Procurement: Optimism Declines as Chief Procurement Officers Grapple with Worsening Financial Prospects amidst Greater Economic Uncertainty

Softening commodity prices are one bright spot, according to Deloitte's CPO survey

Feb 17, 2016, 08:30 ET from Deloitte

NEW YORK, Feb. 17, 2016 /PRNewswire/ -- Due to internal pressure from CFOs and their boards, a majority of America's chief procurement officers (CPOs) expect a drop in their operating costs and a strict business focus on margin improvement, according to the newly-released "Deloitte Global CPO Survey 2016." This is a significant change from last year, when CPOs were being asked to support the corporate growth agenda.

Market outlook – economic uncertainty lowers financial expectations
Market optimism has declined over the last year, particularly in the Americas. More than one-quarter (28 percent) of America's CPOs anticipate worsening financial prospects for their organizations than 12 months ago, which is compared to just under one-quarter (23 percent) of CPOs globally. This finding dovetails with America's CPOs' feeling of increasing financial and economic uncertainty – 63 percent of America's CPOs believe uncertainty has increased over the past 12 months, which is 9 percentage points greater than the global average.

"Weakening macroeconomic indicators and growing geopolitical instability have lowered CPOs' financial expectations for the near future," commented Brian Umbenhauer, principal and global sourcing and procurement leader for Deloitte Consulting LLP.

One positive finding, however, is that 6 in 10 of America's CPOs exceeded their savings target over the past 12 months. Softening commodity prices during the same period may be a key driver in the delivery of these savings.

Talent – gap shrinks slightly while outsourcing increases
The procurement talent gap shows signs of narrowing in the Americas. This is a surprising finding, as the reported procurement talent gap in the Americas has persisted for several years and continues to widen globally. Thirty nine percent of America's CPOs responded that their team has the necessary skills this year versus 36 percent last year. In accordance with their relatively higher confidence in the skills of their teams, America's CPOs reported that retaining talent is their key priority. This contrasts with APAC (Asia Pacific) CPOs' focus on training and EMEA (Europe, Middle East and Africa) CPOs' focus on attracting talent.

"At the same time that we're seeing a tapering in America's talent gap in the procurement function, we're also seeing training budgets dramatically reduced. It will be interesting to see if the positive gap-reduction trend can continue," said Umbenhauer.

Even with greater confidence in their teams, a significant talent gap persists in the Americas, as well as globally. Outsourcing remains a common tactic to fill the gap, especially among America's CPOs. Nineteen percent of America's CPOs plan to increase the level of outsourcing procurement functions over the next year, versus 16 percent globally. Additionally, 40 percent of CPOs from the largest organizations expect to pursue an outsourcing strategy for some element of their function.

Technology – at a digital tipping point

In response to the strong focus on cost reduction due to worsening financial prospects, CPOs are increasingly turning to innovative technologies to drive efficiency. America's CPOs are more likely to invest in these technologies, including making investments in self-service portals (73 percent, versus 70 percent globally), mobile technologies (53 percent, versus 42 percent globally) and cloud-based computing (48 percent, versus 44 percent globally). America's CPOs also are more aggressively investing in spend-analysis technology than their global counterparts, with nearly half (49 percent) planning to invest, versus only 38 percent globally.

"In much the same way that other business functions have been transformed by disruptive digital technologies, we expect the same to occur in procurement. These innovations will shrink cycle times, provide richer and more agile insights, and increase transparency and efficiency," said Mike Daher, principal, and U.S. sourcing and procurement leader for Deloitte Consulting LLP. "There is considerable opportunity for those CPOs who embrace and harness digital solutions to transform their procurement value proposition."

About The Deloitte Global CPO Survey 2016
Conducted in association with Odgers Berndtson, the global CPO survey is an annual survey of chief procurement officers across the world. The survey comprises a benchmark indicator of sentiment in the procurement function. The report is based on data received between 2011 and 2015. This edition contains responses from 324 of the most senior procurement leaders from 33 countries, who have a combined annual turnover of $4.4 trillion. The Americas sample includes 93 North American and five South American respondents. See the full survey at: www.deloitte.com/us/chief-procurement-officer-survey.

About Deloitte's Sourcing and Procurement Strategy practice
Deloitte's Sourcing and Procurement Strategy practice is differentiated by our executable mindset, focus, and strategy capabilities — with emphasis on executable. We excel at strategies that are deliverable, delivered through a combination of strong category experience, broad-based knowledge and skills, and geographical reach around the world. We also team with other Deloitte services, such as tax, technology consulting, human capital consulting, and enterprise risk services to address the many facets of sourcing and procurement-related engagements. Learn more about the practice here.

Deloitte was recently named a global leader — and the leader based on breadth of services — in Procurement Operations Consulting by ALM Intelligence. According to ALM Intelligence' 2015 report, "With the broadest offering in the competency area, Deloitte combines functional specialization with strength across the spectrum of procurement assets. The firm also leads in the development of proprietary tools designed to fill gaps in the asset portfolio and accelerate diagnostics during engagement delivery."

As used in this document, "Deloitte" means Deloitte Consulting LLP, a subsidiary of Deloitte LLP. Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries. Certain services may not be available to attest clients under the rules and regulations of public accounting.

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