Study Finds Procurement Expands Priorities Beyond Cost Cutting

Procurement leaders are expanding their priorities for 2014 beyond a historic emphasis on reducing purchase costs, to add focus on expanding and deepening the scope of spend influence as well as supporting supplier-led product innovation, according to The Hackett Group.

The business advisory group’s research, entitled
‘Rethinking How Procurement Defines Its Value, Balances Risk and Gets the Most from Technology Investments’
, recommends three areas of transformation focus: rebalancing supply risk; recalibrating tools and technology; and reinventing procurement’s value proposition.

The latest research reveals a major change in procurement’s priorities from 2013, when cost reduction/avoidance was number one concern. This year 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% of companies in the study. Prioritisation 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 this year as a key procurement strategy, placing it fourth on their priority list.

The research also showed that procurement leaders expect to see small increases in budgets and staffing in 2014. Budgets are expected to increase by 0.7% and staffing by 0.9%. But the expected enterprise growth rate of 6.7% will far exceed both of these increases, resulting in a productivity and efficiency gaps of about 6% 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 organisations 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.”

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