2015 Trend Report

A Reference Guide for Procurement

JANUARY 2015

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CONTENTS
PROCUREMENT IN 2015

THE WORLD IN 2015

1. Reviewing 2014: Procurement in the news

8. Macroeconomics

2. What will impact procurement in 2015

9. Politics

3. CPO intentions 2015

10. Commodities

4. Talent (management)

11. The big stories that will impact business

5. Consumer views of the supply chain

12. 2015 world event calendar

6. Procurement technology: provider predictions for

2015
7. Category intelligence

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Part 1:
Procurement in 2015

JANUARY 2014

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WHAT WILL IMPACT PROCUREMENT IN 2015

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CPO INTENTIONS 2015

We will add a few headcount to actively manage
significant areas of spend previously unaddressed.
We are adding new resources in Procurement
Excellence and Supplier Quality Development for
each region (North America, South America,
Europe, and Asia).

We are restructuring to have more 'front

line' capability (including sourcing and
supplier performance and risk management
support) and less 'back office'. It is not an
FTE reduction, but rebalancing.

Procurement has to contribute to efficiency programs

and cost leadership. This means doing more with less.

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EXECUTIVE WORK-LIFE BALANCE

CPOs that are more contented with their work-life balance

generate higher savings.

Happier CPOs structure their organisation differently, with

more category manager and senior management support.
Many mini-CPOs are spread across the organisation,
reducing the strain on management in decision-making.

54 hours average hours worked by CPOs

Structured organisations help optimise decision-making

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CATEGORY INTELLIGENCE: WAREHOUSING

RAPID MODERNISATION OF WAREHOUSING SPACE IN EMERGING MARKETS
THE FUTURE

Global price forecast

Warehousing services in emerging

markets will continue to modernise rapidly.

+2.4%

Modern warehousing space in India is

expected to grow at a CAGR of between
25% and 30% until 2018.

Source: Procurement Leaders,

Category Planning Guide 2015

This modernisation is, in part, enabled by

the greater accessibility of warehouse and
supply chain technology in these markets.
The cost of RFID technology in India will
fall by 90% to $0.1 per tag.
There will be increased competition
between suppliers of modern warehousing
as the number of players grows.
PROCUREMENT IMPACT
SUPPLIERS OF MODERN
WAREHOUSING IN INDIA

Modernisation of warehousing processes and increased technological uptake in

emerging areas such as India, will result in:
Increased warehousing efficiency

Indo Arya (India)

Lower operational costs

Allcargo Logistics (India)

Increased supply-chain visibility

Less risk of product damage or loss.

Newly modernised warehousing can improve supply-chain operations in emerging areas

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CATEGORY INTELLIGENCE: DE-BUNDLING

CATEGORIES AFFECTED
Fleet
Facilities
Logistics

Fleets are no longer

able to get the best
value by working with
one leasing company.

PROCUREMENT BENEFITS
Gain category-specific expertise

(Stuart Donnelly, chief regional officer,

Fleet Logistics)

Manage costs, obtain value for money

Increased category-specific innovation

INSIGHT
In 2005, 77% of global contracts were outsourced as a bundled
provision compared with 46% in 2013. This is expected to decline
further in 2015.

Bundling services means sharpness of pricing competition, cost

control and the ability to choose the right suppliers are lost
JANUARY 2015

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Part 2:
The World in 2015

JANUARY 2014

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MACROECONOMICS: OVERVIEW

With 2015 upon us, thoughts

are inevitably turning to what
the year holds in store, and
from a procurement
perspective at least, it
appears the economic
headwinds that have battered
the function since the onset
of the financial crisis are
finally being replaced with a
calmer, much far less
blustery outlook. James
Knightly, economist tells
Procurement Leaders what
procurement organisations
can expect the global
economy to throw up in the
next 12 months.

JANUARY 2015

Can we be optimistic about 2015?

What about the export market?

Generally, things are looking pretty positive. There are

potential headwinds ahead, though, particularly in Europe,
which is where the biggest risk is coming from right now.
The European growth story has deteriorated; we saw
economic contraction in several areas in the second quarter
of this year and in the third-quarter growth was pretty
meagre. Were not seeing any help from the governments
there, unlike what weve seen in the UK and the US in a bid
to get credit markets moving again.

For those organisations sourcing from Europe, though, the

apparent inability of the European Central Bank to instil
anything approaching confidence could be good news, with
exports from the eurozone likely to remain cheaper for the
foreseeable future, partly as a result of the fall in value of
the euro. On the flipside, stagnant activity in Europe and
flat-lining growth or perhaps even another period in
recession could have a significant impact on those
companies relying on Europe as its primary export market.

What exactly are the implications for

procurement organisations sourcing
extensively from, or actually operating in,
Europe?

Will deflationary pressure challenge the

global economy?

Credit growth in Europe is still negative and confidence is

very weak. Unemployment is also rising pretty aggressively,
so its a really different story to the one were seeing
elsewhere. Europes situation is hardly helped by the crisis
in the Ukraine on the extremity of its eastern borders and
while that spat remains as turbulent as it was back in the
summer, the ongoing nervousness of procurement
organisations operating in eastern Europe is easy to
understand.

I dont think this is really a key concern, although its a

potential concern. The key driver behind this drop in
inflation is really, though, a good story because its the drop
weve seen in energy prices. That has really been the
equivalent of a tax cut, not just for the consumer but also for
businesses. You cant avoid putting petrol in your car but if
its 10, 15, 20% cheaper than it was 12 months ago, that
gives businesses more money to spend elsewhere.

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MACROECONOMICS: GDP GROWTH-WORLD

PREDICTIONS
The IMF cut its 2015 global growth forecast (from
4.0% to 3.8%) amid geopolitical risks and market
uncertainties.
European growth is predicted to rise to 1.9% in 2015,
driven by countries in the emerging and developing
category (2.9%). Europe is at 38% risk of slipping into
recession entering 2015.
Japans high level of public debt and ageing
population mean it will grow by 0.8% in 2014 and
2015, contributing to overall weak growth in advanced
Asia (2.2%).
Sub-Saharan Africa will grow well (5.8%) but Ebola
and terrorism threaten its prospects.

In 2015, the bulk of growth will come from Africa and Asia
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METAL COMMODITIES: ALUMINIUM

PL COMMODITY BUYERS FORECAST

OPINIONS
The aluminium market outside China is set to record its first deficit in nine years in
2015 following production cuts and an Indonesian ore export ban, a turning point that
could be the start of a prolonged shortfall as demand recovers.
After years of chronic oversupply, the market is beginning to tighten as producers cut
production to battle rising costs, Indonesia bans bauxite ore exports and demand for
aluminium rises, particularly from U.S. auto makers. (Reuters)
We buy a product produced from aluminium scrap. The risk is that the demand from
scrap exceeds supply given there are new users entering the market. (PL
commodity buyer)

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FOOD COMMODITIES: COCOA

PL COMMODITY BUYERS FORECAST

OPINIONS
With the continued political strife in the Ivory Coast, expect an increase in cocoa
price next year. (PL commodity buyer)
The risks to cocoa prices could be exacerbated if the Ebola epidemic spreads to
cocoa producers in West Africa. (World Bank)
As a result of increased futures prices and major companies partnering with farmers
to educate them on husbandry, farming techniques are bound to increase in
yields/production. As such, we expect cocoa to remain steady to slight uptick in
supply for the future. (PL commodity buyer)

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THE DRIVE TO SINGLE ERP

SYSTEMS
One focus point for CPOs in 2015 will be IT
architecture. Best-of-breed models are
becoming less attractive.

60% of CPOs are looking to create single,

global systems to meet their technology needs
in 2015.
Source: Procurement Leaders, Procurement IT Systems and
Architecture, 2014

30% of CPOs are looking to create

best-of-breed systems in 2015.
Source: Procurement Leaders, Procurement IT Systems and
Architecture, 2014

2015 WORLD EVENT CALENDAR

JANUARY

JULY

Lithuania adopts the euro.

Official formation of Eurasian Union (customs union between Armenia,
Belarus, Kazakhstan and Russia).

Legalisation of marijuana in Oregon state, US.

Seventh BRICS summit, held in the Russian city of Ufa.

AUGUST
FEBRUARY
Personal biometric scanners for personal banking become available.
Presidential elections in Nigeria.

MARCH
Cricket World Cup is held in Australia and New Zealand.
Expiry of Russian-Ukrainian gas deal.

APRIL
NASA's Dawn spacecraft arrives at the dwarf planet Ceres.
Second baby of Prince William and Kate Middleton due.

Launch of Microsoft Windows 10.

SEPTEMBER
Pope to visit the US.
Launch of Apples iPhone 7.

OCTOBER
Argentina holds presidential elections.
Federal elections in Canada.

NOVEMBER

UK general election.
Opening of Masdar City in UAE, a zero-waste and zero-carbon city.

Parliamentary elections in Burma (Myanmar).

First advert on the moon, as Pocari Sweat, a Japanese drink, is pictured
from the lunar surface with the aid of unmanned rockets.
UN Climate Change Conference to achieve legally binding agreements on
climate change.

JUNE

DECEMBER

MAY

The Federal Reserve to increase interest rates, according to a consensus.

of major banks. Other national banks tipped to follow suit.
Forty-first G7 summit takes place in Germany.

Parliamentary elections to be held in Spain.

Roaming charges for mobile phone users to be phased out in the EU.
Deadline for the Millennium Development Goals.