PULSE OF PROCUREMENT — PART 1

INTRODUCTION
Dear Reader,

Here we present Part 1 of our annual Pulse of Procurement 2021 report. Each year since 2011, we have been reaching out to procurement professionals across
the globe to:

• Ascertain their current objectives and concerns

• Benchmark how procurement teams are driving business performance improvement
• Document procurement’s technology-enablement landscape
• Gain a glimpse into how procurement professionals see their futures unfolding

This year is undoubtedly unique with COVID-19-related global economic and supply chain challenges pushing procurement teams to focus on different priorities
than in years past. On the one hand, demand-side and revenue challenges have pushed cost savings back to a number one focus for procurement. On the
other hand, supply chain challenges have procurement teams focusing much more attention this year on supply risk and supplier performance management.
It’s not all doom and gloom though! This year’s survey detects considerable excitement around a new selection of Artificial Intelligence / Machine Learning-
powered technology solutions for procurement, sourcing, and supply chain management. Challenges presented by COVID-19 are also creating opportunities for
procurement leaders to make strong business cases for investments either in new enabling technologies for procurement or in upgrading existing solutions to
second- and third-generation best-of-breed selections.

We sincerely thank all procurement professionals who took the time to complete our in-depth annual Pulse of Procurement questionnaire. We hope you find the
report useful and instructive as you assess your organization’s progress and map your ongoing journey toward procurement-powered business performance
improvement.

Aatish Dedhia
CEO, Zycus Inc.

© 2021 Zycus Inc. All rights reserved. | Page 2

INSIDE PART 1

Procurement’s strategic maturity.......................................6

Procurement budgets versus prior year...........................7
Top procurement objectives.................................................8-13
Leading pain points for procurement................................14-22
Procurement performance benchmarks...........................23-25
About Zycus................................................................................26

COMING SOON IN PART 2

Procurement technology landscape
AI-enabled procurement
Choosing procurement technology & ROI
Future outlook

© 2021 Zycus Inc. All rights reserved. | Page 3

EXECUTIVE SUMMARY
• Executive support for strategic procurement, sourcing, and supply
management has never been more robust; 85% of procurement
leaders report strong backing from executive management, and 76% of
organizations have a mandate to manage corporate spending from an
enterprise-level (p6).
• This year, more than one-third of procurement groups report declining
budgets across operations, capital, and labor funding areas. Budgeting for
operating and capital expenses is somewhat stronger than for labor overall,
suggesting that career mobility may be curtailed (p7).
• The top five procurement focus areas are bottom-line cost savings, supply
risk management, process efficiency, supplier performance, and compliance
(p9–13).
• The most significant procurement pain points in 2021 are lack of visibility
into supplier performance, poor information quality, lack of process
standardization, political/economic uncertainty, long sourcing cycle times,
non-compliant purchasing, data in disparate sources, and unstructured data
reporting (p15–22).
• The benchmark measure for Spend Under Management (SUM) by
procurement gains one-point (weighted average) versus 2020 (p24)
• Last year’s heavy focus on compliance seems to be paying off for
procurement executives; the benchmark measure for compliance to
strategic supply contracts gains six points (to a weighted average of 57%) in
2021 after falling four points in the prior year (p25).
• Despite (or perhaps because of) global economic woes, investment
in procurement technology is strong. Procure-to-Pay solutions have
the highest saturation level, with 71% saying they have a P2P solution
deployed. Next is spend analysis (66%), procurement project management
(64%), contract management and savings tracking (both 63%), request
management (62%), supplier network (55%), eSourcing and supplier
management (both 53%) (see Part 2 of this report).
• One in four procurement organizations is already using some form of
Artificial Intelligence / Machine Learning-powered solution. Based on
expressed interest levels, that number is poised for take-off as leading
solution providers continue to innovate and release new apps at a rapid
pace in this area (see Part 2).
• Some 76% of procurement organizations have seen average to very high
returns on investment in procurement technology (see Part 2).
• Procurement executives vote Artificial Intelligence / Machine Learning as the
most influential technology trend for the future of procurement. A strong
majority (65%) of procurement leaders expect continued automation/
digitalization of procurement, sourcing, and supply chain processes as the
most influential five-year trend (see Part 2).
© 2021 Zycus Inc. All rights reserved. | Page 4
HOW THE ENTERPRISE VALUES
PROCUREMENT
Procurement’s strategic maturity

E
xecutive support for strategic procurement, sourcing, and supply management has never been more robust. Eighty-five percent (85%) of procurement
executives participating in the 2021 Pulse of Procurement Study says top executives view and consistently treat procurement as essential or critical to
enterprise strategy and success. Three in four (76%) say their organizations have clear mandates and authority to manage corporate spending from an
enterprise level. However, only 14% believe their organizations are on the leading edge — global best-in-class — in terms of strategic maturity and performance
delivery. As past Pulse of Procurement studies have shown, enterprise procurement teams generally see strong support for strategic transformation initiatives
in times of economic weakness (when corporate leaders mandate cost-cutting) and somewhat less enthusiastic support in times of plenty. While 2021 will likely
see a continuation of slow economic growh, procurement teams will balance a renewed focus on cost-cutting through procurement (p.9) with activities aimed at
keeping supply lines flowing smoothly in light of the global COVID-19 pandemic.

68%

Believe C-Suite views procurement
as either important or critical to
enterprise strategy.
Have a clear mandate and authority
needed to manage spending from
an enterprise level.
Rate their organizations as gaining
maturity with enterprise spend
management; 18% are just starting,
while 14% rate their organizations as
global-best-in-class.

© 2021 Zycus Inc. All rights reserved. | Page 6

Procurement budgets versus the prior year

T
he economic fallout from COVID-19 is evident this year as 34–36% of groups participating in the 2021 Pulse of Procurement study cite declining budgets
across all three funding areas tested: operating, capital, and labor. Corresponding figures from last year were in the low 20s. Procurement professionals
may see curtailed career mobility as fewer than 6% of organizations report substantial increases in funding for hiring full-time equivalent employees
(FTEs). And, while talent shortage ranked as the No. 7 pain point cited by 28% of procurement leaders last year, in 2021, it slips to No. 10 in the ranking with only
16% mentioning. Still, some 40% of procurement leaders say their operating budgets have increased in response to recent challenges in sourcing, procurement,
and supply-chain management. Where procurement budgets are increasing, there is evidence elsewhere in the study that at least part of those increases is for
investment in new procurement technology or upgrades to existing technology. With procurement operating budgets growing more strongly than capital, the
long-term exodus from enterprise- to Cloud/subscription-based technology seems to be ongoing.

Categorize this year’s budget trends relative to the prior year (operating, capital, FTEs).

OPERATING Substantial
CAPITAL Substantial
LABOR/FTE Substantial

40% 32% 26%

Moderate Moderate Moderate

24% 34% 40%

Moderate Moderate Moderate

36% 34% 34%

Substantial
Substantial
Substantial

© 2021 Zycus Inc. All rights reserved. | Page 7

TOP FIVE PROCUREMENT FOCUS AREAS
FOR THE COMING YEAR
 1 Bottom-line savings through procurement

Last year saw procurement leaders prioritizing process streamlining, automation, and elevating

63%
procurement’s profile and visibility within corporations. This year, with COVID-19 still ravaging growth and
new revenue prospects across global economies and many large industry verticals, the focus has swung firmly
back toward prioritizing bottom-line cost savings through procurement-led spend management and competitive
sourcing initiatives.

Rate cost savings as one of three top However, as massive virus-related disruptions — to global manufacturing, trade flows, business travel, and office
priorities for 2021 work — have created significant supply-chain risks, annual savings objectives for procurement teams have
declined notably from a weighted average of 9% last year to 7% in 2021.

© 2021 Zycus Inc. All rights reserved. | Page 9

 2 Supply risk management

54% Rate supply risk management

as one of three top
priorities for 2021

After ranking at No. 4 on the procurement priorities list last year, supply
risk management rises to No. 2 (for obvious reasons) in 2021. The fallout from
COVID-19 has quickly exposed dangers in:

• Relying too heavily on too few suppliers

• Sourcing globally versus locally (eroding local manufacturing bases)
• Shifting too much risk to suppliers
• Failing to build mutually beneficial long-term partnerships with suppliers
• Neglecting to dedicate sufficient resources to monitoring and contingency
planning for supply-based risk

On the positive side, there is a growing base of Artificial Intelligence / Machine

Learning-powered solutions available for managing supply-based risk and clear
interest among procurement leaders in adopting and putting these to good use.

© 2021 Zycus Inc. All rights reserved. | Page 10

 3 Procurement process efficiency
48%
Rate process efficiency as one
of three top priorities for 2021
An interesting trend has arisen as COVID-19 swiftly disrupted business operations, decimated sales, and
forced a majority of companies to shift unexpectedly into work-from-home (WFH) mode for most employees.
The rapid shift from office to home-based work exposed flaws and inefficiencies in standard business processes
(and made common workarounds for those flaws more challenging to execute). Rising business uncertainty and
plummeting sales have also left many with less regular daily work to accomplish, opening space for greater
emphasis on long-term, process-improvement types of activities.
Procurement leaders look to be taking full advantage by prioritizing process improvement in the 2021 study.
© 2021 Zycus Inc. All rights reserved. | Page 11
 4 Supplier performance

Last year, supplier performance improvement did not even make the list of top procurement priorities.

45%
This year, it ranks at No. 4, with nearly half (45%) of procurement leaders strongly emphasizing this area. Supply
risks abound during a global pandemic. Savvy procurement execs understand that supplier performance data
harbors early warning signs of rising risk — from lengthening delivery lead times, to missed delivery dates, rising
quality defects, and eroding customer support and responsiveness.

Rate supplier performance as one Active measurement and management of supplier performance are needed not only to keep supply pipelines
of three top priorities for 2021 flowing but to ensure financial viability and long-term survival for supplier partners. Conversations that ‘look
under the hood’ of performance deterioration can yield simple solutions that will help keep suppliers solvent until
a fuller economic recovery gets underway.

© 2021 Zycus Inc. All rights reserved. | Page 12

 5 Compliance

A focus on compliance — that is, obtaining consistent use of procurement-approved and preferred

40%
spend workflows, suppliers, products, and services — ranks among procurement’s top priorities for a second
consecutive year. There is also evidence that last year’s focus on compliance is bearing fruit:

• Compliance dropped from the No. 4 to the No. 7 spot among top pain points for procurement
• The benchmark performance metric for compliance to preferred supply contracts rose six points (as a weighted
Rate compliance as one average) between 2020 and 2021
of three top priorities for 2021
With many companies announcing work-from-home (WFH) extensions for the coming year or longer, enterprises
with easy-to-use Cloud-based procurement solutions may well find compliance rising as common workarounds
are less easy to execute in distributed workforce models.

© 2021 Zycus Inc. All rights reserved. | Page 13

LEADING PAIN POINTS FOR PROCUREMENT
 1 Poor visibility into supplier performance

Measuring and managing supplier performance has long been a difficult challenge for procurement. Key data inputs exist across disparate
operating, information, and human systems. And substantial knowledge and care are needed to design and deploy metrics that are normalized, fair,
accurate, and consistently yield desired supplier behaviors and outcomes.

Add in a viral pandemic breaking supply chains worldwide, and shortcomings in this area become rapidly exposed. Procurement leaders did not even
rank poor visibility into supplier performance among top procurement pain points last year; in 2021, it rockets straight to No. 1.

There is no quick fix for past failures to actively measure and manage supplier performance —
especially when many businesses are operating in crisis mode. However, there are sophisticated
technology tools that address fundamental challenges. And there are rapidly maturing Artificial
Intelligence / Machine Learning-powered tools in the development pipeline that will take
SPM to entirely new levels of both ease and effectiveness. Now is prime time to be
investigating these tools and making a strong business case for
investing.

© 2020 Zycus Inc. All rights reserved. | Page 15

 2 Poor information quality

Poor information quality remains a perennial pain point for procurement, ranking at No. 2 this year, following a No. 1 rank last year. That might lead
one to conclude that procurement teams are making inadequate progress in addressing procurement’s legacy data hygiene issues, but the reality is more
complicated than that. Asked to rate the maturity of their organizations in terms of strategic sourcing and spend management, some 18% of those participating
in this year’s study said they are just starting; this group is likely grappling with significant legacy data
hygiene challenges.

Sixty-eight percent (68%), meantime, said they are gaining momentum, suggesting at least
progress in cleaning up legacy data systems, while the remaining 14% rated their teams
as global best-in-class. For this latter group, dissatisfaction with information quality
more likely stems from rising standards for data quality and demand for the sorts of
sophisticated, granular data from which to mine increasingly elusive opportunities for
procurement-led business performance improvement.

Another factor driving the push for better information quality in procurement is
the explosion in development of Artificial Intelligence / Machine Learning-powered
solutions for procurement, sourcing, and supply-chain management. Some of these
solutions will contribute to improving procurement information quality, for example, by
rapidly and accurately extracting critical data from unstructured text sources. Others
will rely on data of the highest quality and hygiene to build and train trustworthy
algorithms that support sophisticated procurement decision making.

© 2021 Zycus Inc. All rights reserved. | Page 16

 3 Lack of process standardization

When most people show up daily to work in group

office settings, fundamental flaws or gaps in business
processes can be overcome (or overlooked) through
informal communications and workarounds.

But, when one suddenly distributes an entire workforce

into isolated home-office settings, those flaws and gaps
quickly surface, which might help to explain why a lack
of process standardization ranks at No. 3 on the top pain
points for the procurement list in 2021. (Last year, it was
not even on the radar for procurement).

Renewed focus on developing formal standard

procurement and sourcing processes, or reengineering
broken ones, may also be a function of procurement
teams having more time to devote to longer-term
initiatives. At the same time, business and demand for
materials, supplies, and services remain at a low ebb
due to the reeling economic climate.

© 2021 Zycus Inc. All rights reserved. | Page 17

 4 Political and economic uncertainty

Economic forecasters remain generally optimistic, calling for rapid recovery from the deep COVID-19-inspired global recession even in nations, such as
the United States, where the virus is still spreading rapidly. However, roughly one in five procurement leaders appear to disagree as political and economic
uncertainty rises from No. 8 to No. 4 on the procurement pain points list this year.

Procurement executives citing this pain point among their top three live in the U.S., South Africa, India, and Australia. Regions/nations with some, but
substantially less economic and political concerns, include Europe, Southeast Asia, New Zealand, and the Middle East.

© 2021 Zycus Inc. All rights reserved. | Page 18

 5 Long sourcing cycle times

Long sourcing cycle times are another pain point debuting on the top procurement pain points list in 2021. That fits with the current pandemic situation
as proliferating supply risks and breaking supply chains have, no doubt, left many procurement teams scrambling to find, bid, and onboard backup supply
sources.

The fallout from the pandemic will undoubtedly test the limits of all the supply-base rationalization, optimization, and globalization that most multinational
corporations have been pursuing as a strategy for many years. Any retreat from these top-level strategies will have significant impacts across sourcing,
procurement, contracting, invoicing, and payment workstreams. It could provide a new justification for investing in technologies designed to automate and
accelerate the many subprocesses that drive these activities.

© 2021 Zycus Inc. All rights reserved. | Page 19

 6 Non-compliant purchasing

Non-compliant purchasing drops from No. 4 to No. 6 on the top

procurement pain points list this year. The decline coincides with
a 6-point gain in the performance benchmark for compliance to
strategic supply contracts (just one facet of compliance).

Compliance, however, is a multi-faceted issue for procurement. It

covers adherence to approved transaction methods, data hygiene and
document exchange protocols, sourcing-process steps, approved item
and service lists, best-value decisions, delivering negotiated purchase
volumes to contracts, and realizing all negotiated benefits and
performance terms embedded into contracts with suppliers.

The good news for procurement leaders struggling with compliance

is that technology tools continue to add capabilities for the sorts
of consistent measurement and reporting that is needed to drive
compliance proactively.

© 2021 Zycus Inc. All rights reserved. | Page 20

7 Data in disparate sources

Information fragmentation is another perennial procurement problem that seems to have become
exacerbated when companies shifted suddenly into work-from-home (WFH) modes of operating. That person
sitting a few cubicles down who could reliably run this or that report on demand is still reachable through IM
or email. But they might now be struggling with:

• Distractions from family members

• Less-than-optimal office equipment (for example, a small laptop versus large dual-screen setup)
• Weak or inconsistent bandwidth for transmitting large data files
• Zero access to informal knowledge and assistance with tech problems that one takes for
granted in group work settings

A silver lining is that the problems this exposes may

assist procurement leaders in justifying more
significant investments in tools — such as integrated
application suites or Artificial Intelligence /
Machine Learning-powered tools that extract
and structure data from free-text sources —
to address these issues permanently.

© 2021 Zycus Inc. All rights reserved. | Page 21

 8 Unstructured data reporting

Unstructured data is information that exists in formats that

render it useless for meaningful analysis and reporting. It is a:

• Supplier price quote embedded in the text of an email

• Volume discount in a contract document stored on someone’s
hard drive
• Critical requirement described in a sourcing intake form
• Set of capabilities posted on a supplier’s a web page
• Product feature described in an off-catalog requisition form
• Surcharge hidden in a PDF invoice

The appearance of this pain point in 2021’s Top 8 reflects growing

maturity and rising sophistication in the types of information
that procurement professionals crave to support their work
in delivering real strategic value. It may also reflect a growing
awareness of nascent technology solutions that use Artificial
Intelligence and Machine Learning to find, extract, and accurately
structure valuable data from free-text documents across virtually
all file formats.

© 2021 Zycus Inc. All rights reserved. | Page 22

PROCUREMENT PERFORMANCE BENCHMARKS
Spend under management (SUM) by procurement
At a weighted average of 51%, the global benchmark for spend under management (SUM)

51%
by corporate procurement gains one point this year and stands five points lower than the
historic record established in the annual Pulse of Procurement study.

Strategies for increasing spend under management:

• Ensure spend analysis covers all direct, indirect, and even low-value categories
• Revisit spend categories that procurement previously de-prioritized or declined to
address Weighted average for
• Consider utilizing AI-powered solutions to automatically mine spend data for less 2021 Pulse of Procurement
apparent types of strategic sourcing opportunities

Estimate the percentage of total corporate spending currently under management by procurement:

30%
26% 27%
25%

20%
20%
15%
14% 13%
10%

5%

0%
0-20% 21-40% 41-60% 61-80% 81%+

© 2021 Zycus Inc. All rights reserved. | Page 24

Compliance to enterprise strategic supply contracts
This year, the weighted average global benchmark for compliance with procurement

57%
strategic supply contracts gains six points after falling four points in 2020. As compliance
is tagged among procurement top priorities this year, this number should continue rising
in next year’s survey.

Strategies for promoting contract compliance include:

• Involving key stakeholders in sourcing and selection processes
• Measuring and communicating benefits consistently throughout a contract’s lifecycle Weighted average for
• Tracking, validating, and reporting compliance statistics 2021 Pulse of Procurement

Estimate the overall rate of compliance to enterprise strategic supply contracts in your enterprise:

40%
39%
35%
30%
25%
18% 16%
14%
20%
15% 13%
10%
5%
0%
0-20% 21-40% 41-60% 61-80% 81%+

© 2021 Zycus Inc. All rights reserved. | Page 25

 AP
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