FULL POTENTIAL PROCUREMENT: LESSONS AMID INFLATION AND VOLATILITY Procurement leaders are facing one of the toughest market environments of their careers. A combination of macroeconomic factorsincluding COVID-19 shocks, trade policy shifts, workforce scarcity, energy transition, and even extreme weather eventshave upended long-running trends that have benefited the global economy for several decades. The Russian invasion of Ukraine has caused the greatest humanitarian crisis in Europe since the Second World War and further disrupted long-standing economic relationships. In the years before the pandemic, rising productivity and declining costs for many inputsachieved through lean and just-intime strategies and the globalization of supply chains, among other factorshad allowed many procurement organizations to operate successfully. But now the inflationary surge and frequent scarcity of critical supplies have made shortcomings of the traditional operating model increasingly visible and costly. These shortcomings include a lack of reliable long-term planning, growing concentration of supply, limited insight into supplier economics, lack of collaboration across functional teams, and a failure to adopt and scale proven technologies that could reduce transactional loads. And the war in Ukraine has brought to the fore a host of noneconomic factors that must now also be considered in sourcing decisions. To operate in this new context, procurement organizations are facing fundamental changes to management practices, capabilities, and supplier ecosystems based on now-outdated assumptions. We are no longer in a world where assuming "an annual RFP will yield 3 percent price savings" is a viable operating model. After a year of continual and intensive action to adapt, many procurement organizations have deepened their understanding of their supply chains and deployed new levers. But more can be done. Procurement organizations have a unique opportunity to set more ambitious goals, define a broader role for their teams, attract new talent, build new capabilities, and deploy new systems. Current market challenges may continue. Most indicators suggest that commodity pricing pressure, labor shortages, supply chain congestion, and general volatility will persist over the coming 12 months, if not beyond. Procurement and business leaders must continue focusing on creating value, managing risk, and increasing resiliency in an uncertain context. To win in this new normal, it will be up to procurement not only to swiftly mitigate immediate concerns but also to focus on building sustained, advanced capabilities that can be embedded in the operating model going forward. Some companies have started setting up small agile teams focusing on advanced analytics and systems improvements to continue enabling a sophisticated, cross-functional approach to cost and margin management. One integrated chemical producer began a procurement transformation in late 2020 before inflation took off. As part of the journey, it set up a cross-functional transformation office that is now managing the producer's inflation response across all levers without missing a beat. Indeed, institutionalizing a new operating model is the next frontier for procurement and business leaders. As procurement demonstrates its value to the enterprise, the stage will be set for procurement leaders to become full-fledged strategic partners to CEOs, CFOs, and COOs. They can expand from being the guardians of a portion of enterprise costs and use their deep expertise in supplier markets to help lead cross-functional teams focused on long-term, full-potential value creation and ultimate enterprise success.

Question 1:

Procurement and business leaders must continue focusing on creating value, managing risk, and increasing resiliency in an uncertain context. Considering this statement critically discuss how procurement as a supporting activity adds value to the primary functions of an organisation. Make use of the relevant framework and examples when responding tothisquestion. Please include references.