Procurement teams face unprecedented challenges from cost pressures, geopolitical turbulence, and tariff policy uncertainties. In this era of disruptive change, reevaluating procurement strategies and operational models has become crucial for alleviating supply chain anxieties. Leading procurement executives are fundamentally rethinking their approach to the procurement function.
"Twenty years ago, procurement remained largely tactical and transactional," noted Tyler Higgins, Managing Director at consulting firm AArete. "The emergence of strategic sourcing brought transformation." Since then, procurement has evolved into a hybrid of annual contract negotiations and tactical purchasing. Today, with its growing strategic importance and the application of automation technologies, procurement has become a core engine driving business operations.
"Procurement teams are pivotal change agents for organizations," Higgins emphasized. Modern procurement must consider factors far beyond traditional concerns. While cost remains important, supply continuity, geopolitical considerations, and sustainability have become equally critical. Chris Sawchuk, Global Procurement Advisory Leader at The Hackett Group, observes that this shift is driving significant industry transformation. "Procurement work will become increasingly complex," he predicts.
As we approach 2025, how should procurement leaders navigate this complexity? These four strategies provide a roadmap for success.
1. Diversification: Building Resilient Supply Chains
Tariff uncertainty represents a major challenge for procurement leaders. Recent months have seen multiple nations impose new tariffs on trading partners, including repeated tariff increases on goods from specific countries and sector-specific tariffs on imports like steel, aluminum, automobiles, and auto components.
Lenora Sevillian, Director of Procurement at Nova Southeastern University, emphasizes that mitigating tariff risks requires diversified options. "The pandemic taught procurement leaders that while deep partnerships matter, over-reliance on single suppliers creates vulnerability," she noted, adding that COVID-19 highlighted the importance of cultivating robust relationships while maintaining multiple supply options.
Higgins recommends geographic supplier diversification as an effective solution. For goods subject to 25% tariffs that don't qualify for trade agreements, U.S. companies might explore domestic suppliers or partners in Southeast Asia.
Additionally, Higgins suggests investigating alternative materials. Manufacturers might source slightly different steel grades domestically rather than importing from tariff-affected suppliers.
A U.S. automaker faced steep tariffs on steel imports from a particular country. The company proactively identified domestic suppliers and collaborated to develop alternative steel meeting quality standards. This initiative not only reduced tariff costs but also shortened lead times and enhanced supply chain flexibility.
2. Value Analysis and Cost Modeling: Optimizing Expenditures
"Cost monitoring will be paramount in 2025," Sawchuk stresses. While many procurement departments have moved beyond "rock-bottom cost" approaches, inflation-driven price increases have made cost control increasingly vital over the past two years.
To optimize spending, procurement leaders can conduct value analyses. By evaluating alternative materials or more cost-efficient processes, companies can prioritize cost control without compromising performance or quality.
Similarly, teams can implement "should-cost modeling," which estimates ideal product/service costs based on manufacturing expenses, logistics costs, and other factors. The resulting data informs pricing forecasts and supplier negotiations.
Sawchuk advises contextualizing analysis findings within broader organizational objectives. For example, while production line reductions might yield savings, could potential downtime or supply reductions ultimately increase long-term costs?
Sevillian argues that procurement's imperative extends beyond total ownership costs or ROI. "It's not just about how much you can save, but how to avoid costs holistically while creating value," she explains.
A consumer goods company successfully reduced packaging costs through value analysis. By collaborating with suppliers to explore lighter, eco-friendly alternatives that maintained strength and aesthetics, the company achieved cost savings while enhancing brand image.
3. AI and Data-Driven Insights: Empowering Smarter Decisions
Leveraging data and artificial intelligence enables procurement leaders to better manage operations.
Higgins notes that procurement generates vast data through supplier databases, contracts, and producer price indices. This data feeds algorithms that generate dashboards or predictive models via AI. "AI-driven procurement might sound trendy, but it delivers practical value," he observes.
AI facilitates digital twin creation and dynamic mapping, giving procurement professionals real-time visibility beyond tier-one suppliers. Sawchuk explains that anticipating risks from secondary or tertiary suppliers allows procurement leaders to prepare for potential cost increases or delays. "This approach lets professionals manage entire supply chains, not just individual suppliers," he notes.
A global electronics firm implemented AI-powered real-time supply chain risk monitoring. The system automatically identifies potential disruptions, geopolitical risks, and natural disasters, alerting procurement teams proactively. This enables timely responses that maintain supply chain stability.
4. Automated Contract Lifecycle Management: Boosting Efficiency
Beyond AI, procurement leaders are adopting other technologies to enhance efficiency.
The Hackett Group's "2025 CPO Agenda" report reveals that over 60% of surveyed procurement executives expect to rely on automation and digital procurement within five years. These findings come from their late-2024 "2025 Key Issues Study," sampling 2,000 global organizations.
Higgins identifies contract lifecycle management (CLM) as particularly automation-friendly. "With abundant data and new suppliers entering the CLM market, we're seeing renewed energy around ERPs, source-to-pay tools, and CLM solutions," he states.
Departments can use these tools to automate agreement redlining, validation, invoice processing, and metadata extraction. The Hackett Group's survey found 45% of respondents have completed large-scale CLM technology deployments, with another 38% piloting solutions.
Sevillian notes that automating repetitive processes frees procurement teams to focus on uniquely human capabilities like supplier relationship management.
Looking ahead, emerging technologies like natural language processing (for contract analysis) and blockchain (for supply chain transparency) promise to further enhance procurement efficiency, reduce costs, and strengthen resilience.
In today's complex procurement environment, leaders must embrace transformation. By implementing these four strategies—diversification, value analysis, AI adoption, and automation—procurement can evolve from a cost center to a strategic value creator that drives organizational success.