Improving Spend Cost Reduction Is Key for Procurement Teams
In an environment characterized by continuing global economic disruption, revenue growth is paramount, and companies are looking for spend management strategies that reduce costs and increase profits.
So, it’s no surprise that improving spend cost reduction ranked No. 1 as a procurement priority for 2024 among CPOs in The Hackett Group’s research report The CPO Agenda. Last year’s top concern — ensuring supply continuity — came in at No. 2.
The other priorities in the list: (3) combat inflationary price increases, (4) act as a strategic adviser to the business and (5) transform the operating model. Also, (6) pursue procurement digital transformation and modernize the landscape, (7) strengthen third-party risk management visibility and capability, (8) improve analytics and insights capabilities, (9) embed sustainability and (10) improve procurement agility.
“Spend cost reduction is perennially a high priority for procurement,” Chris Sawchuk, principal and global procurement advisory practice leader at The Hackett Group, said in a press release. “But economic concerns have propelled it back into the top spot this year. In addition to the array of global economic challenges, companies are concerned about their ability to grow revenue, so cost focus and margin expansion are key. Many companies are even hoping to claw back some of the inflationary cost increases to support margin growth.”
The report mentions that margin improvement/protection can be strengthened by businesses emphasizing process efficiency and process automation as well as such strategies as working capital optimization and consolidation to shared services. Compared to last year, procurement teams likely will have higher than normal savings levels in cost avoidance and purchase cost reduction, it states.
“Most procurement organizations have significant opportunity for improvement in spend cost reduction,” the report notes. And companies which The Hackett Group calls digital world class — the top quartile in business value and operational excellence — “deliver 96-percent higher spend cost reduction savings.”
The report also highlights CPOs’ 10 top improvement initiatives, which, with data and analytics ranking No. 1, demonstrates the importance digital transformation still carries with procurement organizations. Seventy-five percent of CPOs said their organizations are planning a data/analytics initiative.
The others: talent management, with 67 percent planning an initiative; category management (65 percent), strategic sourcing (56 percent) and supplier relationship management (50 percent). Core procurement technology, sustainable procurement, third-party risk management and contract management each recorded 48 percent, followed by strategic business partnerships at 43 percent.
No matter the priority, it’s all about reducing and managing risk: “Supply chain disruption risk remains top of mind for many procurement teams due to ongoing geopolitical conflicts,” said Amy Hillcox, The Hackett Group’s senior research director of procurement and purchase-to-pay advisory.
She continued, “Managing supply disruption is critical to protecting revenue and profitability, and several capabilities key to supply continuity — including supplier relationship management and third-party risk management — were identified as critical development areas in our research.”
Hillcox noted that organizations must engage in risk monitoring “across a broader set of risk domains.” Incorporating digital tools, like real-time data and insights, and advanced technologies like artificial intelligence (AI) and generative AI can help companies in addressing priorities and implementing successful initiatives.
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