ReseaRch RepoRtpRocuRement seRvicescorporate spending and procurement trends 2013

© 2013 Xchanging Corporate Spending and proCurement trendS 2013 / 1

Methodologya targeted sampling of attendees at the shared services and outsourcing Week conference in orlando (march 4-7, 2013) were polled via a 17 question, multiple-choice survey. those polled indicated they have visibility into the procurement function at their companies, including procurement, finance and supply chain-related individuals, as well as senior executives.

Following are key findings reflected by topic with contextual information.

Sourcing and ProcureMent’S PoSitioning in the enterPriSeWhat is the perceived importance in the C-suite of the sourcing and procurement function at your organization?

How would you define and rank your company’s current approach to indirect procurement?

it is worth noting that approximately 15% of respondents said that their organization’s c-suite viewed sourcing and procurement as not strategic to the business, only paying light attention to the function. this number seems perhaps lower than it should be, considering that a full 51% characterized their company’s approach to indirect procurement as only ‘tactical’ or ‘reactive’. this suggests perhaps a disconnect between the c-level perception of the function and the reality of how it is operating.

supporting this conclusion, 38% of respondents think their c-level perceives the sourcing and procurement function to be ‘highly important and strategic to the business’, yet only 14% went on to characterized their company’s current approach as strategic.

coRpoRate spending and proCurement trendS 2013

15.38%

46.15%

38.46%

Not strategic, only light attention paid at C-level

Somewhat important, attracting some C-level attention

Highly important and strategic to the business

19.61%

31.38%35.29%

13.73%

Tactical – one off / ad hoc determined by stakeholders

Reactive – driven by contract expirations, new projects, etc.

Proactive – attempting to plan sourcing strategies with some business engagement

Strategic – C-level supported, centralized initiative with 85% spend under management

WHiLe FirmS WiLL Spend more in 2013, tHeY are SeeKing a more StrategiC approaCH, Supported BY enaBLing teCHnoLogY and tHird-partY SerViCeS.

2 / Corporate Spending and proCurement trendS 2013

SPend under ManageMentWhat percentage of your indirect spend is centrally-managed and influenced by procurement professionals?

interestingly, given the responses to the initial questions in the survey, only 7% of respondents said that the percentage of their indirect spend that is centrally managed and influenced by procurement professionals is 85% or more, the benchmark for world-class procurement organizations.

indeed, 47% of respondents said that the percentage of their indirect spend that is centrally-managed and influenced by procurement professionals is 50% or less and a full 31% indicated that less than 25% was centrally managed and influenced by procurement professionals.

this seems to align well with the response to the previous question and to Xchanging’s experience in the marketplace; that very few organizations have been able to attain ‘best in class’ spend under management levels of 85% or more.

ProcureMent outSourcingFor your organization and for your competition, do you expect investment in third party procurement services/outsourcing to increase, decrease or stay the same in 2013?

While 33% said that in 2013 their firm would increase investment in third party procurement services/outsourcing, only 13% said that investment would decrease. the general opinion of respondents, however, was that their competition would be investing more in outsourced services during 2013, with 43% expecting the competition to increase spending.

this perhaps signals a general and wider trend toward growth in the market for outsourced procurement services.

8.88%

26.67%

17.78%

40.00%

6.67%

0%

0-25%

25%-50%

50%-85%

85% or more

33.3%

42.49%

12.5%

4.8%

54.2%

52.5%

Your organization

Your competition

0 10 20 30 40 50 60

Stay the same

Decrease

Increase

Very few organizations have been able to attain ‘best in class’ spend under management levels of 85% or more.

© 2013 Xchanging Corporate Spending and proCurement trendS 2013 / 3

What do you perceive is the best model with regard to the Sourcing and procurement function?

When asked about the best model with regard to the sourcing and procurement functions, only 10% thought a full outsourcing model was best, with 49% preferring a ‘co-sourcing’ model where only discrete parts of sourcing and procurement are strategically outsourced. compared with the responses to the preceding question, there appears to be an expectation that outsourcing will grow in 2013, but more of an appetite for that to be as part of a more collaborative model.

10.64%

53.19%

36.17%

Fully or mostly outsource to those with procurement core competency

“Co-sourcing” model where only select parts of Sourcing and Procurement are strategically outsourced

Do everything in-house

in which area would procurement outsourcing have the most impact in your organization?

it is clear that, whichever way the question is asked (most impactful or least impactful), the area where it is perceived third-party outsourcing providers can make the biggest impact is through providing organizations with expertise that is not available internally.

secondary to that, the ability to drive a significant-level of additional cost savings is clearly seen as the second most important area in which outsourcing providers can add value.

do you feel the number of Ftes your organization has in Sourcing and procurement is adequate?

3Yes 55.56%

7no 44.44%

supporting the response that ‘engaging expertise that doesn’t exist internally’ is a big area that third-parties can add value, we found that 44% of respondents feel their current sourcing and procurement function is inadequately staffed.

area regarded aS moSt impaCtFuL

regarded aS LeaSt impaCtFuL

drive significant-level of additional cost savings

18.42% 14.81%

help in tracking savings to the bottom line 13.16% 22.22%

engage expertise that doesn’t exist internally

39.47% 7.41%

provide access to advanced procurement technology

15.79% 29.63%

drive competitive advantage due to more money for innovation spending

13.16% 25.93%

4 / Corporate Spending and proCurement trendS 2013

Sourcing, ProcureMent and technology trendSin terms of priority, which sourcing tools and processes do you think your firm will increase usage of during 2013?

in terms of increasing usage of sourcing tools and processes, 39% ranked supplier management as the top focus for 2013, followed by contract compliance, which 20% ranked as the top priority. category management is also top of mind with 47% ranking this area as either the top or second most important priority.

it is worth noting the relative lack of importance or priority attached to both strategic sourcing and tail-end spend management (or tactical sourcing), compared to the other three options. this would seem to show that procurement functions will spend more time during 2013 trying to extract value from the existing relationships and contracts that they have in place, rather than going to market to implement new suppliers and contracts.

in terms of priority, which of the following technologies do you think your firm will increase investment in during 2013?

When asked about 2013 technology focus, 31% of respondents ranked a procure-to-pay platform as the top technology spending category for 2013, with 26% tagging supplier / contract management technology as their biggest priority.

a priority on supplier / contract management and p2p technology backs up the responses to the previous question, which highlight a focus among respondents on category management, supplier management and compliance management.

Low Focus (5/5)

Medium / Low Focus (4/5)

Medium Focus (3/5)

High / Medium Focus (2/5)

High Focus (1/5)

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Spend

analy

tics

eSourcin

g

Supplier /

contract

managem

ent

Procure

-to-P

ay

platfo

rm

Savings tr

acked to

business o

utcom

es

18.13% 9.62% 23.73% 30.62%

21.43%

19.89%

28.04%

7.84%

20.90%

19.40%

12.76%

31.91%

15.68%

31.28%

27.87%

11.66%

25.86%

25.24%

3.56%

13.78%

32.07%

31.55%

15.41%

18.25%

3.51%

Low Focus (5/5)

Medium / Low Focus (4/5)

Medium Focus (3/5)

High / Medium Focus (2/5)

High Focus (1/5)

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

15.3% 20.7% 42.8% 19.8% 2.4%

6.4%

26.0%

41.2%

21.8%

6.0%

24.2%

24.5%

11.9%

26.3%

14.1%

41.6%

12.5%

19.2%

9.6%

4.1%

16.1%

16.1%

19.4%

58.1%

Strate

gic

Sourcin

g

Category

managem

ent

Supplier

managem

ent

Contract

complia

nce

Tail-end S

pend

Managem

ent

© 2013 Xchanging Corporate Spending and proCurement trendS 2013 / 5

What iS needed in 2013Which practice or service do you think could benefit your organization the most in terms of efficiency, cost savings or overall competitiveness?

When asked what practices or services could benefit the organization either in terms of efficiency, cost savings or overall competitiveness, 34% ranked ‘technology to help track savings to the bottom line’ as the top priority.

initially, this appears to contradict the response to the previous question, which showed an apparent lack of focus during 2013 on technology to track savings to business outcomes. one explanation could be that, although the respondents see the potential value from being able to track savings to the bottom line, they do not see it as a current focus area, perhaps due to lack of resource or a lack of awareness of the availability of a solution.

corPorate SPending in 2013overall, will your company spend more or less in 2013 than in 2012?

more 67.3% less 32.7%

generally speaking, will uS companies spend more or less in 2013 than in 2012?

more 72.3% less 27.7%

67% of respondents said that their company would spend more in 2013 as compared to 2012, while slightly more (72%) thought that us-based companies in general would spend more in 2013.

Which macro factor is the most likely to limit corporate spending / drive cost cutting requirements in 2013?

When asked what macro factors are most likely to limit corporate spending / drive cost cutting requirements in 2013, the most respondents (44%) ranked their uncertainty on how congress will handle potential economic growth threats as the most likely cause and 22% cited a weak us economy causing lower domestic demand as the most likely cause.

to learn more about enhancing your company’s value and performance through strategic sourcing and procurement services and technology, visit: www.us.xchanging.com/procurement

For any questions concerning this survey, contact: megan parker Finn partners telephone +1 (312) 329 3975xchanging@finnpartners.com

21.1%

23.7%

34.2%

4.9%2.4%

Greater focus from C-level

Competitive benchmarking to identify necessary focus areas

Greater percentage of spend under management

Technology to help track savings to bottom line

Effective gain-sharing model with outsourcing partne

Other

21.1%

17.8%

44.4%

11.1%

22.2%

0%4.4%

Uncertainty on how Congress will handle potential economic growth threats

Increasing domestic commodity and energy prices

Cost pressure from low-cost foreign competition

Weak US economy causing lower domestic demand

Rising import costs leading to margin pressure

Falling demand as growth slows in emerging economies (e.g., BRIC)

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© 2013 Xchanging3002/1/5/13