Cost, risk and digital are top priorities in uncertain times, says Deloitte
A need for increased profitability in a low-growth domestic economy and increased global uncertainty are pushing chief procurement officers (CPOs) to add more value to their organisations. Defensive strategies being implemented by CFOs are demanding rapid, sustained cost reduction in parallel to a greater focus on risk from procurement. Traditional procurement operating models are therefore changing, driven by a lack of talent and an increase in digital innovation.
According to Deloitte's annual CPO Survey, cost reduction and risk management top the list of procurement leaders' business priorities in 2017. A lack of skilled procurement talent adds to the pressure on organisations that need to cut costs without jeopardising quality and service levels, and which are under pressure to implement digital strategies.
Uncertainty and growth ambitions are a constant focus in many organisations and, as such, reducing costs is the number one priority for 79 percent of procurement leaders, says Khutso Sekgota (pictured), Associate Director of Integrated Operations Delivery at Deloitte. He adds:
"Those CPOs who accelerate the adoption of predictive and cognitive analytics will enable end-to-end supply chain visibility and start using their data to drive decision making. Most CPOs are already thinking about how to augment their existing tools by leveraging the cloud, analytics and robotics. The challenge for them will be ensuring that their investments are well spent."
Schalk Human, Acting Chief Procurement Officer at National Treasury, elaborates that, "In a low-growth economic environment, companies need to implement cost-related strategies, including within South Africa requires cost-related strategies that are key to drive cost reduction, cost avoidance, cost containment, and aggregation, in order to lower unit costs and defer costs or even cancel contracts."
Clients are increasingly recognising that procurement skills depend on their organisation's operating model. This is a step towards pushing chief procurement officers to add more value to their organisations amid economic turmoil, Sekgota says.
Three quarters of CPOs believe that procurement's role in delivering digital strategy will increase in the future, with over 65 percent saying that analytics will have the most influence.
The impact of automation and robotics on their function will steadily increase from 50 percent today to 88 percent in five years' time, and up to 93 percent by 2025. But 62 percent claim that there is still a large to moderate skills gap across analytical abilities.
The survey shows that companies are particularly interested in adopting predictive and cognitive analytics, i.e., leveraging cloud, analytics, and robotic software to drive decision-making processes. In total, 60 percent of CFOs agree that this digitised process should sustain cost reduction in parallel to a greater focus on risk.
In total, 75 percent of CPOs say that they have executive support, though most CPOs also believe that they can improve their effectiveness of business partnering. Most rate their current effectiveness of business partnering at less than 70 percent and are targeting future effectiveness of more than 90 percent. Without executive support, the CPO role becomes less strategic and more operational.
Like other business leaders facing global economic and political risks, CPOs will continue to focus on cost and risk management in 2017 to support growth in an uncertain market. So far, this is proving successful, with 58 percent achieving better savings performance than last year. However, challenges with talent and poor adoption of digital technology still hinder progress.