Procurement Key Issues Study Recommends
Three Areas of Transformation Focus: Rebalancing Supply Risk;
Recalibrating Tools & Technology;
And Reinventing Procurement's Value
Proposition
Procurement leaders are expanding their priorities for 2014,
moving beyond a historic emphasis on reducing purchase costs and
adding focus on expanding and deepening the scope of spend
influence as well as supporting supplier-led product innovation,
according to 2014 Procurement Key Issues research from The Hackett
Group, Inc. (NASDAQ:HCKT).
The Hackett Group's research reveals a major change in
procurement's priorities from last year, when cost
reduction/avoidance was their number one concern. For 2014, the
highest-ranked issue is expanding the scope of procurement's spend
influence. Over three quarters of the executives placed this first
in their priority ranking. Tapping into supplier innovation is the
second-highest priority and a focus for 69 percent of the companies
in the study. Prioritization levels for both of these issues
increased significantly from 2013. Despite its historic position as
a top focus, only about half of the companies said they were
focusing on cost reduction and avoidance in 2014 as a key
procurement strategy, placing it fourth on their priority list.
The Hackett Group's research also showed that procurement
leaders are expecting to see small increases in budgets and
staffing in 2014. Budgets are expected to increase by 0.7 percent
and staffing by 0.9 percent. But the expected enterprise growth
rate of 6.7 percent will far exceed both of these increases,
resulting in a productivity and efficiency gaps of about 6 percent
for 2014.
"Overall, companies are turning to innovation to drive revenue
growth and margin improvements in 2014," said The Hackett Group
Global Managing Director and Procurement Advisory Practice Leader
Chris Sawchuk. "Cost reduction is still a top priority. But we
believe many procurement organizations 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."
According to The Hackett Group's research, procurement should
focus its transformation efforts in three areas to achieve the
biggest enterprise impact in 2014: 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 in 2014, The Hackett Group's research
recommends. Even among top-performing procurement organizations,
only slightly more than half conduct formal supply-base risk
assessments, The Hackett Group found. 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 identified 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
organizations in several ways. Procurement organizations are
considering the need to pre-qualify suppliers' ability to handle
sensitive data. They are beginning to work with IT to understand
data-security compliance issues. Finally, they are seeking to
balance an expanded risk management role with the need to foster
supplier innovation, better understanding the tradeoffs between
supplier risk and innovation potential.
Recalibrating Procurement Technology and Tools
With only limited new procurement-related technology spending in
2014, procurement leaders are focusing on reconfiguring or
extending existing applications to improve their 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 Hackett Group's research. Another top
technology focus for procurement in 2014 is implementing business
intelligence and analytics applications, to facilitate automated
spend analysis as well as other efforts to extract valuable
insights from the massive amounts of data that are available, and
gain strategic sourcing insights.
New for 2014 is a higher level of attention to self-service and
collaborative tools by procurement. Over half the companies in The
Hackett Group's study said they intend to roll out Web-based and
self-service tools for internal employees. In addition, the
research found procurement leaders hoping to significantly expand
their use of peer networks to share supplier risk and performance
information, and also collaborate with suppliers on demand
forecasts.
Reinventing Procurement's Value Proposition
The Hackett Group's Key Issues Research also found 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. A total of
75 percent of all companies ranked value contribution visibility as
a key procurement investment area for 2014, and another 69 percent
ranked investments in measuring and monitoring their value
contribution as a key objective.
But increasing and measuring spend influence should only be the
first step in quantifying value contribution. The Hackett Group's
research suggests that procurement leaders should consider what
impact enterprise-level innovation-based strategies will have on
procurement and how to measure their 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.
"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 organization that
procurement’s expanded value proposition is real," said Mr.
Sawchuk. "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
organizations expand globally in step with the business."
The Hackett Group's 2014 Procurement Key Issues research is
based on a study conducted in late 2013. Study participants
included executives from over 150 large companies in the US and
abroad, on their business strategies, revenue and budget
expectations, and key initiatives for 2014. A complimentary copy of
The Hackett Group's research insight, "Rethinking How Procurement
Defines Its Value, Balances Risk and Gets the Most from Technology
Investments," is available with registration at this link:
http://www.thehackettgroup.com/research/2014/pr/keyissues-pr/
About The Hackett Group
The Hackett Group (NASDAQ:HCKT), 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.
Utilizing best practices and implementation insights from more
than 10,000 benchmarking studies, executives use The Hackett
Group's empirically-based approach to quickly define and implement
initiatives that enable world-class performance. Through its REL
group, The Hackett Group offers working capital solutions focused
on delivering significant cash flow improvements. Through its
Archstone Consulting group, The Hackett Group offers Strategy &
Operations consulting services in the Consumer and Industrial
Products, Pharmaceutical, Manufacturing, and Financial Services
industry sectors. Through its Hackett Technology Solutions group,
The Hackett Group offers business application consulting services
that help maximize returns on IT investments. The Hackett Group has
completed benchmark studies with over 3,500 major corporations and
government agencies, including 97% of the Dow Jones Industrials,
84% of the Fortune 100, 87% of the DAX 30 and 48% of the FTSE
100.
More information on The Hackett Group is available: by phone at
(770) 225-7300; by e-mail at info@thehackettgroup.com.
The Hackett GroupGary Baker, 917-796-2391Global
Communications Directorgbaker@thehackettgroup.com
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