For 2014, Procurement Expanding Priorities Beyond Cost Reductions

Procurement leaders are expanding their priorities for 2014, moving beyond a historic emphasis on reducing purchase costs and adding focus on expanding and deepening the scope of spend influence as well as supporting supplier-led product innovation, according to 2014 Procurement Key Issues research from The Hackett Group, Inc.


The Hackett Group's research reveals a major change in procurement's priorities from last year, when cost reduction/avoidance was their number one concern. For 2014, the highest-ranked issue is expanding the scope of procurement's spend influence. Over three quarters of the executives placed this first in their priority ranking.


Tapping into supplier innovation is the second-highest priority and a focus for 69 percent of the companies in the study. Prioritization levels for both of these issues increased significantly from 2013. Despite its historic position as a top focus, only about half of the companies said they were focusing on cost reduction and avoidance in 2014 as a key procurement strategy, placing it fourth on their priority list.


The Hackett Group's research also showed that procurement leaders are expecting to see small increases in budgets and staffing in 2014. Budgets are expected to increase by 0.7 percent and staffing by 0.9 percent. But the expected enterprise growth rate of 6.7 percent will far exceed both of these increases, resulting in a productivity and efficiency gaps of about 6 percent for 2014.


"Overall, companies are turning to innovation to drive revenue growth and margin improvements in 2014," said The Hackett Group Global Managing Director and Procurement Advisory Practice Leader Chris Sawchuk. "Cost reduction is still a top priority. But we believe many procurement organizations have reached the upper limit of cost reductions possible in categories they are actively sourcing today. So they're looking for ways to reinvent their value proposition. A key part of this is expanding their influence, and taking a life-cycle approach to category management. This requires working more effectively with spend owners, executives, requisitioners, suppliers, and other stakeholders. It also calls for skills that are outside procurement's traditional areas of expertise."


According to The Hackett Group's research, procurement should focus its transformation efforts in three areas to achieve the biggest enterprise impact in 2014: rebalancing supply risk; recalibrating procurement technology and tools; and reinventing procurement's value proposition.

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