Obsolescence Insurance, a New High-Margin Business for EMS Companies
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A key finding of a new survey of 545 procurement executives by the Institute for Supply Management (ISM) and BravoSolution reveals that only 20 percent of companies significantly reduced costs in 2013, although cost savings was ranked as the top priority for most companies. (For more information, read "ISM: Procurement Savings Miss the Mark")
Other top priorities revealed include:
- Improving Cost Reductions and Savings (60%)
- Revenue Growth and Profit Improvements (30%)
- Risk Management (28%)
- Procurement Transformation (23%)
- Supplier Performance and Sustainability Management (23%)
- Supplier Collaboration and Innovation (19%)
- More Spend Under Management (19%)
- Improve Working Capital (15%)
- Compliance with Customer Requirements (14%)
- Procurement Organization Costs (9%)
ISM analysts report that supply chain executives are targeting the fundamentals including improving cost reductions and savings, revenue growth and profit improvements, and risk management. Interestingly, analysts found that although more than 90% of respondents report they measure total savings as a percentage of spend, 25% or more don't measure the savings from RFX processes, collaborative sourcing initiatives, and other methods of controlling spend.
In the area of revenue growth and profit improvements, analysts found that incremental improvements of only 10% or 20% were targeted by initiatives aimed at these improvements. As for risk management, only 50% of respondents were prepared to mitigate reasonable levels of general supply chain management, supplier financial and operational risks.
Here are a few more details from the ISM survey.
Improving Cost Reductions
60% of survey respondents said improving cost reductions & savings was their top priority in 2013 (Click on image to enlarge.)
How Much Do They Want to Save?
60% of survey respondents would like to achieve a savings of 1% to 10% on spend. Only 20% aim for an 11% to 20% savings. (Click on image to enlarge.)
Profit Improvement Expectations
Only 25% of survey respondents think an 11% to 20% improvement is possible. (Click on image to enlarge.)
Preparing for Risk
More than 50% of survey respondents are ready to mitigate 71% or more of perceived risks for supply chain management, supplier finance, operational management, and supplier performance. (Click on image to enlarge.)
Transformational Strategies
84% of concerned respondents have completed their objectives for "business strategy: objectives & plans developed." (Click image to enlarge.)
Transformational Laggards
The majority of respondents said only "employee career development roadmap" and "raw materials strategy & control" are expected to be more than 80% completed. (Click on image to enlarge.)
Performance Vs. Sustainablity
23% of survey respondents said supplier performance and sustainability management is a priority. (Click image to enlarge.)
Supplier Collaboration is Key
Having an open channel of communications with all suppliers was ranked No. #1 in importance by 43% of respondents. (Click image to enlarge.)
Controlling Spend
1% to 10% and 11% to 20% are the biggest percentage targets for improvement. (Click image to enlarge.)
Improving Working Capital
15% of survey respondents said improving working capital was a business priority in 2013. (Click image to enlarge.)
Meeting Customer Expectations
14% of survey respondents said improving compliance with customer requirements was a priority last year with on-time delivery of the right products as the most important criterion. (Click image to enlarge.)
Cost Goals
60% of survey respondents reported a cost goal of less than $250 M for direct materials. (Click image to enlarge.)
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