Industry Responds Favorably to New Trade Deals
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Cost reduction, new products/market development, and managing risks continue to be the biggest priorities for procurement leaders, according to Deloitte’s global chief procurement officer (CPO) 2018 report. These leaders also are working to better align procurement and business priorities to deliver value by focusing on strategies such as consolidating spend, reducing total life cycle/ownership costs and increasing competition.
Source: Deloitte CPO 2018 Report
Based on a survey of more than 500 procurement leaders globally, 78 percent of respondents said cost reduction is their top business strategy, followed by new products/market development (58 percent) and managing risk (54 percent). Other top priorities include expanding organically, increasing cash flow, and managing corporate social responsibility.
While the primary roles of procurement and purchasing professionals focus on managing and evaluating supplier relations, optimizing the supply chain, managing costs, and mitigating risks, they are also involved in new product development. Purchasers identify and recommend new vendors and new technologies/new products and help bring products to market faster. Often, they collaborate with engineering teams to determine specifications and needs.
In fact, specification improvement is one of the key focus areas cited by 24 percent of procurement leaders for the next 12 months. Consolidating spend (37 percent), reducing total life cycle/ownership costs (32 percent), increasing competition (31 percent), and reducing total ownership costs (23 percent) are also high on their agenda for the next year.
Source: Deloitte CPO 2018 Report
The survey also found that 61 percent of procurement leaders delivered better year-on-year savings performance than last year, supporting procurement’s biggest priority to reduce cost. This is up from 58 percent last year.
Despite inroads on cost savings, procurement leaders still face big challenges around creating supply chain transparency and training for important skill sets. Sixty-five percent of procurement leaders said they have limited or no visibility beyond their tier 1 suppliers, and 51 percent said their teams lack the necessary skills and capabilities to deliver on their procurement strategy.
Poor visibility can have a big impact on meeting regulatory and corporate social responsibility requirements, as well as on identifying and mitigating supply chain risks, said Deloitte. In addition, greater visibility can lead to greater innovation and improved total cost of ownership.
Interestingly, only 23 percent of procurement leaders consider supplier collaboration as a strategy to drive value over the next 12 months, compared to 26 percent in 2017. Supplier collaboration “continues to remain an under-utilized lever for delivering value,” according to the report.
However, Deloitte also found that “procurement leaders globally have indicated a desire to focus on collaboration and building partnerships with key suppliers to achieve improved innovation within their organizations with two-thirds of respondents identifying ‘generate win-win situations and trust’ as a key approach for doing so.”
Other good news is that 73 percent believe their organization’s leadership supports procurement. But the respondents who feel very supportive dropped from 43 percent in 2017 to 31 percent this year.
Implementing digital procurement strategies still have a way to go. Only 33 percent of respondents believe digital procurement will help them meet their organizational objectives. In addition, technology usage is low. Only one-third of procurement leaders use technology such as predictive analytics and collaboration networks to meet their goals.
Another challenge is digital know how. Only 3 percent of respondents think their teams have the skills to maximize digital capabilities.
Analytics is expected to have the biggest impact on procurement in the next two years, and today, it’s being used for cost optimization (50 percent), process improvement (48 percent), and management reporting (45 percent). Currently, the highest rate of digital technology adoption is in transactional purchase to pay (P2P) process, sourcing, and tactical buying.
Who’s doing the best job? The survey found that the highest performing procurement leaders led in several areas - executive advocacy, strategic decision making, talent capability, and digital procurement. Compared to last year, three new capabilities joined the list of must have attributes: leadership, balanced scorecard capabilities, and supply chain transparency.
Deloitte’s report provides a to-do list for procurement to help accelerate their business strategies. These include in the areas of market outlook, value and collaboration, talent and leadership, and digital procurement. “One of the most significant opportunities for procurement leaders is to improve business, procurement, digital, and supplier leadership,” said Deloitte.
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