Predictions for Procurement in 2016

At The Hackett Group, we start each year by releasing the results from our annual Key Issues study, which details the priorities that are top of mind for executives not only in procurement, but other business services functions such as finance, HR and IT over the coming year. Here's an overview of our findings in procurement, based on input from executives at nearly 200 global companies.

Small Increases in Procurement Staffing and Budgets, Eclipsed by Revenue Growth

Our study shows that procurement executives are expecting small increases in staffing (2.2%) and operating budget (1.1%) in 2016. At the same time, these companies are expecting revenue to increase by 3.7% thus resulting in improving productivity. As noted, staff is expected to grow more than budgets in 2016 which indicates slightly lower new labor costs.

Objectives: Becoming a Trusted Advisor Remains Key, But Cost Reduction Returns as Top Priority

Over the years, our study has shown that reducing cost has consistently been the top priority for procurement organizations, but that changed in 2014 when "increasing spend influence" took the top spot. Last year, our listing of priorities was augmented and one of those new priorities, "elevating the role of procurement to trusted advisor," was cited at the top priority for 2015.

For 2016, the global business environment is clearly causing procurement executives to shift slightly and focus their attention more on "reducing and avoiding purchased costs" which has returned to the top priority spot only displacing becoming a trusted advisor by a slim margin. Another top priority was "Improving agility." With increasing levels of uncertainty and business volatility, it's not surprising that procurement executives feel they need to be more agile to react more quickly to developments in the market.

Several Key Priorities, Procurement Has Limited Ability to Address

An important area we look at is the gap that exists between the importance of procurement's priorities and procurement's ability to address it. For 2016, procurement executives identified shortfalls in four key areas: becoming a trusted advisor; increasing spend influence; increasing agility; and tapping supplier innovation. These are among the most important areas for procurement in 2016, yet there is clearly a need for procurement to improve their ability to address each of them.

Quantifying What it Means to Be a Trusted Business Advisor

Due to the importance of being a trusted advisor, we wanted to better understand what procurement executives believed they needed to do to achieve that status. Overwhelming, it was delivering on the basics (i.e. supply assurance) consistently. Importantly, if procurement can prove itself here, it provides the foundation (not the guarantee) for building a more trusted advisor relationship with the business. Also, and not surprisingly, having the right staff is also a key. 

Actively Managing Tail-Spend Can Offer Real Savings

Procurement organizations generally dedicate the majority of their time and energy to their largest suppliers, generally consolidating at least 80% of spend down to 20% (or less) of their suppliers. But this year, The Hackett Group's Procurement Key Issues study also looked at the opportunity to generate savings and other value by more actively managing the tail-spend of their organizations. Basically, this represents the 10 to 20% of spend that is spread thinly across the remaining 80 to 90% of total suppliers. 

As the most mature procurement organizations search for new ways to create value, our study found that typical companies could generate on average savings of 7.1% by taking a more segmented tail-spend approach. This would include analyzing and reclassifying tail-spend, utilizing spot buying desks, demand management and implementing more efficient buying methods such as p-cards and catalogs. 

Category Management, Talent Management Among Areas Where Procurement Will Invest in 2016

Finally, we asked procurement executives where they were planning to invest in order to achieve their objectives in 2016. The top ranked area of investment was "Category Management." For the first time since the inception of the annual Key Issues study, strategic sourcing was not the top investment area, but a close second. Rounding out the top four was talent management as well as supplier management.

Procurement is focusing more and more on not only increasing value, but creating new types of value. To do this, procurement needs to establish deeper relationships within its supply base (supplier management) and within its stakeholders. To do this well, procurement needs the right talent and must develop its ability to attract, develop and retain those individuals.