Sneak Peek into Key Procurement Trends in 2024

It’s the start of a brand new year, which means new opportunities and challenges. Looking for a crystal ball to see into the future? Read on to discover the top 5 procurement industry trends to keep an eye on in 2024.

5 procurement industry trends to keep an eye on in 2024

1. AI will become a valuable procurement contributor

One of the biggest procurement trends in 2023 was teams trying to wrap their arms around new AI capabilities. In 2024, they’ll shift their focus to realizing value from AI. According to CIO Dive, “though 70% of CIOs refer to generative AI as a game-changing technology, just 9% of CIOs have deployed it in their enterprises. More than half say they have plans to deploy generative AI in the next two years.”

It’s no secret that security concerns are a major barrier to wider enterprise AI adoption. Employees feeding sensitive data into ChatGPT keeps CIOs awake at night, and leaders are intent on ensuring robust data protection before fully integrating large language models (LLMs) into business processes.

Improved security measures around generative AI, coupled with increased budgets for cybersecurity, are expected to facilitate safer and more widespread use of AI in procurement and beyond. A recent Gartner survey revealed that a whopping 80% of CIOs expect to boost technology investments related to cyber and information security in 2024, with 73% expecting to do the same with AI and machine learning.

So, how will AI be deployed in the procurement function? Here are some of the most popular use cases:

1. Improve decision making: One of AI’s greatest strengths is processing and analyzing huge amounts of data, a capability that’s incredibly valuable in procurement. This includes examining past expenditures, assessing vendor performance, and keeping a pulse on market trends. While AI is not set to replace human decision-making any time soon, it will significantly empower procurement teams with data-driven insights to make more informed choices.

2. Automate routine tasks: AI and machine learning shine in handling time-consuming, routine tasks. By handling things like purchase order processing, invoice matching, and transaction recording, AI can free up employees to spend more time on valuable work like engaging with suppliers and customers.

3. Risk management: Identifying and managing interconnected risks related to suppliers, contracts, geopolitics, and others can be daunting. AI is great at pattern recognition and discerning nuances, and can flag risks that procurement teams may have missed. This capability is crucial in preemptively addressing issues before they escalate.

These are just some of the ways that AI will start to revolutionize procurement in 2024. It’s important to note that AI cannot replace the value of human judgment and relationships in procurement; in fact, it will give you back more time for those things. There will always be value in person-to-person interactions in this space.

Still, there’s a reason companies are so eager to invest in AI—once security issues are adequately addressed. AI's integration into the procurement process promises to simplify workflows, enhance decision-making, and improve overall operational efficiency.

2. Complexity fatigue is real—and buyers are burned out from it

The last few years have been paradoxical in the SaaS world—despite a challenging economic environment, buyers have eagerly expanded their software portfolios. Data from Tropic’s 2023 SaaS Benchmarks Report shows that the average SaaS portfolio has ballooned to 102 solutions.

However, there’s evidence that this growth is resulting in bloat, as more than half of company SaaS licenses go unused over a 90 day period. This scenario points to a looming stagnation in the expansion of SaaS stacks.

Survey findings from SaaStr indicate this stagnation may come in 2024, driven by increasing "complexity fatigue" among buyers. As indicated in the graphic below, four key complexity indicators, including turnover, scope changes, and consensus-based decision-making, have all seen an uptick from 2022 to 2023.

While overall SaaS spending will increase in 2024, there's a growing likelihood that buyers will cap the number of different systems in operation. Instead, individual software solutions that can do more for them will likely be rewarded with larger, higher-priced enterprise plans.

Salesforce exemplifies this shift. Having spent years enhancing features and integrating generative AI into its offerings, Salesforce increased its platform prices by an average of 9% this year. The company's leadership is confident that customers will accept higher prices in exchange for the significant improvements made to their products.

Good SaaS products are supposed to make things easier as you scale, but the administrative burden of selecting, implementing, and managing hundreds of products does just the opposite. In 2024, companies are looking to rightsize their inflated tech stacks and drive efficiency.

3. SaaS spending will cross the $1 trillion mark

The global SaaS market is set to hit a notable milestone in 2024, surpassing $1 trillion in global spend, according to Gartner. They also expect software spend to increase by 13.8%, marking the largest increase in the last several years.

Software inflation is a big driver behind this increase, reaching 8.7% in 2023. This rate significantly outpaced the consumer price index (CPI), with finance software experiencing an even steeper increase at 10.2%. As a result, companies allocated 14.1% of their spending to SaaS in 2023, up from 12.7% the previous year.

This is a welcome forecast for SaaS businesses that had to batten down the hatches from 2021 to 2023. However, with software spending occupying a larger portion of their budgets, buyers will increasingly demand more functionality to justify higher prices. CFOs are unlikely to put up with the "shrinkflation" trend, where costs rise without a corresponding increase in software capabilities.

Here are some of the areas where CFOs will be looking to invest in 2024:

1. Supply chain management software: The supply chain chaos of 2020-2022 is still fresh in the minds of CFOs and procurement, who will prioritize software that enhances supply chain visibility, agility, and resilience. This includes tools for demand forecasting, inventory management, and supplier relationship management. A SaaS spend management platform can streamline procurement processes, allowing for better supplier management and more efficient procurement operations. 

2. Data security and privacy tools: Cybersecurity will be a key investment area in 2024. Tools that protect sensitive information from hackers as well as responsible use by LLMs will be particularly sought after.

3. E-procurement and contract management solutions: CFOs are investing in systems that offer improved oversight and control over contractual agreements, especially those involving software licenses and services. Buyers will expect functionality like renewal reminders, compliance tracking, and performance monitoring that ensure companies are maximizing every dollar of SaaS spend.

These areas reflect evolving e procurement trends going into 2024 that focus on efficiency and ROI.

4. SaaS vendors will increasingly turn to usage-based pricing models

In 2023, following a decade of rapid expansion, a significant decline in revenue growth caught many SaaS providers by surprise. This downturn, evidenced by industry giants like Salesforce and Snowflake experiencing a halving of their top-line growth, signaled the need for a shift in pricing strategies. As a result, a growing number of SaaS vendors are adopting usage-based pricing models (UBP) over traditional flat-rate subscriptions.

UBP has its pros and cons. On one hand, it aligns the interests of vendors and customers more closely by ensuring payment corresponds to actual usage, eliminating unnecessary spend on excess capacity or unused apps. However, this model also presents challenges for finance and procurement teams, as it introduces variability into revenue forecasting due to fluctuating monthly usage.

Christine Edmonds, General Partner and Head of Analytics at ICONIQ Growth, predicts that “we’ll continue to see a rise in UBP popularity as SaaS products are focusing on driving efficiency for organizations, making it beneficial for them to be priced based on value, rather than per seat.” Ultimately, whether vendors are ready for it or not, customers’ focus on optimization will likely increase demand for UBP models in 2024.

Procurement teams can prepare for the change by:

1. Investing in better data analytics: SaaS product usage is inherently uncertain, but the latest data analytics tools can help procurement better understand and monitor software usage patterns. This will help with revenue forecasting.

2. Strengthening vendor management: In a UBP-dominated landscape, the ability to skillfully negotiate with vendors will be essential. Procurement should focus on creating flexible contracts that align the incentives of both the vendor and the customer, fostering long-term, mutually beneficial partnerships.

3. Implementing robust usage monitoring systems: The adoption of UBP is often driven by the underutilization of SaaS applications. Implementing effective systems to track software usage across the organization will enable companies to identify which applications are essential and negotiate contracts based on actual usage.

5. Sustainability and ethical sourcing will take center stage

Sustainable and ethical sourcing was a notable digital procurement trend in 2023. A survey by Stanford Business School found that 51% of global businesses have existing sustainable procurement policies and practices, reflecting a response to government regulations, a growing recognition of environmental impacts, and desire for greater resilience in their value chains.

These trends are set to accelerate in 2024, with BloombergNEF forecasting that 90% of procurement groups will require suppliers to demonstrate carbon neutrality. That’ll be a tall order—only a third of the world’s largest companies are committed to Net Zero, and nearly all of them need to double their pace of emissions reductions to meet their goals by 2030.

Those that lead the way in sustainability will be rewarded. McKinsey notes that “top ESG performers enjoy faster growth and higher valuations than other players in their sectors, by a margin of 10 to 20 percent in each case.” Moreover, “strong ESG credentials drive down costs by 5 to 10 percent, as these companies focus on operational efficiency and waste reduction.” Greenly reports that “brands who adopt…sustainable procurement policies, will benefit from a more positive brand perception. In fact, research has shown that sustainable procurement results in as much as a 15 to 30% increase in brand value.”

The benefits of a sustainable procurement strategy are clear, yet there’s a glaring problem—most companies don’t have one. McKinsey showed that 60% of chief procurement officers (CPOs) want to be more sustainable, but have no strategy for doing so. And, just 20% use sustainability criteria in sourcing decisions.

Talk is cheap, and the gap between aspiration and action is closing. Companies will have to incorporate sustainable criteria into their sourcing decisions if they want to reap the benefits of sustainable procurement.

To address these challenges, procurement organizations need to take a holistic approach to developing new ESG-focused data, processes, and capabilities. This involves understanding the upstream value chain, including the origins and production methods of purchased goods, and embedding sustainability into the DNA of procurement practices​​.

Take your procurement game to the next level in 2024

There are sure to be plenty of surprises in 2024—few saw COVID coming in 2019, or the onset of the generative AI revolution in 2022. At the same time, experts in a range of industries are preparing their businesses to adapt to these trends, and successful brands will do the same.

Tropic is an indispensable tool for procurement teams in 2024, offering solutions aligned with these evolving needs. From adapting to new pricing models to managing SaaS portfolios and incorporating sustainable practices, Tropic can help streamline and optimize the procurement processes.

To discover how Tropic can help you take advantage of these emerging digital procurement trends, schedule a demo today and book your ticket to Procurement Paradise.