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Addressing today’s business challenges and acting on tomorrow’s opportunities with a future-focused procurement function
In the past few years, the procurement landscape has been shaken to its core and severely challenged. Looking ahead, there is no reason to anticipate the opposite in a “new world” that is volatile, uncertain, complex, and ambiguous (VUCA).
Needless to say, supply chains have a huge impact on companies’ resilience and sustainability efforts. The COVID-19 pandemic, geopolitical turmoil, and supply chain disruptions as the Suez-Canal blockage have shown how vulnerable and complex today’s supply chains are. In addition, supply chains are responsible for 60-90% of a business’ greenhouse gas emissions. At the same time, social issues often occur beyond the first tier of a supply chain. Increasing the visibility of (sustainability- and ESG-related) risks is therefore crucial for creating more resilient and sustainable supply chain structures.
To bolster supply chains for future realities, procurement organisations must find the perfect balance between agility and efficiency, while seizing the potential of advanced digital capabilities.
Here’s how we can help
Recent external disruptions have led to supply shortages and supply-driven inflation which exposed the inherent risks and vulnerabilities of global supply chains. According to the results of the Swiss edition of the 26th Annual Global CEO Survey, 59% of Swiss CEOs are, for example, responding to the threat posed by geopolitical conflicts by adjusting their supply chains. Mitigating such risks has become a pressing priority for many companies, as more than 60% of total revenues are often spent on suppliers.
Procurement can play a key role in converting many of today’s challenges into tomorrow’s opportunities. It can reposition a company for growth by focusing on driving innovation throughout the entire value chain, increasing crisis resilience, boosting ESG compliance, and optimising costs.
"Procurement has a tremendous opportunity to reinvent itself and to get your business ready for the future: it will become known as the gatekeeper to both third-party and ESG risks, and as a key driver of a company’s supply chain decarbonisation efforts."
Marc Rajal
Director, Advisory Supply Chain & Operations
Sustainability & ESG
Create environmentally sound sustainable supply chains, including the reduction of Scope 3 emissions. Together, we improve social standards by focusing on your multi-tier strategy, while reducing governance issues across the entire supply chain.
Risk monitoring & mitigation
Proactively manage and quickly act on arising risks. Our team can help you minimise ESG risks, secure supplies and services, and manage costs effectively.
Procurement driven innovation
Create new value streams throughout the supply chain. We provide guidance and help you unlock the hidden potential of your procurement function in driving innovation (e.g. circular sourcing or supply base relocation).
Agile procurement organisation
In today’s unstable business environment, it is vital to integrate agility into procurement organisations. Our experts support you in improving reaction times when addressing urgent business challenges or in managing change in your organisation.
Digital procurement
Create a hybrid approach to your digital procurement transformation. We help you select the best combination of suites and best-of-breed solutions that will allow you to increase efficiency and leverage new capabilities.
Enhanced value delivery
Move beyond cost and quality: we help you improve your supply security management, strategic supplier development, and inflation management.
Address today’s business challenges and act on tomorrow’s opportunities. Take the next step towards a future-focused procurement function with PwC.
Solutions tailored to your business needs
We offer our clients a distinguished portfolio of procurement services that are streamlined along present and future supply chain and sourcing challenges. Our experts combine deep industry knowledge with years of experience in consulting. This enables us to provide direct value to our clients through solutions tailored to their specific business needs. In the past, we helped navigate the following procurement scenarios:
Client challenge - semiconductor company
A large multinational company was struggling with the consequences of a sourcing setup that wasn’t considerate enough of current and future geopolitical, regulatory and climate change risks. As a consequence, some suppliers with high-risk profiles were selected. In addition, our client didn’t have a clear third-party governance framework in place and lacked defined and standardised processes, roles, and responsibilities across various functions. This also had an influence on the quality of data, while the digital infrastructure lacked a proper approach to third-party risk management. Consequently, the semiconductor company was confronted with an increasing level of supplier management complexity and an expanding scope for the corporate functions – ranging from digitalisation to inflation and risk management. This led to misalignments, overlaps, and high levels of third-party risk.
PwC approach and solution
We started by identifying our client's pain points regarding its third-party risk management and analysed it across various functions. Next, we co-assessed our client’s current design of their target operating model to gain a better understanding of where it needed amendments to better meet current challenges. For this, we also discussed their business goals and vision that needed to be reflected in their third-party risk management. As a result, together with our client we opted for the creation of a centre of excellence to address all non-commercial third-party management issues including sustainability assessments and risk management. We also developed a transformation roadmap to help set up this new CoE.
Sustainability & ESG
Risk monitoring & mitigation
Client challenge - agrochemical industry
Our client faced a 3-fold increase in agrochemical product (re-)registrations driven by regulatory demands for the EMEA market. However, the agrochemical company had limited internal resources to cope with such a surge. It therefore decided to explore strategic outsourcing opportunities to ensure product registration renewals are completed in time. While our client had outsourced some tactical activities in the past, it hadn’t yet coordinated such a high volume of outsourced registrations. Hence, there was a clear need to adapt its procurement capabilities to the new situation.
PwC approach and solution
First, we defined the outsourcing service requirements included capabilities, price, and cultural fit. Next, we created an operating model for the outsourcing organisation consisting of role definitions and recruitment strategies. Then, we developed detailed descriptions for/of critical processes including how product re-registrations should be executed by the outsourcing team. In addition, we selected strategic future outsourcing partners. For this to be a lasting and successful setup, we developed a change management as well as a communication strategy, and jointly we delivered a range of dedicated events.
Enhanced value delivery
Agile procurement organisation
“PwC brought insight, experience, and solution to our company to set our teams up for success in managing a large portfolio of product registration projects. Change management was, and still is, a critical component of our journey towards a new way of working in our entire R&D organisation.”
Focus areas
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Sustainability & ESG
Why is procurement a key determinant of your organisation’s ESG success?
Procurement is in a unique position to further and realise your company’s sustainability goals. By integrating ESG criteria into its strategic sourcing approach, it can set sustainability standards for the selection and the continued relationship with suppliers. Moreover, such requirements should be embedded across the entire supply chain – making procurement into an important driver of a company’s ESG agenda. Supply chains are highly susceptible to environmental risks. 85% of the Swiss CEOs we surveyed in the Swiss edition of our 26th Annual Global CEO Survey believe that climate change will affect their supply chains, and 26% even expect a strong to very strong impact. Integrating ESG goals in its supplier risk management allows a company not only to mitigate certain risks, but to turn them into a business advantage. One of them is by focusing on Scope 3 emissions (indirect emissions generated in the value chain). Not only is their environmental impact substantial, but investors, regulators, and consumers are increasingly demanding such granular information from companies.
What is currently the most relevant ESG legislation for procurement?
In late 2022, the Swiss Federal Council adopted an ordinance on climate disclosures that provides guidance to large Swiss public companies, banks, and insurance companies on their climate reporting. A year earlier, the legislative amendment of the indirect counterproposal to the Responsible Business Initiative (RBI) that obliges these companies to report publicly on non-financial matters was enacted. In addition, due diligence and transparency obligations in relation to minerals and metal from conflict-affected areas and child labour were introduced. However, Swiss sustainability regulations are less strict than EU standards, which will influence companies operating beyond Swiss borders. As a compass for many organisations serve the recently adopted Corporate Sustainability Directive (CSRD) or the newly developed European Sustainability Reporting Standards (ESRS). In addition, the proposal of an EU Corporate Sustainability Due Diligence Directive (CSDDD) sets also higher requirements than the Swiss obligations. In Germany, a sustainable Supply Chain Act was adopted in early 2022.
How can procurement help my organisation reduce Scope 3 greenhouse gas (GhG) emissions?
For most companies, Scope 3 emissions account for 65-95% of their total GhG emissions. The majority of them originate in upstream activities. In order to reduce these upstream emissions, companies need to develop a Scope 3 strategy. As a first step, companies must gain a profound understanding of the implications these have on their business. After that, close collaboration with suppliers is essential to effectively measure and manage these emissions. Accurate data on the Scope 3 emissions related to all the goods identified as part of the strategy are key for reducing the footprint successfully. To achieve these goals, we recommend four strategies that help you incentivise suppliers. These include both financial and non-financial measures and apply to all stages of supplier engagement:
- Leveraging procurement: These measures are specifically designed to embed decarbonisation efforts into procurement processes including mandatory carbon reporting and fulfilment of carbon reduction requirements in tender proposals. Furthermore, performance management contracts often have carbon reduction clauses which can lead to penalties, such as the termination of contracts, for suppliers that fail to comply.
- Building capability: This strategy focuses on shared learnings and leading practices from your carbon-reduction efforts and can involve supplier forums and workshops. In addition, you can help train and upskill suppliers in key areas related to decarbonisation, or offer peer benchmarking to give them insight in how they compare to competitors.
- Rewarding progress: This aspect uses financial incentives to further the decarbonisation agenda. You could, for example, pay suppliers for performance, hence financially rewarding them when they meet an emissions target. Another approach is to invest in longer-term supplier initiatives such as power purchase agreements or carbon inset projects. Paying premium prices for low-carbon products and providing preferential payment terms based on carbon reduction targets and disclosure are other methods to consider.
- Enforcing performance: A more direct financial penalty can also serve as an incentive to decarbonise. Carbon pricing shifts accountability to suppliers, while direct financial penalties can be applied for missed net zero targets — which might also lead to reduced fees or elimination of discounts on purchased products. The ultimate penalty is ending the contract.
Risk
Why has risk management become a key concern of CPOs?
The external environment in which companies operate is more turbulent and volatile than ever. Recent events such as the COVID-19 pandemic, the Suez-Canal blockage, and the Ukrainian-Russian war exposed the vulnerability of global and regional supply chains. At the same time, regulatory, public, and stakeholder pressure has sharply increased the need for companies to address environmental, social and governance (ESG) risks– putting companies’ supply chains under further scrutiny. Proper risk management has become a must to succeed in today’s business environment.
How can procurement anticipate current and future risks and crises?
To mitigate such challenges, procurement functions should adopt a complete view of the supply chain to increase transparency and embed risk management within their procurement activities: from risk assessments in supplier selection and strategic sourcing, to risk mapping, continuous real time supplier risk monitoring, and having clear mitigation plans in place. All this should be done from their Tier 1 suppliers towards Tier N suppliers, as even a small upstream supplier can disrupt an entire supply chain.
Innovation
Why is procurement the driver behind supply chain innovation?
The procurement function decides what supplies and services a company receives as inputs, which serve as the basis for the desired outputs. Procurement is well positioned to bring innovation to the organisation and cultivate it by setting bold and forward-looking requirements to their suppliers - while keeping business goals in mind.
How can procurement innovate towards your organisation’s ESG and risk management ambitions?
Procurement is moving beyond technical product innovation, which was its primary focus in the past. Now, the function is the starting point of several ESG initiatives such as circular sourcing or footprint reporting. In terms of risk, procurement can help minimise supply risks embedded in new product designs or relocate supply bases.
Agility
Why should procurement focus on more than organisational efficiency?
Today’s unstable and turbulent business environment is marked by uncertainties and requires fast reaction times from procurement teams. By focusing solely on efficiency, the procurement organisation is often too rigid to effectively address these pressing challenges.
How can a procurement function become more agile?
A first step towards more agility is the creation of cross-functional teams. Each team member brings a unique functional expertise, and they work together to achieve a common objective. These teams are the hallmark of an agile organisation and allow it to address challenges more dynamically.
Digitalisation
Why is relying on end-to-end procurement suites not a solution to address today’s challenges?
It is fair to say that end-to-end procurement suites have failed to achieve their promised outcomes and innovation potential. Moreover, its capabilities are underused, and the suites are often not effective in addressing today’s rapidly changing business environment. The latter requires transparency, real-time data sharing, extended collaboration, immediate responsiveness, flexibility, and connectivity – benefits of a digitalised supply chain if done right.
How can procurement ensure the success of future digital procurement projects?
In order to create lasting success, digital procurement must not be rigid and general, but rather dynamic and tailored to a company’s unique needs and ambitions. This can be supported by including new modular software technologies such as best-of-breed solutions that tackle a specific challenge, while still relying on the end-to-end suites as a backbone of the entire digital procurement ecosystem. This hybrid approach will allow for a simple “plug-and-play” concept with different software modules that help create the flexibility required to enhance existing capabilities and reposition your company to seize the opportunities of present and future realities.
Value delivery
Why is value delivery not the only goal of procurement anymore?
Changes both in the macro-economic environment and within organisations have created a set of new challenges for the procurement function – such as geopolitical risks, shifting demands of customers and markets, ESG-related issues, and lack of innovation. These need to be tackled proactively to stay ahead of the curve. To develop effective and resilient responses, procurement must therefore adapt to these new circumstances and evolve into an agile and digitally enabled procurement organisation.
What factors should procurement focus on to support companies in achieving their business goals?
A proactive approach is required to ensure resilience, cost reduction, and value delivery. Procurement should focus on supply security management to maintain access to required supplies over time. In addition, companies must invest in strategic supplier development including negotiation excellence to get the desired quality from their suppliers. Lastly, scarcity in the market and rising prices create the need for inflation management.
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