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Procurement Retools its Focus to Innovation and Value

Procurement Retools its Focus to Innovation and Value

Procurement Retools its Focus to Innovation and Value
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By Susan Avery | Thomasnet Procurement Journal

Chief procurement officers (CPOs) and procurement teams: Hang on. Change is coming. New research by The Hackett Group shows that while some things will stay the same for procurement, others are going to be very different. The research also provides procurement with a road map going forward.

The Hackett Group 2014 Procurement Key Issues research is based on a study conducted in late 2013. Study participants included executives from more than 150 large companies in the United States and abroad and were asked about their business strategies, revenue and budget expectations, and key initiatives for 2014.

In general, the executives queried appeared more upbeat about business. Rather than hold the line as they had been since the recession, now they are focusing on growing revenue and market share, Patrick Connaughton, a senior director with The Hackett Group, tells My Purchasing Center. “That’s a big change and a big takeaway from the research.”

Looking specifically at procurement, priorities are shifting. While managing cost will always be the responsibility of procurement, it is no longer the top priority for executives who participated in the study. Now, expanding their scope and influence is top of mind for leaders in procurement. Also moving up on their list is procurement’s involvement in initiatives to encourage innovation.

Connaughton explains that these findings specific to procurement tend to support research for the organization in general, and new initiatives related to expanding scope and influence are being driven aggressively by some very strong chief procurement officers.

“Cost savings that procurement was able to drive year over year in existing categories have begun to decline,” he said. “As savings decline, procurement looks to go deeper into categories they are actively managing today or take on new categories they haven’t been managing to try to drive new savings or at least sustain the savings they’re able to achieve.”

Also, procurement is leveraging its relationships with suppliers to introduce innovation to the organization. Connaughton recalls speaking with a CPO about a supplier showcase day his team is hosting. “They’re bringing in a group of strategic suppliers and giving them the task of coming up with new solutions,” Connaughton told My Purchasing Center. At the showcase, the team will present the solutions to key stakeholders, some of which will be adopted. “They have a recognition and reward program around it,” he said. “These are the kinds of initiatives we see procurement driving.”

What is remaining the same for procurement is an operating budget and staffing that, at 1 percent, is relatively flat with the previous year.

Yet when it comes to recruiting new talent that’s capable of executing these changes, leaders in procurement are looking less to hire individuals with specific category or process expertise and more at those who can think creatively and drive change diplomatically in the organization, Connaughton says.

“There’s really a shortage of this kind of talent, people with some level of procurement experience but who are also considered transformational thinkers,” he said. “This is really creating a challenge for procurement.”

Looking ahead to the rest of 2014, Hackett Group’s research suggests procurement focus its efforts in three big areas: rebalancing supply risk, recalibrating procurement technology and tools, and reinventing procurement’s value proposition.

  • Rebalancing supply risk. Procurement organizations must recharge their risk management and mitigation efforts, the research shows. Even among top-performing organizations, only slightly more than half conduct formal supply-base risk assessments. The main focus of procurement’s risk mitigation efforts are on trying to identify signs of financial distress among suppliers, evaluating alternative sourcing arrangements, and running what-if scenarios to identify supply network risks and build resiliency. The Hackett Group’s research identifies several emerging risk mitigation areas where procurement organizations are beginning to focus as part of their supply chain strategy. Supplier data security — ensuring that suppliers are able to keep sensitive data private — is one area that is being addressed by procurement.
  • Recalibrating procurement technology and tools. With only limited new procurement-related technology spending in 2014, procurement is focusing on reconfiguring or extending existing applications to improve its value. Enhancing the quality of inputs is one way to do this, and, as a result, driving master data management is the principal technology priority for 2014, according to the research. Another top technology focus for 2014 is implementing business intelligence and analytics applications.
  • Reinventing procurement’s value proposition. The research also finds that the importance of monitoring, measuring, and reporting on procurement’s value contribution is on the rise for 2014, as companies seek to quantify and communicate the value procurement delivers. But increasing and measuring spend influence should only be the first step in quantifying value contribution. The Hackett Group suggests that procurement should consider what impact enterprise-level innovation-based strategies will have and how to measure its value against that goal. This could include improvements in requirements engineering, the number of truly new solution proposals that procurement brings to the table, or a consideration of whether the resulting products or services ever make it to the market.

Ultimately, what does The Hackett Group 2014 Procurement Key Issues mean for procurement?

“Ultimately, we see much of the same, but some things are different,” Connaughton said. “The budget is still relatively flat, and managing cost is still a priority. What’s different is that expectations for procurement continue to expand and increase — to have some kind of risk mitigation program in place, to drive innovation from the supply base.

“CPOs are starting to think about how to meet these expectations,” Connaughton said. “It’s going to take a new type of procurement executive to drive this level of change. It means companies are going to have to invest in training and recruiting on a different level than they had in the past.”

The Hackett Group, a global strategic business advisory and operations improvement consulting firm, is a leader in best practice advisory, business benchmarking, and transformation consulting services, including strategy and operations, working capital management, and globalization advice.

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