Procurement has two jobs in 2021: Supply Risk and Cost
Call it wishful thinking: We concluded in September 2020 that the COVID-19 pandemic’s impact on procurement was over. We clearly saw that the 186 organisations we surveyed were back to their pre-pandemic priorities. Furthermore these organisations predicted for 2021 that supply risk mitigation would hardly play a role and that the clear focus would be on cost reduction.
After multiple lockdowns in 2021, we now know these predictions were too optimistic. We have continually built our data set that contains Australia’s leading procurement teams and now has 412 data points from more than 218 organisations. By March 2021 the relative importance of Supply Risk Reduction as the top priority for these procurement teams was at 22% and it has further climbed since to 29% (refer to Figure 1). Interestingly, just six months ago the prediction was that the importance would decrease back to 12%. Now we know that again was too optimistic. And what about the prediction for December 2021? Also too optimistic I would propose…
Figure 1: Six months ago it was predicted that Supply Risk would only be the key concern for 12% of Australian organisations. The actual number is now 29%. Will it be much lower in December?
Cost reduction has constantly tried to overtake supply risk reduction in its relative importance. And in the relatively COVID-free first six months of 2021, it succeeded: 29% of the 38 respondents in June 2021 said that their top priority is cost reduction, now it is down to 12% – a clear result of the extended lockdowns in Australia in winter 2021. And while supply risk mitigation is anticipated (hoped?) to be less important in December 2021, cost reduction will again become the top priority for procurement teams across the country at 21%.
Figure 2: The relative importance of Cost Reduction remains high and even higher than anticipated three months ago.
When we looked at the numbers previously, we found that public sector and private sector organisations experience the impact of the pandemic very differently. This remains true in August 2021, however the trends observed are unexpected.
Figure 3 shows that supply risk mitigation and cost reduction remained the key focus of private sector organisation right through the past two years, irrespective of the impact of the pandemic. Sure, they may have swapped the gold and silver medal a couple of times, but overall they remain the key focus.
The public sector is more volatile. Our question bank contains nine different items for procurement teams to articulate their top priority. Public sector organisations have used six of those nine to express their top priority! It is surprising that the focus keeps on changing given that the overall impact of the COVID-19 pandemic on government procurement teams and their spend profile was relatively minor compared to their private sector counterparts.
Figure 3: Priorities for public sector organisations keep on changing while the focus of private sector teams is clear: reduce supply risk and cost
When we asked about the respondent’s key challenges in June 2021, unsurprisingly a quarter refers to supply chain disruptions and another quarter to cost reduction expectation.
However another fifths mentions challenges that are internal in nature, such as not being able to recruit suitable staff, having to keep the team engaged while working remotely and organisational restructures. A high workload is the top concern of 12% of participants.