Accenture Spend Trends Report Q1 2014

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A powerful aggregate supply market intelligence and a unique set of cross-client spending and spend management insights.

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Accenture Spend Trends Report Q1 2014

  1. 1. Spend Trends Report Q1 2014
  2. 2. 2 Copyright © 2014 Accenture. All rights reserved. Insights Born from Experience We are pleased to bring you the new Accenture Spend Trends Report, which combines the Accenture Supply Watch with the Procurian Spend Trends Report and reflects the best thinking, insights, and intelligence from both publications. We are excited about having doubled the size of our team though the combination of category specialists from Accenture and Procurian, which provides even more market activity, data, and experience to draw upon. Our team helps more than one hundred clients optimize billions of dollars of spend across the globe. This means they are in each major supply market dozens, sometimes hundreds of times a year. The result: powerful aggregate supply market intelligence and a unique set of cross-client spending and spend management insights. With this unique set of intelligence and insight, we have compiled a summary of the top trends we are observing in each major area of spend—whether changing market dynamics or new spend management strategies—and offer new initiatives to consider. Our core commitment is to deliver actionable insights and market intelligence to you, our clients. We welcome and encourage your feedback to help make this report more valuable to you. Keith Hausmann Managing Director, Global Delivery for Procurement BPO Accenture Operations Author: Mark Hillman—Manager, Market Insights & Analysis—Accenture Operations Category Specialist Contributors: Ed Sands—Logistics Ryan Shadle—IT/Telecom Greg Coletto—Marketing Perianne Grignon—Media Peter Hirano—HR Manfred Vogels—Contingent Labor Allan Brown—Travel Luis Gile—Equipment, Engineering, and Construction Vladimir Ryabovol—Packaging Ravi Sethi—Global Raw Materials Cobb Pearson—Energy CATEGORY EXPERTISE ANNUAL PROJECTS SUPPLY MARKET EXPERTS MRO / Facilities 597 ~ 80 Logistics 291 ~ 50 Marketing 989 ~ 80 Corp. Services 1,036 ~ 60 IT/Telecom 1,464 ~ 70 Direct Materials 282 ~ 30 Capital (EEC) 765 ~ 40 Travel 589 ~ 30 Energy / Sustainability 515 ~ 30 Sourcing Utility/Spend Managers -- ~ 600 TOTAL 5,158 ~ 1,050
  3. 3. 3 Copyright © 2014 Accenture. All rights reserved. Executive Summary and Macroeconomic Backdrop Notable highlights from the first quarter: • S&P 500 Index +176% since the March ‗09 bottom; +19% in the past year • Business sentiment improving; consumer confidence strong • Developed markets strengthening; emerging markets hit speed bumps • Mergers & Acquisitions activity +52% y/y, best start since 2007 • Two-year budget deal helps reduce regulatory/governmental risks • Cash levels continue to reach record levels but high capacity utilization levels point to higher capital spending Overall economic conditions continued to improve in the first quarter of 2014. There are signs that confidence is returning to the market with global mergers and acquisitions (M&A) activity up more than 50 percent vs. the same period last year. Business demand for credit is on the rise, and survey data indicates that more CEOs plan to boost capital spending in the coming years to meet more stable demand. At the same time, improving global demand growth could lead to more commodity cost pressure. In such an environment, businesses will require keen supply market intelligence in order to support growth initiatives while managing cost pressures. 50 60 70 80 90 100 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Consumer, Business Confidence Levels Near Multi-Year Highs University of Michigan Consumer Confidence NFIB Small Business Optimism Recession
  4. 4. 4 Copyright © 2014 Accenture. All rights reserved. Executive Summary and Macroeconomic Backdrop Worldwide Gross Domestic Product (GDP) Growth Forecasts Tick Down for 2014 as Emerging Economies Slow; Outlook Stable for 2015: The U.S. economy has continued its slow and steady recovery while Europe, still dealing with high levels of unemployment and highly varied levels of economic activity across the Euro zone, is moving from recession to recovery. At the same time, emerging economies are experiencing more volatility and GDP growth estimates for China continue to moderate in the 7 percent range after nine years of growth in excess of 9 percent. Bringing it all together, in its most recent World Economic Outlook Update, the International Monetary Fund (IMF) slightly lowered its outlook for 2014 (3.6 percent vs. prior 3.7 percent estimate) based on emerging markets volatility, while the outlook for developed economies remains strong. The IMF continues to expect GDP growth to accelerate to 3.9 percent in 2015. Source: International Monetary Fund World Economic Outlook 3.3% 4.0% 3.1% 3.8% 2.9% 3.6% 3.0% 3.7% 3.9% 3.6% 3.9% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 2013 2014 2015 IMF Worldwide GDP Forecast Updates Apr-13 Jul-13 Oct-13 Jan-14 Apr-14
  5. 5. 5 Copyright © 2014 Accenture. All rights reserved. $200 $300 $400 $500 $600 $700 Repurchases Capex Dividends 2011 2012 2013 2014E Executive Summary and Macroeconomic Backdrop Outlook for Investment Spending Continues to Improve: A curious chicken-and-egg problem has been a recurring theme of the current economic recovery: corporations have been hesitant to make new capital investments because of concerns over whether the economic recovery is sustainable…but in order to have confidence in the recovery we need to see more capital investment. The result of this dynamic has been that corporations have focused on returning cash to shareholders though growth in dividends (+24 percent in 2013) and share repurchases (+23 percent in 2013) at the expense of capital investment (see chart below), but that trend is expected to change. According to data from FactSet Research Systems, Inc., analysts estimate that capital spending will rise 6 percent in 2014 after rising by less than 1 percent in 2013. One possible reason: the strong rise in stock market prices means that share repurchases are more expensive and deliver less bang for the buck than they did just six to twelve months ago, making share buy- backs a less appealing use of capital. Other factors support the case for improving capital spending. The age of corporate fixed assets is at multi-decade highs, and capacity utilization reached 79.2 percent in March (see page eleven), a post-recession high. At levels above 80 percent, strong capital investment tends to follow. Additionally, nearly half of the 122 CEOs surveyed in February and March by the Business Roundtable said they planned to boost capital spending in 2014 vs. 39 percent of CEOs last year. Another survey just released by the National Association for Business Economics showed that 61 percent of corporate economists expect their firms to increase capital spending in 2014 compared to an average reading of 52 percent over the past four quarterly surveys. Improving Confidence Driving Robust M&A and IPO Activity: Investors seem to be encouraging companies to focus on growth over simply returning capital to shareholders. Global M&A volumes climbed more than 50 percent in the first quarter of 2014, but most notably, for announced M&A deals of $1B or more, 72 percent of the acquiring companies saw their share prices rise after announcing acquisition (vs. the long-run average of 50 percent). This implies that investors are applauding efforts to grow the top line via acquisitions. In addition, with the rise of the stock market over the past several years, potential acquirers have stronger currency (stock) with which to make potential acquisitions. Initial public offerings (IPOs) also grew 41 percent year over year to more than $11B, reflecting strong demand in capital markets and providing more capital for growing companies to invest. S&P 500 Companies Use of Cash (USD in Millions) (4)% 24% 11% 0% 6% 22% 7% Source: FactSet Research Systems, Inc.
  6. 6. 6 Copyright © 2014 Accenture. All rights reserved. Executive Summary and Macroeconomic Backdrop Keep an Eye on Inflation as Economic Activity Rebounds: Increased economic activity and growth in capital spending is almost universally positive. However growth in investment and end demand can mean greater risk of inflation. A recent survey conducted by the national Association of Business Economics found that 31 percent of businesses saw higher material costs in the first quarter (double the prior survey) and 35 percent reported rising wages and salaries. Oil prices continue to climb steadily higher (see below) with potential impacts on a variety of input costs as well as logistics costs. Natural gas also continues to rise, and experience elevated levels of volatility (see page thirteen). As growth picks up, labor shortages are more likely to be exacerbated, requiring companies to consider new approaches to manage recruitment and retention, as well as likely labor cost inflation. As we will discuss throughout this report, to effectively capitalize on growth opportunities while also managing inflationary risks will require deep skill and category market insight. Q1 Spend Trends: The Big Five • Coping with Skills Shortages Becoming a Core Competency: As the economy recovers, skills shortages and wage inflation pressures are rising for more skilled and semi-skilled occupations, requiring firms to adopt a more robust total workforce management strategy to meet demand for skills and keep a lid on labor costs while also managing risk. • Tightening Logistics Market Requires New Strategies to Fulfill Demand: In the over-the-road market, carriers have been reluctant to add new capacity, fearful of another economic pullback. Now, with demand improving, shippers need to look at ways to become more driver-friendly as they are forced to compete for scarce supply. • Energy Budgets Under Pressure from Volatility, not Just Rising Costs: In Q1, energy and power prices reached levels of volatility not seen for years—requiring energy users to consider new strategies to manage energy costs and risk. • Regulations Increasingly Driving Capital Investment Cycles: Not only are assets aging, and capacity utilization levels high, but regulations on air pollution and water use are forcing capital upgrades—and opportunities for major efficiency gains—in certain segments. • Rise of Shadow IT Shifts Role of IT Organization: The pervasiveness of Software-as-a-Service (―SaaS‖) has allowed functional departments to acquire point solutions for specific functions, resulting in unmanaged ―Shadow IT‖ spend which IT will need to tackle through increased partnership with business stakeholders. Source: US Energy Information Agency $30 $40 $50 $60 $70 $80 $90 $100 $110 $120 Apr-09 Oct-09 Apr-10 Oct-10 Apr-11 Oct-11 Apr-12 Oct-12 Apr-13 Oct-13 Apr-14 Cushing Crude Oil Weekly Futures Contact Price (past five years)
  7. 7. 7 Copyright © 2014 Accenture. All rights reserved. ENERGY EQUIPMENT, EN GINEERING, & CONSTRUCTION CORPORATE SERVICES— TRAVEL CORPORATE SERVICES—HR MARKETING & MEDIA LOGISTICS INFORMATION TECHNOLOGY INDUSTRIAL & MRO (4)% (2)% 0% 2% 4% 6% 8% 10% Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 12-Month % Change 12-Month Moving Avg. Top Trends in Logistics Competing on Convenience? New Strategies Required in Tightening Over-the-Road Supply Market: So, you spent the winter months successfully negotiating favorable truckload rates for your most important routes…but now there seems to be a problem: your preferred carriers are not taking your loads, resulting in higher than expected truckload costs. The result: scrambling to find carriers with capacity (likely at a higher rate than anticipated) and the risk of poor delivery performance to your best customers. Several factors are at play. As the economic recovery continues, demand for over-the-road capacity continues to rise. At the same time, there is a supply crunch as carriers struggle with aging workforces, high turnover rates, and regulations forcing them to hire more drivers to ship the same volumes. Although average hourly wages for drivers are on the rise, recruitment remains a challenge for carriers. With more demand and tight supply, carriers and drivers are pickier about which loads they will accept. If drivers have to spend six hours waiting for a slot on the distribution center dock, they lose earnings potential (most drivers are paid on a per-mile basis). Shippers increasingly need to ask, ―Am I a driver-friendly shipper with a facility that is efficient and well managed?‖ to lower the risk of delivery performance problems and higher logistics costs. Key Action: The increasingly tight truckload market is raising this issue to the executive level. Shippers should investigate the costs of being driver un-friendly, and actively discuss ways to create driver-friendly facilities, build top-to-top relationships with carriers, and provide more visibility to forecast demand and customer requirements. P3 Alliance Ushers in a New Era for Ocean Shipping—How to Respond: In March, US regulators gave approval to the ―P3‖ Alliance which combines the three largest global container shipping firms into one operating alliance that could control more than one-third of global shipping volume. The ocean freight market has dealt with overcapacity for years, leading to favorable rates for shippers. The alliance promises better vessel utilization, and potentially better profits for ocean carriers. The competitive response to—and ultimate impact of—the P3 alliance is yet to be determined, but if prices were to rise 25-50 percent (likely what shippers need for sustainable economic returns), companies will need to re-assess global sourcing strategies. Key Action: Rising labor costs in emerging markets and the US shale gas boom already have companies examining re- shoring. There is elevated risk that ocean freight pricing will rise; you should at least be considering that risk as part of mid- term and long-range global supply network planning. Source: U.S. Department of Labor Year-over-year % Increase in Hourly Wage; Long-haul Trucking
  8. 8. 8 Copyright © 2014 Accenture. All rights reserved. ENERGY EQUIPMENT, EN GINEERING, & CONSTRUCTION CORPORATE SERVICES— TRAVEL CORPORATE SERVICES—HR MARKETING & MEDIA LOGISTICS INFORMATION TECHNOLOGY INDUSTRIAL & MRO Top Trends in Information Technology Act Now to Get a Handle on “Shadow IT”: The rise of Software-as-a-Service (SaaS) continues to reshape how companies buy software. Increasingly, software purchase decisions are being made at the functional department level (Marketing or HR, for example) because perceived technical integration requirements are lower, and the per-user, per-month subscription fee model allows departments to build these costs into operating budgets rather than capital budget approval processes. Most companies don‘t have a handle on how much of this ―Shadow IT‖ purchasing is happening, but most acknowledge that it is occurring. The result is potential over-spending on redundant software [we‘ve seen cases of executives in different departments fielding request for proposals (―RFPs‖) for the same software], elevated costs due to poor sourcing, and elevated risk to the enterprise. Tackling the Shadow IT issue is a challenge for IT, which must deftly balance its mandate to ensure enterprise security and enforce policy, while also supporting the needs of the business users (some of whom may have resorted to shadow buying due to poor support from IT). Key Action: By becoming a center of excellence for multiple solutions, IT departments can ensure they are the go-to resource for best-in-class solutions, thus helping reduce Shadow IT spending (and waste), and in partnership with IT procurement can deliver lower costs and higher service levels to business users through a win-win partnership. As Companies Embrace Cloud Computing Services, New Capacity Planning and Governance Considerations Are Required: We have discussed the maturity of and growing interest in cloud services in the past, and the importance of demand management and governance to control costs of customer-facing cloud services (mistakes in estimating projected workloads and demand can quickly blow up a cloud service budget).Similar principles apply to moving internal functions to the Cloud. We are seeing increased interest from clients in enterprise cloud storage as internal storage demands continue to grow and cloud storage solutions mature, requiring IT departments to evaluate new strategic options. Key Action: With enterprise data growing at more than 40 percent annually, strong demand is a certainty. Beyond anticipating demand, IT must weigh concerns including security, internal resource planning, storage tiering strategy and performance requirements, along with total cost of ownership over time, when evaluating cloud storage services vs. internal on-premise storage, or a hybrid approach to satisfy performance requirements. Source: Accenture Storage Networking Database Compute Enterprise Apps …Higher Shadow IT risk. Establish buying platform and preferred supplier programs …Areas that are typically under the control of the centralized IT Organization IT-Driven CRM Productivity Apps Desktop BI HR Marketing Business-Driven
  9. 9. 9 Copyright © 2014 Accenture. All rights reserved. ENERGY EQUIPMENT, EN GINEERING, & CONSTRUCTION CORPORATE SERVICES— TRAVEL CORPORATE SERVICES—HR MARKETING & MEDIA LOGISTICS INFORMATION TECHNOLOGY INDUSTRIAL & MRO$0.0 $1.0 $2.0 $3.0 $4.0 $5.0 $6.0 $7.0 2012 2013 2014 2015 2016 2017 Display Spending Native Spending Social Display: 16.1% CAGR Social Native: 22.9% CAGR Top Trends in Marketing As Ad Dollars Continue to Shift to Digital, Marketers Embrace Data Management Platform (“DMPs”) to Improve Audience Targeting and Campaign ROI: Consumers are becoming more and more digital, consuming media across multiple digital devices. This trend creates more ways for advertisers to reach consumers—but also increases the complexity of advertising strategies, which must target the right messages to the right audience through the right advertising vehicle and with strong message relevancy. At the same time that marketers are embracing programmatic media buying to execute media buys more efficiently, we are seeing increased interest from clients in evaluating DMP solutions. Marketers are looking to DMP as a means to collect and analyze data from multiple sources (first-party data, external audience data, social data, etc.) for use in refining marketing plans, improving audience targeting, and measuring actual campaign performance against expectations. Depending on the sophistication of the marketing team and the current marketing strategy, teams need to evaluate whether a standalone DMP solution will meet their strategy, targeting, and measurement requirements, or whether it should be paired with a Demand Side Platform (―DSP‖) to seamlessly enable automated media buys based on the insights and recommendations coming from the DMP. Key Action: Leading marketers ready to adopt DMP are taking a holistic approach, looking not only at the tools and technologies, but making sure they have the right technology and analytics skills either in-house or through partners, in order to capture the ROI that a DMP can deliver. Going Native—Content Marketing Drives Growing Focus on “Native” Advertising: To get potential customers to engage with their messages, advertisers are trying to make them look less like traditional ads and more like content that is contextually aware and organic for the user‘s experience. So-called ―native‖ advertising looks more like a news story than an overt advertisement—content that adds value and insight, rather than a purely sales-related message. This approach can be highly effective, but in order for it to work, the content needs to be very strong. To compete—and deliver valuable, engaging content—can be expensive, requiring additional investment in talent outside of existing internal or partner agency teams. This incremental spend competes for tight budget dollars but can increase the effectiveness of existing marketing investments. Key Action: Native requires a new form of highly tailored, lower frequency content that could drive content costs up. Advertisers need to refine native strategy and decide whether to in-source or outsource content development as more publishers offer content solutions. US Social Display vs. Native Ad Spend (2012-2017 Forecast) Source: BIA/Kelsey
  10. 10. 10 Copyright © 2014 Accenture. All rights reserved. ENERGY EQUIPMENT, EN GINEERING, & CONSTRUCTION CORPORATE SERVICES— TRAVEL CORPORATE SERVICES—HR MARKETING & MEDIA LOGISTICS INFORMATION TECHNOLOGY INDUSTRIAL & MRO Top Trends in Corporate Services: HR The Global Payroll Myth: As companies increasingly move to operate as seamless, global organizations, they also look to implement global systems to deliver consistent processes, at lower costs while managing risk. Many view payroll as a simple or routine function, but in reality there are myriad country and geography-specific tax and statutory requirements that must be complied with. Keeping current on payroll-related tax and statutory requirements in every country or geography requires a major investment in human capital and may still leave a company exposed to high levels of compliance risk. In looking for external solutions, those companies that choose to outsource payroll will discover that there is no single provider with truly global coverage, requiring companies to balance costs, coverage, and risk in defining an optimal global payroll solution. Key Action: Implementing global payroll is rarely a ROI-based decision, but is driven by an operating and risk-mitigation strategy. Executives need to consider whether an in-house solution, outsourced solution, or a hybrid approach is best, and compare available solutions against their footprint of worldwide operations to identify coverage gaps and how to address them. Managing Talent in an Era of Scarcity Requires a Total Workforce Approach: As the global economy continues to rebound, more pockets of labor and skills shortage are emerging. Since the trough of the recession, labor rates in logistics, energy, andconstruction trades have exceeded overall averages due to high demand scarcity of skilled labor. In many U.S. metropolitan areas, unemployment rates are below the 5.2-5.6 percent level considered by the Federal Reserve as full employment, leading to competition for scarce talent and higher wage and benefits costs. These talent shortages are only likely to grow. There are signs that companies are making more use of contingent labor to address the skills shortage and retain flexibility in the event of any hiccups in the recovery. Increased use of contingent labor strategies can afford greater flexibility and help address short-term needs, but can also increase risks (such as co-employment risk) and costs (decentralized departmental spend). Key Action: Contingent workforce strategy should be considered as part of a larger total workforce strategy encompassing talent acquisition/retention, SOW management, and viewing temporary labor as a talent pool for future recruitment. Source: American Staffing Association -40% -30% -20% -10% 0% 10% 20% 30% 20 40 60 80 100 120 140 160 Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-09 Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13 Jan-14 ASA Staffing Index (100 on 6/12/2006) Y/Y % Change Temp staffing growth accelerating American Staffing Association Staffing Index (2008-date)
  11. 11. 11 Copyright © 2014 Accenture. All rights reserved. ENERGY EQUIPMENT, EN GINEERING, & CONSTRUCTION CORPORATE SERVICES— TRAVEL CORPORATE SERVICES—HR MARKETING & MEDIA LOGISTICS INFORMATION TECHNOLOGY INDUSTRIAL & MRO Top Trends in Travel Firms Look for More Ways to Drive Improved Compliance and Lower Costs in Travel by Encouraging Employees to Think More Like Business Owners: In looking at the many ways to manage travel costs, travel spend managers and management teams often focus on the big ticket, high visibility items such as negotiating better air travel discounts or hotel rates. Another key element is establishing travel policies designed to minimize costs by encouraging early travel booking to secure lower airfares and mandating use of preferred suppliers to monitor that volume requirements are reached and discounts are maximized. However, many companies seem to be missing out on an even more basic opportunity to encourage better decision-making by managers and employees to meter costs: utilizing an effective pre-trip approval (PTA) process. Done poorly, pre-trip approval processes can add to bureaucracy and inadvertently increase costs. But executed well, PTA processes can be effective in encouraging managers—and employees—to think more like business owners and view travel through the lens of ROI and business benefit. One way to evaluate the effectiveness of a PTA process is by the percentage of trips not approved. In practical terms, any percentage greater than zero indicates that actual criteria are being applied and some trips are being rejected. The key is not to implement a simply mechanical process that can result in slow approvals (and higher costs if, for example, a good fare expires) and management focus on Key Action: Establishing a PTA process can result in 5–10 percent (or more) overall travel budget savings if implemented effectively. The key is to encourage employees to think about travel in terms of business impact, but also to train managers about how to evaluate and approve (and reject some) travel requests. Training employees to proactively ask, ―Is this trip worth it‖ can improve the impact of travel while eliminating unnecessary expense. Source: Accenture Does your company have a formal pre-trip approval process in place? Yes 25% No 75%
  12. 12. 12 Copyright © 2014 Accenture. All rights reserved. ENERGY EQUIPMENT, EN GINEERING, & CONSTRUCTION CORPORATE SERVICES— TRAVEL CORPORATE SERVICES—HR MARKETING & MEDIA LOGISTICS INFORMATION TECHNOLOGY INDUSTRIAL & MRO 19 20 20 21 22 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 Years Average Age of Private Fixed Assets Top Trends in Equipment, Engineering, and Construction In Addition to Capital Replacement Cycle, Regulations Increasingly Impact Major Capital Projects: The average ages of capital assets on the books of corporations are at multi-decade highs—one of the reasons that many economists and forecasters are predicting an acceleration in capital spending in 2014 and 2015. Another major factor in play is the role of regulation driving the need for capital upgrades or replacements. For example, a regulation affecting Industrial Boilers and Process Heaters (referred to as the ―Boiler MACT‖ standard) was finalized in January 2013, with a January 1, 2016 deadline for compliance. The regulations that apply to new and existing boilers will require compliance tests and may result in expensive retrofits to control air pollution (filter systems, scrubbers, etc.) or conversions of boilers to natural gas power. New installations can take one to two years, so the time to act is now. Asset owners need to be aware of numerous other regulations that will affect major facilities (The Agricultural Water Conservation Act of 2009 is a major consideration for companies with California operations for example). Key Action: Most companies will consider regulations of this type very onerous, but regulation is a fact of life for manufacturers and heavy energy users. But the flip-side of the regulatory mandate is the opportunity to fully optimize major capital decisions like these. The benefits of an integrated large capital project program include not only lower risk through regulatory compliance, but also can deliver lower total project costs, lower total emissions and carbon output, reduced energy consumption, maximized use of rebates and credits, and improved ROI on capital projects. Source: BEA, Haver Analytics, Deutsche Bank Global Markets Research Capacity utilization approaching long-term average of approx. 80 Source: U.S. Federal Reserve 60 65 70 75 80 85 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Total Industrial Capacity Utilization (2004 to date) Highest reading since June 2008
  13. 13. 13 Copyright © 2014 Accenture. All rights reserved. ENERGY EQUIPMENT, EN GINEERING, & CONSTRUCTION CORPORATE SERVICES— TRAVEL CORPORATE SERVICES—HR MARKETING & MEDIA LOGISTICS INFORMATION TECHNOLOGY INDUSTRIAL & MRO Top Trends in Industrial and Maintenance, Repair and Operations Industry Consolidation Trend in Corrugated Segment Raises Packaging Cost Risk: The corrugate industry has been undergoing supply consolidation. Since 1987, the number of plants in the U.S. has declined by 25 percent. As a result of consolidation, share of the top four containerboard suppliers reached over 70 percent in 2012, compared to 1984 when the top five suppliers held 34 percent market share. Supply base concentration reached its peak with a wave of multi-billion dollar acquisitions over the last two to three years. The net result of this consolidation wave is that suppliers achieved greater negotiating leverage, allowing them to successfully implement four price increases since 2010, while better managing capacity and paper availability—therefore avoiding over-supply and protecting pricing. However, the outlook for buyers may be improving. The price increases have led to higher industry margins, which is attracting new competition (both green-field projects and conversion of unprofitable paper grades to containerboard). This may shift market share away from dominant suppliers and drive more competitive pricing in the mid-term. But this may also lead to more capacity closures and M&A activity in the long-term driven by the major suppliers trying to maintain favorable market dynamics. Key Action: Users of corrugate have had to endure a multi-year period of cost pressure. We recommend that buyers actively encourage new supplier development and promote cost transparency to help even the industry supply and demand balance and better control supplier margins. In parallel, buyers should perform value analysis of their current specifications to reduce over- engineered structures and rationalize the complexity of types and grades purchased. With Oil Prices at risk of Remaining Stubbornly High, Companies Explore New Ways to Combat Volatility: We hear from many of our clients that with all of the available oil supply and rising production, prices should be declining—and so should the price of oil-based raw materials. However, oil prices have continued to march upward, raising the risk that the oil price reprieve many expect will not materialize, leaving manufacturers to consider new ways to deal with rising—and volatile—input costs. Key Action: As a result of the shale oil and gas boom, new cracker capacity is finally coming to North America (BASF SE, Chevron Phillips Chemical Company, Dow Chemical Company, Exxon Mobil Corp, Formosa Plastics Corp, Ineos Group Limited, LyondellBasell Industries, Sasol Limited, Royal Dutch Shell plc, Westlake Chemical Corporation, and Williams Companies have all announced cracker projects). Companies should be looking at the cost-benefit analysis of connecting their supply chains to these new sources of supply as a way to reduce the volatility, and potentially the costs, of oil-based input prices. Source: US Energy Information Agency $0 $20 $40 $60 $80 $100 $120 Apr-09 Oct-09 Apr-10 Oct-10 Apr-11 Oct-11 Apr-12 Oct-12 Apr-13 Oct-13 Apr-14 Cushing OK Crude Oil Futures Contract 1 $/bbl Henry Hub Nat Gas Price (BTU Equivalent) Crude Oil vs. Natural Gas (BTU Equivalent) Weekly Futures Price (past five years)
  14. 14. 14 Copyright © 2014 Accenture. All rights reserved. ENERGY EQUIPMENT, EN GINEERING, & CONSTRUCTION CORPORATE SERVICES— TRAVEL CORPORATE SERVICES—HR MARKETING & MEDIA LOGISTICS INFORMATION TECHNOLOGY INDUSTRIAL & MRO $0 $10 $20 $30 $40 $50 $60 $70 $80 $90 $0 $50 $100 $150 $200 $250 $300 $350 $400 $450 $500 1/2/14 1/17/14 2/1/14 2/16/14 3/3/14 3/18/14 DayAheadGasPrice($/MMBTU) Dayaheadpowerprice($/MWH) ISO-NE Algonquin Day-ahead power prices move in line with gas prices—but are much more expensive for consuming companies $0 $2 $4 $6 $8 $10 $12 $14 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Monthly Settlement 4-yr average Recent settlements above 4-yr average for the first time since 2008 could signal sustained up-trend Top Trends in Energy Natural Gas and Power Prices Reach Unprecedented Levels of Price Volatility Requiring More Energy Expertise and Intelligence than Ever: Even casual observers are aware of the extreme winter weather events that impacted North America in the first quarter, and the resulting price spikes in natural gas and power. Not only are natural gas prices trending up in general, but the volatility of gas and power prices reached unprecedented levels during the quarter. As prices exploded to multi-year highs owing to record natural gas consumption on January 7, day-ahead natural gas prices reached nosebleed levels of more than $100/MMBTU in portions of the Northeast and Midwest, with power prices averaging nearly $200/MWH in some regions for the month of January. Customers with index exposure saw bills three to four times above normal levels in some cases. Key Action: Energy consumers, especially in high- volatility regions like New England, New York, the Midwest during the winter months, and Texas during the summer months, should layer on fixed price protection during the highest-volatility periods. Gas users can peg pricing to NYMEX Henry Hub (Louisiana) instead of Northeastern price points that are susceptible to weather and pipeline constraints. With the right energy specialist knowledge, companies can quantify the budget risk that exists in volatile regional markets, and identify value-based or upside risk-protection price targets in key markets. Finally, buyers should work to identify suppliers who will provide more flexibility around consumption bands so that volatile day-ahead market exposure is avoided. Monthly NYMEX Nat. Gas Settlement Price vs. 4-yr. Rolling Avg. New England Region Day-Ahead Power & Gas Prices (Jan-March 2014) Source: SNL Kagan
  15. 15. 15 Copyright © 2014 Accenture. All rights reserved. Sources and References EXECUTIVE SUMMARY: • Thomson Reuters Corporation/University of Michigan Surveys of Consumers: http://www.sca.isr.umich.edu/ • National Federation of Independent Business (NFIB): http://www.nfib.com/research-foundation/surveys/small-business-economic- trends • International Monetary Fund World Economic Update, April 2014: http://www.imf.org/external/pubs/ft/weo/2014/01// • Las Vegas Review-Journal, ―Survey Suggests Businesses Feeling Pinch of Higher Costs‖, Retrieved from: http://www.reviewjournal.com/business/survey-suggests-businesses-feeling- pinch-higher-costs • FactSet Buyback Quarterly: March 25, 2014, Retrieved from: http://www.factset.com/websitefiles/PDFs/buyback • FactSet Dividend Quarterly: March 24, 2014, Retrieved from: http://www.factset.com/websitefiles/PDFs/dividend • FactSet Cash & Investment Quarterly: March 26, 2014, Retrieved from: http://www.factset.com/websitefiles/PDFs/cashinvestment LOGISTICS: • U.S. Department of Labor, Bureau of Labor Statistics, Wages/Earnings: Transportation and warehousing – General freight trucking, long-distance,‖ Retrieved from: http://beta.bls.gov/dataViewer/view/timeseries/CEU4348412008 MARKETING: • BIA/Kelsey, ―BIA/Kelsey Forecasts U.S. Social Ad Revenues to Reach $11B in 2017,‖ Retrieved from: http://www.biakelsey.com/Company/Press- Releases/130410-U.S.-Social-Ad-Revenues-to-Reach-$11B-in-2017.asp CONTINGENT LABOR: • American Staffing Association, ―ASA Staffing Index Historical Data,‖ Retrieved from: https://www.americanstaffing.net/statistics/historical_data.cfm EQUIPMENT, ENGINEERING, & CONSTRUCTION: • Deutsche Bank Capex Outlook--An aging capital stock and a pick-up in economic growth will boost capex in 2014, Torsten Slok, Peter Hooper, and Matthew Luzzetti • Board of Governors of the Federal Reserve System, Industrial Production and Capacity Utilization, Retrieved from: http://www.federalreserve.gov/RELEASES/G17/Current/default.htm INDUSTRIAL & MRO: • Young, Steve, Association of Independent Corrugated Converters. ―Consolidation in the Corrugated Industry‖, Retrieved from: http://www.fppa.net/events/2013convention/Impact_of_Consolidation.pdf • U.S. Energy Information Agency, NYMEX Futures Prices, Retrieved from: http://www.eia.gov/dnav/pet/pet_pri_fut_s1_w.htm ENERGY: • BIA/Kelsey, ―BIA/Kelsey Forecasts U.S. Social Ad Revenues to Reach $11B in 2017,‖ Retrieved from: http://www.biakelsey.com/Company/Press- Releases/130410-U.S.-Social-Ad-Revenues-to-Reach-$11B-in-2017.as
  16. 16. 16 Copyright © 2014 Accenture. All rights reserved. Subscribe to Accenture Spend Trends Get the quarterly Accenture Spend trends Report delivered straight to your inbox each quarter. Visit: www.accenture.com/subscribespendtrends
  17. 17. 17 Copyright © 2014 Accenture. All rights reserved. About Accenture Accenture is a global management consulting, technology services and outsourcing company, with approximately 289,000 people serving clients in more than 120 countries. Combining unparalleled experience, comprehensive capabilities across all industries and business functions, and extensive research on the world‘s most successful companies, Accenture collaborates with clients to help them become high-performance businesses and governments. The company generated net revenues of US$28.6 billion for the fiscal year ended Aug. 31, 2013. Its home page is www.accenture.com. Copyright © 2014 Accenture. All rights reserved. Accenture, its logo, and High performance. Delivered. are trademarks of Accenture. This document makes descriptive reference to trademarks that may be owned by others. The use of such trademarks herein is not an assertion of ownership of such trademarks by Accenture and is not intended to represent or imply the existence of an association between Accenture and the lawful owners of such trademarks.

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