CPOs exceed savings in face of economic instability

14 November 2012

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14 November 2012 | Anna Reynolds

Economic instability has created a more competitive supply market, enabling CPOs to be more creative and drive cost savings, according to a report.

A global survey of 103 CPOs and procurement directors by Deloitte revealed more than half (51 per cent) exceeded their savings expectations over the past year, despite continued economic instability and increased pressures on cash flow.

James Gregson, partner in Deloitte’s procurement practice, told SM: “Soft supply markets have meant suppliers are desperately trying to compete, which has made it easier for procurement to play the market. As a result, procurement has had far more access to be creative and implement dramatic strategies.

“Certain industries have been able to continue to invest in hard times, particularly pharmaceuticals, energy and finance. There is a strong correlation between investment and the ability to deliver savings.”

But other sectors did not achieve positive savings targets, including public sector organisations and telecommunications businesses.

The report found a greater focus on supplier risk management, with almost half (45 per cent) of CPOs reporting an increase in risk associated with supply assurance, financial failure and fluctuating prices. But the study also showed only 60 per cent of CPOs measured continuity of supply and even fewer measured price volatility and customer perception.

“The question for procurement will be how to sustain great cost savings while mitigating this heightened risk,” said Gregson. “At the moment, a lot of companies are not sophisticated enough to manage risk in the right way, which could cause future destabilisation.”

Respondents said they are placing more emphasis on closer relationships with suppliers to drive value. “There is a lot of focus now on supply management having to build in mutual value. In the technology and IT sector, there has been a move away from master agreements with large businesses because the value just isn’t there anymore,” Gregson added.

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