Procurement Intentions: Are we in the midst of a supplier super-cycle?

The more eagle-eyed among you will have noticed that we published our Procurement Intentions Index graphs late last week. The graphs record changes in CPO strategy intentions over time, and, despite being only four months in, our Panel’s approaches in some areas are certainly becoming clear.

One good example is supplier collaboration. July’s results saw a score of +0.79, a positive result showing how the Panel is looking to increase their collaboration with suppliers over the next 12 months. At the same time, a score of -0.64 was recorded in terms of the number of suppliers that organisations will do business with over the same period. (For those unfamiliar with the scoring system of the Procurement Intentions Index, +1.00 indicates that 100% of our Panel are intending to increase the activity in question, while -1.00 indicates the opposite.)

Viewed together, these results show the clear intention of CPOs to consolidate their supply chains by reducing the number of suppliers they work with, while, at the same time, spending more time collaborating with those that remain.

What’s more interesting, however, are the longer-term trends. Will, for example, the supplier collaboration score fall in time because procurement functions reach greater levels of maturity and, as a result, will not need to collaborate "more" with suppliers? If this is the case, the Index will bounce along at "0".

Already, since we launched the Index in April, the score has fallen from 0.91 to 0.79 which could indicate that, overall, procurement functions are getting more mature with more organisations reaching the optimum level of supplier collaboration (remember, the question relates to whether Panelists intend to "increase" supplier collaboration). Equally, it could illustrate a short-term trend, where organisations are choosing to chase hard savings, so making collaboration more difficult and less of a focus. Only time will tell.

My hunch is that, despite the slight dip since April, the supplier collaboration and consolidation results are part of a "super-cycle" and that we will see the Index positions of both of these remain broadly the same for months if not years to come. That is until future CPOs believe they have reached the perfect number of suppliers and want to increase price competitiveness by taking more on board.

In other words, until the Intentions Index reflects how procurement functions have reached a very high level of maturity.

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Tim Burt is premium content writer for Procurement Leaders. To subscribe to the magazine, click here.