Trade wars, Brexit, the threat of a global downturn and the growth of “mega suppliers” have put procurement increasingly on the defensive over the past year, according to the Deloitte Global CPO Survey 2019.
Deloitte found that more than 60% of firms have seen increases in procurement risk as previous norms of global trade are challenged through changing pacts and tariffs and worries about a new economic downturn.
The survey canvassed 481 procurement leaders from 38 countries, representing organisations with a combined annual turnover of $5tn.
The top risks for organisations was downturn/deflation (42%), internal complexity of organisations (39%), managing complexity within mega suppliers (37%) and trade wars (33%).
And the top two business strategies for the next 12 months were cost reduction (70%) and increasing focus on risk reduction (55%). Expanding/introducing digital business models (52%), introducing new products/services or expanding into new markets (50%), and expanding organically (47%) came next.
Only 37% of respondents said they were prepared to deal with risks “to a large extent” and only a few said that they were “completely prepared”.
The threat posed by mega suppliers, which have emerged “as a byproduct of years of strategic sourcing and industry consolidation”, was named as “the real supply risk surprise” in the report.
“Supplier power means greater commercial/relationship complexity, which creates not only price risk but also agility risk if the supplier can’t be managed strategically for mutual benefit,” said the report.
Despite these fears 36% of all organisations still plan to continue performing spend consolidation – which in fact will be the most common procurement strategy to be employed over the next 12 months.
Supplier collaboration and increasing competition came in joint second place, with 28% of organisations naming these as common procurement strategies in the next year.
Only 26% of CPOs described themselves as excellent internal business partners and most respondents reported they had stronger relationships with some functions than others.
The functions most likely to rate procurement effectiveness as excellent were IT (50%), finance (46%), and operations (44%).
The report said a constant theme in responses was that procurement leaders were finding it hard to weigh competing demands for limited resources.
“They’re having trouble determining how best to meet their supply-related commitments alongside more ambitious goals such as strategic business partnering and innovation contributions,” said the report. “They also struggle with frequent fire-fighting.”
One CPO was quoted as saying: “Too many activities are rushed into, reactionary or directionless, which creates greater complexity.”
One approach to tackling this increasing scope of responsibility was eradicating “bad complexity”, or complexity that introduces risk and hampers procurement performance.
However, more than 50% of organisations claimed to have zero or minimal effectiveness in using commercially available digital tools to spot and predict supply chain risk.
Another approach was to embrace “good complexity” to expand procurement’s influence beyond traditional spend management toward a broader engagement model and service offering.
This would mean having a broader influence over business stakeholders in strategic areas.
However both approaches depend on digital transformation, described as “an imperative for top-performing procurement organisations”.
The most high-performing 25% of procurement organisations had demonstrably stronger digital capabilities than their peers, as well as tighter alignment with key stakeholders such as IT and risk management.
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