Research & Surveys
Delivering More Value With Fewer Resources
May/June 2013, eSide Supply Management Vol. 6, No. 3
Despite tight budgets and smaller staffs, supply management organizations are expected to expand the quality of their organization's spend influence through sourcing and supplier relationship management.
The primary goal for supply management leaders this year is to deliver more value to the company — without more resources. Procurement executives are being asked to increase revenue growth, enhance operational agility, and improve customer and stakeholder satisfaction at a time of strict budget and staffing constraints, according to the 2013 Procurement Key Issues research study by the Hackett Group.
In fact, the research notes that of all the Hackett key issues studies conducted over the past five years, 2013 shows the greatest change over the previous year in priorities for both performance and capability-related issues. For example, reducing purchase costs remains at the top of performance-related concerns for executives who participated in the study, but it increased from 72 percent to 90 percent. "This clearly shows that, for better or worse, cost reduction is king," the report states.
Innovation "shot up" in the rankings of key procurement performance-related issues this year, with 76 percent of executives ranking it as a major or critical issue, up from 44 percent last year. Innovation and expanding purchasing's scope and influence were tied as the number-two priority of executives this year. Managing and reducing supply chain risk also increased in importance, from 42 percent in 2012 to 56 percent this year. The study finds that 50 percent of procurement organizations are placing a major emphasis on reducing the cost of procurement operating expense in the coming year, compared to 25 percent in 2012.
The study says supply management leaders expect their budgets to decline by 0.4 percent in 2013 and their procurement staff to shrink slightly — about 0.5 percent. At the same time, executives surveyed projected overall revenue growth of 6.5 percent, down from 7.9 percent in 2012.
"In 2013, company leaders are seeking the agility to help them achieve profit targets even if revenue falls short of expectations," explains Chris Sawchuk, principal and global procurement advisory practice leader. "One key to achieving these goals is for procurement and other business services to add value without increasing budget or head count."
To meet the expectations of company leaders, the study identifies four imperatives:
- Foster the agility required to achieve profit goals when revenue falls short of expectations, and to add value to procurement services without additional head count or budget.
- Continue to move toward a more standardized and global approach to business and procurement operations.
- Mature the concepts of process ownership beyond the basics of process standardization, creating value by working across functional, business unit and geographic borders.
- Obtain insights, intelligence and actionable strategies from data generated by procurement activities.
Setting the Procurement Agenda
Companies aren't leaving any stones unturned in their quest for improvements, which helps procurement organizations set their agenda to support company goals and strategies. Procurement initiatives planned for the rest of this year and into next year to support companywide strategies include:
- Early supplier involvement in design, 82 percent
- Joint promotions, demand/pull tactics, 79 percent
- Open innovation, 65 percent
- Supply-base localization, 62 percent
- Supplier market intelligence, 55 percent.
"Since procurement, like other functions, is being required to do more with less, it will need to do things differently," according to the Hackett Group research. The Key Issues study lists some changes that may be on the horizon for global supply management organizations.
Globalize direct and indirect procurement resources. Globalizing value chains involves taking a global view of indirect procurement resources as they increasingly become part of the broader business services delivery system. For example, the study finds that companies, on average, have 12 percent of their full-time employees located in low-cost regions. That number is expected to reach 21 percent in two years.
Create a global design for standards/policies. Global policies and procedures are the wave of the future. The study finds that roughly one-third to one-half of companies have created a global design for policy/strategy standards, process design, technology platforms, KPIs and master data management (MDM). Those levels are expected to increase to 50 percent or 60 percent in three years.
Develop data, analytics for better performance. KPIs, MDM and near-real-time analytics are needed to enable performance management processes for the entire company and for the supply chain organization. Timely analytics are not always easy to come by in large, global companies, the study says. In a recent globalization study, the Hackett Group found that 80 percent of top-quartile performers offer visibility to near real-time or within one day, compared to 28 percent of the peer group.
Customize procurement processes. The ability to mass-customize procurement processes as services by category, stakeholder, contract type, geography and so forth is paramount, the study notes. Using a procurement service delivery model to design tailored services for end-to-end processes is a key principle behind global process ownership.
Establishing a Center of Excellence
The study emphasizes that building these new capabilities is not easy. "However, procurement, perhaps more than any other function, realizes the importance of tailoring its approach to influence stakeholders and help them gain better performance outcomes," the study says. "This means helping to maximize the value of third-party (supplier) relationships."
This year's Key Issues study finds, as did last year's, that supply management is "generally doing a good job" helping stakeholders, such as finance, IT and HR, capture value from supplier relationships. At the same time, the study notes that "stakeholders are ratcheting up their expectations for procurement to develop ever-deeper capabilities and deliver more impactfully across a much broader set of KPIs in 2013."
To help supply management organizations meet stakeholder expectations and focus more on a life cycle-based category management approach, the research study recommends establishing a Center of Excellence (CoE) to serve both procurement and its stakeholders. The idea behind the center is a "one-to many" approach.
One area where a CoE could make a difference is in supply market intelligence. "The CoE could support multiple value objectives including reducing risk, speeding up sourcing, improving negotiations, supporting new-market entry and competitive intelligence scenarios," the study explains. The supply market intelligence information gathered by the CoE could be used by category managers or the strategic planning staff.
Survey participants listed supply market intelligence priorities that are a "major" focus for them this year. They include:
- Supplier-specific financial/risk intelligence
- Third-party category knowledge/intelligence reports
- Category/industry trends and events
- Monitoring supply markets for innovation/growth possibilities
- Category-specific pricing indexes.
Supply market intelligence is only one type of capability that is being established in CoEs, the study notes. Other competencies and services include specialized sourcing support, analytics, regulatory compliance, knowledge management and technology support. CoEs can be run in the supply management organization, corporate headquarters or even in business units, the study says.
No matter where supply management executives focus their improvement efforts this year, it is clear they will be busy staying in step with company objectives as well as building capabilities for the future. "Unquestionably, this continual process of broadening procurement's value objectives, scorecard and capabilities is arduous," the study notes. "More than brute strength, flexibility will help the organization go global in step with the business."
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