Which procurement trends will drive global markets in 2017?
Efficio’s experts highlight the latest procurement developments in their regions - including the Nordics, Germany, Middle East and Africa, the UK and US - and outline the changes clients need to prepare for.
Jesper Schade, Vice President
Many of the Nordic nations are performing well at the moment, but there is a growing sense of disquiet as a result of the wider economic climate. Brexit is a particular concern, especially for Danish companies, and the decline in the value of sterling has already made exports to the UK less competitive.
But you don’t need a big shock before you fall down and that’s the biggest risk. The uncertain climate means organisations are putting a greater emphasis on understanding their cost bases and re-evaluating both where they source products and how they approach particular areas, including procurement itself.
Nordic companies need to start considering if they should outsource procurement to a third party, something we’ve generally only seen in the UK, and to some extent in the US, until recently. Despite my concerns, I’m reasonably optimistic about the year ahead and believe that organisations should be more willing to take a – calculated – chance, by reviewing the entire supply chain, considering new supply markets for goods/services, or engaging in new markets for further growth, for example.
Being too hesitant will kill the initiative and ensure we don’t get the growth that is required for everyone. I’m not talking about the rate of growth in China or India, but let’s at least get above 2%.
Tim von der Decken, Vice President
In 2016, there were two major political events that will have a strong impact on our sector: Brexit and the US election. As far as Brexit is concerned, the UK is more of an export than an import market for German companies but a lot of manufacturers have operations in the UK and they may decide to move those back into Europe, so they may have to alter their warehousing and manufacturing footprints.
Trump’s ‘America first’ policy could mean taxes on imported goods in the US and more expensive cross-border trade in general. Around 40% of German sales are outside the EU, so there is concern about what is happening in the US, while the elections in France and Italy are also worrying.
The more you limit competition and free trade the higher the price is going to be, so it would be prudent to look at alternative sources of supply in case there are issues around higher taxes on exports or even shortages of raw materials. Local sourcing has the lowest risk because in Europe we work so closely together, so start to build up some local suppliers and raw materials.
It’s also a good time to improve the skills within the Procurement function and its relationship with other functions such as infrastructure, IT and HR, to ensure you’re in a position to react quickly if needed. This will not only help organisations cope with any periods of change but will also leave them better prepared for any future challenges.
The Procurement function is viewed as a lever of change that can drive foreign direct investment, and is tasked not only with finding value for money but also with attracting suppliers to set up locally
Middle East and Africa
David Mooney, Director
The low oil prices experienced in the Middle East over the past five years have led to projects being put on hold and oil companies reining in spending.
But as the oil price starts to increase governments are considering infrastructure spending to generate activity, while the oil companies themselves are looking at restarting explorational activities and oilfield developments.
Yet we are also seeing an ongoing push from governments to move away from an over-reliance on hydrocarbons, and a broad examination of suppliers is taking place with the aim of giving local suppliers of goods and services the opportunity to compete. The Procurement function is viewed as a lever of change that can drive foreign direct investment, and is tasked not only with finding value for money but also with attracting suppliers to set up locally.
Businesses must scrutinise their own supply chains in terms of where they are sourcing goods, and look for opportunities to introduce levers that will grow the local supplier base. This includes using their local spending power to influence their suppliers.
Procurement departments are also recognising their ability to play a far more strategic, value-adding role within the business. Alongside this, there is a growing drive towards finding better value for money, with firms looking beyond simply finding the lowest net cost and focusing far more on the total cost of ownership.
Toby Munyard, Vice President
The biggest issue in the UK is the amount of uncertainty that exists, particularly around Brexit but also wider economic conditions. This will ripple through the market and impact currency, inflation, commodity prices, investments and decision-making.
Those working in Procurement need to ensure they fully understand their supply base, including what they spend and with whom. If there are challenges associated with import or export at a future point you need to know how that is going to impact you. Alongside this, businesses need to ensure they have tight control over costs and effective relationships with key suppliers so they can react to any unforeseen events.
Procurement will be expected to have in place a proper supplier management programme that differentiates between contract management, performance management and strategic relationship management. They will need regular review sessions with suppliers and to make sure they have the right metrics, dashboards and KPIs to show that is being managed.
Investing in the development of Procurement teams is vital to ensure you have the skills needed to meet these challenges. Everyone is struggling for talent and that will continue over the next 12 months. If you can help arm your people it will make you a much better proposition from an employment perspective.
The current climate in the US is entirely dominated by the start of the Trump presidency, and, from a Procurement perspective, the issue is trying to work out the possible ramifications for the supply chain
Alex Klein, COO
The current climate in the US is entirely dominated by the start of the Trump presidency, and, from a Procurement perspective, the issue is trying to work out the possible ramifications for the supply chain.
The indications are that Trump is going to be quite protectionist and pro-American, and that could have implications for outsourcing, which is a big procurement lever. If there’s a big rush to bringing things back onshore and ‘un-outsource’ everything then that could bring some instability to supply chains.
The advice for those working in Procurement is to ensure they know where goods are sourced from and services located, and consider if it would make sense to change this. It would certainly pay to look at your manufacturing footprint and where and how much you’re outsourcing. There has been some backlash against outsourcing anyway, so if the policies coming out of Washington are going to add to that rationale then we may see a reversal. But it’s too early to tell.
More generally, there is also a growing influence on procurement practices from private equity firms, which are having to work harder to add value to portfolios. They can’t just sit back and watch the growth come in. Cost reduction is still an important focus too. The economic outlook is not that great and there is a lot of uncertainty, so it still pays to cut costs.