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The Nine Things We Learnt About Procurement In 2014.

OutsourcingGlobal sourcingTalent and LeadershipBlog+-
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#1 There is no best practice for operating structure

At the start of the year, Procurement Leaders looked into the benefits of various procurement operating models. We found that there was no ‘best fit’ in terms of structure. All models seemed to deliver the same savings rates.

What is more important than the maturity of the organisation and its progress through structures are the development of capabilities through time. Moreover, and perhaps not unexpectedly, it is vital that the function finds its own best fit for itself and its stakeholders. This may suggest either a decentralised structure or centralised, but the answer which produces the best results will always be context-specific.

 

#2 Do what you do best and outsource the rest

Many companies have followed the advice of Tom Peters, the US management consultant, who encouraged businesses to "do what you do best, outsource the rest". Presumably, this underlines the messages of retaining core competencies.

Interestingly, and contrary to our expectations and theory, companies have outsourced a significant proportion of their core activities. It seems as though the idea of core activities (namely, those which must be retained in-house) are rarely applied by business.

 

 

#3 The future does not lie in reshoring

There has been a lot of talk about reshoring in recent years. This is vociferously debated in the US, where overseas sourcing is subject to national discussion. However, we found few CPOs planning to ’bring back’ spend in the future. And, for those that do, the savings generated is less than half that offered by offshoring initiatives.

 

 

#4 People don’t like procurement

Earlier this year, Procurement Leaders surveyed the general public about their views of corporate purchasing practices. We asked consumers in Australia, UK and US a range of supply chain-related questions. In the main, they didn’t like what they saw. They suspected business of exploiting workers from less developed countries and didn’t pass the savings along to the final consumer. There was substantial disillusionment and suspicious of corporate activities in the supply chain.

 

 

#5 Buyers still doesn’t have the strategic skills needed to further the function

Still, it seems that buyers lack the strategic skills that CPOs are looking for. This has been a familiar refrain to those following the function over the years. However, despite this frequently identified failing, there is little sign that leaders in purchasing are making efforts to address the gap. For most, the answer lies in recruiting talent from outside the function, as opposed to developing buyers from within.

 

 

#6 CPOs are happy

Despite long hours and the stress of senior positions, CPOs are generally contented about their work/life balance. Most executives worked a 54-hour week, which is longer than most of the managers below. This is partly aided by the advert of modern communications, where executives are not immediately contactable on their ‘crackberries’. That said, intriguingly, we find that the happier CPOs were in their work/life balance, the higher the anticipated savings rates.

 

 

#7 Indirect price forecasts across emerging and western markets are closely aligned

Commentators often talk of rising labour costs in emerging markets representing a significant threat to international business models based on wage arbitrage. This effect is yet to be detected amongst the indirect categories in Procurement Leaders’ research. In our survey of over 400 category managers, we found that the expected movement of indirect categories in the Global South generally matched those in the more advanced economies. However, for those categories which are most associated with directs, it appears that there is evidence of wage inflation pushing up pricing faster.

 

 

#8 Buyers spend more time with bottleneck suppliers than strategic suppliers

In our series of reports looking at SRM, we asked buyers about their time allocation between different types of suppliers in the Kraljic matrix. Interestingly, despite their relatively low spend levels, it was the bottleneck suppliers that subsumed most of buyers’ times.

On average, buyers had 28 meetings a year with this segment-type, against only 11 meetings for strategic suppliers. It seems that buyers are still struggling to manage away these ’problem’ suppliers, and are unable to dedicate the resources needed to focus on the partners which have the most long-term potential for the business.

 

 

#9 CPOs reserve the lion’s share of the training budget for themselves

In a survey earlier this year, we asked our procurement community about their training allocation. In terms of yearly budgets-per-head, it is the senior management that enjoy the most generous endowments. The average CPO will receive over twice the training resources of the buyer. But, as we saw above, it may be the middle and lower ranks that lack the necessary strategic skills to push the function forward.

 



The question for 2015, will be whether CPOs will put the money where their mouth is.

 

Members can access Part I of the Procurement Leaders 2015 Trend Report here, and Part II here.

Jon Webb
Posted by Jon Webb