As supply chain conditions continue to shift, procurement is less back-office and more a business priority.

Claus Gruenewald, Head of Intelligent Spend and Business Network Partner Ecosystem

October 26, 2023

6 Min Read
Procurement and business goals align

Procurement's long-standing reputation as a cost center is well-deserved. The department is rife with ongoing negotiations as a back-office function that is focused on the dollars and cents driving the business. Put simply, procurement practices have never been headlining news — until recently.

As businesses attempt to plan around shifting supply chain conditions, an uncertain economic environment, and new sustainability goals, procurement is no longer a back-office function, it's a business priority. Over 60% of respondents in a 2022 Futurum Digital Buyers' Journey report say that corporate executives are more involved in the purchasing process than they were two years ago.

With the attention of executives on them, procurement leaders might feel the pressure to change things up. But not all companies are equipped to update their approach at a moment's notice. Which is why it's so important to find the right partner — with the right solution — that ensures their procurement tactics align with their business goals. For some, like small and midmarket companies, this means establishing a strong partner ecosystem. This approach unifies operations to provide a greater experience for buyers and sellers, enabling stronger collaboration, greater visibility and transparency, risk mitigation and more efficient operations.

Procurement's Role in the Midmarket

For midmarket businesses, procurement is especially important. In the U.S., a midmarket business may have as much as $1 billion in revenue. But in other countries, they're smaller and more localized, with customers who have different buying behaviors. To help establish strong relationships with local customers and make collaboration easier, midmarket companies often rely on partners.

Partners offer a crucial link to local customers, working as an extension of companies to help them find the right solution for their unique needs. Each partner brings its own expertise, skills and services to deliver the solution a customer needs and acts as their trusted advisor, today and in the future. For example, partners can offer a unique blend of expertise to deliver the solution you need — from overcoming potential language barriers to navigating local regulations, or leveraging relationships held by partners to drive growth with regional customers.

While midmarket firms may be significantly smaller than multinationals, they still face many of the same procurement challenges — albeit with lower cash flow, fewer people and finer margins. A multinational firm can typically weather a large project that may or may not pan out. But a midmarket business doesn't have the flexibility or cash reserves to do so, making procurement extremely important.

Whether a business is in the midmarket or is a multinational, procurement's value is becoming an increasing priority. To align these two areas in the years ahead, procurement leaders will need to focus on three key areas where smart changes can deliver the greatest value.

Supply Chain Sourcing

According to a global survey of C-suite executives by Economist Impact (sponsored by SAP, registration required) exploring how businesses and industries are transforming procurement to meet existing and emerging challenges, supply chain risk is the No. 1 operational issue facing midsize organizations. While procurement teams at larger firms can weather and respond to macroeconomic issues like inflation, their smaller counterparts are less well-equipped to face these challenges.

There are key differences in the procurement protocol between midmarket firms and their larger competitors — who are often also their customers. This is especially important considering that most of the direct and indirect material supply comes from midmarket companies. Midmarket firms need all the procurement resources they can get to help streamline their buying process and effectively manage their costs.

For instance, through working with partners, companies can implement modern procurement platforms that are tailored to their unique needs to help teams evaluate supplier capabilities and performance with real-time transitional data. With this additional layer of visibility, companies can ensure their supply chains run smoothly with the right mix of suppliers — all while reducing costs and creating better supplier relationships. Not only this, but a modern procurement platform also can scale as midmarket firms continue their growth, equipping firms with adaptability at every stage of their journey.

What's more, adopting diversified networks and leveraging digitalization to become more resilient and agile will be the key to driving more business value. As the procurement function continues to grow into a business priority in the midmarket and in multinational companies, they are actively seeking avenues to tap into the power of business networks to provide more agility, transparency and stability across their supply chain operations.

Embracing business networks connects people, processes and systems across multiple enterprises, digitalizing transactions and creating transparent, resilient and sustainable supply chains. This many-to-many approach is essential when working with a partner ecosystem since it fosters stronger collaboration across procurement, supply chain, people, logistics, finance and asset management, enabling data exchange and intelligent decision making. As a result, businesses can respond more quickly to changing demand and unforeseen circumstances.

Sustainability and Scope 3 Emissions

Up to 90% of a business's carbon footprint lies within its supply chain, according to the U.S. Environmental Protection Agency. Most of this impact stems from Scope 3 greenhouse gas emissions — those that occur throughout the network and outside the direct control of the company. But without access to relevant and usable data, companies cannot make informed and sustainable business decisions around reducing Scope 3 emissions or any other environmental impact.

Procurement can play a key role in bringing visibility and transparency to these efforts. As these teams search for better ways to collaborate with suppliers, partners, customers, and other companies in the supply chain, their spend data can be one way to gain a greater view into reducing emissions through procurement.

By sharing this data across every value chain in the business, procurement teams can factor emissions into the entire cost of the product — from the production, transportation and consumption of goods to the footprint of business operations. With comprehensive procurement data, they can make more informed decisions about the total cost to the company, including the environment.

Inflation and Economic Softening

Smart procurement ensures supply and price stability, during any economic condition.

But in a volatile environment, procurement is under a microscope. In the Economist Impact survey for SAP, 64% of department heads said their budget had either "Moderately" or "Significantly Increased" in the past 12-18 months. However, faced with tightened budgets and pressure to show the return on investment before they buy, many of them remain hesitant to propose new expenses.

In an inflationary environment, it's vital for companies to make confident and informed procurement decisions faster than ever.

With cloud-based systems, teams can manage these costs more effectively and affordably, producing a variety of spending reports to help them make decisions. This extra layer of confidence and insight can help them make enterprise investments and take advantage of the lower cost of debt that comes during inflation. It can also help to inform helpful and innovative cost-saving measures, without compromising standards.

As supply chains get costlier to run and take up an enormous share of energy usage and expense, companies should turn to their procurement teams and their partner ecosystems to improve visibility and optimize their logistics activities.

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About the Author(s)

Claus Gruenewald

Head of Intelligent Spend and Business Network Partner Ecosystem, SAP

Claus Gruenewald is the head of intelligent spend and business network partner ecosystem at SAP, where he most recently was global vice president of the intelligent enterprise ecosystem. He earned degrees in industrial engineering and international business from the University of Mannheim, Germany.

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