Expanding procurement’s influence now top priority for buyers

By Will Green, March 17, 2014, Supplymanagement.com

Expanding procurement’s influence has overtaken cost control as the number one concern among purchasing professionals.

The Hackett Group’s 2014 Procurement Key Issues report revealed a “major change in procurement’s priorities from last year”, with more than three quarters of buyers putting “expanding the scope of procurement’s spend influence” in first place.

Tapping into supplier innovation was the second highest priority, followed by “deepening influence on complex indirect spend categories”, while cost-cutting – placed first in 2013 – dropped into fourth place.

Chris Sawchuk, global managing director and procurement advisory practice leader at Hackett, said: “Overall, companies are turning to innovation to drive revenue growth and margin improvements in 2014.

“Cost reduction is still a top priority. But we believe many procurement organisations have reached the upper limit of cost reductions possible in categories they are actively sourcing today. So they’re looking for ways to reinvent their value proposition. A key part of this is expanding their influence, and taking a life cycle approach to category management. This requires working more effectively with spend owners, executives, requisitioners, suppliers, and other stakeholders. It also calls for skills that are outside procurement’s traditional areas of expertise.”

The research also showed buyers are expecting only small increases in budgets and staffing in 2014, with rises of 0.7 per cent and 0.9 per cent respectively, compared with a predicted “enterprise growth rate” of 6.7 per cent, resulting in a “productivity and efficiency gap” of around 6 per cent.

Hackett outlined three areas where purchasers should focus to “achieve the biggest impact in 2014” and these were:

1. Rebalancing supply risk. This includes identifying signs of financial distress among suppliers, evaluating alternative sourcing arrangements and running ‘what if?’ scenarios. Hackett said some firms were considering pre-qualifying suppliers’ ability to handle data in the face of cyber threats.

2. “Recalibrating” procurement technology and tools. This work includes “reconfiguring or extending existing applications to improve their value” and rolling out “web-based and self-service tools for internal employees”.

3. “Reinventing procurement’s value proposition”. This involves monitoring, measuring and reporting on procurement’s value contribution, as well as considering “what impact enterprise-level innovation-based strategies will have on procurement and how to measure their value against that goal”.

Sawchuk said: “To bring clarity to the discussion, procurement must know how to document its own innovation and the impact it has on enterprise growth and be able to convince the rest of the organisation that procurement’s expanded value proposition is real.

“Unquestionably, the process of broadening value objectives, scorecards and capabilities will be arduous. More than brute force, flexibility is of the essence to help the procurement organisations expand globally in step with the business.”

The research was based on surveys of more than 150 mid-sized and large companies across the globe.