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- May 02, 2018
Earlier this year, Deloitte released its Global Chief Procurement Officer Survey 2018. This marks the seventh anniversary of Deloitte’s CPO survey, which this year collected input on a wide range of themes and challenges from 504 procurement leaders representing 39 countries with combined annual revenues of $5.5 trillion.
Ryan Flynn, a Principal in Deloitte’s Sourcing and Procurement Consulting practice, has been the US lead for the survey for the past five years. He will be sharing some of his key takeaways from this year’s survey in depth at Coupa Inspire. Here is a sneak preview.
Coupa:What surprised you the most in this year’s survey, and what do you think has changed the most this year from prior years?
Ryan: One thing that surprised me is that even though there's still a big focus on cost reduction, which aligns with our findings in the most recent Deloitte CPO survey, we’re seeing some green shoots of interest in having CPOs help with top line activities that support the growth agenda of organizations.
I think that syncs with what's going on in the economy more broadly. For the first time in roughly 10 years, all of the world's major economies are in growth mode at the same time, according to the Organization for Economic Cooperation and Development (OECD). CPOs are not being asked to abandon the cost focus, but certainly to take on additional work to help with the growth agenda, whether that’s new product development, entering new markets or M&A work. That's good news, because procurement hasn’t always played a big role in top-line growth, so I would consider that a step forward for the profession.
Coupa: Does it surprise you at all that the focus on cost reduction is still so high, since the economy is in good shape, and savings performance is improving overall?
Ryan: I think organizations are probably looking at cost savings as a way to help fund the growth that they want, and procurement has traditionally been able to deliver that.
Coupa: Over half of procurement leaders surveyed believe their teams don’t have the capabilities they need to deliver on their strategy, and three quarters say their teams don’t have capability to make use of current and future digital technologies. Yet according to the survey, the number of leaders who are spending two percent of their budget or less on training shot up 66 percent from 2017. How will procurement organizations be able to meet this new challenge?
Ryan: Well, that's the part that I find curious. I would say that the talent situation has been improving over the past couple of years, although you still see a pretty significant number of CPOs saying that they don't necessarily have the right team to execute on their agenda.
But, then we're seeing training investment drop. It's hard to say if that's a trend or a blip. It's a little bit disturbing, because you would think that the talent challenge, along with the digital challenge, would drive more training investment, not less.
Procurement has traditionally been very focused on the supply side of cost reduction. The challenge of supporting the growth agenda requires a different skill set. And, once you’ve wrung the easy savings out of the supply base and you've got to find the next level of cost savings, that requires a different skill set too, because that has more to do with demand management and partnering with the business to change behaviors within the organization.
Getting in and working with the business to drive down costs, to do new product development and other top-line growth activities, you also have to have that strong relationship with the business to be effective. There's a lot of room for procurement organizations to invest in figuring out ways to become more effective business partners.
Coupa: There’s a section in the report that calls out the most common leadership traits in procurement. Collaborating internally and delivering results are common traits, and positive disruption, leading digital transformation and innovation are not common at all. Even if training budgets were generous, would that be enough to bridge the gap between where procurement is today, and where they need to be?
Ryan: Training is not necessarily going to solve that issue, so they're going to have to think about, "How do we get the right people in the right positions?"
And they need to think about how they're organized. Do they embed resources within the business, instead of just having everyone within their own organization trying to get things done by instituting processes?
I think you will see organizations looking at their operating model and maybe even putting together new parts of their organization that are more specifically focused on digital to be able to help the business drive the innovation agenda using suppliers in the marketplace.
Supplier scorecards tend to be cost/quality/service focused. Frankly, maybe they should be looking for alternative sources of supply that can partner with them on innovation.
Coupa: Let’s talk about the risk management part of their remit. According to your findings, 65 percent of CPOs say they have little or no visibility beyond their tier 1 suppliers. Is this new or is there just increasing concern about this?
Ryan: That's not new at all. It's a consistent theme when we talk to clients--they just don't know who their downstream suppliers are, and there's not necessarily really a good way to get that visibility. There are some digital solutions that use things like the deep web and social media to draw a picture of what supply chains look like. But I don't see a lot of companies really investing in that yet.
Part of the problem is that third-party risk management is seen as about cost-avoidance. It’s hard to get people excited about that, especially when you could invest in driving bottom line savings or top line growth initiatives.
When you have a big event, like the tsunami in Japan, for example, and people realize they’re all relying on the same supplier for a key component and it goes offline, it impacts the entire industry, then they think about it. There haven't been a lot of those types of situations, and with the strong economy we haven't seen a lot of bankruptcies in the supply base. It’s going to take more of those big events to get people focused on that again.
If that happens, and there's much wider adoption of something like blockchain that can provide a good, low-cost way for companies to be able to understand and monitor their supply chains on a consistent basis, that will move things forward. But we don't have that capability right now.
Coupa: New technology adoption in procurement is still surprisingly low. You've been looking at these reports for five years. Does that surprise you?
Ryan: A little bit. There was a burst of interest a couple years ago that hasn’t really panned out as much as I thought it would, probably for a lot of different reasons. But, companies haven't traditionally invested a lot in procurement technology, so a lot of them are probably at the lower end of the maturity curve and some of these more advanced technologies are maybe a bit of overkill at this point. We see the most uptake with things like analytics, robotic process automation, and content extraction for improving invoice processing. Some might argue these are pretty mundane, but you need to address some of these more fundamental challenges before you can run off and implement blockchain or virtual reality.
Coupa: One of your findings is that issues with data is one of the main barriers to the effective application of digital technology, with the other barriers being issues with people and systems. But isn't poor quality of data partly a function of the systems as well? And if you don't have stakeholder support, you don't get the technology that you need, therefore, you have crummy data. Isn’t it somewhat circular?
Ryan: I would agree. And I would throw something else in there: governance. That's a challenge that a lot of companies have, especially companies these days that are decentralized by business unit and/or geography. If you don't have that governance in place to be able to keep the data clean, even with a system, you're going to have issues.
Technology helps, but it has to be paired with governance. If you have a module for supplier onboarding, but you don't have the governance built into your workflows and you're allowing anyone to add a new supplier whenever they want, the technology might give you visibility, but that's only part of the solution. You really need to have those governance structures in place to keep the data clean.
That can be a difficult balance for procurement organizations that want to be user friendly and push decision-making down to lower levels so they can get themselves out of the weeds. But you have to be able to say, "Hey, if we go too far in that direction then we're not going to have good data to be able to make decisions." It has to be part of an enterprise-wide data management strategy that’s driven by the CIO.
Coupa: What are you seeing with your clients that are moving forward with digital?
Ryan: I've got a lot of clients that I would say are certainly digital or are on the path to doing so, trying to push to much more use of supplier networks and electronic document exchange and things like that. It has a huge impact because it allows them to get away from focusing resources on a lot of the transactional blocking and tackling so they can shift focus to more of the value-added work, like innovation or even just basic strategic sourcing. It can help with identifying opportunities for them to be more effective in how they source, and with shortening cycles times so that they can source more in a year to get more savings for the organization.
Ryan Flynn, Principal, Deloitte Consulting LLP, specializes in Sourcing and Procurement. He also leads the Third Party Management practice within Deloitte. This is his fifth year as US lead for the CPO survey.
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 our legal structure. Certain services may not be available to attest clients under the rules and regulations of public accounting.
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