Deloitte on How Macro-Economic Trends Are Affecting Procurement

Deloitte Global CPO Survey 2016 peshkova/Adobe Stock

Deloitte Consulting recently released its 2016 Global CPO Survey, which features insights from 324 chief procurement officers from 33 countries on what key issues they are facing today. Cost reduction, trends in technology, improving relationships with suppliers and the growing talent gap were just some of the key focus areas these procurement professionals identified. To gain some additional insight on the survey’s findings, we reached out to Ryan Flynn, principal at Deloitte.

Spend Matters: What jumps out at you from the findings this year?

Ryan Flynn: Three themes jump out this year. One is the overall return to a cost control focus, based on the volatility in the broader economy and corresponding impact on forecasted earnings. The second is the continued growth of the perceived talent gap in procurement — more CPOs (over 60% this year) simply don’t think they have the right capabilities to achieve their strategies. That’s concerning for the continued ability of procurement to generate savings, particularly as the next level of savings requires a more advanced skillset. The third trend is that more CPOs are looking at making high levels of investment in newer technologies like self-service portals, cloud computing and mobile technologies. However, it’s possible this could become hindered by the fact that 60% of CPOs don’t have a clear digital strategy. Given the increasing pressure to generate savings and “do more with less,” it will be crucial to develop strategies for using technologies like cognitive analytics, crowdsourcing and machine learning.

SM: What results surprised you from this year’s survey? Do any of your client experiences contradict broad trends in the responses?

RF: It’s surprising to see continued investment in technology despite the apparent belt-tightening at the corporate level. This is actually consistent with what we’re seeing in the marketplace, with many of our clients looking to implement self-service portals and cloud-based source-to-pay (S2P) systems. One reason may be that clients are getting better at building business cases around new technologies like cloud solutions, and these are also often part of these companies’ broader IT modernization strategies.

Along with this level of technology, we’re still seeing strong interest in outsourcing in the marketplace, which somewhat contradicts the survey findings that showed decline in CPOs looking to increase outsourcing across process areas. As clients are implementing new P2P systems and planning to increase the amount of spend under management through controls like use of POs, many are looking to outsourcing as a means to manage the increase in transactions. We’re also seeing more clients consider outsourcing of conducting risk assessments as they build their vendor management programs.

SM: Could you comment on any surprises or trends from prior year surveys?

RF: One surprise is that CPOs report that recruiting and training budgets are being cut, despite the urgent need to increase their team's capabilities. Back in 2012, only around 3% of CPOs said they spent less than 1% of their budgets on training, but this year that went up to nearly 30% — a bit of a surprise given the growth in the talent gap. Hopefully, this is just a blip due to corporate belt-tightening, as the talent gap shows no sign of abating.

Another surprise was the jump in technology investments such as portals, cloud computing and mobile — the number of CPOs reporting investment in these solutions went up 27%, 19% and 19%, respectively, over last year. Those are huge increases, and it’s great to see procurement tapping the power of these technologies. With the financial pressures that are also being reported, one has to wonder if this level of investment will continue.

The biggest surprise, though, was definitely the abrupt change in what CPOs are being asked to do. Last year we saw an upswing in CPOs being asked to support the growth agenda, while this year it’s all hands on deck to support cost containment.

SM: What are the macro issues that you think are influencing the results this year?

RF: There are a handful of macro-economic issues driving the results. On one hand you have intense stock market volatility and the “earnings recession,” along with the dire outlook in some of the larger emerging economies like Brazil and China that had been fueling a lot of corporate growth. This has led to the return to a laser-like focus on cost control, as well as a jump in perceived procurement-related risk, up 12% from last year. We’re hearing a lot more concern about risks like supplier bankruptcies in oil and gas due to continued low oil prices.

On the other hand, the softness in the commodity markets has been a boon for CPOs in helping them generate savings, with almost 90% of CPOs reporting they have met or exceeded their savings targets this past year.

Stay tuned for Part 2 of our conversation with Ryan Flynn as he shares additional insights from this year’s CPO survey.

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