Procurement Executive Insight

Study Results Analysis

January 21, 2013

2013 Procurement Key Issues:

Going Deeper and Broader to Deliver
Borderless Procurement Services
By Michel Janssen, Pierre Mitchell and Lynne Schneider

Executive Summary
Of all the Hackett Key Issues Studies conducted in the last five years, the 2013 edition shows the greatest yearover-last change in priorities for both performance and capability-related issues. Procurement executives expect to
be extremely busy in the coming year supporting the enterprise focus on profitable growth. In response, they are
working to expand the quantity and quality of their organizations spend influence via sourcing, category management
and increasingly, supplier relationship management. Many of their priorities in the coming year will require greater
cross-functional collaboration with business units, functional partners, Global Business Services groups and third
parties. While priorities may vary based on individual enterprise strategies, in 2013 the overarching goal is to deliver
more value without more resources.

In 2013, enterprises are trying to not just grow globally, but to balance local agility with
global scale in their value chains. To do so, internal business services that support them
must be equally borderless, from the geographic, organizational, technology and other
standpoints.
Four imperatives were identified by participants in our 2013 Enterprise Key Issues Study:
Fostering the agility required to achieve profit goals when revenue falls short of
expectations, and to add value to procurement services without additional headcount
or budget.
Continuing to move toward a more standardized and global approach to the business
and to procurement operations.
Maturing the concepts of process ownership beyond the basics of process
standardization, and creating value by working across functional, business unit and
geographic borders.
Obtaining insights, intelligence and actionable strategies from data generated by
procurement activities.
It is likely that growth will always be the top priority for CEOs, but for the other senior
executives (including procurement leaders) who participated in the study, improving
operating margin actually overtook increasing revenue compared to 2012 (Fig. 1).

2013 The Hackett Group, Inc.; All Rights Reserved. | 6000131

Procurement Executive Insight I The Hackett Group I 1

FIG. 1 Summary: Enterprise key issues in 2013

Percent of companies ranking issue as important" or "extremely important"
Improve operating margin

Largest
increase

90%

Accelerate revenue growth

88%

Improve customer
service/satisfaction

88%

Reduce overhead cost

83%

Increase operational agility

and flexibility

82%

Enhance employee/talent
retention and development

82%

Improve cash flow/working capital

77%

Reduce total supply chain cost

77%
74%

Manage enterprise risk

68%

Grow emerging market presence

Achieve non-financial, social responsibility
and sustainability-related objectives

49%
+/- 3% CHANGE FROM 2012

Source: Enterprise Key Issues Study, The Hackett Group, 2013

The enterprise is looking under every stone for improvement opportunities. This of course
helps set the agenda for procurement organizations to support. On the revenue and
growth enablement front alone, procurement organizations have a broad spectrum of
supplier engagement options planned to support enterprise strategies in 2013 (Fig. 2).
FIG. 2 Procurement initiatives planned for next 12-24 months in support of the enterprise strategy
Enterprise growth strategies
Developing/improving traditional
products and services

43%

Improving sales & marketing

effectiveness in existing channels

36%

Pursuing game-changing
innovation/technology

34%

Penetrating international markets

Finding new target industries, channels
and channel partners

Supplier-related activity
39%

82%

43%
31%

28%

65%

34%

22%

79%

62%

33%

Early supplier involvement

in design
Joint promotions;
demand pull tactics
Open innovation
Supply base localization
Supplier market intelligence

55%

Related initiatives
A strategic/business planning process
effectively supporting growth
and related initiatives

25%

Improving brand perception

(e.g., sustainability, diversity, etc.)

46%

43%

Ensuring value chain partners'

ability to scale for growth

25%

36%

Mergers & acquisitions 14%

Joint ventures/strategic partnerships 14%

32%
34%

21%

HIGH

48%
35%

71%

Supplier business reviews;

supplier eventst

68%

Supplier diversity;
supplier sustainability

68%

Supplier capability/
capacity development
Supplier acquisitions
Strategic supplier partnering
(e.g., JVs, joint IP licensing)

MODERATE

Source: Revenue/Growth Enablement Study, The Hackett Group, 2012

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Procurement Executive Insight I The Hackett Group I 2

The challenge will be finding a way to fund these strategic pursuits when staffing and
budgets remain tight. Although revenue is expected to grow during 2012-2013, albeit
slowing relative to 2011-2012, procurement budgets will be flat going into 2013, with
operating budgets expected to drop by 0.40% and FTE levels by 0.50% (Fig. 3).
FIG. 3 Projected changes in revenue, procurement budgets and headcount
Overall revenue growth
7.9%

Procurement operating
budget

Number of staff (FTEs)

in the procurement function

6.5%

1.16%
0.31%
-0.40%
2012 COMPARED TO 2011

-0.50%
2013 COMPARED TO 2012

Source: Key Issues Study, The Hackett Group, 2013

Since procurement, like other functions, is being required to do more with less, it will
need to do things differently. Based on the Key Issues Study findings, there is plenty of
change on the horizon:
Globalizing value chains means globalizing direct as well as indirect procurement resources that are increasingly part of a broader business services delivery group, such
as a Global Business Services organization.1 Companies have average of 12% of their
FTEs already located in low-cost regions, a number that is expected to reach 21% in
within two years.
Roughly one-third to one-half of companies have created a global design for policy/
strategy standards, process designs, technology platforms, KPIs and master data management (MDM) with plans to increase those levels to 50-60% within three years.
KPIs, MDM and near-real-time analytics are key to enabling closed-loop performance
management processes for the enterprise (i.e., enterprise performance management,
or EPM) or for procurement/supply chain (which Hackett calls supply performance
management).2 Timely analytics are not always easy to come by in large, global enterprises. In our recent globalization study, we found that 80% of top-quartile performers offer visibility in near real-time or within one day, compared to only 28% of the
peer group.
Since a one-size-fits-all procurement Service Delivery Model (SDM) is insufficient for
the complex needs of large organizations, the ability to mass-customize procurement
processes as services by category, stakeholder, contract type, buy-pay channel, geography, etc., is paramount. Using a procurement SDM to design tailored services for
end-to-end processes is a key principle behind enterprise process ownership (sometimes known as global process ownership) and Global Business Services strategies.
In the study, we found that 21% of procurement organizations are scoping their enterprise process ownership to cross-functional, end-to-end processes (e.g., purchase-topay or source-to-settle).
Building these new capabilities is not easy, and procurement, perhaps more than any
other function, realizes the importance of tailoring its approach to influence stakeholders
and help them gain better performance outcomes. This means helping to maximize the

2013 The Hackett Group, Inc.; All Rights Reserved. | 6000131

In 2012, The Hackett Group conducted a globalization research study and created an associated Globalization Index to measure the extent of globalization of the enterprise operating model; globalization of business
services delivery (including procurement); and finally, the degree of alignment between the two.
Procurement Executive Insight I The Hackett Group I 3

value of third-party relationships. As with last years Key Issues Study, the 2013 edition
validated that procurement is generally doing a good job helping stakeholders capture
this value, especially relative to how well other functions perform. Only 10-20% of nonprocurement study respondents believe that uncaptured value is a major issue for 2013
(Fig. 4).
FIG. 4 Only a small minority of non-procurement executives feel that untapped supplier
value and procurement value are major issues for 2013
Percent of procurement stakeholders indicating
they have difficulty getting enough value
from supplier relationships
59%
5%
14%

Percent of procurement stakeholders indicating

they have difficulty getting enough value from the
procurement function to maximize
supplier relationships

55%

52%
5%

45%

20%

3%

14%

13%

47%

20%

35%

11%
40%

Finance

33%

IT

29%

33%

HR

Finance

27%

24%

IT

HR

MOST IMPORTANT INTERNAL SUPPORT

ISSUE WE FACE
IMPORTANT ISSUE TO ADDRESS IN 2013
AN ONGOING ISSUE

Source: Key Issues Study, The Hackett Group, 2013

There is still opportunity to improve, however. Plus, procurements stakeholders

who have a notoriously short memory when it comes to its historical successes are
ratcheting up their expectations for procurement to develop ever-deeper capabilities and
deliver more impactfully across a much broader set of KPIs in 2013.

Procurement Key Issues It Will Be a Busy 2013

Of all the Hackett Key Issues Studies conducted in the last five years, in 2013 we
see the greatest change over the previous year in priorities for both performance and
capability-related issues. Reducing purchased costs remains at the top of performancerelated concerns, but the increase to 90% of companies clearly shows that, for better or
worse, cost reduction is king (Fig. 5). However, innovation has shot up in the rankings
and is now tied with spend influence as the number-two priority. Interestingly, although
innovation is primarily a revenue-generation strategy, only 34% of organizations consider
supporting growth enablement beyond innovation to be a major or critical priority.
Another interesting finding is that 50% of procurement organizations are placing a major
emphasis on reducing the cost of procurement operating expense in the coming year,
compared to 25% in 2012. The focus here is not only to support top-down cost-reduction
mandates from finance or elsewhere, but also to free up funds and resources for highervalue activities.

2013 The Hackett Group, Inc.; All Rights Reserved. | 6000131

See the two-part Hackett series on supply analytics and information management referenced in the Related
Hackett Research section at the end of this document.
Procurement Executive Insight I The Hackett Group I 4

FIG. 5 Key procurement performance-related issues in 2013

Percent of organizations citing issue as major or critical
72%

Reduce/avoid purchased costs

90%
53%

Expand purchasings
scope/influence

76%
44%

Increase innovation and

product/service support

76%
51%

Deepen influence on complex indirect

spend categories

69%
42%

Reduce supply risk

56%
39%

Drive more value from

purchase-to-pay process

52%
40%

Free up cash

Reduce procurement
operating cost

52%
25%
50%
32%

Enable growth
beyond innovation

Environmental sustainability
or supplier diversity

34%
20%
26%
2012

2013

Source: The Hackett Group 2013 Key Issues Study

Managing supply risk has also increased in priority as a means of profit protection. Supplier
compliance is receiving particular attention, with an emphasis on efficient management
of cross-functional workflows relating to regulatory requirements and supplier compliance
with performance expectations. These processes create headaches for suppliers and
buyers alike, and can detract from strategic value creation when participants are bogged
down in processing paper and spreadsheets. Building such capabilities is a combination
of process change (e.g., using supplier stratification to tailor workflows and information),
master data management, analytics, measurement systems and more, and leads naturally
to the topic of improving procurement capabilities in 2013 (Fig. 6).

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Procurement Executive Insight I The Hackett Group I 5

FIG. 6 Strategic priority of capability-related issues in 2013

Percent of organizations citing issue as major or critical
71%

Strategic sourcing

88%
58%

Category management

81%
53%

Supplier relationship management (SRM)

64%
52%

Value contribution visibility

64%
43%

Upgrade of talent/skills

57%
34%

Supply market intelligence

56%
38%

Continuous imprvovement

50%
32%

Upgrading technology tools

45%
26%

Procurement shared services/CoEs/

BPO/globalization

Upgrading information capabilities

Process sourcing/placement

Knowledge management

43%
19%
34%
17%
33%
23%
14%
2012

2013

Source: Key Issues Study, The Hackett Group, 2013

As episodic sourcing activity is broadening to a life cycle-based category management

approach, new capabilities must be built, including broader supplier relationship
management (SRM), deeper supplier/market intelligence (and associated analytics),
and the way in which these knowledge-based processes can be delivered as services
in a scalable way. The idea is to set up a one-to-many approach through a Center of
Excellence (CoE) serving both procurement and its stakeholders. A good example is
supply market intelligence (SMI), in which a CoE supports multiple value objectives
including reducing risk, speeding up sourcing, improving negotiations, supporting newmarket entry and competitive intelligence scenarios. It might be provided to category
managers who then use it to serve their stakeholders; alternatively, it might serve
enterprise strategic planning staff or others. Building such a major capability requires a
major effort involving implementation of many lower-level capabilities (Fig. 7).

2013 The Hackett Group, Inc.; All Rights Reserved. | 6000131

Procurement Executive Insight I The Hackett Group I 6

FIG. 7 Supply market intelligence (SMI) capability-building priorities

SMI types

Supplier-specific financial/risk intelligence

Third-party category knowledge/intelligence reports
Category/industry trends and events

31%
35%

62%

23%

23%

58%

34%

57%

Monitoring supply markets

for innovation/growth possibilities

32%

24%

56%

Category-specific pricing indices

31%

24%

55%

16%

51%

Improving how intelligence is tied to

processes and job roles

35%

Integrating analytic applications to

external intelligence

SMI strategies

31%

39%

11% 50%

Building custom internal intelligence/KM platform

42%

8% 50%

Using third-party content more cost-effectively

40%

8% 48%

Communicating of SMI internally

within procurement

31%

Communicating of SMI externally

to interested stakeholders

35%

Ensuring the company minimizes its footprint

in intelligence posted externally

37%

Mining social media and other external sites

for specific intelligence
Increasing executive awareness,
buy-in and funding
Tying SMI to broader corporate
competitive/MI efforts
Other

16%
11%

47%
46%

8% 45%

40%

5% 45%

31%

13%

34%

44%

8% 42%

31%

33%
2%

SOME FOCUS IN 2013

MAJOR FOCUS IN 2013

Source: Key Issues Study, The Hackett Group, 2013

Of course, SMI is only one type of capability that is being established in CoEs (Fig. 8).
Sourcing workflow support (including tactical sourcing and buying desks), analytics,
knowledge management, benchmarking, training and other areas are similarly popular.
CoEs can be run in the procurement organization, corporate headquarters, the Global
Business Services organization or even in business units (the latter via a virtual model, in
which resources report through the CoE but remain at their normal work location).

2013 The Hackett Group, Inc.; All Rights Reserved. | 6000131

Procurement Executive Insight I The Hackett Group I 7

FIG. 8 Competencies and services offered in procurement Centers of Excellence

(percent of companies)
Specialized sourcing support

59%

Analytics

58%

22%
29%

Supply market intelligence (SMI)

54%

25%

Regulatory compliance
(if different from supply risk)

52%

12% 7%

Knowledge management

47%

Technology support

47%

Benchmarking, KPIs,
value measurement/tracking

45%

Continuous improvement support

(e.g., Lean/Six Sigma)

43%

Program/project management

42%

Contract/commercial excellence

35%

Talent management

35%

6% 11%

19%

6%

11% 4%
33%

9%

7%

29%

14% 5%

52%

Supplier support/help-desk

28%

15%

7%

50%

A FOCUS IN 2013

27%

50%

Specialized domains
(e.g., logistics, asset disposition)

IN PLACE,
WORKING WELL

27%
32%

7%

26%

25%
7% 12%

35%

39%

Finance-specific
(e.g., costing, auditing, working capital)

28%

9%

24%

4% 8%
4% 18%

35%
19%

4% 16%

25%

A FOCUS IN 2013
(TO INTEGRATE WITH
CORPORATE CoE/GBS)

NOT A FOCUS AREA

Source: The Hackett Group, 2012

Strategic Implications
It is clear from the 2013 Key Issues Study that procurement is going to be very busy
in the coming year, not only just to stay in step with the business, but also to build
capabilities for the longer term. The three areas of capability-building receiving the most
attention are category management, supplier relationship management (SRM) and
improving the source-to-settle operating model. Most procurement organizations have
a weaker formal mandate than they would like in these areas, but the smartest among
them have learned to be opportunistic, using external events and internal business
initiatives to provide the impetus for building new capabilities. They are also more
deliberate in systematizing newly built capabilities in order to extend them to additional
areas of spend and stakeholder engagement.
Unquestionably, this continual process of broadening procurements value objectives,
scorecard and capabilities is arduous. More than brute strength, flexibility will help the
procurement organization go global in step with the business.

Related Research
Unlimited Options to Realize Borderless Business Services: Distilling the Key Issues of
2013, January 2013
Procurement Centers of Excellence, December 2012
The Case for Enterprise Process Ownership: Spotlight on the Purchase-to-Pay Process,
November 2012
World-Class Supply Analytics and Information Management, Part 1: Analytics, May 2012
World-Class Supply Analytics and Information Management, Part 2: Supply Information
Management, May 2012

2013 The Hackett Group, Inc.; All Rights Reserved. | 6000131

Procurement Executive Insight I The Hackett Group I 8

About the Advisors

The Hackett Group, a global strategic

business advisory, operations consulting

Michel Janssen

and finance strategy firm, is a leader

Principal and Chief Research Officer

in business best practices, business

benchmarking, and transformation

Mr. Janssen is responsible for developing The Hackett Groups core

intellectual property, including thought leadership. He works with the
companys Executive Advisory Council to understand the strategic
impact of new and emerging trends on the business functions. He also
heads Hacketts team of researchers and analysts in the US, Europe and
India in the design and implementation of research studies; analysis of
results; and production of resulting findings. Previously Mr. Janssen was president of
Supplier Solutions for Everest Group and co-founded the Everest Research Institute. In
addition, he provided strategic oversight for Everests Outsourcing Center, the worlds
largest outsourcing community and vehicle for identifying early industry trends. He was
also a senior director in Gartner Groups Strategic Sourcing practice and held numerous
management positions with EDS.

consulting services including strategy and

operations, working capital management,
and globalization advice. Utilizing best
practices and implementation insights
from more than 7,500 benchmarking
studies, executives use The Hackett
Groups empirically-based approach to
quickly define and implement initiatives
that enable world-class performance.
Through its REL group, The Hackett
Group offers working capital solutions
focused on delivering significant cash flow
improvements. Through its Archstone

Pierre Mitchell

Consulting group, The Hackett Group

Senior Director, Procurement Research

offers Strategy & Operations consulting

services in the Consumer and Industrial

Mr. Mitchell is responsible for leading the development of research

and other intellectual property within Hacketts Procurement Executive
Advisory Program, where he also serves as an adjunct business
advisor. He has over 20 years of industry and consulting experience in
procurement, supply chain and information technology. Mr. Mitchell is
quoted widely in the press and speaks at numerous industry events on
supply management trends and technologies. Previously he was vice president of supply
management research at AMR Research and a manager at Arthur D. Little, where he led
numerous supply chain and procurement transformations at Fortune 500 companies.
Other industry positions include manufacturing project manager at The Timberland
Company, materials manager at Krupp Companies and engineer at EG&G Torque
Systems.

Products, Pharmaceutical, Manufacturing,

and Financial Services industry sectors.
Through its Hackett Technology Solutions
group, The Hackett Group offers business
application consulting services that help
maximize returns on IT investments. The
Hackett Group has completed benchmark
studies with over 2,800 major corporations
and government agencies, including 97%
of the Dow Jones Industrials, 86% of the
Fortune 100, 90% of the DAX 30 and 48%
of the FTSE 100.
Founded in 1991, The Hackett Group was

Lynne Schneider

acquired by Answerthink, Inc. in 1997.

Senior Research Director

Answerthink was renamed The Hackett

Group, Inc. in 2008. The Hackett Group has

Ms. Schneider is responsible for leading the development of research

and other intellectual property for multiple programs. She has worked
in consulting and related research for over 20 years. Her previous
positions included Director of Research for Kennedy Consulting Research
and Advisory, as well as a variety of internal and external consulting
positions with international companies. As Director of Business Process
Improvement at American Greetings, Ms. Schneider managed a portfolio of strategic
and operations projects, including both staff and line functions. She was also a senior
consultant in Towers Watsons Organization Effectiveness practice and a consultant in the
Change Management practice at Accenture.

global offices in the United States, Europe

and Asia/Pacific and is publicly traded on
the NASDAQ as HCKT.

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This publication has been prepared for general guidance on the matters addressed herein. It does not constitute professional advice.
You should not act upon the information contained in this publication without obtaining specific professional advice.
2013 The Hackett Group, Inc.; All Rights Reserved. | 6000131