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Addressing market volatility

April 2012


Offshore procurement jobs are set to increase due to a boom in the growth of procurement functions in emerging markets overseas.

By Anna Scott 


The number of procurement jobs performed offshore could increase by more than half by 2013 as procurement functions seek to increase their presence in emerging markets, a research report has suggested.


The Hackett Group’s study – 2012 Procurement Agenda: Enabling Enterprise Growth Without Disabling Profits – has found that procurement leaders are seeking to triple the level of globalisation of their organisations within the next two to three years.

 

Combined with the need for procurement leaders to continue protecting supply and lower input cost against a backdrop of pricing volatility – the “New Normal”, according to the report – this is expected to result in structural changes in procurement.


The percentage of full-time equivalent procurement posts in low-cost regions is expected to increase from 16 per cent to 25 per cent, according to 200 senior procurement professionals from the Global 1000 companies surveyed for the research.


This will involve moving routine processes to offshore service centres and shifting high-value work, such as tactical sourcing and market intelligence, to external service providers. As a result, procurement professionals are expecting a three percentage point increase in staff numbers, compared with a two percentage point increase in FTEs in 2011.


However, while operating budgets are expected to increase by one per cent, this is down from last year’s three percentage point increase.


“The coming year will test the mettle of every procurement organisation,” the research states.


“Procurement will need to do a lot more in 2012, with basically the same resources it had in 2011. “Many objectives need to be balanced, including supporting enterprise efforts aimed at finding new sources of revenue and standardising and systematizing processes amid volatile operating conditions.”


The research states that greater volatility is expected in input prices, customer demand and talent availability in 2012 than in the period before the economic crisis, from 2003 to 2007.


Of the companies surveyed, 30 per cent are expecting changes of 25 per cent or more in input prices and 22 per cent expect volatility within the talent pool available.


The study also found that procurement organisations are focusing more on global process ownership at the cross-functional level, and are increasingly expected to own the source-to-settle and purchase-to-pay processes, even though procurement may report to the finance department.


The research recommends that organisations develop greater “supply agility” of their supply base and procurement department, and contract flexibility. Companies should be prepared to adapt their business models and priorities in response to economic changes in regional global markets. “This will require companies to fully understand the benefit that comes from adopting global standards and organisational models that allow optimal execution by leveraging both skill and scale more broadly,” the research states. “In addition, the increased instability of demand across global regions has made it more critical than ever for companies to truly understand how each region should operate while still gaining the advantages that comes from a global process operating platform.”


www.thehackettgroup.com/research/2012/key2012itex/



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