The biggest external challenge for businesses is supply chain risk, according to a new procurement study conducted by Xchanging plc, a business technology and services provider. The study of 830 procurement professionals across the UK, Europe and North America reveals that 77 percent of respondents believe supply chain risk is the biggest challenge to their businesses’ operations.
This means procurement has to do a good job of managing risk, and taking into account a number of factors, according to the study. These includes understanding “where they are doing business, where their suppliers are doing business, and where their manufacturers are located. What is the volatility of that location? What is the political stability, the currency stability and the stability of the workforce within that location?”
Xchanging places supplier risk into three categories – financial, supply chain and corporate social responsibility (CSR) with multiple tiers within each category. It’s those multiple levels where the majority of the risk lies, including executive changes, geographical risks, political risks, disaster planning, and stress testing, said Xchanging.
The 2015 Global Procurement Study also finds procurement professionals are challenged by regulation and audit (71%), lack of supplier innovation (63%), and fluctuations in currency (58%) in their business operations.
With the current state of currency/exchange rate fluctuations, 28 percent of procurement decision makers see these currency issues as a significant threat. However, when Xchanging looked at numbers by region, it discovered that 35 percent of respondents in mainland Europe believe it is a big threat to their businesses, likely due to the “Euro still under pressure against the Pound and other major currencies, and nervousness in the region over Greece's debt negotiations.”
Other concerns include oil prices (26%) for a couple reasons. The report indicates that sharply falling oil prices – 40 percent since last summer – have led to “significant revenue shortfalls in many energy exporting nations and concerns about oversupply in some markets.”
Another challenge raised is purchasing power laws and regulation, tax and the Eurozone crisis. More than a third of respondents in mainland Europe believe the Eurozone crisis is a threat to their businesses, compared to 16 percent in the UK and 11 percent in the United States. Globally, the percentage is 20 percent.
In addition, 21 percent are concerned about purchasing power laws and regulation, and 20 percent said taxes are a big challenge. Other concerns include political unrest (17%), supply chain fraud (15%), impact of general elections in home country (8%), and impact of diseases (3%).
Cost cutting is key issue for most businesses – 81 percent of respondents said spending cuts are a challenge, which Xchanging attributes to the “Eurozone crisis and ongoing austerity in companies operating in the region.”
“All major economic crises affect cost, availability and competitive positioning within procurement and the supply chain,” said Chirag Shah, executive director, Xchanging Procurement, in a statement. “By implementing predictive modelling technology platforms that asses each risk, and building contingency plans, organizations gain greater visibility and control of their full supply chain. This allows companies to manage a greater proportion of spend (especially at the tail end), meaning these risks, and their potential to damage businesses, can be significantly reduced.”
“Widening your supply base and not relying on one supplier is also essential to mitigate against external threats. Increasing access to more suppliers for sourcing projects on a global and regional scale will remove pressure and dependency on one source. Dealing with more than one supplier, and knowing who supplies them, will give you control over the entire buying process,” Shah continued.
More than Cost Savers
The research survey also takes a look at the role of procurement, delving deep into some core issues - misaligned key performance indicators (KPIs), internal engagement, capacity shortages, and the skills gap – that are affecting procurement departments.
A key finding shows that the top four KPIs procurement professionals are measured against are cost related – costs savings realized (47%), revenue impact (19%), cost savings – identified (16%), and cost avoidance (14%).
Xchanging said the results strongly indicate that there is a problem with the current KPI structure. “The metrics against which organizations track procurement’s performance do not line up with what procurement actually delivers – and it’s up to procurement to fix that.”
That’s because procurement is involved in many more business critical processes such as managing supply chain risk, supplier performance, contract compliance, and CSR.
The misconception of procurement’s role could be a lack of internal engagement, according to the study. “When asked to rank procurement operations challenges, 63 percent of global procurement professionals cited ‘internal stakeholder engagement’ as a top challenge, with 14 percent citing it as an extreme challenge.”
Thirty-three percent of respondents said a lack of internal engagement is the most common reason for missed objectives, followed by lack of technological resources (21%), misaligned objectives (13%), and talent shortage (8%).
But the biggest challenges affecting their operations is procurement team time pressures with 80 percent of respondents stating it’s a challenge and 20 percent indicating it’s an extreme challenge. The problem, said Xchanging, “isn’t the lack of available talent but rather insufficient capacity within procurement departments. … Not comprehending all that procurement does means companies are not providing the right level of resource.”
With changes in procurement responsibilities it also means that procurement teams need to beef up their skill sets. However, these new responsibilities have caused a number of skill gaps, said Xchanging.
The biggest skill gap according to 87 percent of procurement respondents is “relationship management,” which is not surprising considering the findings around internal engagement and misaligned KPIs.
Looking at the responses by region, the U.S. procurement folks appear to be ahead of the curve in terms of future skills requirements. Thirty-one percent of U.S. procurement respondents identified relationship management as the biggest skills gap, which is almost twice as much as respondents (17%) from mainland Europe.
The survey also finds that U.S. respondents (55%) were twice as likely to report “aptitude for technology” as a very important skill set for procurement professionals in the future, compared to respondents from mainland Europe (23%).
The key challenges faced by global procurement teams - misaligned KPIs, a lack of internal engagement, inadequate capacity, and skills gaps - “have in large part been caused by this expansion of procurement activities not being officially recognized outside of the procurement department,” according to the study. “Part of that is the fault of organizations – they should be better attuned to the needs of their people and their business operations – but part of that is the fault of the procurement department. In order to overcome these challenges, procurement needs to be better at championing procurement.”