cpo exchange oct 2015 - graham leary - li
TRANSCRIPT
CPO Exchange - Palm Beach, Florida
Presented by: Graham Leary
October 20, 2015
Global trends impacting procurement: Towards 2020 and beyond
1
Agenda
• A look back at historical procurement contributions and U.S. corporate profit growth
• Examples of emerging global trends that could impact procurement into the year 2020 and beyond
• Discussion of how the procurement profession may need to adapt in light of expected changes
2
Technology innovations, process improvements, and global sourcing have contributed to major corporate profit growthin recent years
U. S. recessions
Source: U.S. Dept. of Commerce: Bureau of Economic Analysis
Corporate profits after taxBillions of dollars
0
200
400
600
800
1000
1200
1400
1600
1980 1990 2000 2010
Competitive inquiry
P2P
Partnering continuous improve-
ment
Cost modeling
E-sourcing
ERP systems
Global sourcing
Multi-step sourcing process
Indirect sourcing
Low-cost country sourcing
3x increase
in corporate
profitsfrom late
1990s through
early 2000s
Out-sourcing
Spend analytics
3
Procurement costs have also benefited from continued low rates of inflation (buying “tail-winds”), but overall recessionary effects may not be healthy in the long term
0
1
2
3
4
5
6
7
1995 1997 1999 2001 2003 2005 2007 2009 2011 2013
Inflation (CPI) – Total, Annual growth ratePercent
Source: OECD
OECD inflation averaged ~2% since 1998
Global economic weakness = limited pricing power
"Economic oxygen" caused by reserve banks’ easy money policies – likely unsustainable
4
Agenda
• A look back at historical procurement contributions and U.S. corporate profit growth
• Examples of emerging global trends that could impact procurement into the year 2020 and beyond
• Discussion of how the procurement profession may need to adapt in light of expected changes
5
Key factors affecting global procurement
6
-
Supply/ Demand Pressures• Population growth• Changing consumption
behavior• Rising landed costs from
China
Technology Levers
• Supply/demand optimization• Transactional
innovations
Energy & FinancialUncertainties•Unclear trajectory
of oil prices• Expected higher
financing costs
Other trends: Robotic workforce, 3-D printing
Recognized demographic analysts project worldwide population growth of 500M by 2020 and 800M by 2025
World population projectionsBillions
0
1
2
3
4
5
6
7
8
9
10
1960 1980 2000 2020 2040
Source: World Bank
World population projection:• 2014: 7.2B• 2020: 7.7B• 2025: 8.0B
7
8
The middle class in China and India is projected to grow between 8-10% in the coming yearsMiddle class in China and India Millions of households
10
44
116
156
216
282
923
3953
78
109
2000 2007 2013 2016 2020 2024
China
India
Percent, total country
China
India
Forecast
CAGR2013-24Percent
8.4
9.9
3
5
11
10
26
15
34
19
44
27
56
35
Note: The middle class in India includes households with an annual income of more than $10,000; the middle class in China (including Hong Kong) includes households with an annual disposable income exceeding $15,000
Source: Euromonitor; Bain analysis
Consumption behaviors in the developed world are changing
28
26
25
25
21
19
20
15
19
17
13
11
Source: The Hartman Group Health & Wellness Reports 2007-2013
Consumer response to: When shopping, I look for foods and beverages that . . .Percent
Are minimally processed
Contain only ingredients I recognize
Are locally grown or produced
Have the shortest list of ingredients
2013
2010
2007
9
Comparative 3-year stock performance of Chipotle vs. McDonalds suggest a growing preference for healthier food
10
Chipotle
McDonalds
Diversification of consumer preferences may suggest a need for a more segmented approach to producing and marketing food
1114
1818
2021
222222
2428
3031
323333
3537
4148
Source: FMI U.S. Grocery Shopper Trends (2014)
Product claims important to U.S. shoppersPercent
Whole grainLow sodiumLow sugarHigh fiberNo preservativesNo trans fatsNo chemical additivesLow calorieNo/low fatNo HFCSNaturalLow carbNon-GMOLow cholesterolHeart healthyAntioxidant richCertified organicVitamin enrichedCalcium fortifiedGluten free
11
Developing countries, like China, are also changing their food consumption patterns
Source: Matthew’s Asia; USDA, FAQ; Mekannen and Hoekstra (2010)
China meat consumptionMillions of tons
0
10
20
30
40
50
60
1975 1985 1995 2005 2015
Water needed to produce proteinThousands of liters per kilogram
0
2
4
6
8
10
12
14
16
Eggs Chicken Pork Nuts Beef
Pork
Chicken
Beef
Ovine
12
What are the potential implications?
Rising wages and a transition to a domestic-driven economy are increasing landed costs from China, prompting companies to reexamine their sourcing strategies
0
5
10
15
20
25
30
35
40
45
2004 2006 2008 2010 2012
Total landed costComposite index
0.60
0.65
0.70
0.75
0.80
0.85
0.90
0.95
1.00
1.05
1.10
2005 2010 2015
China wages in manufacturingThousands of Yuan
U.S.
China
Mexico
India
Source: AlixPartners analysis; China Bureau of Labor Statistics 13
As China industrializes, pressures to reduce CO2 levels will likely lead to even higher costs because of its economic size relative to countries that industrialized earlier
Source: Matthew’s Asia
Average daily levels of atmospheric CO2
Parts per million
250
300
350
400
450
500
1920 1940 1960 1980 2000
Critical threshold
U.S.1941
U.K.1957
Japan1968
China2010
Bubble sizes correspond with the size of the economy at roughly U.S. $8,000 GDP per capita
14
Key factors affecting global procurement
15
-
Supply/ Demand Pressures• Population growth• Changing consumption
behavior• Rising landed costs from
China
Technology Levers
• Supply/demand optimization• Transactional
innovations
Energy & FinancialUncertainties•Unclear trajectory
of oil prices• Expected higher
financing costs
Other trends: Robotic workforce, 3-D printing
As new energy sources such as U.S. oil shale enter the supply chain, OPEC’s 2014 forecast projects oil at $110/barrel in 2020 –lower than today's prices in real terms
110.0 110.0
123.9
139.6
157.3
177.4
105.795.4 96.9 98.5 100.0 101.6
2015 2020 2025 2030 2035 2040
OPEC reference basket price assumptionsDollars per barrel
Nominal price
Real price (2013)
Source: OPEC - World Oil Outlook (2014) 16
Current price
Interest rates will start to rise again which could have flow-on impacts to investment, currency fluctuations, and prices
Source: Thomson Reuters; Bloomberg; The Economist (Oct. 21, 2014)
Benchmark policy interest ratesPercent
0
1
2
3
4
5
6
7
2007 2009 2011 2013 2015 2017
Bank of England
European Central BankU.S.
Federal Reserve
Projected
17
Key factors affecting global procurement
18
-
Supply/ Demand Pressures• Population growth• Changing consumption
behavior• Rising landed costs from
China
Technology Levers
• Supply/demand optimization• Transactional
innovations
Energy & FinancialUncertainties•Unclear trajectory
of oil prices• Expected higher
financing costs
Other trends: Robotic workforce, 3-D printing
Other industries are finding innovative ways to utilize available capacity, potentially offering models for procurement in a resource-constrained environment
19
Uberairbnb
Ho
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Aw
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Deliv Inst
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rtcouchsurfing
GofundmeLendingclub
Prosper
Sid
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Des
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CrowdspringPivotdesk LIQUIDSPACE
Rel
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scoot
onefinestayHomeExchange
Bre
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DesksNearMe
Getaround BlaBla Car
HAIL
A “collaborative economy” enables people – and businesses –to get what they need from each other
20
The advent of digital currencies technology could revolutionize transacting speeds and costs globally
21
Agenda
• A look back at historical procurement contributions and U.S. corporate profit growth
• Examples of emerging global trends that could impact procurement into the year 2020 and beyond
• Discussion of how the procurement profession may need to adapt in light of expected changes
22
Looking ahead as a profession, past success will be foundational and future value will be created by adapting to global changes
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• ERP systems
• Globalization
• E-sourcing
• Cost modeling
• Indirect sourcing
• Capacity optimization via technology
• Diversified global sourcing
• Customer and sourcing segmentation
• Transacting efficiency
Current procurement foundation
Adaptations for the next decade
As trends evolve, adaptation strategies will help us gain/maintain competitive advantageEmerging trend Potential impacts Potential adaptation
strategies
Population growth, demographic and psychographic changes
• Supply demand pressures• Fewer, larger suppliers• Niche suppliers
• Tech driven capacity optimization
• Post-manufacturing differentiation
Changing consumer food preferences: non-GMO, organic, protein, antibiotic-free
Higher costs to serve • Good, Better, Best procurement and marketing strategies
• Local sourcing
China’s transition from a global low-cost manufacturer to a domestic economy
Higher imported cost for consumer goodsand materials
• In-sourcing• Broaden global sourcing
strategies
Energy supply/demand Lack of clarity on direction of energy costs –impacting manufacturing, packaging and transportation costs
Hedging
Rising interest rates Increased interest and capital costs Currency and capital investment optimization
Digital currency Instant transactions, lower costs Monitor for potentialefficiencies
24
Other trends: Robotic workforce, 3-D printing
What trends do you foresee and how should we prepare to adapt
?
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