Actively managing the flow of goods, services, and information from the producer all the way to the end user is a big job. Procurement plays an important role in getting it done right. In order to pump out products, businesses need the raw materials, components, and parts that are involved in fabrication. When procurement stumbles, the supply chain can crumble, as the effects of the pandemic made clear.

While supply chain bottlenecks have largely diminished, evidenced by improvements at the nation’s shipping ports, they continue to rankle procurement team leaders and other stakeholders more than three years into the COVID crisis. According to a survey conducted by the National Federation of Independent Business in December, nearly one in four respondents said supply chain disruptions continue to be a “significant” problem for them. Just 13% said their supply chain was back to normal.

Here are a few of the procurement trends that supply chain management and procurement team leaders can expect in the coming year.

From too little supply to too much

During the pandemic, with millions of Americans stuck at home, business boomed for product-based industries. Be it clothing, food, electronics — even toilet paper — products flew off store shelves and warehouse floors. The surge in demand was fueled by stimulus checks sent to households by the government, an infusion of cash that often caused too many dollars to chase after too few goods. Exacerbating the shortages were COVID mitigation measures imposed by business owners, often at the urging of health experts. Because the coronavirus is airborne and highly infectious, employers — such as manufacturers — erred on the side of caution and rolled back how many people they had working on assembly lines at any given time. Unable to produce as much as they would normally when fully staffed, manufacturers felt the financial repercussions, despite the frenzied pace of buying. According to a survey done by the National Association of Manufacturers at the time, nearly 80% said they anticipated reduced earnings. They were right: Year-over-year revenues fell by more than 50% in the second quarter of 2020, according to Forbes.

Fast-forward to today. While supply levels have normalized, demand has diminished, much of it due to inflation. This has left manufacturers and retailers with a glut of inventory. Big box retailers and e-commerce giants — such as Walmart and Amazon, respectively —  have all felt these impacts. Doug McMillon, president and CEO of Walmart U.S., addressed this issue in an earnings report and described what the company has been doing to shed inventory. “The increasing levels of food and fuel inflation are affecting how customers spend, and while we’ve made good progress clearing hardline categories, apparel in Walmart U.S. is requiring more markdown dollars,” McMillon explained.

With fewer consumers buying because of sky-high prices, cash flow is becoming problematic for organizations in various sectors. Chris Kulp, managing director and leader of procurement and sourcing at Alvarez & Marsal, told Supply Chain Brain that these working capital challenges will likely become more widespread for companies in 2023, especially if inflation persists as expected. “That’s going to manifest itself in volatility in terms of company stability and financial performance,” Kulp said.

Procurement leaders will have to come up with solutions that enable the organization to pay their suppliers for the raw materials they receive without compromising their cash flow for other business requirements. Efficient procurement can help companies maintain good supplier relationships, which can improve cash flow by extending credit or other agreements that can delay payment if it becomes necessary.

More labor force woes

While procurement is predominantly focused on ensuring companies have the materials they need to produce, it also entails recruiting or retaining the people who are involved in production. This has not come easily as of late, particularly for procurement leaders in manufacturing. Driven by a variety of contributing factors — including applicants not having the right qualifications and layoffs caused by the pandemic — many manufacturers simply do not have enough staff on hand to ramp up production. According to a quarterly survey done by the National Association of Manufacturers (NAM), a majority of employers in manufacturing are encountering this issue, as noted by nearly 76% of leaders.

Hiring has also been a sticking point for the trucking industry, which plays a pivotal role in transporting the goods companies have procured to produce their goods. If motor carriers and logistics entities cannot pick up the pace of recruitment, the driver shortage has the potential to surpass 160,000 by 2031, up from the current shortfall of 78,000, according to the American Trucking Associations (ATA). In an attempt to close the gap, trucking companies are raising wages. Among truckload fleets, for example, over 90% increased what they were paying their current and/or would-be hires in 2021, according to the ATA’s 2022 Driver Compensation Study. The average trucker experienced a wage hike of nearly 11% in 2021 alone.

While pay increases have helped to some extent (e.g. the driver shortage in 2021 was 81,258), there are still more people leaving these and other blue-collar industries than joining, with the turnover rate among manufacturers hovering around 39% in 2021, according to government data. As recently as 2017, it was just 30%. Given that manufacturers often operate on razor-thin margins, Kulp warned that raising wages may cause producers to be squeezed financially in 2023. “The stickiness of wage inflation is going to be very difficult to get away from,” Kulp said.

Looking ahead, procurement professionals will need to collaborate with stakeholders to identify the skill sets that recruits must have to be successful, then work with human resources to ensure that new hires meet those talent requirements. They may also take the lead in managing vendor relationships, which may include working with recruiting firms to identify and attract top-tier talent and compensate them accordingly.

Sustainability fragility

Sustainability is no longer the province of the environmentalist movement; it is mainstream. Indeed, many consumers and investors are demanding more socially responsible business practices. They are putting their money where their mouth is, as well, buying from those organizations that uphold their values and actively demonstrate corporate social responsibility. Perhaps because of this, manufacturers are showing their support for sustainable business practices, with 58% agreeing that sustainability is critical to their ability to compete in the years ahead, according to a poll from NAM. This is up from 38% in 2021. As a result, more than 63% of respondents indicated they were “implementing extensive, corporate-wide” sustainability strategies or processes in their operations. In 2019, only 39% were doing so.

But adhering to sustainable practice is not easy. Since fossil fuels — like oil, coal, and diesel — are cheap and relatively abundant resources, implementing and maintaining sustainable business practices can be costly in the short term. Plus, since the supply chain is largely designed with traditional energy sources in mind, it can be difficult for other organizations involved in production and receiving to abide by those same practices.

One of the ways organizations are addressing this challenge is through training. For example, in an effort to meet sustainability targets — like reducing their carbon emissions, conserving resources, or protecting biodiversity — more employers are training their workers to reduce waste in their production processes. In turn, this can help with cost reduction.

They are also creating sustainability goals, then mapping out plans to meet them. For example, the NAM poll revealed that a majority of corporations have specific goals that will help them be better stewards of the planet. Setting goals helps organizations be more accountable and put a plan in place that can help them reach their aspirations.

Procurement professionals have a part to play in sustainable procurement. Sustainable procurement is a procurement strategy that can help make a difference when it comes to “greening” the supply chain. By supporting innovation, collaborating with other organizations that share the organization’s priorities, increasing transparency, and evaluating the environmental footprint of goods produced or procured, companies can reach the conservation goals they and their customers’ value.

Innovation is central to solving challenges and turning them into strengths. Inspirage is committed to continuous innovation. We can set you up with procurement solutions that drive performance and deliver results through digital transformation, artificial intelligence, analytics, and much more. Contact us today.