Wednesday 2 April 2014

Procurement & Sourcing: Still Too Focused on the Primary – Cost Reduction and Savings

In a recent ISM Study, 545 businesses cited their top three priorities for 2013:
  • Improving Cost Reduction and Savings.
  • Revenue Growth and Profit Improvements.   
  • Risk Management.                                                                                                               

Interestingly, 60% of respondents noted Improving Cost Reduction and Savings was their number one priority. There was a large drop to 30% of responders who cited Revenue Growth and Profit Improvements, and 28% of responders focused on Risk Management, to finish the top 3. Similar to the elections of 2012, most are focused on the front runners for the primaries, disregarding the secondary candidates and “rest of the pack” in terms of priorities. Typically the secondary and rest of the pack are a critical focus and need attention, as these are becoming important and can have a critical impact in the near future.

In 2013, companies still see Cost Reduction and Savings as the focus for their Procurement and Sourcing teams. While Cost Reduction and Savings is a key part of the Procurement and Sourcing function, it isn’t the only one. It is apparent that Revenue Growth and Profitability has moved up in terms of significance, surpassing Risk Management; however optimistic, it is still relatively low in the minds of the masses.

While an impact to profitability can be felt with a focus on Cost Reduction and Savings, so too can an impact on revenue when one is focused on the right sources: purchase part and service cycle time and time to market. The point is the majority of companies are still too focused on one aspect of Procurement and Sourcing, leaving an opportunity to fuel more growth and supplier relationship improvements on the back burner.

The good news is revenue and profitability together are becoming more important for Procurement and Sourcing, signaling a change in the C-Suite’s perception: Procurement and Sourcing is critical to meeting the business forecast.