Written by: Mike Edmunds
Posted on: 05/02/24
The Future of Supplier Management: 3 Things to Watch
We’ve celebrated another revolution around the sun, and we’re all a year older and (hopefully) wiser. The time has come, after much-needed rest and recuperation, to look forward to the new year with a renewed sense of energy and purpose.
When assessing where you currently stand within your business, and the place you want to be by the end of the year, keep in mind these 3 key areas of interest which have already been making waves in the realm of supplier management.
The CSRD, or the Corporate Sustainability Reporting Directive, is among one of the EU Commission’s commitments made under the European Green Deal. It is aimed mostly at Larger Enterprises operating within the European Union. With this directive coming into play at the end of last year moving into Spring 2024, it would not be too outlandish to assume that further expansions of this directive will come into force depending on the adoption of its mandates by organisations which fall under its criteria:
“the revised directive applies to all large EU companies — i.e., companies that meet at least two of the following criteria: a turnover exceeding €40 million per year, a total balance sheet of more than €20 million, more than 250 employees —, listed EU and non-EU companies (except micro-enterprises), and third-country companies with either subsidiaries or branches in the EU. That’s an estimate of more than 50,000 companies in total.” Forrester blog, Oct. 12, 2023, Raluca Alexandru, Aurelie L’Hostis, “Is Your Company Ready For The CSRD?” Is Your Company Ready For The CSRD? (forrester.com)
The directive holds true to policies concerning sustainability and ESG, including ESG and sustainability reporting and the disclosure of such reports which should include targets, policies, and initiatives. To be able to achieve this, you should have a high level of visibility over your suppliers.
If it sounds daunting, it is. However, companies with fit-for-purpose data collection and reporting systems are ahead of those who have yet to implement such measures, and certainly many companies are already reporting some degree of sustainability information regarding their business operations and publish annual reports on the subject, as well. It will be a case of ensuring those affected are aware of what exactly they need to be reporting on, and ensuring the infrastructure is in place to be able to meet the directive’s demands:
“Leveraging in-house talent, software, and best practices for data management and reporting is advisable but might be insufficient. Many companies will need to invest in new partnerships and solutions.” Forrester blog, Oct. 12, 2023, Raluca Alexandru, Aurelie L’Hostis “Is Your Company Ready For The CSRD?” Is Your Company Ready For The CSRD? (forrester.com)
The words on everyone’s lips for a while have often been something to do with AI; ChatGPT took the world by storm with an LLM (Large Language Model) able to respond to prompts with written information it has predicted, based on data it was trained with, will answer your question. That data being Wikipedia, books, news articles, and scientific journals, to name a few sources. It suffers from a few limitations, however it can be a valuable data source when used in conjunction with other tried and tested data sources, as well as common sense and good judgement.
Aside from the general public opinions oscillating wildly, Gen AI more generally is seeing adoption in professional spheres:
“The mass adoption of generative AI applications, not just ChatGPT, since last November has begun to transform interactions and expectations, much like Google did in the early 2000s.” Rowan Curran, J.P. Gownder, “The Generative AI Advantage” Nov. 29th 2023 The Generative AI Advantage | Forrester
Expectations, certainly, are beginning to shift: 18% of work around the world could be automated. The jobs most likely to be affected are no surprise, with roles involving information processing of some kind most open to being automated to a degree.
“GenAI has already shaken things up. Next, it will become deeply embedded in our daily lives. As a horizontal technology, it will hit and disrupt every industry, including regulated industries.” Rowan Curran, J.P. Gownder, “The Generative AI Advantage” Nov. 29th 2023 The Generative AI Advantage | Forrester
The effect on the future of supplier management could be significant. The nature of current versions of Gen AI indicate to me that the skills of a procurement or supply chain management professional will not be easily replaced. However, ChatGPT can be an addition to the skillset of a procurement or supply chain professional. The beauty of automation works in the favour of those currently in the sector, as tasks and responsibilities often found to be tedious can be automated successfully. Time and the mental strain which used to be expended on simpler tasks can be used more productively in other areas which Gen AI simply cannot replicate.
Negotiation, logistics, and other responsibilities which require critical-thinking skills (and are more mentally engaging and rewarding) will be positively impacted by the effects of Gen AI adoption.
Swinging back around to sustainability, the newest focus for sustainability efforts to avert the consequences of climate change is Biodiversity, and how ‘nature-friendly’ companies and organisations can proclaim to be. Carbon, while still very much a talking point at COP28, shared its podium with talks surrounding a more holistic approach to sustainability:
“Our research suggests that, while carbon remains the main focus, global companies are paying more attention to nature and natural capital, with increasing numbers making commitments to take action or setting specific targets across a number of dimensions, including water, biodiversity, and chemicals and plastics.” Outcomes from COP28: What next to accelerate climate action? | McKinsey
The momentum and drive for sustainable solutions within organisations around the world is showing no signs of decline. In fact, they’re speeding up. Calls for more actionable targets and policies resounded during discussions, with a clear indication that the technologies and solutions to achieve net-zero and ESG reporting are already available. Large-scale adoption, therefore, appears to be key.
“Judging by both attendance at COP28 and new decarbonization commitments from sectors including oil and gas and agriculture, the imperative to reduce emissions is increasingly understood.” Outcomes from COP28: What next to accelerate climate action? | McKinsey
When we apply this philosophy and consider it in regard to the future of supplier management, Scope 3 emissions and reporting become that much more important. The ability to have full visibility over the suppliers which make up the majority of Scope 3 emissions, produce reports on the data which you collect, and present them, is an advantageous position to be in.
The future of supplier management continues to evolve, therefore. These key elements will in my opinion be most impactful, and they are actionable in the sense that most successful businesses will be in the planning stages at least for policies, directives, and projects to address them. Now is a good time to be looking at solutions that may help streamline this process but, do your research carefully. As previously illustrated, in-house solutions may not be robust or extensive enough – there are providers out there who can help to fill in the gaps which may be a more cost-effective option for the long-term.
Whatever projects you have planned for this year, with good planning, solid research, and the correct mindset, I am confident that this year will be a productive and successful one.