Back in 2010 HCMWorks polled the procurement community to determine what areas of indirect spend was creating the biggest opportunities for the market that was still desperately trying to identify savings. To no one’s surprise, indirect goods and especially services came back as an immense untapped opportunity of savings. However, almost 3 full years later and in a recent conversation with a company who has over $1.5B of indirect goods and services, they admit that it is an “overlooked” area.
In our 2012 Survey we continue to see huge upside within all indirect categories with 70.6% of respondents indicating that Indirect Expenditures were an Area of Meaningful Corporate Savings Opportunity. (Full report access 2012 Indirect Procurement Survey). Since 2010 this number has decline less than 10% continuing to support the position that Indirect Expense remains an afterthought for procurement operations. One theory is that with the headcount reductions for companies since 2008 procurement is just unable to do more with less. The other theory is that indirect goods and services is just too unwieldy and emotional an area to address without direct executive mandate. While these opportunities for savings are clear, the ability to act upon them is difficult without internal resources to assist. More companies are beginning to explore the use a Business Process as a Service (BPaaS) as a means of attacking these savings opportunities while relying on external resources and expertise to assist in capturing the opportunities, however, little activity for this segment continues to move forward.
Companies who are adopting an outsourced BPaaS model are seeing that with a small upfront investment, returns can begin in 6 months with total program breakeven in 12. For vendor funded models programs are even realizing positive cash on average within 18 month. These programs are being designed in such a way that they are cost neutral both in terms of managed services and technology with 100% savings realization.
In this month’s Everest Report on the Procurement Outsourcing Market they reported a 14% growth in the total PO market for 2011. Additionally, Harris Poll recently reported that Fortune 1000 executives aren’t satisfied with current cost cutting tactics and will be looking for new approaches and methods in 2012. With the current slow-growth market, this comes as no surprise. Although CFOs and finance departments typically have their finger on the pulse of spending on direct materials, it is ever more apparent that indirect procurement is seriously neglected in many organizations, even though it can represent as much as 20% -40% percent of revenue.
HCMWorks 2012 Indirect Procurement Survey reached a new high in participation and delivers information that suggests a broad based need for change within peer company procurement divisions if the desired outcomes are to be achieved.
What sort of insight does the 2012 survey deliver?
In conjunction with the data collected from our surveys on LinkedIn, this year’s report is sending some clear signs of conflict:
Executives aren’t satisfied with cost cutting tactics but;
Procurement is under resourced being tasked to do more with less;
Corporate culture isn’t supporting the needed procurement transformation
Without executive support the potential for meaningful results will continue to go unrealized.
How does your company compare? More importantly perhaps, how are you going to break through the barriers you face in delivering those ‘meaningful’ cost savings that, in the end, return shareholder value?