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GEP Value Trends: Procurement Strategy Industry Trends and Implications
GEP Value Trends: Procurement Strategy Industry Trends and Implications
Research Sponsor:
September 2012
ISG conducted research from January 2011 through June 2012 with support from GEP. The purpose of this
research is to provide insights to CPOs and other procurement executives and to give them a better understanding
of some of the key issues facing other procurement organizations. Additional goals were to provide insights to steps
that they might take to address some of these issues and to move their organizations to the next level in delivering
value to their companies.
Respondents to the survey were primarily based in North America with 28 percent of respondents representing
other geographies. Respondents included leaders from the financial services, healthcare and pharmaceuticals,
business services, manufacturing, energy, government and public sector, media and telecom, retail and travel and
transportation sectors. Fifty-nine percent of respondents were from businesses of more than $5B in annual revenue
and respondents were generally CFOs, CPOs or their direct reports.
The research focused on three key aspects affecting the procurement function:
Procurement Strategy: Key Challenges and Transformation Drivers
Procurement Outsourcing
In this three part series, we will share insights from our research which will reflect the voice of numerous
procurement leaders across several industries and can be an effective tool in benchmarking your own procurement
organization.
Transformational Deals
Supplier Management
Procurement can take an arms-length approach to vendors to the extreme, precluding opportunities to drive
value through better vendor collaborations
Procurement professionals may not distinguish between approaches to commodity procurement and
procuring strategic capabilities resulting in a cost or price focus, where this is a relatively minor component
of the value sought from the procurement
Many procurement professionals believe that they have an inability to take ownership of cycle times,
especially during the contracting process due to their reliance upon other stakeholders (including legal and
various approvers), and thereby often fail to achieve results within a committed timeframe.
These are key issues, and we hope that procurement executives will gain insights into how these might be
addressed as a result of this report.
In terms of spend influenced by procurement, respondents indicated significant headroom for improvement in
addressing marketing, IT, consulting and professional services spend. These are often areas of high spend which
tend to be managed within business units and can be more difficult to proactively address, consistent with our
discussion above. (Even IT, which has traditionally been relatively centralized within the CIO organization, is
increasingly migrating back out to the businesses as it adapts cloud, SaaS and BPaaS solutions for many of its
requirements, thereby circumventing the dependency upon, and control by, IT organizations for successful
implementation.) Strong domain knowledge is required to effectively address these areas, and price can often be a
much less significant decision factor in selecting a solution than the perceived or real business benefits that a
higher-quality solution can deliver over a more generic one. For example, marketing is generally less concerned
with reducing its spending than it is with delivering superior brand recognition, customer loyalty and ultimately sales
as a result of its spending. Similarly IT, consulting and many other professional services are purchased on the basis
of business drivers other than cost, although businesses still need to achieve their objectives within their budget.
This means that a high degree of business sophistication on the part of procurement professionals is an absolute
prerequisite to being able to influence and improve spend in these areas.
2. Procurement activities are often perceived as bureaucratic, with unclear turnarounds between when a
requirement is provided to procurement and when a contract or purchase order can be executed with the
supplier.
3. Delays in the process may often result from incomplete information from the requester, and variable
turnaround times for reviewing statements of work (SOWs) or specifications, negotiation times and legal
reviews.
5. A large percentage of spend may simply never fall under a consistent approach to management or visibility.
Vendor management is, to a large degree, the greatest untapped opportunity for procurement organizations. There
are multiple reasons why vendor management is both increasingly important and difficult to solve.
Decentralization Many strategic or critical vendor relationships are managed within an operational
business unit, rather than through a central vendor management organization.
Relationships cross multiple business units For example a typical company may have relationships with
IBM as an IT outsourcer, a BPO outsourcer, a consultant, a hardware supplier, an integrator and a software
provider, with each role managed by different entities with limited coordination.
Financial scale Vendors have become increasingly important, with external spend representing nearly 47
percent of sales.
Operational Vendors have become more operationally and technologically integrated with core processes,
presenting both greater risk and greater opportunity for value creation.
n = 57
Source: ISG Procurement Technology and Outsourcing Trends Survey March 2012
# What is your procurement organizations key focus are for improvement in 2012?
35%
Strategic alignment to other business
33%
28%
Delivering on cost reduction targets
24%
10%
Driving business support for procurement
15%
4%
Developing analytical capability
10%
3%
Driving transaction automation
10%
10%
Addressing more spend under management
9%
10%
Filling gaps in resource capabilities
0%
17%
Addressing more spend under management 10%
10%
6%
0%
Filling gaps in resource capabilities 0%
20%
0%
0%
Driving transaction automation 20%
0%
11%
50%
Delivering on cost reduction targets 20%
20%
22%
0%
Developing analytical capability 10%
0%
6%
0%
Driving business support for procurement 30%
10%
11%
33%
Strategic alignment to other business 10%
40%
44%
Manufacturing (n = 6) Business Services (n = 10) Healthcare & Pharmaceuticals (n = 10) Financial Services (n = 18)
Source: ISG Procurement Technology and Outsourcing Trends Survey March 2012
# What is your procurement organizations key focus area for improvement in 2012?
5% 14%
11% 4% 4% 11% 14%
7% 9%
18%
13%
11% 9% 7%
16% 22%
11%
22% 18%
13%
18%
21% 21%
15%
13%
32% 14%
63% 23%
25%
50% 22%
41%
36% 37% 36%
31%
23% 21%
13% 14%
General Travel MRO Facilities & Logistics Direct Spend Temp Labor IT Marketing Consulting Professional
Office Services Real Estate Spend Services
Supplies
81-100 61-80 41-60 21-40 1-20 0
Source: ISG Procurement Technology and Outsourcing Trends Survey March 2012
n = 57
# What is the current percentage of spend under management for procurement at your organization with respect to the following categories?
Source: ISG Procurement Technology and Outsourcing Trends Survey March 2012
# How would you compare your organizations procurement operations with the rest of the industry?
In developing strategies to bring their organizations to the next level to meet these challenges, both procurement
technology and third party procurement services (more frequently referred to as Procurement BPO) are key
levers being adopted by many companies, and these will be explored in detail in parts 2 and 3 of this report
series.
The relatively high degree to which Procurement organizations operations are in line with the industry
standard practices suggest a significant opportunity to take advantage of standardized solutions in the
marketplace.
Obtaining business unit support is currently the biggest challenge for procurement organizations, followed
by lack of transaction automation and gaps in resource capabilities.
The professional services, marketing and consulting categories present significant scope for increasing
the amount of spend under management, reflecting both the need for better business unit presentation
and skills enhancement, and pointing to potential value spots for procurement service providers.
For more information about GEP, please visit www.gep.com, or contact us at info@gep.com. Alternatively,
call us at any of our locations listed below:
About GEP
GEP is a diverse, creative team of people passionate about procurement. We invest ourselves entirely in our
clients success, creating strong collaborative relationships that deliver extraordinary value year after year. We
deliver practical, effective procurement services and technology that enable procurement leaders to maximize
their impact on business operations, strategy and financial performance. Named a category leader in procurement
outsourcing by the Black Book of Outsourcing, a Star Performer in Everest Groups Peak Matrix of service
providers, and to the Supply & Demand Chain Executive 100 for seven years, GEP is also ranked as one of the
Fastest Growing Technology Companies in Deloitte's Technology Fast 500. Clark, NJ-based GEP has eight
offices and operations in North and South America, Europe and Asia. To learn more, please visit www.gep.com.
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