After a Deloitte CPO Survey and with a clear mandate for cost reduction, chief procurement officers (CPOs) are now being asked to support their businesses and expand as the global economy begins to recover. While cost reduction remains the number one priority for CPOs surveyed, new product and market development has been bumped into second place.
The responses from over 180 CPOs and procurement directors across 17 countries indicated that procurement functions may be under-prepared for this changing environment and agenda. While nine in 10 (88%) CPOs said they either delivered or exceeded on their savings plan last year, many are kept awake at night by how to maintain that level of performance over the next 12 months.
James Gregson, partner and head of sourcing and procurement at Deloitte UK, says: “Growth will still need to be funded, so cost management and cash releasing strategies will continue to prevail, but a shift to an expansionary agenda by businesses means Procurement needs to introduce new suppliers and more innovative supplier incentive models.”
“Add to this the growing CFO appetite for taking risk onto the balance sheet, and a true inflection point for the function has been reached. Procurement’s ability to meet this challenge will determine its relevance during the next stage of the economic cycle,” continued Gregson.
Big challenges ahead
· Risk levels are felt to be increasing, with half (50%) saying procurement risk has risen in the last 12 months, while only 5% felt risk levels have reduced. This increase in risk is driving recognition amongst CPOs that they have a role to play in its mitigation, with almost all (98%) stating they had some role to play in risk management. However, with the most common tools used by CPOs for risk management being attending risk meetings, delivering process governance and preparing policy guidance, there is a need for a more active and insight-driven role for Procurement.
· Seven out of 10 respondents planned to invest in technology over the next 12 months. A large proportion of this investment will be focused on improved spend analysis (number one priority amongst CPOs) but with 75% of respondents acknowledging that their analysis capability is purely retrospective, more advanced tools and techniques are required. In addition, 60% of CPOs looking to improve the user experience associated with procurement technologies.
· Attracting the right talent to meet the changing demands of procurement remains a major challenge. 48% of CPOs did not feel their current team has the required skills and capabilities to deliver the company’s procurement strategy. 88% of CPOs said that leadership skills were the biggest capability gap in their teams today, with 66% stating that a lack of other soft skills (such as influencing) was a shortcoming.
Successful execution in this new environment will require Procurement to work more closely than ever before with their internal stakeholders, with almost two thirds (61%) feeling they were only somewhat effective at delivering value for stakeholders.
Almost half (45%) put this lack of effectiveness down to a lack of aligned objectives, while 36% of CPOs said a lack of the right resource hindered their efforts. That some 56% didn’t measure stakeholder satisfaction in the first place, is something that needs to be addressed rapidly. There is clearly a need for Procurement to develop its business partnering capability.
Gregson says: “The gap between delivering plans and the perceived satisfaction of Procurement’s customers raises questions as to whether those plans were right in the first place, or whether the business places much value in procurement’s plan. This misalignment in partnering with the business remains procurement’s biggest weakness and, at the same time, its greatest area of opportunity.”