Businesses today face extraordinary challenges. Yet these troubled times also present opportunities to gain competitive advantage through procurement.Purchasing professionals today are being asked to increase their organization's cost savings with smaller budgets.
A recent survey of chief purchasing officers (CPOs) found that savings targets have increased, with almost one in five CPOs required to deliver additional savings of 15 percent or more. At the same time, more than half of respondents have had their procurement budgets cut - and for many CPOs, by as much as 15 percent, according to the Accenture report, titled Procurement in Turbulent Times.
In a separate new study, from BravoSolution, nearly 75 percent of the surveyed 400 CPOs and purchasing directors' organizations have seen an increased need for cost savings over the past 12 months. Meanwhile, 44 percent anticipate wider mandates for cost control and 38 percent foresee an increased strategic input for procurement over the next 12 months.
More than three-quarters of procurement heads reported to Accenture that the current turbulent economy is "significantly affecting" their procurement functions in several ways, including:
"[O]rganizations' short-term responses are around cash conservation, cost reduction and supplier collaboration and relationship management," Accenture reports. In fact, two-thirds of respondents said they are increasing efforts on managing supplier relationships, making it the single most commonly adopted tactic.
In the current market, meeting the new savings targets is particularly challenging because the supply base has become significantly more unstable. Almost 20 percent of CPOs polled by Accenture said suppliers have not been able to meet their levels, and another 15 percent report suppliers going out of business or having to merge with another company.
However, while Accenture determined that 70 percent of respondents have now increased their supplier monitoring in the current market, the BravoSolution study found nearly as many CPOs (69 percent) had not examined the impact of the last six months on their supply management strategy, leaving them exposed to potential long-term problems. Of the 31 percent who have examined the impact of the recent economic downturn, some 72 percent are introducing changes to their supplier management strategy, indicating "a fundamental need for purchasing professionals to evaluate the risks that the recession has created," BravoSolution reported.
In addition to increasing focus on managing supplier relationships, Accenture found CPOs are taking these major strategies as a result of the current economy:
Many purchasers are reporting proven opportunities to capture additional savings.
BravoSolution's findings indicate that the ongoing downturn in the global economy has led to a strengthening in the position of CPOs within their organizations: 78 percent of purchasing professionals claimed they have seen unexpected opportunities resulting from the economic downturn.
For example, more than half (51 percent) believe they are now in a stronger negotiating position with suppliers, and 48 percent state they have more flexibility when it comes to reviewing existing contracts.
Moreover, of the purchasing professionals who have introduced new systems and processes to their supplier management strategy over the past 12-24 months, a large proportion reported a clear return on investment within six months: 41 percent have made savings from greater supplier performance management, and 31 percent witnessed improvements from e-sourcing tools and templates.
"Purchasing professionals find themselves in a unique position during the downturn. They move towards centre stage within corporate strategy and are empowered as a result of supplier instability," according to Billy Hamilton-Stent, director at UK-based Loudhouse Research, which conducted BravoSolution's analysis.
"However, this is not sustainable," Hamilton-Stent continued. "Future planning, risk assessment and innovation must take precedence in the coming months if large businesses are to build sustainable purchasing strategies in leaner times."
"Winning in this economic environment calls for a game plan tailored to your business, its marketplace and the competition," Accenture makes clear.
After reviewing how recession-driven "big picture" strategic imperatives might affect the business - such as changing consumer spending patterns, reduced business spending, shortage of credit and shifting global trading patterns - the research firm recommends considering the possible strategies available. These may include redesigning the business's operating model to streamline and simplify it; undertaking an expansion of the investment in innovation; making selective acquisitions; upgrading the business' human capital; upgrading its performance management systems; and/or adopting green principles.
Accenture's extensive research into high performance as it applies to procurement finds that procurement masters:
"When costs need to be cut and supplier contracts renegotiated, it is clear that procurement can play a leading role in steering their businesses through the current economic turbulence," BravoSolution CEO Nader Sabbaghian said in an announcement of his firm's findings.
Date: April 28, 2009
Source: David R. Butcher, Thomas Publishing Company LLC - www.thomasnet.com