September 2009Summary of the 2009 Capgemini Global CPO surveyResponding to the challenges of economic meltdown

Global CPO Survey 200915 September 2009Global CPO Survey 2009In its third Global CPO Study, Capgemini Consulting reviews key issues and drivers challenging today’s procurement leaders. In the rapidly changing economic climate, it is important to identify and understand trends, and to look across industry borders from a truly global vantage pointThis Global Procurement Study is intended to help organizations understand the key issues and challenges facing the profession in today’s tough economic conditions. In parallel, the survey reveals the key strategies being adopted by CPOs to tackle this economic meltdown, and where further focus may be needed over the course of the next economic cycleCapgemini Consulting interviewed a total of 166 global companies across Americas, Europe and Asia Pacific during the course of this research, respondents at a senior supply chain leadership level/ Chief Procurement Officer (CPO) level. These enterprises represent a diverse cross-section of business sectors such as manufacturing, financial services, energy, utilities, retail, public sector and telecommunications etc.

Global CPO Survey 200915 September 200967% of respondents rated the impact of the current economic challenges as having either an acute or significant impact on their current activities and focusEffect on Procurement planning horizonOverall effect of economic conditionsProcurement planning horizon has shifted to short term with focus on “survival”28%Procurement planning horizon remains long term, as usual20%39%32%17%12%48%Procurement planning horizon in medium term with focus on survival as well as future 4%% of respondents

Global CPO Survey 200915 September 2009External supplier focus is the major strategy being adopted by CPOs to mitigate the current economic downturn19.4%17.0%14.5%11.1%9.3%6.4%5.6%4.7%4.4%3.9%3.7%

Global CPO Survey 200915 September 2009Spend visibilityremains a keyproblem and for the secondyear running is the top issue facingCPOsTop 5 focus areas to date

Global CPO Survey 200915 September 2009Which focus areas do CPOs intend to pursue as part of their Procurement Plans in 2009/2010?Top 5 planned areas for 09/10New focus area for 09/10

Some of the highlights of the CPO survey 2009eProcurement – Use and PenetrationGiven that electronic enablers for procurement have now reached a reasonable state of maturity, we expected to find a healthy amount of use of.What we found was quite the opposite. More than 60% of organizations stated less than 20% of their spend was channeled trough applications.Procurement Organizational Development – Evolving ModelsLast year one of the major trends we assessed was the organizational models that procurement employed.In the 2008 survey we found 63% of organizations favored a centralized model. In this year’s survey that number fell by over a third to just 36% of organizations.We found that the use of hybrid models rose significantly from 22% in 2008 to 41% this year.7

Given that electronic enablers for procurement have now reached a reasonable state of maturity, we expected to find a healthy amount of use of.

What we found was quite the opposite. More than 60% of organizations stated less than 20% of their spend was channeled trough applications.

Last year one of the major trends we assessed was the organizational models that procurement employed.

In the 2008 survey we found 63% of organizations favored a centralized model. In this year’s survey that number fell by over a third to just 36% of organizations.

We found that the use of hybrid models rose significantly from 22% in 2008 to 41% this year.

Some of the highlights of the CPO survey 2009 (2)Spend Visibility – Improving the Line of SightThe top area of focus for investment by surveyed organizations this year is on improving the quality of spend information and its availability. This remains consistent from the findings of the 2008 survey where it also ranked as the top priority.It would seem that despite the spotlight on this over the past twelve months, the availability of quality management information remains an Achilles heel for the procurement professional.Effective Supplier Management – Managing Risk in the Supply BaseWhile cost reduction remains at the fore of the procurement agenda, the risk of supply disruption from financially distressed vendors is not far behind.The survey results showed that a focus on supplier management to avoid business disruption from bankruptcies in the supply base was the second highest area of activity to the economic downturn.8

The top area of focus for investment by surveyed organizations this year is on improving the quality of spend information and its availability. This remains consistent from the findings of the 2008 survey where it also ranked as the top priority.

It would seem that despite the spotlight on this over the past twelve months, the availability of quality management information remains an Achilles heel for the procurement professional.

While cost reduction remains at the fore of the procurement agenda, the risk of supply disruption from financially distressed vendors is not far behind.

The survey results showed that a focus on supplier management to avoid business disruption from bankruptcies in the supply base was the second highest area of activity to the economic downturn.

9Some of the highlights of the CPO survey 2009 (3)The Talent Gap – Continued Issue of Appropriate Competence and CapabilityWe highlighted last year that the CPO continues to see a dearth of talent as a major obstacle. Despite the focus over the past 12 months this issue appears to have shown no sign of easing.

We highlighted last year that the CPO continues to see a dearth of talent as a major obstacle. Despite the focus over the past 12 months this issue appears to have shown no sign of easing.

SupportingarticlesWe are in rapidly-changing and unpredictabletimes, in whichcommodityprices are beingdriven to extremeson a regular basis. Byusing a recentlydeveloped Capgemini Consulting support toolknown as “MarketPriceIndexing” (MPI), we believethat the procurementdepartmentswillbeable to benefit fromfurthertransparency in understandingcosts and theirrespectivedrivers as clos to a realtime basis ifneeded.Global CPO Survey 200915 September 2009Managing Commodity Price Fluctuations and VolatilityUsing Procurement Intelligence to Improve Procurement’s SuccessProcurement Intelligencecanbedivided into a number of key focus areas: spend intelligence, procurement performance measurement, supplier performance measurement and commodityintelligence. Thisarticledescribeswhat the basicrequirements are forSuccessful Procurement Intelligence

Procurement Intelligencecanbedivided into a number of key focus areas: spend intelligence, procurement performance measurement, supplier performance measurement and commodityintelligence. Thisarticledescribeswhat the basicrequirements are forSuccessful Procurement Intelligence

Supportingarticles (2)Global CPO Survey 200915 September 2009Procurement Master Data – The Bedrock of SuccessWorld Class procurement is built upon availability of information to drive visibility, control and effectiveness. Information provides the ability to optimise leverage, pursue informed buying decisions and ensure alignment of internal behaviours to procurement strategy. The article considers the drivers and consequences of poor data management, and gives insight in the critical activities to resolve data management issuesInnovation-Driven Procurement – Innovation and the Role of ProcurementProcurement may not be the first word that comes to mind when people think about innovation. But innovation is no longer the domain of the R&D department alone. Leveraging the supply base as a source of innovation can accelerate an organization’s innovation initiatives and provide it with an increased sustainable competitive advantage. This article describes why procurement involvement in innovation crucial is.

World Class procurement is built upon availability of information to drive visibility, control and effectiveness.

Information provides the ability to optimise leverage, pursue informed buying decisions and ensure alignment of internal behaviours to procurement strategy.

The article considers the drivers and consequences of poor data management, and gives insight in the critical activities to resolve data management issues

Procurement may not be the first word that comes to mind when people think about innovation. But innovation is no longer the domain of the R&D department alone. Leveraging the supply base as a source of innovation can accelerate an organization’s innovation initiatives and provide it with an increased sustainable competitive advantage. This article describes why procurement involvement in innovation crucial is.

Supportingarticles (3)Global CPO Survey 200915 September 2009Complex Indirect Category Sourcing – A Missed Value OpportunityMany organizations across the world achieve significant cost savings each year as a result of fowllowing a standardized strategic sourcing process. Most often the savings realized from these sourcing activities are associated with standard or frequently targeted categories. (e.g. office supplies, express mail, etc.) This article highlights the savings opportunities missed when procurement organizations do not pursue sourcing initiatives for more complex categories.Supplier Risk Management – How to Manage Within the Current Crisis and Learn for the FutureThe risk of insolvent suppliers is rising dramatically. To protect against these disruptions, the procurement function has to follow the strategies of early risk recognition and preventive counter measures. This article describes how procurement can identify risks and can take preventative counter measures.

Many organizations across the world achieve significant cost savings each year as a result of fowllowing a standardized strategic sourcing process. Most often the savings realized from these sourcing activities are associated with standard or frequently targeted categories. (e.g. office supplies, express mail, etc.) This article highlights the savings opportunities missed when procurement organizations do not pursue sourcing initiatives for more complex categories.

The risk of insolvent suppliers is rising dramatically. To protect against these disruptions, the procurement function has to follow the strategies of early risk recognition and preventive counter measures. This article describes how procurement can identify risks and can take preventative counter measures.

Appendix

Global CPO Survey 200915 September 2009A1/ A4. Participation by Geography and Sectors19Participants by CountriesParticipants by Sectors* Other industries include – Agro-business, Aviation, FM, IT, Human Resources, Life Science, Media & Entertainment, Medical Devices, Mining, Printing, Professional Services, Tourism, Waste Management, Security.

Global CPO Survey 200915 September 2009A3. Majority of the participants are head the Sourcing/ Procurement functions and at CPO/ Director level or middle management executives* Others 4%CEOVice President/ President Sourcing/ Procurement 3%4%Head of Supply Chain5%Sr. Manager/ Manager of Sourcing/ Procurement/ Commodity Manager8%CPO/ Head of Purchasing/ Head of Procurement56%20%Sr. Director/ Director Sourcing/ Procurement* Others include – CFO, COO, Director of Logistics, VP Marketing & Technology

Global CPO Survey 200915 September 2009A5. Total revenues of the organization for 2008 (US$)Participants by Revenues (US$)28%16%32%5%14%5%% of respondents

Global CPO Survey 200915 September 2009A6. Total spend as a % of total revenuesSpend as a % of RevenuesSpend as a % of Revenues across main sectors34%19%8%13%14%% of respondents12%

Global CPO Survey 200915 September 2009A7. Spend under control of procurement as a % of total spendSpend under control of ProcurementSpend under control across main sectors32%17%15%10%7%19% % of respondentsSpend under control of procurement is well above 60 % of total spend in 65% of the respondents, showing increasing importance of the function

Global CPO Survey 200915 September 2009A8. Spend handled through e-procurement channels (catalogues/ eSourcing/ eRFX/ reverse auctions etc.)?Spend through eProcurementSpend through eProcurement across sectors7%7%4%4%7%10%61% % of respondentsSpend managed through e-Procurement channels seems to be very low across sectors and hence can be great potential area for further business

Global CPO Survey 200915 September 2009A 10. Approximate 2009 savings target as % of spend A 13.Savings as a % of Procurement operating costsSavings target for 2009 as % of total spend72% Average procurement ROI - 235%Procurement savings operating expenses% of respondents47%%39%19%10%3%3%6%1%Over 85% of respondents are still running with savings target of less 10% with significant average return on investment in terms of savings achievedHowever, compared to 2008 results, savings targets have moved significantly from <5% bracket to 6-10%, which shows the increasing pressure of cost reduction this year

Average procurement ROI - 235%

Global CPO Survey 200915 September 2009A11/ 12. Procurement Organization Structure and major commodities sourced by Procurement functionsProcurement organization StructureMajor Commodities Sourced(2%)28%9%20%36%41%29%23%12%% of respondentsCentralized, where procurement operations are directed and managed from a single point, encompassing targets, lines of authority & prioritizationDe-centralized, where procurement operations are managed at either country or business unit (BU) level, with loose coordination between these procurement operations. Targets, lines of authority and prioritization tend to be the preserve of the local business/location rather than controlled by the corporateHybrid, where activities are coordinated and center-led, but with a range of activities ceded to local control. This hybrid approach is sometimes referred to as a ‘hub-and spoke’ model.Shared Services, where procurement activities are handled through a common, organization-wide shared service centre, resulting into better operational efficienciesOutsourced, where part or full scope of procurement services are outsourced a third party/ captive BPO P centre

Global CPO Survey 200915 September 2009B4. How long do you think this economic downturn will last?B5. When do you think commodity prices will return back to the earlier levels Commodity prices will return to original levels within…Economic Downturn will last for…1%3%14%27%23%23%25%17%30%37%Around 75% of CPOs believe that the current economic conditions with last well over an year into mid/ end of 2010Similarly around 75% of CPOs believe that commodity prices will return to original levels (pre-recession) after a year

Global CPO Survey 200915 September 2009B6. What is the change in procurement savings targets that you have observed due to current economic conditions? Change in procurement savings targets20%5%6%25%14%30%% of respondents

www.capgemini.com/consultingCopyright © 2009 Capgemini. All rights reserved.Capgemini Consulting is the strategy andtransformation consulting brand of Capgemini Group