By Dan Berthiaume
Global procurement executives see resource capabilities and unclear, bureaucratic processes as leading challenges to their organizations. Interestingly, relatively few procurement executives see cost reduction as a leading organizational challenge.
More Resource Capabilities Needed
According to a new global survey of procurement executives conducted by sourcing advisory firm ISG and sponsored by procurement outsourcing provider GEP, “Procurement Strategy: Industry Trends and Implications,” procurement executives were most likely to indicate that resource capabilities, including gaps in skill-sets, were a top three challenge to their organizations (58% ranked resource capabilities in the top three procurement organization challenges). In addition, a significant number of respondents (56%) indicated that business unit support was a top three challenge.
ISG analysis indicates there is a clear relationship between these challenges, as appropriate skill sets are critical to winning the acceptance and support of business units in achieving more comprehensive ability to effectively manage spend across the company. Procurement executives also mentioned challenges such as lack of analytical and transactional tools (54%) and lack of transaction automation (51%). Somewhat surprisingly, achieving cost reduction target” (38%) was the area least commonly cited as a challenge by procurement executives.
ISG says this indicates that targets are potentially already set at an achievable level for the organization,. It may also indicate the goal has been an area of focus and improvement for sufficient time that procurement executives simply feel comfortable that it is more under control than other area. ISG believes that this is a critical area for future focus for procurement leaders, but this point of view was not necessarily reflected by the survey.
Procurement Processes, Vendor Management Have Issues
Procurement executives also showed a strong belief that there was a need for process improvement (86% of respondents said there are “significant” or high opportunities) and vendor management (79%) approaches to drive better results. ISG says process improvement is critical in several areas, including to clear up what are often “opaque” processes with a with a lack of clarity in terms of what information and approvals are required, what steps are necessary to ensure that best practices are utilized in managing spend and controlling risk, and exactly how long all of this will take.
In addition, ISG research indicates executives often view procurement activities as bureaucratic and suffering from delays due to information from the requester, and variable turnaround times for reviewing statements of work (SOWs) or specifications, negotiation times and legal reviews. Furthermore, ISG says vendor management is to a large degree the “greatest untapped opportunity” for procurement organizations. ISG cites multiple reasons why vendor management is both increasingly important and difficult to solve, including decentralization of vendor relationship management, relationships crossing multiple business units with limited coordination, expanding financial scale (external spend represents nearly 47% of sales on average), and the increasing operational and technological integraation of vendors with core processes, presenting both greater risk and greater opportunity for value creation.
Editor’s Note: On Friday, Sept. 14 BPO Outcomes will review the survey’s findings on future areas of outsourcing focus for procurement executives.