For businesses and supply management professionals, doing more with less has been a running theme for years — and one that’s probably here to stay.
As a result, it’s no surprise that reducing costs while increasing productivity are high priorities among procurement leaders, according to a recent research report by The Hackett Group. However, with staffing and budgets typically remaining flat, how much more blood can be squeezed from the efficiency turnip?
“It’s probably one of the most common questions I talk about with an organization,” says Chris Sawchuk, principal and global procurement advisory practice leader for The Hackett Group and one of the authors of The CPO Agenda: Reduce Purchase Costs, Improve Agility and Become a Trusted Advisor. “For the most part, we’re not adding people to the payrolls, or there are only slight increases. In that kind of environment, the demands on organizations aren’t flattening out. They continue to increase. This is what has to drive the innovation of how we do things differently.”
The Hackett Group’s annual Key Issues Study provided the data for the report. In a business world with increased uncertainty and risk, 55 percent of respondents in the study identified cost reduction as their organization’s major initiative in 2016.
When it comes to supply chain staffing in the current environment, cost-cutting trumps agility. A recent study by GT Nexus found that almost half of 250 manufacturing executives polled reported a supply chain disruption in the previous 12 months. However, 76 percent of executives currently do not have a chief supply chain officer, and 41 percent indicated they have no plans to hire one.
Good procurement organizations have always been wired to find the best way to do things with the manpower and resources available, but Sawchuk suggests an additional approach — prioritization. There is an ROI for every supply management function, Sawchuk says, and procurement professionals should identify which ones are not providing an ideal return for the time invested. Fortunately, he adds, organizations have more tools than ever before at their disposal, such as business product outsourcing and group purchasing.
“I usually tell procurement organizations to think of their duties as a plate,” Sawchuk says. “All you can eat is what’s on the plate, but most of us have more on our plate than we could ever go to, so you have to prioritize. If we can’t create more productivity, we have to focus on how we are spending our time.
“At the end of the day, you have to deliver a level of service to make the organization successful. How are you going to do that? A BPO might be able to take stuff off your plate. As we talk about reshaping or redefining the operating model we have, that’s going to be one of the key things for procurement professionals to deal with. Refining the operating model will continue as the demands increase on us, but there are a lot more options now.”
‘Trusted Adviser’ Status Sought
The Hackett Group’s Key Issues Study identified development gaps in four procurement strategy areas:
- Becoming a better strategic partner to the business
- Increasing spend influence
- Improving agility
- Tapping supplier information.
In addition to gauging concerns, The Hackett Group unveiled another research component this year — asking procurement leaders about confidence in their organization’s ability to address them. Among the four critical areas, leaders were somewhat confident that increasing spend influence and becoming a trusted adviser can be addressed. Improving agility and tapping supplier innovation, not so much.
For Sawchuk, one of the biggest recent developments in the study is the emergence of a desire for procurement to become a trusted adviser in the company. In recent years, The Hackett Group analyzed several world-class organizations, he says, and found that all had a deep relationship of trust between executives and stakeholders. As a result, The Hackett Group added becoming a trusted adviser as a choice in the Key Issues Study, and it was the top objective among procurement leaders in 2015 and No. 2 (behind reducing and avoiding purchase costs) this year.
How best to build that trust? According to respondents, trusted advisers are high-batting average singles and doubles hitters, not home-run sluggers. “Consistently delivers on the basics” was the most popular (77 percent) characteristic of a trusted adviser, according to the study.
“What are the characteristics of those organizations that have trust, and how do you know you’re there?” Sawchuk says. “I think there are some organizations that probably think they’re there, but they’re really not. What does it mean? We decided to ask. What came back was the basics. You have to establish a continuity of doing the basic things, and that usually leads to more. As they say in the services industry, good work begets more good work. You develop those relationships through the trust of (being reliable each day).”
Other Procurement Goals
Among the report’s other findings, while improving agility is a high priority, more than half of respondents reported that their organization lacks a formal market intelligence program or is in an early adoption stage. Respondents indicated that they expect big data’s predictive analytics and forecasting to be the most transformational procurement trend over the next 10 years.
Many procurement organizations have consolidated at least 80 percent of spend among 20 percent (or less) of suppliers; however, CPOs remain under pressure to tap new savings sources. The report recommends examining tail spend, the 20 percent of spend that is typically spread thin among the remaining 80 percent of suppliers.
Sawchuk says he has “had more conversations (with organizations) on tail spend in the last three years.” However, he recommends procurement professionals still dealing with general strategic-spend challenges proceed with caution on tail spend.
“Organizations that are most mature have gotten their arms around strategic spend,” Sawchuk says. “There are ways to create value by becoming more efficient with (tail spend). There’s a significant amount of value that can be created there, if you focus on it. A lot of it depends on your maturity. If you haven’t done much on (strategic spending), I wouldn’t focus much on the tail. You can focus on it when you’ve done some of the other things.”