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What Are The Biggest Challenges Facing Procurement?

Jason Deign | April 19, 2016 |

Nobody said controlling indirect spend was easy. There’s plenty to worry about. But what are the other main challenges facing procurement teams today?

To find out, look no further than the latest Global CPO Survey from Deloitte and Odgers Berndtson. This survey of 324 senior procurement leaders from 33 countries offers a deep insight into current industry preoccupations.

Cost Reduction

Number one on the list, unsurprisingly, is cost reduction. This has always been a major priority for procurement and is even more so this year amid fears of a slowing economy; 74% of respondents cited it as their top agenda item. This level is higher than the previous year, at 69%.

“After a temporary fall in popularity, three quarters of CPOs are now citing cost reduction as a strong priority for the coming 12 months,” observes the study.

“This is driven by a general trend of margin improvement and operating cost reduction, up 15% to almost 50%.”

Going Digital

Another current challenge for CPOs is the lack of a digital strategy. Four out of six already have one and are starting to embrace the digital revolution.

But the rest are missing out on growing demand for more flexible, cost-effective and responsive purchasing. Deloitte cites how one of its clients cut work-in-progress analysis case reporting from 15 to four minutes by moving to an automated system.

Defects have dropped to 0.2% and the automated system can work around the clock, unlike the employees it replaced. “The message from non-procurement stakeholders to the CPO is clear and consistent,” says Deloitte.

“Deliver more insight on demand to inform my most strategic decisions; and at the same time, make day-to-day execution ruthlessly efficient, lightening quick and transparent.”

Risk Mitigation

A third challenge for CPOs is risk mitigation. This time round, 45% of respondents reported a significant amount of procurement risk, up from 2014, when it was 33%, and at the same level as 2013.

What has changed in recent years is that CPOs are now increasingly being tasked with managing this risk. In 2013, only 16% of CPOs were fully involved in risk management. That went up to 22% in 2014 and then 25% in 2015.

“CPOs identified volatility in emerging markets and rising geopolitical uncertainty (for the second year running) as the top risks affecting their supply chain,” says the report.

“No matter where they are located, the most concerned respondents are consumer business CPOs, many of whom are required to ensure availability of products in locations now affected by uncertainty, instability and even security risk.”

Supplier Relationships

The Deloitte study also hints that CPOs are suffering from the impact of weak supplier relationships. Restructuring existing supplier relationships is noted as being a major value-generation strategy for many CPOs this year.

And “supplier relationships that are collaborative, innovative and sources of competitive advantage” is cited as one of the ways CPOs can make up for skills gaps in their teams.

“An outsourcing relationship is doomed if either party takes an adversarial approach because more energy will be spent on defending positions rather than delivering the core service,” says James Cay, procurement head at the Bank of New York Mellon.

Bearing this in mind, 29% of procurement chiefs surveyed in the Deloitte study are planning to invest in supplier relationship management systems over the next 12 months.

Skills Gap

Finally, skills emerges as a major challenge for today’s CPOs; 62% of those surveyed do not think their teams have the skills needed to deliver their procurement strategy.

This significant finding is highly related to the need for digital strategies and better supplier relationships, both of which can help procurement functions overcome a lack of in-house skills.

Ultimately, then, what emerges from the study is not just a set of challenges but also an opportunity: CPOs willing to forge ahead with a digital strategy could find it results in an important competitive advantage for their organisations.

Contact us today to discover how the Maistro accelerated procurement & managed services platform can enable your organisation to overcome all of the above challenges, and more.

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