Emerging Trends in Procurement & Sourcing

Global business disruptions have offered immense opportunities for procurement leaders to refocus on supporting critical business operations and supplier relationships, pivot towards cost reduction, and supply assurance. In these fast-changing times, companies need to remember that it pays to build resilient supplier relationships that can stand the test of time. This is where a robust procurement strategy comes to fore. A Gartner study has aptly highlighted that supply chain sourcing and procurement leaders must move beyond shortterm cost management to leverage supplier capabilities to their maximum advantage in a structured and segmented fashion. This involves aligning supply chain sourcing strategies, driving stakeholder engagement, and setting & communicating the right metrics internally and externally to drive the right behaviour. The panel discussion on Emerging Trends in Procurement & Sourcing offered impactful strategies as to how CPOs are working to optimise costs, enhance supplier performance while proactively managing risk and building resilience into their supply networks. Excerpts…

How can sourcing teams work towards achieving sourcing optimisation opportunities when they are working on multi-country set up?

Krishna Barad, Partner / Customs & International Trade, BDO India: Sourcing optimisation is one of the best ways to reduce spending and increase the efficiency in the sourcing process. Sourcing optimisation will enable the companies to find the most cost-effective supplier or carrier, given a set of resources, cost, quality or time restrictions, especially when operating in a multi-country setup. This will enable the companies to gain a competitive advantage in the global market and ensure timely delivery of the products to the ultimate consumers. The companies can adopt following key strategies to optimise sourcing:

• Perform supply market analysis to identify relevant suppliers which can be beneficial for the company
• Analyse current sourcing process, identify gaps and develop a robust strategy to determine ways to minimize costs and risks
• Maintaining effective supplier relationship
• Digitalization of sourcing process
• Logistics & Transportation costs
• Packing & innovative ideas of cargo consolidation
• Utilization of Free Trade Zones for warehouse operations 
• Taxation – Duty Exemptions & Free Trade Agreements opportunities

What are the key aspects of sourcing when you choose your supplier as well as the country of sourcing? How do you look at the packing requirements or the compliances during sourcing pharma ingredients or APIs?

Vickram Srivastava, Head of Planning – Global Supply Chain, Sun Pharma: Pharma and Procurement have a love hate r e l a t i o n s h i p . Supply chain executives in pharma always complain as to how to source and where do we source from. India is the Pharmacy to the world. We are making almost about 40-45% of the generic drugs, which are consumed globally. Unfortunately, right now around 60-65% of our active ingredients are being sourced from outside India and a majority of it is coming from one geography – China. China has positioned itself as the factory to the world over the last 10-15 years. Pharma supply chain is like an elephant where things move at a slow pace. Over the last two decades,

China has done a complete reversal of how the sourcing happens across the industry spectrum. Covid-19 pandemic had a lot to learn when it came to China being the sole supplier where everything came to a grinding halt. The Government of India, at that point of time, realised that we are very heavily dependent on a lot of sourcing elements. Capitalising on the untapped opportunities, the government has started offering production linked incentives (PLIs) to incentivise vendors and suppliers to set up manufacturing units in India so that we can start sourcing locally. A lot of globalisation is now turning into localisation or deglobalisation, but as pharma is heavily regulated and very slow in terms of adopting any changes, it's not going to happen overnight, but the trend has definitely started because even if I talk about pre-pandemic, probably 30- 40% of Fortune 500 companies were already looking at China Plus strategy of sourcing. It's not just about where I'm sourcing from and who is my vendor, it's also about how I can partner with them and how I can bring that visibility into the supply chain.

What are the disruptive trends you have witnessed and imbibed in sourcing during the last few critical years?

Sandeep Pratap, Global Procurement Data Steward & Regional RM Lead - India, Asia & ASEANZ, UPL Ltd.: Agrochemicals is probably the closest industry to pharma because we share the similar Active Ingredients (AIs) and have to abide by similar regulations. UPL, being the fifth largest agrochemical company, we have a presence in more than 140 countries with manufacturing bases in more than 20 countries across the globe. The paradox of globalisation and localisation is very difficult to manage.

When you are working in multiple geographies, you have to standardise the number of suppliers and limit the sourcing strategy to a few specific geographies. At the same time, you need to stay closer to your manufacturing location because of the logistical challenges.

How can companies keep a tab on changing regulatory compliance measures while sourcing from global partners?

Krishna Barad: In today’s era of industrialisation and cross-border trade, regulatory changes are one of the most challenging aspects to keep up with. Regulations relating to sourcing are constantly changing across the globe. However, for companies operating in a regulatory framework, it is now more than imperative to keep themselves updated about regulatory changes. Obviously, it is not easy to keep monitoring the constantly changing regulations, however, non-compliance of the same can pose a great threat to the companies. Few of the best worked strategies that companies can use to keep up with regulatory changes may include:

• Keep a tab of regulatory changes by monitoring website of government and regulatory bodies, attend conferences and events, deploy automated tools allowing to monitor compliances in real-time, etc.
• Build a strong internal compliance team to keep track of regulatory changes
• Appoint a consultant/ compliance officer providing regular updates on regulatory changes.

What initiatives have you taken to involve suppliers to build that long term relationship?

Vickram Srivastava:  Conscious Collaboration’ – this, in my opinion, is the key mantra to bring suppliers onboard and treat them not just as your ‘vendors’ but business partners. This is especially true for pharma procurement strategy as we are often dependent on a single source. In today’s VUCA world, we have to rely on supplier relationships to ensure both parties provide and demand end-to-end supply chain visibility. 

Amol Kulkarni, VP – Contracts & Procurement, Think Gas Distribution: The basis of any relationship to be fruitful for long term is Trust. Building trust with your business partners is very important and for building the trust, you need to address their basic concerns on priority. The basic concerns of any vendor are to get Timely Decision from client, Necessary Information in transparent way and most importantly timely payments & its visibility. We have addressed all these aspects by way of improved & frequent way of Formal Communication, Business Partner Approach & Digital Invoice Management System. This has laid the foundation of Trust with our vendors and conducting a Business Partner Meet to provide an open platform for discussions, which has further built the strong bond of long-term relationship.

Sandeep Pratap: Long Term Relationship is highly overrated. We need to focus on Relationship as per nature of supplier and material. Absence of relationship is one of most underrated supplier relationship strategy. That is how you can leverage the part of your spend base. We need to be very careful about what type of relationship we are choosing with our suppliers.

How can sourcing and procurement reap the benefit of digital transformation in any organization?

Krishna Barad: Digital transformation is entering every process of business and procurement is no exception. Few of the digital transformation taking place in procurement includes Artificial Intelligence (AI), Robotics Process Automation, cloud computing, etc. Digital transformation in the procurement process can cut costs, save time, and better inform strategy and decision making providing edge to businesses in the competitive world. Further, digital transformation can play a vital role in enhancing the relationship with the supplier and also an opportunity to resolve some of procurement’s biggest challenges, streamlining processes, driving value, and improving transparency. The government systems, in this regard, have also undergone significant digital advancements. Nowadays, many governments across the globe are aggressively moving to the cloud to scale their services to support digital procurement initiatives. However, there is still a long way ahead for the government to bring in complete digitalisation.

Vickram Srivastava: Both digital transformation and digitisation are going to help procurement professionals going forward. AI/ML, blockchain, RPA are going to make the function faster, seamless, and transparent. Both Buyers and Suppliers are expected to benefit going forward with the end-to-end visibility across systems that we expect digital transformation to drive into processes.

Tannistha Ganguly – Global Head, Warehouse Management, IT Delivery, Kimberly-Clark: Supplier risk management is one area, irrespective of the industry you are operating in, has got renewed attention from the stakeholders. When I look at the whole procurement process, implementing a solution is just one area. Let's say I'm just trying to make my P2P standardised and seamless, but I am not looking into the supplier risk management area, then the whole effort would go futile. I have seen in many companies that systems or digitisation efforts and investments are put in those silos and that is where the benefit of implementing a digital solution is not really achieved. One of the key focus areas at Kimberly Clark is end-to-end procurement. 

We spent a good amount of time with external consultants and partners to understand the gaps in the whole procurement landscape. The process made us realise that we had deployed multiple tech systems catering to different procurement teams across the globe. Now we have moved out of this scattered landscape and have implemented one central platform. The second part that we are really focusing on is Data. We are trying to ensure the data flow within systems and that there is seamless communication between all the digital solutions, be it ERP or invoicing system or the financing system or the supplier data from external sources.

There is a lot of data available even for procurement and there are companies or third-party vendors who provide the necessary data. The main challenge, as a procurement team, is to devise a strategy to use that data. This especially becomes critical when you have tier II & III suppliers, bringing them onto one platform and getting insights out of that data for decision making is the key.

Amol Kulkarni: This is the digital era and Digital Transformation is the future. Every organisation, in some or other way, is looking for imbibing the digital technology to drive its growth story. However, when it comes to Sourcing & Procurement, the reach of technology has been limited only to e-Procurement, Reverse Auctions and ERP. But the newer and available technologies like chatbots based on Artificial Intelligence Technologies like Machine Learning or Blockchain are really fascinating and will be used for applications like Vendor Registration, Information Flow Automation, etc.

Also, the flow of information on Payments, which is the most concerned area of vendors, can also be digitised and transparency of information on payments can be achieved, which in turn, helps improve Trust by way of improved and reliable communication. We have already implemented the Digital Invoice Processing System and are exploring other possible & feasible systems as per business needs.

Sandeep Pratap: We have started focusing on Data Analytics when it comes to procurement. I believe procurement data is at a very nascent stage in many organisations. People think that just creating vendor codes and material codes does the work, but that’s not all. The scenario is even more complex in global organisations where you would find duplicate codes in different geographies, which would sometimes result in high inventory of same item in one geography and scarcity of the same material in another geography. Such irregularities can be efficiently managed with the help of analytics. We must understand that disruption is happening in every part of the world and at a very high speed. We must be familiar with our entire chain of suppliers to keep our businesses least impacted by external factors.

Akshay Rana, Head - Caustic & HFO Procurement, Vedanta Ltd.: When you picture the future of work in supply chains, concepts such as robotics, Internet of Things (IoT), machine learning, 3D printing and blockchain probably come to mind. In the future, data will be continually cleansed and improved using machine learning techniques that leverage process outcomes to automatically identify and remedy data anomalies within systems. For example, the vendor master will be continually maintained using data from contracts as well as those used in pay runs. Similarly, maintenance work orders, which drive purchase orders, will be informed by the actual usage of materials in completed jobs. This will create a “virtual cycle of digital,” where data will continually improve, and organisations will mostly use machines for periodic data cleansing.

The data captured from the Internet of Things (IoT) will enable real-time tracking and monitoring of outcomes through continuous feedback loops across assets. Asset-intensive industries will effectively link this data across the enterprise and connect it to suppliers, enabling touchless procurement in the next 24 months. This process will ultimately create an enhanced data platform to inform decision-making around spend and purchasing patterns, catalogue content, supplier portfolios and contract fulfilment.

Supplier Relationship and Managing Supply Risk go hand in hand. What are the strategies deployed by you in the new environment and how are they different from the earlier strategies?

Vickram Srivastava: We need to be more ‘strategic’ than ‘transactional’ and start treating our vendors/suppliers more like our business partners. This will instill confidence and build a greater degree of trust and collaboration between both parties. This deep-rooted collaboration is important to mitigate demand and supply shocks we are seeing in current business paradigm. Also, near sourcing or localisation is an important lever we are seeing to manage supply chain risk and disruptions going forward.

Amol Kulkarni: In today’s times, if you don’t have the visibility of the entire value chain and the suppliers, for me, it is a sure shot recipe for disaster to happen because we are dealing with highly uncertain times and any unforeseen situation in any part of the world will definitely impact your business in some way. As a matter of fact, we were shocked to realise the impact of Ukraine-Russia war on our business because we only deal with domestic suppliers and there was no way it could have impacted our business.

The moment we started backtracking the value chain, we realized that it was not even our immediate suppliers’ supplier that had a connect with the Ukraine supply chain pressures, it was the tertiary or the fourth link in the value chain, which was importing a very minute but a significant part of the product from Ukraine. For our dispensers, all the suppliers are based out of India. Their suppliers are also based out of India, but they are importing the steel tubing from China. Later, we realised that China is importing the specific grade of Steel – the molybdenum – from Ukraine. When we learned this, we started exploring the possible alternatives. To tell you the fact, there were no other options available, we had to suffer for that particular period. Later on, our Chinese suppliers managed the alternative option and the value chain started getting back on track.

This essentially means that your supply chain is as strong as the weakest link of the chain. You have to first identify the links into the complete supply chain and then make the weakest link the strongest part. When we come to the weakest link, the most ignored aspect of the supply chain is the Supplier. Most of the time, organisations don’t pay attention to their side of the problems, be it financial or otherwise. The pandemic has offered us an opportunity to re-look at the importance of the supplier. In fact, when I started my career, procurement was just regarded as the support function, but now things have evolved. Time has come to work on strengthening supplier relationships to reap tangible gains.

Sandeep Pratap: We try to gauge the required relationship for each kind of material and use strategy, which suits our product mix.

What should be the future sourcing strategy to reduce the supply chain risk? What are the cost saving opportunities that can be leveraged?

Tannistha Ganguly: There is no one-size- fits-all strategy for supply chain risk management. It mainly depends on the industry in which the company operates, the strength and vision of the company, etc. However, one of the areas which most manufacturing companies are focusing on today is supply chain network diversification. What people have also referred to as the 'China +1 strategy', essentially means that we spread out and reach out to multiple procurement sources located in multiple geographical locations. For procurement, it can mean multi-sourcing, nearshoring, strategic partnerships, strong supplier integration and integration with tier II & III suppliers or even further. Building visibility via supplier integration will be critical in managing supply chain risk in the procurement area.

One of the cost saving opportunities to be leveraged will be via strategic use of technology. Automation will be key in reducing inefficiencies in many process areas, reducing headcount or redeployment of the team in more productive work. The use of targeted solutions will help in bringing in business focus in the required areas. Some examples like eliminating maverick spending, building clear visibility into operational costs, supplier performance management etc., are places where use of correct technology can help reduce costs.

Vickram Srivastava: Sharing this with an example, imagine I have a vendor based in Germany and I am not able to source material from him because gas supplies from Russia have been stopped to Germany. My vendor is not able to run his factory. In today's VUCA world, as supply chain executives, we need to develop our alternate vendor base. We can build more inventory or collaborate further with our suppliers. Developing a new vendor in pharma is a very difficult, long, and expensive process and in many cases, we don't even have alternate vendor. Having a single source making more inventory is not really healthy for the supply chain, so what it leaves us on the table for us is doing conscious collaboration with our suppliers, making them your business partners and not just treating them as suppliers. Sensing demand patterns early on and passing that on to your critical suppliers will eventually help companies stay resilient.

Amol Kulkarni: Whenever we are inducting a new supplier or developing any indigenous supplier in support of any foreign supplier, while we are definitely looking at the capabilities, but now-adays, we have also started analysing their ‘Cope-ability’. This ultimately helps us gauge his ability to cope under external pressures and the looming uncertainties. We also analyse their ESG goals because for us sustainability takes centerstage. Once we have that, then definitely we support the supplier and make him a business partner so that we both can prosper together. Also, when it comes to cost, the Total Cost of Ownership is evaluated on the basis of Life Cycle Cost and should not be evaluated in isolation. The aim should be to reduce the total cost of ownership and not just the price. Such efforts in cost reduction are also appreciated by Strategic Business Partners. Further, if you convey the merits of such a case very transparently to the Business Partners, they can provide meaningful inputs and food for thought so that the cost saving opportunities are identified and leveraged.

Sandeep Pratap: Considering all these complexities, we initiated ‘Project Independence’ even before the onset of Covid-19, which is very similar to China + One strategy, which really helped us in staying resilient in the last few years. We started developing supply bases in each region and worked on a hybrid model where we make certain part of APIs in China and India and then the do the formulation very close to market. Procurement has played a critical role in this Delaying Differentiation strategy.

Akshay Rana: At Sterlite, we are hugely dependent on the crude derivative products, the way crude prices have gone up has adversely increased our input cost whereas the same cannot be passed on to the customers as we have a long-term contract in place with them. In lieu of such circumstances, we started working towards taking cost optimization measures towards the value engineering. To achieve that, we performed the benchmarking exercise for not only the base raw materials but the input materials also to produce our raw material. We implemented TCO based approach to bring in the factor of the scrap reduction and cost optimization.

Next thing we focused on was the market intelligence, and AI, which helped us in getting timely data alerts. Earlier, we never used to talk to the supplier of our supplier, but now understanding the paucity of the situation and the impact that they have in the value chain, we started communicating with them. Essentially, we started doing backward integration of our supply chain. We started getting the materials at our own cost and negotiated with those suppliers’ suppliers. This helped us in curtailing cost pressures and build a sustainable relationship with our suppliers. Another major initiative was the value creation which entailed that irrespective of the expensive material that we are buying, we tried to find ways to reduce cost, which can also be in form of the consumption reduction, efficiency improvement and reduction in lead time. One of the most important things in the current sourcing strategy that we have implemented is enhanced Localisation. Earlier we used to import around 70% of the raw material. Right now, we are just importing 38-40%, which we are attempting to bring down further. All these measures put together have helped us mitigate risk and build the future supply chain.

What is that next procurement move that we could see in times to come?

Krishna Barad: Supply chain is one of the most crucial aspects for most of the businesses today. To keep up with the ever-increasing consumer demand, supply chain components should run as smoothly as possible. Procurement and sourcing trends are constantly changing across the globe. Few of the upcoming trends which may be noticed in procurement and sourcing process may include:

Digitalisation: Creating a digital network and IT-enabled solutions aligning shippers, forwarders, and third-party logistics on real-time basis to enable seamless procurement and sourcing functions

Transparency and visibility: Creating transparency and visibility of all our trading partners, including manufacturers, shippers, forwarders, and others to mitigate supply chain disruptions

Ethical and Sustainable sourcing: Adopting sustainable procurement and sourcing process and investment into Environmental, Social and Governance (ESG) to gain more in terms of profit and customer loyalty

Smart procurement: Adopting smart procurement process to cut down traditional procurement cost and achieve a competitive advantage in the market

Workforce globalisation: Handling complex procurement and sourcing processes will press the demand for workforce globalisation.

Tannistha Ganguly: Although there are many areas in which the procurement teams have started putting their focus on, one crucial area is specific targeted solutions for specific areas. Although the chief procurement processes will still be serviced via big software solutions such as ERPs, there are many specific business problem areas, which will be increasingly serviced via start-up solutions, for example, solutions for spend analytics, tail spend management, category management, etc. There are big software solutions, which provide features/ solutions for these areas but most often, these solutions either don't fully meet the business needs or are too complex for a particular business model. On the other hand, we see many start-ups coming up with excellent solutions for specific areas within the S2P process, which are easy and fast to implement as well as userfriendly and pocket friendly. So, I feel the industry will become more open and acceptable to incorporate such targeted solutions in their digital journey.

Sandeep Pratap: The Focus will be on visibility to see beyond your tier I supplier. Tier II and Higher Tier supply can impact your entire business. Currently visibility is nearly absent.

Akshay Rana: The word “next” is a term with endless potential. Leading procurement functions will become part of an organisation’s value stream and will be more influential in contributing to the overall business strategy, growth agenda and competitive advantage. Procurement leaders will be expanding their remit from a focus on cost leadership to enabling innovation, agility, and supply certainty. It would take an extremely stubborn procurement team to plough ahead with business-as-usual after the disaster that was 2020. Thankfully, most teams have adjusted their ways of working, with some changes intended to last for the duration of the crisis, while others will be permanent. These include becoming faster, more flexible, and more responsive, Increasing the focus on risk, Shifting away from JIT (Just-in-Time). Procurement Team will increasingly leverage AI, the artificial intelligence revolution in procurement is well underway, but machine learning takes time. This means that AI that was as clever as a four-year-old in 2019 could be as smart as a 10-year-old by 2021 as it gets better and better at tasks and procurement team would be leveraging it.