Just a few days away from the new financial year, let’s have a look at what is on procurement’s agenda for 2014, as per the recent research report by The Hackett Group.
The study revealed a major change in procurement’s priority from last year. While cost reduction/avoidance was the top concern for last year, this year ‘expanding the scope of procurement’s spend influence’ is a top priority for procurement. 76% voted for “Expand procurement’s scope/influence” as a top priority as opposed to 52% for “Reduce and avoid purchased costs”
As per the report, the change in priority order from last year indicates that many procurement groups, having reached the upper limit of cost reductions possible in categories that are actively sourced today, are interested in taking on new spend categories in an effort to unearth additional savings.
Growing revenue (51%) and Innovating product and/or service offerings (25%) are the number one Strategic financial priorities and Strategic business priorities, respectively. This revised perspective, the purpose of innovation represents a profound break with the past, one requiring pervasive changes in every business services organization, including procurement.
Supporting innovation-based enterprise growth will require some procurement organizations to make far more than incremental changes. But, with budgets and staffing levels in 2014 expected to grow only slightly at 0.7% and 0.9%, respectively, procurement’s reinvention efforts have to be self-funded. This will be especially difficult because they will be handling even more work than last year if current projections of 5-7% revenue growth in 2014 hold true.
The study suggested three themes for procurement to align with enterprise objectives in 2014. They are
- Rebalancing supply risk
In 2014, procurement organizations must recharge their risk management and mitigation efforts. the key to success will be finding the right balance of governance, people, processes and technology to actively mitigate and manage supply risks. Procurement needs to balance this expanded risk management role with the mandate to foster supplier innovation.
- Recalibrating procurement’s technology and tools
At 55% “Establish data stewardship, standardize master data and cleanse data” and “Roll out web-based and self-service tools for internal employees” are the top technology priorities for procurement in 2014. Procurement is looking to extend the value of existing tools by extracting more valuable insights from the massive amount of data available, for example through automated spend analysis. It also plans to revisit how supplier networks are being used and are projecting large increases over the next two to three years.
- Reinventing procurement’s value proposition
The challenge is to convince the rest of the organization that procurement’s expanded value proposition is real. 69% percent of procurement organizations rank measuring and monitoring their value contribution as a key objective in 2014. To successfully manage performance and communicate the value procurement delivers, it is necessary for scorecards to align not only with past KPIs but also with evolving definitions of success.
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