Cost, risk and digital top priorities to improve growth
Cost reduction and managing risk top the list of procurement leaders’ business priorities in 2017, according to Deloitte’s annual global Chief Procurement Officer (CPO) survey. Comment from Lance Younger, UK head of sourcing & procurement.
With uncertainty and growth ambitions being a constant focus in many organisations, the number one priority for 79 percent of CPOs is reducing costs. This is closely linked to 48 percent wanting to increase cash flow to help fund growth. Managing risk will also be a strong priority for over half of CPOs this year (57 percent). Key global risks cited include weakness and volatility in emerging markets; rising geopolitical risk; the possibility of a renewed Euro crisis; spill over effects of any slowdown from China; and uncertainty around Brexit and outcomes from upcoming trade negotiations. Perhaps unsurprisingly, the latter was the highest risk cited by UK based participants.*
In addition, 54 percent of respondents report a resurfacing of procurement risk, which could include price volatility, disruptions in supply and supplier bankruptcy. This is up from 42 percent in 2014. Lance Younger, UK head of sourcing & procurement, explains: “Like other business leaders managing a global backdrop of economic and political risks, CPOs continue to focus on cost and risk management in 2017 to support growth in an uncertain market. So far, this is proving successful for CPOs, with 58 percent achieving better savings performance than last year. However challenges with talent and poor adoption of digital technology still hinder progress. Unless addressed quickly, these could jeopardise the future of procurement.”
87 percent feel that talent is the single greatest factor in driving procurement performance and 60 percent of CPOs still do not believe their teams have the skills to deliver their procurement strategy. Yet investment in new talent development approaches and training remains stubbornly low, with 25 percent spending less than one percent on training budgets. Younger continues: “We continue to see procurement functions shrink in size, whilst the breadth of responsibilities and expectations continue to increase. Companies are demanding greater productivity, but overworked employees are not the solution. Instead, new, sustainable operating models are required. One approach is to empower talent by embracing digital and innovative technologies – such as automation, cognitive procurement and analytics – at a much greater scale.”
The ambition to do so is apparent, as this year 75 percent of CPOs believe that procurement’s role in delivering digital strategy will increase in the future.
This will be important too, as CPOs report that the impact of automation and robotics on their function will steadily increase from 50 percent today to 88 percent in five years’ time, and up to 93 percent by 2025. 65 percent see analytics as the technology area that will have the most impact on the function in the next two years, but many see the quality of data available as a significant barrier to adoption. However, once again, an issue with talent is apparent, with 62 percent claiming that there is still a large to moderate skills gap across analytical abilities. Younger concludes: “As the rapid speed of technological change continues to sweep over businesses globally, procurement is at a tipping point and must take advantage of high levels of executive support. Digital will amplify great talent and strong CPOs must align the digital transformation of the function with ongoing business priorities.”