Beyond the high quality of the presentation itself, I appreciated the global perspective on procurement's activities and opportunities for responsibility and value creation. This was the kind of event that I think would open a lot of C-level eyes to the value of the function that they already have in house. You can request a copy of the slides or listen to the presentation on TradingPartners' site.
Setting the Stage
The global recession that we experienced in 2008-2009 forced CEOs and CFOs to see that if they couldn’t grow the top line, they would have to defend the bottom line. Many of them also saw the supply chain, and more specifically procurement initiatives, as the way to do that. Fast-forwarding to the present day, in excess of 70% of organizations have a single executive leader for the procurement function.
CPOs are, and always will be, concerned with savings. And while maximizing savings is a good operational target, savings can not represent the true value of procurement to the organization. Even where savings are still the goal, new approaches are necessary. Historically, savings would be increased by more sourcing: bringing more spend under management by pushing more projects through the funnel. Now, collaboration with internal groups is the key to accessing previously untouched spend. Additionally, procurement will need to better understand supplier cost structures so they can take advantage of all existing efficiencies.
Without further ado, here are The Trends to watch for:
- Employment Shift
- The Continuing Rise of BRIC
- “New” Low-Cost Countries
- EU Uncertainty
- Increasing Supply Risk
- Importance of Spend Visibility
- Procurement Maturity
Some Additional Detail
Of the trends listed above, I was most interested in 1, 3, and 4. The employment shift is something that none of us can escape; not only does increased turnover change the landscape of our own departments, but it forces us to accept the increasingly global workforce as an alternative to in-house purchasing/procurement activity.
“New” Low-Cost Countries – In the late 90’s, low cost country sourcing meant China, almost exclusively. Now the idea is being revised to include Eastern European and African supply operations. For every cost advantage you consider taking, be sure that you understand the infrastructure capabilities and associated risks.
EU Uncertainty – When combined, the economies in the European Union form what is effectively the world’s largest economy as well as the largest trading partner to China, India and the U.S. The European Union represents 7.3% of the world’s population and 26% of global GDP. The EU’s economic troubles may have a negative impact on their trading partners, particularly since even the economies doing well are being weighed down by those that are not.
- In general, the trends bode well for procurement. We are approaching a time of rapidly evolving supply chains and customer bases.
- Procurement needs to connect their activities to corporate strategy and effectively communicate their results.
- Spend visibility should be pursued at all costs, as only with visibility can any activity be considered strategic.
The Best of the Event Q&A
Q: What should CPOs do in order to drive their visibility?
A: Collaborate with other departments. Assist by paving the way for better opportunities associated with new low cost countries rather than just new low cost suppliers.
Q: What can be done to minimize supply chain risk?
A: Less than 30% of companies have formal supply chain programs in place. The best way to start is by defining risk: financial, business continuity, reputational. Also, take the time to find out what other risk assessment or mitigation activities are going on in the company and align with them.