2013 was a year of significant macroeconomic and technology changes, and 2014 promises to be even more interesting. In the first of this two-part guest post, GEP predicts key trends that will affect procurement executives in 2014.
Trend 1: From “Cost Focus” to “Value Focus”
The past few years have seen procurement playing a critical role in achieving cost savings targets for organizations. As global trade expands and business conditions improve, procurement, while continuing to focus on the bottom line, will now start to be measured as “value centers” accountable to the shareholders to deliver specific and measurable ROI targets – or risk being “outsourced”!
Top performers in procurement will meet this challenge by changing the way they operate. Suppliers will no longer be seen as “the opposing party” that needs to be cajoled and threatened to deliver cost savings. The procurement function will actively collaborate with their strategic suppliers to drive innovation and new product development and improve overall supply service levels. Hard ball negotiations will be replaced by fact-based negotiation. Short-term discounts will be replaced by long term partnerships and value addition.
Similarly, the focus will shift from “identified improvement” to “profit & loss statement impact.” In other words, implementation and realization of benefits will be key!
From a delivery perspective, top procurement organizations will identify areas within their function that can be outsourced to an external partner. Procurement transactions are already being outsourced, but 2014 will see outsourcing taken to the next level. Companies will identify non-core categories whose category management activities can be outsourced to a third party, enabling the procurement resources to focus their time and energy on strategic activities and core-category management.
Trend 2: From “Complications” to “Managed Complexity”!
Over the past couple of years, companies have been seeking low cost countries for their sourcing requirements. As trade picks up in 2014, this globalization of supply chains is expected to continue. As companies expand globally, so will the complexity of their supply chains and hence the procurement function.
The complexity will occur in many forms. As products and requirements become more complex, companies need to create diverse sets of options, packaging designs, and logistics arrangements. Customers increasingly want customized solutions and require specific logistics delivery requirements. This means that companies need to have more facilities in more countries, with more suppliers, greater diversity in product and packaging needs, more e-commerce and other market channels, and more part numbers. On the sales side, increases in local delivery requirements are driving complexity of distribution logistics. Layer on top of that increasing urbanization, economic volatility in the growth markets, political disturbances (India, China, the Middle East) and you have a powerful set of possible complicated interactions.
Procurement leaders will focus on this in 2014 and identify ways to reduce the supply complexity and manage their costs accordingly. They will partner and collaborate closer with sales, manufacturing, New Product Development and Suppliers to achieve this. Sources of complexity and the corresponding value impact will be measured and tracked to identify corrective action.