Procurement’s New Year’s Resolutions for 2015: More Saving, More Doing (But Not More Budget)

Since the New Year has arrived, it’s time now for the annual onslaught of Procurement Prognostications for 2015. Of course a year from now, what actually transpires may bear little resemblance to what was predicted – and who really goes back and reconciles results with resolutions anyway? But at least in this case, an educated guess can be made as to what procurement leaders will actually be focused on in 2015, based on their responses to a recent joint survey conducted by Zycus and The Hackett Group of over 200 procurement leaders and practitioners.

Major Areas of Procurement Focus in 2015 When asked to pick the top three issues they will be focusing on in 2015, more than half (52%) of all respondents cited the need to reduce the cost of procurement, while simultaneously continuing to expand procurement’s scope and influence over spending (48%) – seemingly contradictory goals, which Chris Sawchuk, a principal with The Hackett Group, and their Global Procurement Advisory Practice Leader, reconciles as follows: “We had a lot of wind at our backs coming out of the 2008 economic downturn during which prevailing price deflation, coupled with intense margin pressure, helped to remove many of the constraints preventing procurement from getting more influence over spending. In fact, since 2008 we have seen spend influence increase by about 10% of total corporate indirect spending. This trend is expected to continue into 2015, even while procurement operating budgets remain relatively flat.” Also top of mind for procurement leaders and practitioners in the coming year, are supplier risk mitigation (41%) and a resurgent focus on increasing the value and efficiency of transactional P2P (Procure-to-Pay) processes (38%) – a key tactic to enable the “do more with less” mantra and enabling resources to be re-allocated to more strategic pursuits. While fewer respondents chose one of the most traditional measures of procurement effectiveness – reduce and avoid purchase costs (26%) – as one of their top 3 areas focus for 2015, this is more likely due to the tacit acknowledgment that savings expectations are merely a given, with year-over-year increases in savings targets in effect, “the old normal.” More revealing perhaps is the fact that nearly as many – 23% – see a major focus on capturing – and quantifying – procurement-led value creation from supplier innovation programs.

Prioritized Capabilities and Technologies for 2015 Consistent with the dual strategies of expanding procurement’s scope and influence while achieving significant efficiency gains, procurement organizations are earmarking enhanced capabilities in Analytics and Reporting (40%) and Strategic Sourcing and Category Management (32%), by reallocating and upgrading their human capital resources and equipping them with more robust technology platforms to enable analytics, reporting and supply market intelligence. Specific to the enabling technology platforms required to support capabilities targeted for development in 2015, procurement teams cite the need to maintain and leverage existing technology investments (29%), such as foundational ERP (Enterprise Resource Planning) or procurement tools, but placed a greater premium on tools which:

  • Extend foundational platforms by rolling out more self-service web-based tools to drive broader adoption (35%)
  • Establish data stewardship through improved master data quality (33%)
  • Expand visibility by deploying Business Intelligence (BI) Analytics (32%)

Procurement Operating Budgets Flat for 2015 Underscoring the necessity for procurement organizations to drive productivity gains through increased automation and efficiency is the reality that few can expect to receive a budget bounce for 2015. While the average procurement operating budget is expected to increase by a scant 0.3%, fully 60% of those surveyed expect their budgets to be flat or declining in the coming year. The silver lining of the “world is flat” reality of procurement operating budgets is that, by and large, the function has fared better than many of its counterparts. According to Sawchuk, “The notion of doing more with less is not isolated to the procurement function, in fact, while procurement budgets will remain relatively flat over the next few years, the function has fared better than others since the economic downturn that started in 2008, when other functions saw their operating budgets reduced much more significantly than procurement.”

Spend Savings Robust in 2014 and Forecast to Grow in 2015 Procurement teams have proven themselves quite adept at delivering and sustaining high levels of spend savings – both spend cost reduction and cost avoidance – during the past year, and remain bullish about continuing the trend into 2015. Average spend savings approached 5% during 2014 and nearly half expect a slight increase in 2015, with an additional 9% of respondents forecasting much higher savings in the coming year. In total, 84% of respondents forecast savings the same or slightly better than in 2014, with an overall spend savings contribution between 5% and 6%.

Supplier Management Strategies Emerge as Major Focus for 2015 Another major theme emerging from the key trends for the coming year points towards 2015 as the year of the supplier – supplier management that is. Over 70% of those surveyed apply formal supplier scoring methodologies to at least some strategic suppliers, and the most advanced supplier management initiatives not only scorecard supplier performance, but quantify their supplier collaboration efforts by measuring the value contributed through supplier innovation. Overall, more than 50% of all respondents indicate that they are actively measuring contributions from supplier innovation. Sawchuk notes that certain industry verticals (i.e., Consumer Product Goods and High Tech) have been more prevalent in “pushing the envelope” on bringing visibility, whether quantified or not, to the impact of supplier innovation efforts, but he expects this to become more dominant and proliferate across many more sectors over the next couple of years, as procurement teams across all industries seek to find new ways to create and make visible value delivered beyond traditional spend cost savings.