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Procurement officers ‘kept awake at night’ by performance concerns

Around 60-80% of a company’s external spend is generally the responsibility of the procurement team, and while 88% of chief procurement officers (CPOs) said they either delivered or exceeded on their savings plan last year, a new survey reveals that many are kept awake at night by how to maintain that level of performance over the next 12 months.

The findings also indicate that procurement functions may be under-prepared for a changing environment and agenda (away from cost-cutting to growth), and a number of internal capability areas need to be addressed.

Global financial advisor, Deloitte has today revealed the results of its third, global CPO survey, for which it interviewed over 180 CPOs and procurement directors across 17 countries.

The Deloitte global CPO Surveyindicates that expansion has very much returned to the CPOs agenda.

Following a number of years with a clear mandate for cost reduction, chief procurement officers (CPOs) are now being asked to support their businesses to 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 catapulted into second place, with organic expansion not far behind.

The responses from over 180 CPOs and procurement directors across 17 countries indicate that procurement functions may be under-prepared for this changing environment and agenda, and a number of internal capability areas need to be addressed. While nine in 10 (88%) CPOs said they either delivered or exceeded on their savings plan last year, many Deloitte found, are kept awake at night by how to maintain that level of performance over the next 12 months.

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.

Delotitte forecasts big challenges ahead as its survey revealed CPOs feel risk levels are 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, the financial services firm indicated there is a need for a more active and insight-driven role for procurement.

James Gregson, partner and head of sourcing and procurement at Deloitte UK, said:

“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.”

The survey also found that 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.

Furthermore, 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.

Gregson concluded:

“Procurement must continue to adapt and evolve to remain relevant. Its role must now not only encompass executing the cost reduction agenda, but also requires supporting the business through a new cycle of innovation and expansion. CPOs need to create teams that are at the heart of decision making, by bringing valuable insight and talent with the right skills to influence budget holders.

“Such a shift may require handing back, abandoning or outsourcing those activities that once defined procurement, but which are now seen as easy to replicate or adding little value. Funding growth, mitigating its associated risks and working alongside the business to develop differentiated and robust supply models will be the indicators that demonstrate procurement’s ability to deliver value for their stakeholders in the years ahead.”

 

 

 

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