We recently reached out to Deloitte to get its take on results of the consulting firm’s 2016 CPO Survey, which features insights from more than 300 chief procurement officers on the top issues they are tackling this year. Many of the CPOs in the survey pointed to cost reduction as a main focus for them. Today, Ryan Flynn, principal at Deloitte, answers our questions on how CPOs are tackling cost reduction in 2016 and what role technology is playing. You can also check out Part 1 of our conversation with Flynn, which focuses on what Deloitte found most interesting about its CPO survey results this year.
Spend Matters: How do you balance the interest in supplier innovation and development with the cold hard need to continue to focus on cost reduction?
Ryan Flynn: I think the overall interest in supplier innovation and development will continue in the coming years, though those programs may get delayed or curtailed until the current economic volatility and the cost reduction pressure subsides. CPOs will continue to push to play a more strategic role in the organization, and in fact the numbers for supplier innovation and development were still pretty robust this year — 46% of CPOs overall report being involved in new product development, and 77% of life sciences and 59% of consumer business CPOs are driving innovation with suppliers.
SM: We could read into the study findings that suggest outsourcing is on a steady slope decline. But what about managed services? Our own research would indicate this is on the rise.
RF: While it’s true that overall the findings suggest a decline in all areas of procurement outsourcing, there were differences by region — in particular, 19% of U.S. CPOs plan to increase the level of outsourcing this year versus 16% overall. I do agree that interest in managed services will continue to increase. We’re seeing this in the marketplace across different process areas, from providing sourcing analytics support to conducting supplier risk assessments on behalf of clients. With the talent gap continuing to grow and CPOs facing lower training and recruiting budgets, CPOs will continue to look for ways to address their capability gaps.
SM: Let’s turn to technology for a minute. Why does analytics come out on top in terms of investment areas?
RF: First, analytics has been at or near the top for the past several years. I think there are two reasons for that. One is that there is continued pressure to meet savings targets, requiring more advanced sourcing techniques, which require better data and deeper analytics. The second is that many companies still don’t have effective data cleansing and management practices, and it can be expensive to clean and maintain data, so companies are investing in technology to try to make sense of their data on the back end instead of investing the money required to fix the root cause.
SM: What other areas of technology are CPOs looking at and why? And how has this changed from past year surveys?
RF: The biggest technology areas — and the biggest changes — are self-service portals, cloud computing and mobile technologies. We saw significant year-over-year increases in CPOs reporting that they are investing in these solutions. Two main factors are driving this increase: first is the continued focus on cost reduction, through both improved compliance to preferred suppliers and pricing and reduction in operating costs. We’re seeing a lot of clients investing in cloud P2P solutions (with mobile capabilities), backed by strong compliance-based business cases, as more and more companies are realizing that focusing on sourcing can only deliver so much savings to the bottom line. Second is the increased emphasis on more user-friendly solutions to drive adoption, and ultimately the business case. User-friendliness and adoption have become key selling points for many of these cloud solutions, particularly P2P solutions that have traditionally been rather clunky for end users.
SM: You talked about talent already factoring into the results. But what can CPOs do to take action around the talent challenge today? Why is this such a perennial challenge?
RF: The talent gap has been a consistent theme throughout the five years of the CPO survey, and with the corporate belt-tightening seemingly underway, it doesn’t look like CPOs will be able to hire their way out of the problem. It’s really a factor of a tight labor market for procurement talent, combined with a different set of skills required as procurement organizations evolve their strategies (as evidenced by the fact that nearly 70% of CPOs rate the effectiveness of their organizations as strategic business partners as either “poor” or “mixed”).
CPOs should have a talent strategy in place — understanding how their current capabilities align with their strategy and where there are gaps, then developing a plan to address those gaps through a combination of hiring, upskilling current talent and using outsourcing and managed services (maybe even crowdsourcing). One tactic that I’ve seen work well in specialized areas like marketing is to bring someone over from that function and teach them procurement instead of trying to teach a career procurement person the ins and outs of marketing.
SM: On the road to procurement in 2020, Deloitte wrote a paper that suggests a lot of macro trends. Some are happening faster than others. How does this years survey map to the predictions? Was Deloitte wrong? Right?
RF: In our paper we identified four core capabilities that we forecasted would drive procurement success in 2020: (1) innovation and creativity to drive value beyond cost reduction; (2) identification and utilization of dynamic analytical solutions; (3) leading edge talent that is deeply engaged with the business; and (4) shared objectives and formal collaboration with other internal functions.
It’s definitely a mixed bag in terms of how these four line up with the survey findings. Despite the overarching theme of a return to a cost reduction focus, there continues to be strong Procurement involvement in top line value activities like new product development and supplier innovation. In the other major theme of this year’s survey, the move to digital solutions, we definitely saw evidence of procurement investing in newer technologies, and this is backed by our own experience of companies showing more interest in areas like cognitive analytics and machine learning. On the people side, the trends seem to be moving much more slowly. The idea of procurement as a source of leading edge talent seems a long way off, and there’s significant room for improvement in engagement with the business. It’s still too early to tell how close our predictions will be to the mark, but based on this year’s survey it’s fair to say that the talent and internal collaboration predictions will take longer to play out.