The economic downturn has tightened the screw on CPOs as businesses aim to cut costs and manage supply chain risks.
This is the finding of the third annual Capgemini Global Chief Procurement Officer Survey, which questioned senior buyers at 150 organisations.
Over two thirds - 67 per cent - of the businesses said economic conditions were having either an acute or significant effect on procurement’s current activities and areas of attention. A mere 4 per cent saw no impact on operations.
As a result demand for savings has gone up, with 39 per cent of the respondents tasked with cutting costs by between 6 and 10 per cent of annual expenditure, compared with only 19 per cent last year. The number of senior buyers chasing double-digit savings also increased two fold.
And the purchasers don’t believe this pressure will ease. Almost 40 per cent believe the global recession will continue for at least the next year and a half. But this is not necessarily bad news, as 75 per cent of the respondents do not expect to see any major price rises on raw materials or energy.
The biggest area of focus was renegotiating existing contracts with suppliers, which was being pursued by one in five of the respondents. Other issues high on the CPO agenda include supplier risk and raising the profile of procurement.
“While procurement executives are chasing significant cost reductions in spend to help support balance sheets, there is also a growing recognition of the inherent risk posed by distressed suppliers,” the report said.
“The effects of the credit squeeze, reduced order books from inventories being run down and lower demand are all having an effect on suppliers. While many will weather the economic storm, for others it will spell disaster.”
Some 65 per cent of the businesses said improved supplier relationship management was important to helping monitor and mitigate the danger of vendors going out of business.
“Trying to understand the ‘at risk’ suppliers within any vendor base goes well beyond simple financial analysis… Organisations need to be considering not just the relative strength of vendors’ balance sheets but their downstream exposure within the vendors’ own supply chains, their operational competencies and contingency plans.”
Elsewhere, more than a quarter of the organisations noted difficulties attracting talented buyers, which was exacerbated by the need to deliver increased savings. The participants said “most” organisations were battling for the same people and there was greater competition because new businesses in China and India were hunting for top purchasers.
“The CPO is under increasing pressure to deliver faster, larger results. To do this they will need the right talent to execute differing approaches capable of satisfying this demand,” Capgemini said.
The company recommended taking simple steps to plug the talent gap:
· Review resources and assess talent and determine areas where capability is needed
· Create boot camp training for buyers
· Develop a strategy for recruitment in key resource areas
· Consider where skills may be needed in the future.
Meanwhile, the pressure to reduce cost is driving chief buyers towards “hybrid” procurement strategies. Last year the survey found 63 per cent of the organisations favoured centralised purchasing structures, while this year that figure dropped to just 36 per cent.
The report explained: “A hybrid model combines the features of central direction with distributed service provision for procurement. Given the pressures to drive benefits, the need to ensure close proximity to end user communities rises in importance.”
It said there was increased commitment to procurement outsourcing (PO) as organisations “dash for cash” and look for quick returns on investment with PO suppliers. Capgemini added: “We have found this to be of particular appeal in non-strategic areas, particularly indirect spend categories.”
