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Table of Contents
Introduction.......................................................................................... 2 Executive Summary. . ............................................................................. 2 Survey Methodology............................................................................. 2 Note on Text, Charts and Figures.......................................................... 2 Respondent Demographics.................................................................... 3 Top Business Priorities for Procurement . . ............................................... 5 Cost Reductions and Savings................................................................ 7 Revenue Growth and Profit Improvements............................................. 8 Risk Management ................................................................................ 9 Procurement Transformation. . ................................................................ 10 Supplier Performance and Sustainability Management........................... 12 Supplier Collaboration and Innovation................................................... 13 Spend Under Management.................................................................... 15 Improve Working Capital ...................................................................... 16 Compliance With Customer Requirements............................................. 18 Procurement Organizational Costs........................................................ 19 Strategic Nature of Trading Partner Relationships.. ................................ 20 Conclusion. . .......................................................................................... 21
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Introduction
The Institute for Supply Management (ISM), in conjunction with BravoSolution, administered a Web-based survey to procurement and supply management executives in summer 2013.The objective of this research was to understand which items from a menu of recently emerging business priorities are the focus of executive attention now. Additionally, for each priority, we sought to understand key underlying dimensions of that business concern when possible.
for an overall response rate of 5.8 percent. Usable responses generally separated into two types: responses that fully answered the detailed follow-up questions on business priorities (372 records) and responses that only documented the respondents top three business priorities for 2013 (173 records).The latter records were accepted as usable (but not complete) because the objective of the study was to understand business priorities overall.
Supply chain executives are focusing on fundamentals this year. The top three identified priorities for 2013 are: 1) Improving cost reductions and savings (mentioned by 60 percent of respondents) 2) Revenue growth and profit improvements (mentioned by 30 percent of respondents) 3) Risk management (mentioned by 28 percent of respondents) Although improving cost reductions and savings is on the minds of a strong majority of respondents, most acknowledge that only incremental savings of 10 percent, or perhaps 20 percent, in some cases, is achievable. o Even though greater than 90 percent of respondents report they measure total savings as a percentage of spend, a notable minority (25 percent or more) dont measure the savings derived from RFX processes, collaborative sourcing initiatives and other methods of controlling spend. Revenue growth and profit improvements are also of concern this year. Again, mostly incremental improvements of 10 percent or 20 percent are targeted by initiatives supporting this priority. o Reduced supply costs is most often mentioned as the tool to help achieve their improvement goals of 10 percent or less or 11 percent to 20 percent. Although reduced organizational costs are cited by most respondents as an area to examine, that area is also mostly deemed to be capable of only contributing incremental improvements. Risk management rounds out the set of the three most mentioned business priorities. Respondents indicating risk management as a priority were asked to report on their preparedness to mitigate a menu of common risks. o It was found that only about one-half of respondents firms were prepared to mitigate reasonable levels of general supply chain management risk, supplier financial risk and operational risk.
Executive Summary
The charts and figures in this report seek to communicate complex information in a logical and straightforward manner.Within this report, the following conventions are used: All wording that appears in italics in this report represents material as i t was exactly worded in the survey. When a data point has a value of 4 percent or less, no data label is shown. Although all percentage scales on the instrument were at 10 percentage point increments, two or more scale points are sometimes combined to improve readability (for example, rather than 1 percent to 10 percent and 11 percent to 20 percent sometimes 1 percent to 20 percent is shown). In most of the non-ranking vertical bar charts (for example, Figure 5), the following apply: o The items are arranged from left to right by decreasing n or count of responses. For example, in Figure 5, the leftmost bar illustrates the variable with the highest number of responses (n=240) and the rightmost bar illustrates the variable with the lowest number of responses (n=103). o Percentages in the bars are based upon the number of valid responses for that variable. o The non-responsive answers, not applicable, dont measure and dont know, are represented as unlabeled lines so that the reader may see how lack of response or action changes from variable to variable. These lines are on the same scale on the left (so the value of dont know for the rightmost variable of Figure 5 is approximately 52 percent). o For each chart, the percentage of non-responsive answers is based upon the total n of a priority item (257 in Figure 5). In the ranking vertical bar charts (e.g., Figure 11), the following apply: o The items are arranged from left to right by decreasing average rank (which is the same as increasing value). For example, in Figure 11, the leftmost bar illustrates the variable with the highest average rank (2.47) and the rightmost bar illustrates the variable with the lowest average rank (6.45). o The average rank is shown as a line that overlays the vertical bars. The values are shown in full black and to the right of the data point. The scale for the rank is on the right. o Only valid rank values were included in the average rank calculations. o The grayed percentages on the bars are based upon the number of valid rankings for that variable. o The non-responsive answers not applicable, dont measure, and dont know, are not shown.
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Survey Methodology
A very detailed survey was created by BravoSolution and finalized and administered by ISM. The survey was fielded for an extended period because of the high level of respondents being sought. The sample included all director-level and above customers of ISM and was fielded in two separate waves: An initial wave of 5,001 invitations was sent on June 17, 2013, and a second wave of 4,465 invitations was sent on July 31, 2013. Each wave was reminded at least twice. Fielding continued through August 27, 2013, and yielded 545 usable responses,
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Respondent Demographics
Study participants were generally executives (director-level or above) in the procurement functions of their organization. A strong 89 percent of respondents are directors or above, with 40 percent of respondents holding the title of vice president or above. The senior level of the respondent pool is reflected in the fact that 74 percent of respondents are leaders of decision-making groups (62 percent) or sole decision-makers (12 percent). The respondents bring with them their viewpoints from a great diversity of industries. Almost two-thirds (64 percent) of the respondents are from nonmanufacturing industries, with just greater than one-third (36 percent) reporting that they work in a manufacturing sector.Within the nonmanufacturing industries, the large number of industries reflects the fact that no single industry represents more than 6 percent of the total sample.The manufacturing sector is further subdivided into more than a dozen subsectors, with machinery manufacturing and pharmaceutical manufacturing accounting for 11 percent each of the manufacturing respondent pool (Figure 1).
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The size of firms represented in the sample tended toward larger enterprises, with more than one-half (55 percent) of respondents firms booking US$500 million or more in annual revenue, and 59 percent of respondents reporting that their firms have a head count of 1,000 or more. Not surprisingly, the annual levels of direct and indirect spend
also are relatively large. Nearly six out of 10 respondents (59 percent) reported that their organizations have an annual direct spend of US$100 million or more, and 57 percent reported an indirect spend of US$50 million or more (Figure 2).
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From this list, respondents were asked to identify the three issues that are of greatest priority to their organization this year. Figure 3 illustrates that each of the 23 items continue to be relevant, with all receiving votes. However, a select few definitely stand out as being more important this year.
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Because of the comprehensive nature of the list, it was expected that only a handful of issues would garner sufficient mentions for follow-up analysis. In all, 11 topics received sufficient responses for a more detailed examination. Figure 4 shows that these 11 items visually group themselves into the leading priority and five other pairs.These items are (in order of total mentions): 1) Improving Cost Reductions and Savings (60%) 2) Revenue Growth and Profit Improvements (30%) 3) Risk Management (28%) 4) Procurement Transformation (23%)
5) Supplier Performance and Sustainability Management (23%) 6) Supplier Collaboration and Innovation (19%) 7) More Spend Under Management (19%) 8) Improve Working Capital (15%) 9) Compliance with Customer Requirements (14%) 10) Procurement Organizational Costs (9%) 11) Improving the Strategic Nature of Trading Partner Relationships (9%)
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Figure 5: Cost Reductions and Savings: Percent Improvement Targeted for 2013
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Figure 6: Revenue Growth and Profit Improvements: Percent Improvement Targeted for 2013
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Risk Management
Risk management is the third most often chosen priority. The follow-up question battery, indicates that firms are prepared for varying levels of risk. Four areas of risk were reported on by about 100 respondents.The areas of supply chain management risk (n=102), supplier financial risk visibility/alerts (n=100), operational risk management (n=98) and supplier performance risk monitoring/alerts (n=98) are arguably the risks against which the respondents are best prepared, with more than 50 percent of respondents indicating that they are prepared to mitigate 71 percent or more of perceived risk. The other five risk areas were both less frequently reported on and also less likely to be as well-hedged. In particular, only 30 percent of respondents reporting on multitier supply chain visibility/alerts and only 37 percent of respondents reporting on natural disaster tracking/alerts state they are prepared to mitigate 71 percent or more of perceived risk. Related to this, respondents had the least to say about weather risk tracking/alerts (n=76), and with a relatively low proportion (40 percent) reporting an ability to mitigate 71 percent or more of risk. (See Figure 7.)
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Procurement Transformation
Procurement transformation is a big, multifaceted issue. Excluding other, respondents were asked to report their organizations status with respect to 21 recognized transformational strategies. Data for this issue were gathered via a two-step process. First, respondents were shown a menu of the 21 strategies and asked to check off those their organization had completed. Then, for only those items that were not marked as complete, the respondent was asked to estimate the degree of completeness being targeted for 2013.This method helped ensure consistency within the respondents answer. Perhaps one of the reasons procurement transformation ranked as the fourth most indicated item is because good progress has been made in a number of important areas. Figure 8 illustrates that five key strategies are reported by a strong majority of companies to be either completed or nearly complete. For business strategy: objectives and plan developed, plan communicated to organization, executive sponsor identified and communicated, organizational design introduced, and commodity and category management strategy, all are reported to be complete by more than 60 percent of concerned respondents, with business strategy: objectives and plan developed reported as complete by 84 percent of concerned respondents.
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Among the other five strategies reported, only one (supplier development, collaboration, and innovation strategies and controls) is not expected to be at least 80 percent complete by the end of 2013 by a majority of respondents. Figure 9 illustrates the level of expected completeness for the 10 remaining transformational strategies. Mentions of these strategies quickly drop off, and expected levels of completeness loses focus, with only two items (employee career development roadmap and raw materials strategy and controls) expected to be more than 80 percent complete by a majority of respondents by the end of the year.
Notably, the three least mentioned transformational strategies are sourcing outsourcing, supply chain outsourcing and procurement outsourcing. All three were reported upon by only about 40 percent of respondents. Among the relatively few individuals reporting status on these items, only 16 percent or less of respondents deemed those efforts complete and, for all three, about 60 percent of respondents expected zero percent additional completion on those strategies this year.
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Figure 10: Supplier Performance/Sustainability Management: Percent Improvement Targeted for 2013
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The second type of question presented to respondents was a free-response text box. Respondents were asked to complete the sentences: Without our supplier we would ... (n=67) To have world-class suppliers we need our supplier to ... (n=72)
With regard to Without our supplier we would ..., most answering respondents acknowledged in some fashion how important their suppliers were to the success of their business (although three mentioned turning to alternatives). To the prompt To have world-class suppliers we need our supplier to ..., respondents most often stated that their supplier needed to develop a stronger and tighter relationship with the respondents organization. (See Table 1)
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Figure 12: Spend Under Management: Percent Improvement Targeted for 2013
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Figure 13: Working Capital Initiatives: Current and Goal Average Days and Current and Goal Average Turns
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Among firms with a priority on improving working capital, reducing their inventory is by far the highest ranked priority (average rank: 1.39). (See Figure 14.) Fully two-thirds (67 percent) of respondents ranked this item as 1 with another 27 percent ranking this item as 2. All other answering respondents (6 percent) ranked it 3. The two next items (utilize supply chain financing and utilize dynamic discounting) receive a
relatively high rank (2.74 and 2.87, respectively) when they are of concern, but they are mentioned less often than the fifth- and sixthranked items.These items (review of supply liabilities and improve demand consumption for materials) are mentioned more frequently than the previous two, but are generally ranked lower (2.95 and 3.34, respectively).
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Figure 15: Compliance With Customer Requirements: Ranking Importance of Compliance Focus Areas
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Figure 16: Procurement Organizational Costs: Purchased Materials Cost Goals for 2013
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Figure 17: Strategic Nature of Trading Partner Relationships: Ranking Importance of Components
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Conclusion
This is shaping up to be a year when supply chain managers get back to basics. The top priority is achieving cost reductions and savings, even if those savings amount to only 10 percent of spend. Procurement organizations have identified and are prepared for some level of supply chain risk. In 2013, they are seeking continued strengthening in this area. Finally, much of the heavy lifting of transforming their procurement and supply chain management organizations has been accomplished. What remains is increasing understanding of technology and its benefits, identifying and mitigating risks, increasing collaboration with and development of suppliers. Outsourcing, a buzzword at one time, is no longer seen as important.
Analysis by:
Paul Lee Director, Research Institute for Supply Management Paul has more than 20 years of market research and analytics experience in the nonprofit, healthcare, broadcasting and construction materials industries, including eight years as a senior manager of research for J.D. Power and Associates. Paul earned his MBA from Arizona State University and his BA from Harvard University. 2055 E. Centennial Circle, Tempe, AZ 85283 | +1 480/752-6276 or 800/888-6276 |www.ism.ws
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