Dave Bowen, CEO - MM4, and Managing Director - Xchanging Procurement, AmericasPrint This Page
Inside Sourcing newsletters \ Procurement Technology and Spend Trends in Focus: A Look at What's Top-of-Mind for Procurement Pros Heading into 2015
In a recent survey Xchanging executed across SIG's Peer2Peer Network, a number of interesting - and some surprising - findings emerged about procurement technology and spending trends. Perhaps most notably, the results illustrated a significant jump in the c-suite recognizing procurement as strategic to the overall business, a promising finding that all sourcing and procurement professionals can appreciate.
Other key findings were related to the year-over-year comparison in planned investment in certain procurement technologies, which were determined by comparing results from a similar survey conducted in 2013. Let's take a closer look at some of the key results and trends that surfaced from the study, drawing comparisons to last year's survey results to see how perceptions have shifted over time.
Importance of Procurement Recognized by the C-Suite
Of the survey respondents, 68% said their C-suite views sourcing and procurement as strategic to the business. In a similar study conducted by Xchanging in 2013, only 38% of respondents said the C-suite viewed procurement in this way. This represents a major shift in perceptions about the procurement function and the value it can drive within an organization.
To see the number of executive teams viewing procurement as strategic nearly double year-on-year is extremely promising. One of the reasons for shifting opinion is the increasing potential to source from new low cost markets, which is creating a compelling opportunity to impact the bottom line. But it's more than that. Recent, significant advancements in technology and service provider maturity have led to some really eye-popping business cases that make procurement's strategic value clearer than ever. We're seeing this in practice with customers and prospects.
Finally, the ability for procurement to take cost out of each area of the supply chain has resulted in tremendous EBITDA improvements that result in such positive recognition.
Increasing Technology Adoption
Regarding planned investment in procurement and sourcing technologies, respondents reported notably different priorities in the 2014 survey, compared to 2013. Here's a snapshot of those comparisons:
2013 Survey Outcomes
2014 Survey Outcomes
Solutions that track savings to businesss outcomes
While interest in Procure-to-Pay platforms is ranked as a priority by only about half this year compared to those who ranked it as such last year, forecast increased investment in eSourcing nearly doubled. This aligns with reported market demand for such solutions. For example, Forrester Research's recent report, "Market Overview: 10% Growth In ePurchasing Software Market Makes 2014 A Year For Buyers," stated the ePurchasing market, under which eSourcing falls, would grow by 10% in 2014.
As for the decreased planned investment in P2P platforms and solutions that track savings to business outcomes, it could be projected that this is simply due to other technology priorities. Though the survey respondents revealed that they place less of an emphasis on P2P platforms as priority, for example, as compared to the 2013 survey, 17% still said they plan to increase their investment in these solutions.
Generally, whatever businesses are using to achieve cost savings today won't be able to deliver the same ROI indefinitely - the geo-political environment is changing, business operations are changing, values are changing and technology is changing. If everything outside an organization is changing, it stands to reason that the organization will have to change, as well. Technology is not only a catalyst for change, it's also enabling it, and as procurement teams experiment with different technology combinations to see what drives the greatest savings, we'll see investment priorities shifting, as we did in this survey.
Reining In Costs on Indirect
In regards to reining in costs on indirect, the study surfaced a number of interesting findings:
The top priority for the sourcing and procurement function was cost reduction for indirect goods and services
While businesses allocate a vast amount of spend for indirect goods and services (53% reported annual indirect spend of $500 million+), no respondents stated the percentage of indirect spend that is centrally managed and influenced by procurement professionals to be 85% or more, the benchmark for world-class procurement organizations;
A significant percentage of respondents said controlling/managing indirect spend is a notable challenge for their procurement/sourcing departments.
The fact that many respondents reported the management of indirect spend as a notable challenge for their procurement/sourcing departments suggests organizations need to reconsider their approach. One way to do this is to outsource the spend management function to an expert third party. This frees up time for companies to focus on their core competencies while still driving increased savings.
Aside from outsourcing, we are seeing many companies looking for a third party partner that can augment their existing personnel on an on-demand (or category-by-category) basis. This model can prove to be very effective in generating accelerated results and ensuring knowledge transfer while allowing for greater operational flexibility.
As procurement technology and spending trends continue to evolve over time, it will be interesting to see how perceptions shift regarding the value procurement delivers. It will also be worth keeping an eye on how innovation in the industry better enables teams to do more than just reduce the cost of purchases, but to fully synchronize the processes and purchasing that impact a business' bottom line. We can likely all agree that the increase in the c-suite's recognition of procurement as strategic to the overall business is encouraging and that, moving into 2015 (and beyond), further solidifying procurement's role as a critical function will be top of mind.
Dave Bowen is CEO of Xchanging's eSourcing business, MM4, and Managing Director of Xchanging Procurement, Americas. Xchanging is the third largest procurement outsourcing services provider globally. Learn more at www.xchanging.com.