducing pain points and overcoming common challenges for procurement organizations. Moreover, it critically displayed the urgency of adapting to modern solutions to keep and gain competitive advantages. Companies need to take action and benefit from the opportunities modern technology can offer to battle common challenges.
Struggles Market: Rising Energy, Raw Material, and Logistic Cost
Organizational: Unfilled Positions, Roles, and Responsibilities
Digitalization: Dirty Data, Inefficiency, Operational Work
Gains Market: New Technologies,
Organizational: Structure, Collaboration
Digitalization: Efficiency, Resilience, Productivity, Profitability
„Once a new technology rolls over you, if you're not part of the steamroller, you're part of the road“ - Stewart Brand
Summary The three biggest challenges in managing procurement organizations are too many unfilled positions (30%) , clear Roles & Responsibilities (27%), clear definition and differentiation of Commodity Groups (17%) The biggest challenge in generating Transparency is on a Cost Driver Level per part (67%) The most common used tools used to drive down costs are Benchmarking (80%), Negotiating Productivities (73%) and Cost Break Down Analysis (70%) The biggest pain point are the increasing and volatile Raw Material and Energy Costs (73%), Price Increase Mitigation (63%), and Part Shortages (57%) For 53%, digitalization is very important, but what is needed is a comprehensive overview of what digitalization solutions are out there Most companies have a annual turnover < 1bn Euro (46%) and > 10bn Euro (43%) 50% of the participants have more than 500 employees in Direct Procurement
Challenges of SMEs Managing the organization: Definition of clear Roles & Responsibilities for the team structure and „central vs. local“ Transparency: Generating Transparency on a Cost Driver Level per part, Generating transparency on Risk Potentials, transparency on material surcharges to put into EPR (too many now) Commodities: Identifying gap-closer opportunities to meet the given KPIs and Strategic Targets, Understanding how Currency, Raw Materials and Energy Costs impact your part prices and spend Tools: LPP, NLPP, Benchmarking, Should Costing, Cost Break Down Analysis, Negotiating Productivities Pain Points: Increasing Raw Material and Energy Costs, Digitalization, Cost Savings Digitalization: Important, but no resources available
Challenges of EPs Managing the organization: Too many unfilled positions and Holistic cross-functional cost and KPI alignment Transparency: Generating transparency on Cost Driver Level per part, Generating transparency for Supplier Performance such as Quality, Logistic & Saving Performance and Generating Transparency on Savings and Inflation Commodities: Not enough time available to work on commodity strategies due to operational topics and identifying gap-closer opportunities to meet the given KPIs and Strategic Targets Tools: Dual Sourcing, Benchmarking, Should Costing, Cost Break Down Analysis, Localization, Negotiating Productivities Pain Points: Price Increase Mitigation, Increasing Raw Material and Energy Costs, Digitalization and CO2 Reduction Digitalization: Important, but no resources available
ivoflow | Augsust 2022
