Procurement executives continue to focus on cost cutting and talent

27 February 2017 Consultancy.uk

Procurement executives are predominantly focused on cost reduction, managing risks and new product/market development, finds a new study. Value creation is focused on consolidating spending and increasing competition. Procurement departments continue to face talent challenges however, although large numbers of departments are not focusing investment into developing their staff.

To gain insight into the current state of affairs in the procurement arena, Deloitte, in associate with Odgers Berndtson, surveyed 480 leaders in the industry, working at companies whose total combined revenues top $4.9 trillion.

Prioritisation of business strategies over the next 12 months

Chief Procurement Officer (CPOs) continue to strongly prioritise cost reduction, cited by 79% of respondents as a priority for their business strategy over the next 12 months. Managing risks takes second place, with 57% of respondents naming it a strong priority and almost the rest naming it as somewhat of a priority. New product/market development is cited as a priority by 52% of respondents.

Other areas of priority include increasing cash flow and expanding organically. Areas of less concern include expanding by acquisition, with 21% saying it is a strong priority, increasing capital expenditure, cited by 18% as a strong priority, and disposing of assets, cited by 13% as a strong priority.

CPOs will continue their focus of generating value through traditional levers

The research also considers how CPOs will go about creating value in the coming 12 months, compared to last year. The top most cited lever is consolidating of spending, cited by 40% of respondents, down from 43% last year. Increasing competition comes second, mentioned by 35% of respondents, and up slightly on last year’s 32%. Specification improvement remains relatively stable on last year, at 28% in 2017, from 29%.

Increasing supplier collaboration has fallen out of favour among respondents, down from 39% last year to 26% this year. Focus on reducing total life cycle/ownership costs too has become less interesting to respondents, falling from 30% last year to 26% this year.

The areas of least focus for the creation of value are in the area of managing commodity price volatility, cited by 11%, the outsourcing of non-core procurement activity, picked by 12% and reducing transaction costs, cited by 21%.

Comparing savings performance to business partnering effectiveness across industries

The study further explored the savings performance to business partnering effectiveness across industries. The study found that energy & resources, manufacturing and healthcare and life sciences performed well, managed to turn strong business partnering into strong savings performance.

Technology, media and communications performed poorly in their ability to leverage business partnering and saving performance.  

Talent gap in procument

Another area taken under scrutiny by the analysis is the current talent environment faced by CPOs across the industry. The research points to a continued gap in their teams skills, inhibiting them from delivering on their procurement strategy – around 40% say that they have the skills they need, compared to 60% that believe skills are lacking.

The result for 2017 reflects previous years’ results, although it falls somewhat behind the result of 2013, when 52% of respondents said that they had the necessary skills.

Investment in new talent development

Millennials are making up increasingly large proportions of procurement departments. The number of departments where around half (41% to 60%) of staff consists out of millenials stands at 18%, while 36% of the functions have a share of between 21% to 40%.

While companies are attracting more and more millennials to their businesses they are not training them to meet their specific skills shortages, with around 25% of companies surveyed spending less than 1% of their procurement budget on training. A lack of training and development, according to an earlier survey, is one of the primary reasons for dissatisfaction among millennials.

When training is available, it tends to be in the form of encouraging the procurement team to take part in non-procurement training, cited by 59% of respondents, the development of a procurement academy and/or procurement training curriculum, cited by 54% of respondents, and engaging in placements within the rest of the business, cited by 43% of respondents.

The authors state, "Whilst there is an increased requirement for leadership and digital skills there is limited change in the investment or approach to close the talent gap. With improvements in technology enabling automation, the skills of the past will not deliver the needs of the future – organisations should look to attract and develop the next generation of procurement leaders who will act as innovators, challengers, and digitally minded-thinkers"

Related: CFO increasingly focused on human capital.

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