“It used to be that, for decades, markets favored buyers due to continuous increases in production capacity. At that time, supply far outstripped demand, and negotiations involving several competing suppliers systematically resulted in lower prices. Then came price offers from Chinese suppliers, which drove down the prices of Western suppliers even further. Every year, procurement departments were expected to make substantial cuts to their budgets, which had become systematic and non-negotiable. These very real price cuts, combined with theoretical Chinese competition that is difficult to exploit due to the lack of maturity of supply chains, have contributed to the destruction of the Western industrial eco-system. In 2021, according to France Industrie, industry represented 13% of French GDP, compared with 23% in 1980 and over 30% in the 1950s. By way of comparison, industry will account for 15% of European GDP in 2021, 11% of US GDP in 2020, and 34% of Chinese GDP in 2017.
The crisis in goods availability linked to the paralysis of supply chains during the covid from which we have still not recovered, the accelerating awareness of societal and environmental issues and the constraints linked to the extra-financial declarations that are looming, price rises that have still not returned to their pre-covid levels make the purchasing function one of the most complex to manage today. The impact of purchasing department performance on company results has never been so significant.
A recent study by strategy firm Kearney predicts that 20 to 40% of purchasing resource requirements will disappear in the near future as a result of the accelerated digitization of the business. It is becoming urgent for the procurement function to master the tools needed to ensure smooth communication, both internally and with suppliers, and to eliminate time-consuming and energy-intensive e-mail exchanges. Anticipating and managing risks in an increasingly complex and volatile world requires teams to have the critical information they need at their fingertips. Negotiation, the last preserve of the purchasing function, should now be limited to digital exchanges, in favor of time spent building quality, long-term relationships with the supplier ecosystem. Gone are the days when Excel and Google were a buyer’s best friend. It’s easy to predict that tomorrow’s purchasing will be digital and collaborative, or it won’t be.
How can digitization help the procurement function to cope with the increasing complexity of a business that is subject to the multi-polarization of supplier markets in response to current geo-political trends ? Published on June 2023
