Procurement organizations can expect to see small budget and staff increases in 2012, according to a new report from The Hackett Group, Inc.
Procurement organizations are heavily focused on addressing demand and pricing volatility that is the “New Normal.” In addition they are seeing a dramatic acceleration of globalization efforts that will likely increase the number of procurement jobs performed offshore by more than 50 percent by 2013.
The Hackett Group's new key issues Research Insight “2012 Procurement Agenda: Enabling Enterprise Growth without Disabling Profits" finds that procurement leaders face a unique challenge in 2012: the enterprise wants procurement to enable global growth scenarios while also continuing to protect supply and lower input cost, in the midst of unprecedented levels of instability. The research finds that companies are expecting a small uptick both in procurement budgets and FTEs in 2012, with operating budgets expected to rise by one percent and staff expected to increase by three percent.
Companies expect that the dramatic volatility spike which occurred with the recession will persist for the next two to three years. Survey respondents expect changes of 25 percent or greater in input prices, customer demand and talent availability. As a result, the research recommends that organizations develop greater supply base agility, contract flexibility and even the agility of the procurement function itself. At the same time, they should strive to reduce supply chain risk.
In addition, procurement leaders will drive a dramatic transformation over the next two to three years, largely focusing on globalization. According to The Hackett Group, procurement organizations—finance, HR and IT—have lagged behind other aspects of the business, such as product development, customer strategies and supply chain, in becoming more global. Procurement leaders now have ambitious plans to nearly triple today’s level of globalization within two to three years.
The study found that the combination of increased globalization and selective outsourcing is driving dramatic structural changes in procurement. Procurement organizations plan to increase their percentage of FTEs in low-cost regions by more than 50 percent by the end of 2013—from the present 16 to 25 percent. This effort will involve both moving routine processes to offshore service centers and also shifting higher-value work, such as tactical sourcing and market intelligence, to external service providers.
Procurement organizations are also increasingly focused on global process ownership. And while most of that focus has been at the function and process level, in the next two years, companies are planning to dramatically increase their global process ownership at the cross-functional level.
The Hackett Group also expects that procurement will increasingly own the source-to-settle and purchase-to-pay processes, even though procurement itself may report to finance or to a global business services organization.
Companies should be prepared to adapt their business models and priorities in response to economic changes in regional global markets. This will require companies to fully understand the benefit that comes from adopting global standards and organizational models that allow optimal execution by leveraging both skill and scale more broadly. In addition, the increased instability of demand across global regions has made it more critical than ever for companies to truly understand how each region should operate while still gaining the advantages that come from a global process operating platform.
For the full report, visit www.thehackettgroup.com.