The document is the annual procurement outlook report by GEP, outlining predictions for the global economy and procurement strategies in 2018. It notes complexities arising from protectionist policies, geopolitical tensions, and technological advancements like AI and robotic process automation, which firms should leverage in their procurement strategies. Generally, global GDP growth is anticipated at 3%, primarily driven by emerging markets, while various challenges are posed by rising commodity prices and shifting geopolitical dynamics.

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2. Contents
Executive Summary
Global Business and Macroeconomic Trends
GDP Forecast 6
Financial Markets 8
Commodities 8
Climate Change, Sustainability and Corporate Social Responsibility (CSR) 9
Geopolitical Context 10
Implications of Global Economic and Geopolitical Trends 12
Source-to-Pay Disruption and Transformation Outlook
Technology Disruptors 13
Operating Model Outlook 16
Category Outlook
Capital & Construction 19
Maintenance, Repair and Operations (MRO) 20
Information Technology 21
Marketing 23
Logistics 24
Packaging 26
General & Professional Services 27
Chemicals 30

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For the sixth consecutive year, GEP has compiled its
latest market insights, observations and predictions into
its annual Procurement Outlook Report. Drawing upon
the combined excellence and perception of our global
leadership and client service teams, we have created
and published this report to help leadership across
procurement, supply chain and adjacent functions refine
and successfully execute their business strategies in 2018
and beyond.
2018 will add complexity to the volatility and uncertainty
we have witnessed in markets during 2017 with the
redrawing of the global political and economic landscape.
Developing and executing an effective global operations
strategy will require a greater understanding of both the
current macroeconomic trends and the impacts of new
technologies across supply chain and business processes.
Introduction

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Executive
Summary
Despite the big reduction of the U.S. corporate tax rate, the protectionist policies of the U.S. and the U.K. will
create new barriers to global trade and increase bottom-line costs in 2018, resulting in slower levels of strategic
investment. Financial markets will continue to see the fall of the pound against the dollar and euro arising
from Brexit. In addition, we anticipate a resurgence of the dollar to pre-2016 election levels as a result of the
combined U.S. interest rates, lower U.S. corporation tax rates and increased demand for shale gas.
GDP growth globally is expected to reach 3 percent with the majority coming from emerging Asian markets
where 5-plus percent sustained growth is forecast until 2020, while the U.S. and eurozone are anticipated to see
marginal growth with the U.K. continuing to decline.
Commodity price increases will see both COGS and SG&A costs rising in 2018. Oil prices are forecast to stabilize
and grow to $60 a barrel in 2018 with continued support from OPEC and Russia on production constraints. Food
commodities are expected to remain stable due to reduced supply balanced by plentiful stock levels.
China’s “Belt & Road” infrastructure investment initiative will continue boosting the emergence of China both
regionally and globally as the U.S. retreats from the global stage. We see Chinese growth forecast at 6.4 percent
in 2018. The Middle East and North African conflicts are anticipated to continue into 2018 resulting in ongoing
regional supply chain disruption and operational risk across global supply lines.
2018 will see the development and adoption of artificial intelligence (AI) accelerate into practical business
operations. Robotic process automation (RPA) is no longer new and we anticipate the rapid rollout of RPA in
2018. We anticipate productivity gains (approximately 40-plus percent) to be delivered to the P&L in 2018.
Supply chain and procurement should be leveraging RPA process cost benefits by building them into their
supply agreements and also adopting them internally across order-to-cash and source-to-pay processes to avoid
redundant overhead.
Blockchain may be the next big disruptor to impact procurement and supply chain operations, but not in 2018.
The key for 2018 is adopting RPA and AI, and embedding them within digital operating models while continuing
to monitor developments in blockchain with an eye toward 2020.
We believe 2018 will be the year for procurement to develop a new digital operating model. The barriers
between the buyer and supplier are disappearing and the ability to leverage real-time data from automated

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processes is very much here. As a result, we anticipate an increase in advisory support to help enterprises develop
and launch their digital procurement organizations.
The strategic imperative is to understand the new interactions, roles and capabilities that are required to produce
effective and efficient procurement and supply chain organizations. The key question for leadership is, “Are we
shaped, sized and costed right to deliver in the digital era?”
2018 will see cost pressure increase across direct and indirect categories. Food commodity prices, as noted
earlier, are forecast to hold steady due to a combination of supply shortages and excess stock levels. Oil prices
will rise due to production constraints resulting in increased energy costs that will impact most indirect categories
by 1-2 percent. Technology convergence in the capital and MRO space will see opportunities to leverage
technology while IT cybersecurity spend is anticipated to increase. Logistics and distribution will see the impact of
fuel price rises and we also anticipate an increase in demand for financial advisory and regulatory changes that
will result in marginal price increases.
Procurement and supply chain leaders will want to
revise their supply line strategy to incorporate new
trade barriers and costs into their TCO models in
North America and Europe due to “America First”
and Brexit impacts.
We expect to see further escalation of the volatility
and uncertainty that afflicted the business community
during 2017 with the redrawing of the global political
and economic landscape. Developing and executing
an effective global operations strategy will require a greater understanding of both the current macroeconomic
trends and the impacts of new technologies across procurement and supply chain organizations.
It will be a challenging year for leadership teams both in top-line growth and bottom-line cost reduction. An
increased level of complexity in markets will put further pressure on margins and result in the need for more
agile operations while leveraging new technology to offset cost increases.
The U.S. tax reform cut the corporate tax rate
from 35 percent to 21 percent. Nevertheless,
global levels of strategic investment will be slowed
by protectionist policies in the U.S. and U.K.
Procurement and supply chain leaders will want to
incorporate new trade barriers and costs into their
TCO models in North America and Europe.

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Global Business and
Macroeconomic Trends
If we choose one word to describe the global political and economic landscape of 2017, a good word would
be “turbulent.” The current prospects for 2018 are not much different, as we await the continued impacts of
the policy changes and economic repositioning pursued last year by the major world powers and leading
global corporations.
In the United States, President Trump’s first year in office has been marked by political challenges to his agenda
and legal challenges to a variety of key policies. The administration has, however, achieved its first significant
legislative win with the first major U.S. corporate tax reform in the last 30 years.
The EU has also seen a dramatic shift in the balance of political power and influence. It has become clear that
the U.K. intends to leave both the EU and the Customs Union. The exact nature of the future relationship and
whether a free trade agreement will be reached remains to be seen. In Germany, Chancellor Merkel has been
struggling to reach a final agreement on the formation of a stable coalition government. These events have
created space for France’s President Macron to increase French influence on European Union policy.
China’s economy is estimated to have grown at 6.8 percent in 2017 and is forecast to grow at 6.4 percent in
2018. China continues to pursue expansionist economic and geopolitical policies. Its ambitious “belt and road”
initiative has seen China spending roughly $150 billion a year on infrastructure investments in 68 countries along
the old Silk Road linking it with Europe.
The Middle East and North Africa continue to be dominated by regional conflict. The ISIS caliphate has effectively
been demolished but fundamentalist terrorism remains a threat from Mali to Pakistan and Syria to Kenya as
well as in Europe and the United States. Saudi Arabia and Iran have continued their rise to the position of
regional superpowers with competing strategic and economic interests. Peace negotiations between Israel
and the Palestinian Authority remain stalled with little immediate prospect for progress, and the recent U.S.
announcement recognizing Jerusalem as the capital of Israel has raised tensions further.
GDP Forecast
Q4 2017 indicators point to a period of stabilization and global real GDP growth forecasts of approximately 3
percent in 2018. While the G7 nations will see a slight decrease in 2018 from 1.9 percent to 1.8 percent in real
GDP, the Emerging 7 Nations (E7) will fuel global GDP growth with a continuation of 5-plus percent growth with
a focus on Southeast Asian markets continuing the expansion into 2019 and beyond.

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GDP forecast for major and
emerging economies
Share of 2016 world GDP Real GDP growth Inflation
PPP MER 2017p 2018p
2019-
2023p
2017p 2018p
2019-
2023p
Global (Market Exchange Rates) 100.0% 3.0 2.9 3.0 2.5 2.4 2.5
Global (PPP Rates) 100.0% 3.6 3.5 3.6 2.4 2.7 2.7
G7 31.0% 47.1% 1.9 1.8 1.9 1.8 1.8 1.8
E7 36.9% 25.8% 5.3 5.2 5.1 3.2 3.3 3.6
United States 15.5% 24.7% 2.2 2.2 2.3 2.2 2.1 2.0
China 17.8% 14.9% 6.6 6.2 5.7 2.0 2.2 2.8
Japan 4.4% 6.6% 1.2 0.7 0.8 0.5 0.9 1.5
United Kingdom 2.3% 3.5% 1.5 1.4 2.0 2.7 2.7 2.2
Eurozone 10.4% 13.9% 2.0 1.7 1.5 1.4 1.4 1.4
Table 1 Source: PwC
Looking forward, we see slow continued growth in the period 2018-19 with the emerging markets fueling the
global growth average of 2.9 to 3 percent.
Figure 1 Source: A.T. Kearney
Economic growth for the Gulf Cooperation Council (GCC) area was subdued at 1.5 percent in 2017 but is
estimated to reach 2.8 percent in 2018. Analysts expect economic growth to pick up in all GCC member states
over the medium term (2018-2021).
0
1
2
3
4
5
6
7
2011 2012 2013 2014 2015 2016e 2017f 2018f 2019f 2020f 2021f
World Developed markets Emerging markets
GDPgrowth(%)

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Financial Markets
The U.S. dollar spent much of 2017 on the defensive. It suffered an 11 percent decrease in 2017 through Q3
due mainly to the lack of ability of the U.S. President to deliver on election promises, but also due to belief that
the Federal Reserve would lift interest rates as the year closes.
The recent U.S. corporate tax reform legislation will see a significant reduction in taxation for business from
35 percent to 21 percent that will likely fuel increased GDP growth and strengthen the U.S. dollar in currency
markets. The likely implications are a return to 2016 pre-election foreign exchange rates during 2018.
Euro and Sterling
There are indicators that the continued Brexit negotiations have stalled investments, both in the U.K. and key
European markets as the uncertainty continues. The trade-weighted measure of sterling value is 13 percent
below its pre-referendum level, so the currency’s risk premium is already very large.
The resulting forecast for 2018 will see continued volatility in sterling with fluctuations around the Brexit
negotiation outcomes over the divorce bill and future trading arrangements.
Commodities
Oil prices are forecast to rise to $60 a barrel in 2018 from $53 in 2017, with some analysts predicting spikes
during the year toward $80 and flattening out to $60 by the end of 2018. This is a result of growing oil demand,
production cuts and stable shale oil production. The OPEC and Russian agreement in December to maintain
2017 production levels will stabilize pricing. Developed and emerging market growth, with the exception of the
U.K., will drive continued demand to support rising energy prices.
The continued OPEC capacity constraint is a positive development for North American shale producers and
explorers, who are forecast to increase exploration and production budgets.
Total Energy Supply, Disposition and Price Summary *Quadrillion Btu per year, unless otherwise noted
Supply, disposition and prices
Reference case Annual
growth 2016-
2050 (percent)2015 2016 2025 2030 2035 2040 2050
Prices (nominal dollars per unit)
Crude oil spot prices (dollars per barrel)
• Brent 52 43 104 128 152 179 236 5.1%
• West Texas Intermediate 49 43 97 118 143 169 223 5.0%
Natural gas at Henry Hub (dollars per million Btu) 2.62 2.50 5.45 6.76 7.60 8.31 11.80 4.7%
Coal (dollars per ton)
• At the minemouth 33.7 33.9 42.0 46.3 54.5 62.1 81.1 2.6%
Coal (dollars per million Btu)
• At the minemouth 1.70 1.69 2.11 2.34 2.71 3.07 3.97 2.5%
• Average end-use 2.42 2.34 3.07 3.43 3.81 4.23 5.20 2.4%
Average electricity (cents per kilowatt-hour) 10.4 10.3 13.5 15.4 17.0 18.6 23.5 2.5%
Table 2 Source: U.S. Energy Information Administration — Annual Energy Outlook 2017

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Agriculture prices are expected to edge up in 2018 due to reduced supplies, with grain, oil and meal prices rising
marginally. Agricultural commodities markets are well-supplied and the stocks-to-use ratios (a measure of how
well-supplied markets are) of some grains are forecast to be at multiyear highs.
However, favorable weather patterns, well-supplied global food markets, and relatively low prices do not
necessarily correlate to universal food availability. Drought has led to crop failures in parts of Ethiopia, Somalia
and Kenya, resulting in severe food shortages. Conflicts in South Sudan, Yemen and Nigeria have driven millions
of people from their homes and left millions more in need of emergency food. (Source: The World Bank)
Climate Change, Sustainability and Corporate Social Responsibility (CSR)
Climate change is impacting global supply chains more frequently and will continue to do so. Emerging and
developing markets, where growth and investment is targeted, have a higher level of risk. This is primarily due
to the lack of infrastructure investment and poor economic and social conditions, and the resulting inability
to recover from natural disasters. As a result, the cost to global supply chains is rising, along with the need to
invest in more resilience, both in the supply chain and from emerging nations who are committing to clean and
renewable energy and reduction in carbon footprints.
The implication for supply chain and procurement planning is the increased cost to serve and the need to invest
in socially responsible sourcing as part of the investor community. The period 2018 to 2025 will see a significant
shift in investor-driven policies that will influence and change sourcing strategies.
Figure 2 Source: U.S. Global Change Research Program
Projected Global Temperatures
Projected Annual
Global Carbon Emissions
RCP8.5
RCP4.5
RCP2.6
Observed
Higher Scenario (RCP8.5)
Mid-high Scenario (RCP6.0)
Lower Scenario (RCP4.5)
Even Lower Scenario (RCP2.6)
Observed
19011900 1950 2000 2050 2100
10
8
6
4
2
0
-2
30
25
20
15
10
5
0
-5
1951 2001 2051 2101
TemperatureChange(o
F)
AnnualCarbonEmissions(GtC)

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Geopolitical Context
In 2017, we observed the boycott of Qatar, China’s territorial disputes with neighbors such as Japan and India,
a military takeover in Zimbabwe, and many other upheavals. As expected, China has tried to fill the global
leadership vacuum as the United States recalibrates its stance and positions on Russia, North Korea and the
Middle East. The respondents to the 2017 World Economic Forum survey provided insights on the uncertain
business environment fueled by such developments. The top six risks remained unchanged from the 2016 survey,
but the higher rankings of risks such as terrorist attacks (up seven places) and large-scale involuntary migration
(up three places) show the fear and uncertainty being generated by economic, political and societal factors.
Figure 3 Source: World Economic Forum
There are four major geopolitical concerns that can have immediate and long-term impacts:
The Middle East: Shifting Sands
The Middle East and North Africa are likely to see continued instability and military conflict as the regional
powers (Saudi Arabia and Iran) continue to pursue divergent strategic interests. The “Iran-Saudi Arabia proxy
conflict” continues to contribute to regional political instability as does the “Qatar-Saudi Arabia proxy conflict.”
The global superpowers and their major allies (United States, Russia, France and the United Kingdom) are likely
to continue attempting to exert influence in post-conflict areas such as Syria, Libya, Lebanon and Egypt. They will
also seek to manage and influence oil supply policies and potential nuclear expansion.
36.6%
30.1%
30.0%
28.7%
23.8%
21.9%
19.3%
18.2%
17.7%
17.3%
16.6%
16.4%
16.0%
14.9%
14.4%
14.2%
13.6%
12.9%
12.8%
11.7%
0.0% 10.0% 20.0% 30.0% 40.0%
Unemployment or underemployment
Energy price shock
Fiscal crises
Failure of national governance
Profound social instability
Failure of financial mechanism or institution
Terrorist attacks
Failure of critical infrastructure
Asset bubble
Interstate conflict
Unmanageable inflation
Cyberattacks
Illicit trade
Data fraud or theft
State collapse or crisis
Large-scale involuntary migration
Water crises
Failure of urban planning
Extreme weather events
Natural catastrophes
Global Risks of Highest Concern for Doing Dusiness
% Share, 2017
Global Risks of Highest Concern for Doing Business

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The refugee crisis continues across the region as political and economic migrants continue to seek their
futures in Europe. Recent agreements between the EU and Libya are aimed at reducing the number of
refugees reaching the Mediterranean, and 2018 is likely to see the repatriation of many refugees to their
home countries.
United States: America First
The Trump Administration, focused on an “America First” economic policy, is expected to continue to seek
the renegotiation of global trade agreements, including the North America Free Trade Agreement (NAFTA),
the Trans Pacific Partnership (TPP) and bilateral tariffs with China and Europe. In the short term, this is likely to
impact the ability of U.S. corporations to pursue global investment strategies. In parallel, the U.S. corporation
tax reform will see a reduction in the headline rate of corporation tax — from 35 percent to 21 percent —
aimed at “bringing home” foreign revenues and fueling growth in the U.S. economy.
The administration has also stated its intention to renegotiate key foreign policy agreements, including the
International Atomic Energy Agency agreement with Iran for non-military atomic energy. It is also focused on
dealing with the ongoing escalation with North Korea, which is contributing to regional insecurity both in the
Middle East and Asia-Pacific regions.
Brexit and the European Union
As the first phase of Brexit negotiations comes to an end, the realities of Brexit for British and European
businesses are emerging. The U.K. is facing a post-Brexit financial commitment estimated to be in excess of
£39 billion over a number of years. Also, the potential ending of financial passport arrangements between the
U.K. and the EU presents a significant risk for the British economy. The City of London has already seen
several major British and U.S. banks relocate their
European operations to either Frankfurt, Brussels,
Paris or Dublin.
Key sectors including consumer goods, life sciences
and industrial manufacturing face similar challenges.
Post-Brexit, operating models and operations across
a number of industry sectors are expected to emerge
in 2018.
Other key policy considerations within the EU that
may impact business confidence relate to proposals
on digital commerce taxation and EU tax harmonization. This has been driven by the growth of digital
commerce, led by U.S. e-commerce tech giants, and the corresponding rapid decline of tax revenue in nation-
states within Europe. In parallel, the attempt to standardize taxation rates across the EU 27 will raise further
questions about whether large and small economies should be viewed side by side.
Geopolitical instability and protectionist agendas
in the U.S. and Europe are adding greater
unpredictability to the global business environment
and to corporate operating costs. Enterprises will
need to re-examine risk strategies and evaluate
possible new markets for their products.

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China Ascending
President Xi Jinping further consolidated his position at the Communist Party National Congress. Most global
observers expect him to continue the ambitious “belt and road” direct investment program mentioned earlier in
this paper.
The South China Sea continues to see China exerting its military muscle, with international water disputes
related to natural resources and challenges to the regional influence of the United States.
Implications of Global Economic and Geopolitical Trends
Leadership teams are challenged with finding new growth opportunities. We can clearly see emerging markets
as a source for growth in 2018 and beyond, but this must be balanced against increased trade barriers, rising
fuel and energy costs, foreign exchange changes and climate change risks.
Key Factors to Consider
• Trade Barriers and Protectionism: U.S. and
U.K. domestic agendas are creating trade barriers
by withdrawing from the European Union,
Trans-Pacific Partnership and potentially NAFTA.
Fundamental operating model and supply chain
redesign will be required to define the new five-
year plan.
• Financial Markets: The dollar will continue to
tread water while the pound and yen are expected
to fall with only the euro growing. These changes
will make ROI in foreign investment harder for U.S.
and U.K. corporations in Europe, resulting in domestic market rebalancing as well as the need to identify the
E7 emerging markets as sources for investment and higher ROI.
• Commodity Pricing: Food crop prices will increase only slightly due to high stock levels, but will be offset
by increased famine and food shortages for basic crops. However, fuel costs for energy in production and
transport costs will continue to grow and expand exponentially toward 2025, resulting in a fundamental new
technology and supply planning model.
• Climate Change Risk: We will continue to see the number of global natural disasters rise and the
consequential risk of supply chain failure. Organizations have to account for increased climate change risk in
their operating models and be prepared with strategies to meet these risks.
For global operations to maintain continuity and increase value addition across procurement and supply chain,
the focus needs to be on increasing supply chain agility, building emerging market sourcing capability, value
chain engineering and financial modeling as core business partnering capability.
We expect world GDP growth to remain healthy in
2018, although that assumes world governments
successfully manage risks posed by record
debt levels, trade protectionism and geopolitical
uncertainties — all of which have the
potential to erode business and consumer
confidence worldwide.

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Source-to-Pay Disruption and
Transformation Outlook
We will look back on 2017 as a pivotal year in the rapid maturing of several artificial intelligence (AI)-related
technologies and the initial adoption of these emerging innovations within the procurement domain.
2018 will bring its set of challenges and disruptors, from global economic uncertainty to the rapid advance of
emerging technology. More than 80 percent of procurement organizations believe that digital transformation
will fundamentally change the way they deliver services. However, only 32 percent of procurement organizations
currently have a formal digital strategy and only 25 percent have the needed resources and competencies to
deliver such transformations. (Data Source: Hackett)
Organizations that have invested considerable time, money and effort in transforming their procurement
functions are now asking themselves — was it all worth it, how should we adapt the model and where do we go
from here?
Technology Disruptors
RPA, natural language processing (NLP), and predictive analytics are the top three AI-related domains that, along
with blockchain technologies, are collectively powering a new wave of digital-led procurement transformations.
New-age digital transformations assess how new technologies can drive enhanced performance and
business benefits (e.g. savings) rather than merely enable them as a tool to support improved processes and
organizational structures.
Virtual Assistants like Siri (Apple), Cortana (Microsoft) and Alexa (Amazon) can now follow natural language
voice commands to quite effectively perform a range of procurement-related tasks including:
• Answering questions from web queries (i.e. market research)
• Evaluating options and recommending purchases (i.e. strategic sourcing)
• Ordering and paying for purchases (i.e. procure-to-pay processes)
And these devices continue to “learn,” improve and adapt to our preferences through machine learning
applications that will themselves evolve and gain the ability to handle even more complex, reasoning-based
activities. In short order, we can expect further practical applications in procurement to emerge, such as
proactively monitoring supply risks (and opportunities) and enhancing both spend classification and spend
analysis functionalities.

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Robotic Process Automation
RPA, the darling of last year’s Big Trend reports, has quickly achieved industry-wide acceptance and maturity.
Today, many companies demand these capabilities from their transaction-based providers of services such as
procure-to-pay and accounts payable. And these companies are demanding the commensurate year-on-year
productivity improvements and cost reductions that these “bots” afford.
Paradoxically, we expect the RPA trend to fuel further
outsourcing of all transaction-based activities — rather than
making these outsourced services redundant through the
deployment of a well-orchestrated army of bots. Humans will
be “in the loop” for some time to come, but their numbers
will reduce significantly as discrete tasks and standard
processes become fully automated. Transaction-based service
providers now must compete on more than just low-cost
country labor arbitrage and efficient service operations. They
now must demonstrate digital expertise in RPA as a top
selection criterion and competitive edge.
The advantages of RPA capabilities, along with the capital investments needed to build them, provide further
advantages to managed service providers as they solidify their role in today’s archetypal high-performing
procurement model. We see further RPA applications quickly emerging to support other “high volume/high
touch” procurement activities such as:
• Catalog Development: Bots will port in standardized product info (including photos) from vendor websites
and combine this with up-to-date pricing directly from supplier contracts to build and maintain purchasing
catalogs for all top spend categories. Add in customer reviews, stored search histories and “one-click
order” functionality, and we are quickly approaching the heralded “Amazon-like” (or Alexa-like) shopping
experience for the corporate employee.
• Sourcing Execution: Large-scale bidding events will be supported by smart bots that will free up significant
time for category managers to focus on strategy and negotiations. Tasks such as tracking RFP responses,
executing NDAs and performing first-cut bid analyses can become the work of well-trained bots.
• Spot Buying and Tactical Sourcing: Spec-based RFQs will be automatically created, sent to
predetermined preferred suppliers whose bids will be evaluated, and then awarded with minimal
human intervention.
Natural Language Processing
NLP technologies enable the understanding of voice and free text commands. It’s unclear at this early stage
how prominent NLP will become within the procurement arena. Adoption will likely mirror the (millennial-
driven) adoption of voice activated commands within the consumer sector. That said, we are already seeing NLP
technologies enabling certain procurement activities and we expect to see more in the areas of:
In procurement, which is transactional by
nature, RPA and cognitive computing such
as machine learning can help procure-
to-pay processes move away from an
arbitrage-heavy model to improve overall
delivery speed and quality.

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• Help Desk Services: Call centers are leveraging the use of “Chat Bots” or virtual call center agents to handle
vendor enquiries and to provide employees with first-line purchasing support.
• Spend Analysis: Expect more advanced analysis and reporting functionality from your spend analysis tool
provider based on NLP to handle requests such as “show me the amount of our travel spend last quarter,
sorted by cost center.”
• CLM Functionality: Plain English (or French) search commands will enable more efficient searching through
contract repositories for anything — from the most recent SOW with vendor X to, say, “all active contracts
that have (or don’t have) intellectual property protection clauses.”
Predictive Analytics
Predictive analytics is a form of machine learning that involves data mining and analysis of both structured and
unstructured data sources, and is used as a high-powered decision-support utility. Predictive analytics tools can
identify patterns and make predictions based on a multitude of factors and are underpinned by self-improving
algorithms. Within the procurement domain, we expect to see advances with this technology in the
following areas:
• Spend Classification and Analysis: Spend analysis tools will evolve to include considerably more accurate
spend classifications and enhanced abilities to translate procurement spend and savings data into general
ledger views of the same information. Procurement teams will literally be able to drive their savings to the
bottom line and point to exactly how the P&L was impacted.
• “Sense and Respond” Supplier Risk Monitoring: Supply chain planning tools are currently not unified
and erode decision-making capability due to disjointed logic across demand planning, inventory and
replenishment. The development of unified platforms, system of record and a single logic in analytics will
enable the transition to predictive analytics across demand and supply planning. This will enable procurement
and supply planning to accurately forecast and monitor fulfillment with suppliers.
• Commodity Price Tracking and Hedging: What management teams crave — and few procurement teams
can provide — is the sum of the company’s exposure to commodity risks across its entire portfolio. The
ability for direct material buyers to leverage predictive models and forecast trends in key indices is paramount
in developing and executing a strategy. Developments in predictive analytics are forecast to enable the
automation and combining of disparate commodity indices and variables to further enhance and automate
the commodity price risk management capabilities of procurement.
Blockchain
Blockchain technologies may end up transforming the procurement and finance functions more profoundly than
the other emerging technologies. Traditional banking functions such as supplier financing can be completely
reimagined with far fewer intermediaries and steps involved. Indeed, blockchain technologies have the potential
to upend traditional corporate banking relationships, full stop, as niche fintech innovators chip away at the
raison d’être of corporate banks.

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Early targets for blockchain innovation include:
• Invoice Processing: Blockchains will help eliminate or automate key accounts payable activities ranging from
the mundane, like invoice scanning, to the complex, such as three-way matching and reconciliation activities.
• Accounting: Longer term, blockchain technology may well impact general ledger bookkeeping and financial
reporting activities.
• Contract Management: Smart contract functionality that combines sourcing specifications with supplier
labeling, customs and border documentation, and shipping and receipt information, together with
contract pricing and line item details, will transform the visibility and performance management capability
of supply chains.
The maturity of AI technologies will steadily impact the procurement function. The question is no longer if, but
rather when. Our view is that adoption will be quicker with some technologies (e.g. RPA) and slower with others
(e.g. blockchain) but their combined impact will be powerful and transformative. It will take several more years
for these technologies to fully mature into affordable and effective solutions within the procurement arena. That
said, plenty of early adopters across sectors are currently piloting and learning their way into how to harness AI.
And we expect that trend to accelerate in 2018.
Operating Model Outlook
Procurement operating budgets are expected to grow by less than 1 percent in the coming year, most
likely requiring procurement to prioritize and self-fund its goals of improving agility, responsiveness,
customer-centricity and supporting enterprise digital transformation. Therefore, reducing third-party
expenditure and driving more value from supplier relationships will remain a key enabler for procurement
transformation programs in 2018.
More enterprises will look at adapting their operating
model to technology. Rather than replacing
procurement teams, technology will enable more
value add in areas that have large potential for
automation, e.g. accounts payable or contract
management, so that procurement teams can spend
more time on strategic activities. This integration
will require a rethink of the existing source-to-pay
process — how will supplier selection or invoice
processing be impacted by these technologies and an
increase in automation? This could also increase the
focus on outsourcing.
Procurement leaders need to future proof the procurement organization and align to the broader enterprise
digital strategy. Understanding the implications, opportunities and talent needed to succeed in a digital supply
chain is the priority for 2018.
The evolution of a digital-first procurement model
will result in procurement organizations that
focus on more strategic, differentiating activities.
Although they will continue to deliver cost savings,
they will also be measured on contributions to
business results, such as higher earnings per
share, faster time-to-market, and improved
supplier innovation.

17. 17
Source-to-Contract (S2C)
S2C process disruption looks at how technology-enabled changes drive efficiencies, i.e. “do it quicker, cheaper,”
and effectiveness, i.e. “do it smarter” across the value chain. In 2018, we will see both the adoption of
automation across S2C and the beginning of leveraging of technology-enabled ecosystems with suppliers and
partners. The trends and implications for procurement include:
The Buyer of Tomorrow — Digital Talent Strategy
• If the machine identifies a contract renewal,
automates an RFP, evaluates and auctions the
terms, then what skills do my buyers need?
• The old “3 bids and a buy” mindset is losing to
people who can integrate business needs with
market trends, category insights, and the ability
to challenge suppliers to deliver continuous
improvements and innovations.
The New Marketplace in E-Commerce — The Role of Amazon in B2B
• Amazon is well known for its B2C model, but it has been making aggressive strides into B2B through
Amazon Business. Continued innovation in B2B will see the tech giants enter the business of procurement
but will not necessarily mean better service and better price.
• Procurement leaders need to leverage new distribution models while continuing to leverage their
purchasing power.
The New Ecosystem — Supplier-Led Innovation and SRM
• If your supplier leads your product R&D and machines manage order and compliance management, how
will you incentivize and reward outcomes?
• Future R&D will be fueled by supplier partnerships that harness joint innovation; procurement needs to
develop the skills to create space for suppliers and partners to invest, fail and share IP.
• Digital business means increased data privacy, security and regulation that adds complexity to the cloud.
Procurement’s role as the digital risk officer across categories will increase in 2018.
Change will be the constant for procurement in 2018, and the focus will be on understanding the new business
environment and planning for transformation. Procurement organizations and service providers face the same
challenges: the digital value chain, their role within the business, and how to achieve value with partners.
Today, suppliers have responsibility for a large
and increasing portion of enterprise operations
(not to mention receive an increasing percentage
of revenues). As a result, the team managing
them has a significant opportunity to impact the
top line, as well as avert disruptions and
introduce innovation.

18. 18
Procure-to-Pay (P2P)
2018 will bring continued productivity enhancement to the procure-to-pay function as investments in RPA
continue to grow and automation projects begin delivering realized value.
P2P software providers continue to invest in and/or acquire RPA capabilities. This will continue in 2018 with
the development of next-generation P2P processes. Automation of routine requisition to purchase order (PO)
approval workflow and intergation with smart contracts and mobile platforms will be key investment areas in
2018 onward.
Additionally, leaders in the procurement software
arena will use automation to further integrate key
tools, such as category cards and contract metadata,
into the procurement process to maximize savings
realization and minimize rogue spend. RPA projects
will drive workflow simplification, where complicated
data collection and categorization of requisitions will
be replaced by rules-based assignments, making the
ordering process easier for end users while increasing
the quality and completeness of transaction data. This
will drive enhanced reporting and analytics capabilities
and expectations.
Result: RPA will begin to significantly reduce tail spend by increasing compliance at the time of transaction in
place of the reactive management process that is typically used today.
An offshoot of the focus on RPA will be a renewed focus on industry benchmarking as clients and providers alike
re-evaluate the relevance of traditional service level agreements (SLAs). Typical SLAs that focused on turnaround
times and data accuracy will quickly become outdated. Replacing these standard metrics will be a greater focus
(and higher expectation) in areas such as savings maximization and risk minimization.
Risk assessment will be another area of focus in procurement operations as companies are increasing their
awareness and focus on seemingly routine changes in the global social and economic environment. Integrated
solutions that help evaluate potential risk at the transactional level will rise in importance, and procurement’s
agility to react to changes will become a key consideration for senior management as well as an integral
component in future partnership development.
Even though executives see digitalization and
RPA as having the greatest impact on their
procurement processes over the next 10 years,
adoption of automated systems in procure-to-pay
is still low. That will begin to change as new tech
tools like RPA make the payoffs of automation too
significant to evade.

19. 19
Category
Outlook
Capital & Construction
The global EPC (engineering, procurement, construction) market is expected to maintain a steady pace of
growth in 2018, increasing by 2.8 percent to $7.35 trillion. North America remains the largest market by
size valued at $1.9 trillion. The initiation of the $1 trillion infrastructure plan by the Trump administration
will provide a boost to the capital sector in the United States, with several greenfield and brownfield projects
slated to start in 2018. Asia is expected to maintain its high pace of growth fueled by China, India, Indonesia
and Vietnam.
Digitization will emerge as a key trend impacting the capital and construction sectors, with implementation of
smart factories emerging as a major disruptor for the manufacturing sector. Further, offshoring of engineering
services will continue to expand, driven by the business need to increase market reach and associated cost benefits.
Globalization of Engineering Services Outsourcing
In line with the general economic trend, the engineering and construction services industry is inching toward
globalization. Firms in emerging economies that have spent the past decade building up internal expertise and
financial strength are now expanding outward and seeking to compete against established global players. The
accentuated competition from these firms has led to increased pressure on margins, resulting in cost stabilization
and market consolidation. The global engineering services outsourcing industry, valued at $70 billion, has been
growing at a CAGR of about 30 percent, with Asia-Pacific accounting for the largest market share. India, China,
Vietnam, and the Philippines were the most sought-after global outsourcing destinations.
The threat of intellectual property (IP) confidentiality breaches remains, especially in a few offshore locations
where prosecuting IP offenders is perceived as difficult due to weak legal enforcement. Limited local knowledge
regarding project conditions, such as local codes, standard construction practices and materials, and language
barriers in Europe and Latin America, continue to be a challenge to using offshore vendors. The offshore
engineering services segment is expected to continue its push for greater revenue share of the market in 2018.
Adoption of Smart Factory in Manufacturing
Organizations have started implementation of Industry 4.0 concepts with the intent of achieving higher
productivity, lower cost, greater flexibility, efficiency and green manufacturing. While automation and controls
have existed for decades, use of IoT, big data and cloud-embedded manufacturing have gained traction recently.

20. 20
Five trends are pushing this drive toward smart factory: 1) rapidly evolving technological capabilities 2) increased
supply chain complexity and global fragmentation of production and demand 3) growing competitive pressures
from unexpected sources 4) organizational realignments resulting from the marriage of internal and stakeholder
(suppliers, clients, customers) infrastructure and 5) ongoing talent challenges.
According to a survey conducted by one of the leading IT solution providers, penetration of smart factory into
the manufacturing organization is highest in the United States (54 percent) and Europe (~40 percent), followed
by India (28 percent) and China (25 percent). Smart factory is estimated to generate investment in the range of
$0.5 billion to $1.5 billion in the global economy over the next five years, indicating significant opportunities for
the CPO to strategize and implement this framework.
Maintenance, Repair and Operations (MRO)
The global MRO market — estimated at $510 billion in 2017 — is expected to grow moderately in 2018,
driven by steady global economic growth and pending tax reforms in the United States. Enterprises of all sizes
continue to move toward integrated, outsourced MRO programs to simplify operations and reduce total cost
of ownership. Distributors are investing in end-to-end solutions and established integrators are expanding
their service portfolio and geographic footprint. Asia-Pacific will continue to be an area of focus for integrated
suppliers, given the relatively low market penetration.
M&A is most notably a catalyst for integrator growth
in Europe, the Middle East, and Africa. The trend of
supplier consolidation, as exemplified by the merger
between Brammer and IPH in Europe, is anticipated to
continue in 2018.
As the major market players continue to expand
both vertically and horizontally, the proliferation
of integrated equipment networks is changing
the fundamentals of service delivery. Traditional
preventative equipment maintenance strategies are being replaced by increasing levels of “at-the-asset”
maintenance enabled by mobile technology and big data. Real-time equipment condition monitoring allows
maintenance technicians to perform service and replace parts based on actual operational data. Barcodes and
QR codes provide equipment-specific condition information along with consumable and spare part specification
guidelines. The availability of this real-time, “at-the-asset” data greatly increases maintenance productivity
levels. MRO suppliers will continue to invest in enabling technology, which furthers the level of integration with
storeroom data and maintenance planning systems.
Amazon has been on the horizon as a potentially disruptive force for the past several years in North America and
parts of Europe. In 2018, Amazon is expected to establish a much stronger foothold with midsize enterprises
by displacing established distributors. Amazon’s product catalog depth, with over five million unique items,
greatly surpasses that of its established MRO supplies competitors. Its efficient operations and low overhead
contribute to a highly competitive price structure across this wide range of products. However, with respect to
product support and services, other distributors still retain a competitive advantage as they provide in-house
Smart factory is estimated to generate investment
in the range of $0.5 billion to $1.5 billion in the
global economy over the next five years, indicating
significant opportunities for the CPO to strategize
and implement this framework.

21. 21
representatives for technical support. The rapidly emerging presence of Amazon and other online retailers such
as Alibaba in China is forcing established market players to leverage their core service-related strengths while
continuing to invest in technology.
Information Technology
2018 will continue to present challenges for CIOs and information technology departments. While most
companies are increasing their IT budgets to ensure business continuity and profitability, many others are
recognizing the role of IT in enterprise growth. Revenue-driving initiatives, such as e-commerce and business
process optimization, are highlighting the impact that IT departments can have on the bottom line. The
dichotomy of this is that while IT budgets may be increasing, they can still be an impediment to IT leaders,
limiting their ability to deliver and forcing prioritization of precious resource dollars. Approximately 80 percent of
IT budgets are “trapped” in support functions like system maintenance, upgrades and security. That leaves only
20 percent or less of IT budgets for innovation activities.
IT and procurement must work together to offload and pay down this “technical debt” and free up resources
(people and budget) for new and expanded cloud, mobile, data analytics, AI, and other modern digital initiatives
that can provide a competitive advantage to the company.
Infrastructure
The shift to cloud computing is now the default option for many companies when it comes to infrastructure
products/services. While Amazon continues to retain over 35 percent of the market share of cloud infrastructure
provisioning, Microsoft, IBM, Google, and Alibaba continue to make strides to grab their share of the IaaS
market by forming alliance partnerships with software manufacturers, implementing automation into their
delivery model, and leading the charge in AI to differentiate their offerings.
Companies need to be aware that the shift to cloud can also introduce new/changing costs and new risks not
seen before in the infrastructure domain, such as active cost management, stranded capacity, cloud integration,
and the shift to opex (operating expenses) as a standard. Managing the shift to cloud will be a key to success in
2018 to ensure the organization receives the anticipated value of its cloud investments.
Security for protecting company assets while providing flawless service is paramount for every IT infrastructure
department. IT security remains on everyone’s high priority list — governments, enterprises and individuals.
Blockchain technology is evolving into an enterprise/government solution to transmit confidential or proprietary
data across the internet. Blockchain is emerging as a mechanism to make and verify transactions on a network
instantaneously, without a central authority. This could speed up transactions and cut costs while lowering the
risk of fraud.
Overall, IT security is cumbersome and costly, and “shadow IT” may cause unknown risks to the organization.
Threats to companies are evolving and growing — both in impact and frequency. Many companies are
leveraging their third-party suppliers to manage and improve their IT security across multiple domains, including
their cloud infrastructures and in-house data centers.

22. 22
IT Services
Demand is high for experienced IT resources. Many companies are struggling with the current IT talent shortage.
Technical skills and know-how are required in today’s complex digital world, and many companies are investing
in internal training and development to retain and educate existing resources. Companies are utilizing
outsourcing and managed services to shore up their run cycles, which also frees up internal resources to focus on
the most important aspects of their IT business support. The cost of outsourced/managed services is on the rise;
therefore, companies must ensure sourcing decisions are well thought out to enable value alignment and achieve
market-competitive pricing.
Software
IT automation and analytics investments are generating significant benefits for large enterprises. Nearly all
the major consulting suppliers are investing heavily in both RPA and AI. These investments, for autonomous
decision-making and automated processing, are anticipated to dramatically increase over the next 10 years.
Even though automation is essentially in its infancy now, companies are beginning to introduce AI and RPA
in their business processes and are seeing real value in terms of hard dollar savings. With routine IT processes
increasingly being automated, enterprises are realizing year-over-year cost reductions in application maintenance.
We are seeing automation permeate nearly every area of IT, from application support to big data analysis and
even in security for early threat detection and avoidance.
Telecommunications
2018 will see a broader acceptance of SD-WAN as network appliances improve and offer more reliability with
cost savings of around 20 percent. The wireless market will be changing again in 2018 with the beta testing of
5G wireless technology nearing completion in 2017; both AT&T and Verizon are setting the stage for releasing
5G widely, starting in 2018. The 5G wireless technology will allow for higher-speed networks that can support
high growth in content-related transmission demand. Challenges from new players, such as Amazon, Google,
and cable companies, have yet to make any significant impact.
Wireless continues to grow in both the personal and commercial markets and is beginning to take on a more
global posture. U.S. carriers are aggressively moving into the wireless markets in Canada and Mexico. European
carriers are required by “roam like at home” rules to eliminate roaming charges more widely through 2018, and
the EU regulators have mandated compliance by the end of 2018. Intercontinental rates are dropping rapidly as
alternative calling methods, such as Skype for Business and Wi-Fi calling, continue to mature.
Companies will see continued rate increases for “local” services across all geographies. Telecom aggregators
such as Granite and MetTel have developed mature businesses that not only offset rate increases but can also
potentially reduce costs by 25-35 percent and simplify the management of a messy portfolio of multiple supplier
services. Similar services are evolving in Europe and are expected to become more widespread in 2018. It is
recommended to limit telecom commitments to two years (wireless) or three years (network) and competitively
bid interim agreements among providers and aggregators with goals of 20 percent savings.

23. 23
Marketing
Advertising & Media
Global advertising expenditures were forecast to close out 2017 at about 4 percent annual growth versus 2016,
falling slightly behind growth of the general economy. This pattern is expected to continue up to 2019, with
global ad expenditure growing at an annual rate of approximately 4 percent. Regions will vary in rates of growth
for 2018, with the United States expecting 3.4 percent annual growth and 2.7 percent for Latin America. For
Western and Central Europe, there will be a cautious mode, driven, in part, by Brexit uncertainty, but this may be
offset because 2018 is a World Cup year; we anticipate around 2.6 percent annual growth.
Further political uncertainty in the Middle East will reverberate in advertiser confidence in the region and this is
likely to manifest itself in a possible decline of 6 percent year-over-year growth for the Middle East and North
Africa in 2018. Eastern Europe as a bloc is expected to witness the highest growth rates across all regions at
around 9 percent per annum. Buoyed by a football World Cup on home territory and a somewhat monopolistic
media-trading landscape, Russia is anticipated to face strong upward media pricing pressure. Regarding Asia, we
expect an overall average growth rate of 2.8 percent until 2019.
On a country-by-country basis and possibly unsurprisingly, we anticipate more than 50 percent of the growth in
global ad dollars to come from the United States and China in 2018, largely a consequence of their sheer scale.
These will be supported by strong growth in certain Asian markets — notably India and Indonesia — as well as
regular stalwarts in Europe such as Germany and the U.K.
Digital Advertising
Investment in digital advertising will continue to expand across the world. Overall, digital is expected to grow
annually by 14 percent. This is largely fueled by advertiser interest in mimicking the audio-visual benefits
of TV, with online video growing at 20 percent
annually. And this will be despite the increasing
dissension expressed by major advertisers regarding
issues around brand-safe placement, audience
measurability and independent verification.
The marketplace is increasingly dominated by two
players, Facebook and Google. However, there is
no sign of advertisers voting with their feet and
divesting from these major platforms despite calls
for such outlets to demonstrate improvements in
their audience measurability characteristics. Simply put, the recognition that audiences — particularly younger
demographics — are migrating to digital as a normalized consumption behavior, is already here. Quality
content, whether it be broad- or narrow-cast via digital media, is increasing, and this is another structural
aspect further sustaining the growth in increased digital consumption across demographics.
Quality content, whether it be broad- or narrow-
cast via digital media, is increasing, and this
is another structural aspect further sustaining
the growth in increased digital consumption
across demographics.

24. 24
Shopper Marketing
We expect to see increasing exploration by both established and new entrant businesses of direct-to-consumer
business models. This will be aided by two key factors: the increasing breadth of low-investment D2C
communication opportunities offered by social media, and the increasing range of digital fulfillment models
offered by intermediaries such as Amazon (e.g. Amazon buttons). Additionally, we expect to see successful
startups swallowed up by major established corporations (e.g. Dollar Shave Club/Unilever in 2016) where they
offer a distinct threat to the status quo.
2018 and Beyond
Digitization progress will be uneven and will be led by those companies where technology is at the core of
their business proposition, and where it is fundamental that marketing, technology and data teams must work
together. We expect to see innovation led by tech-centric companies such as Google, Alibaba, Amazon, Apple,
IBM and Tencent. We expect some of those innovations to materialize in clear B2C or B2B opportunities that
come to the market in 2018. We also expect such innovations to be seized upon by both market research and
marketing communications companies as they seek to identify opportunities for their clients.
Logistics
2017 was a moderately challenging year for shippers
based on the trends within the global logistics
industry. After a year of low freight prices, the
price increases in ocean, trucking and warehousing
impacted end users in the latter half of 2017. The
freight price increase was also driven by the increase
in the price of crude oil and diesel (North America:
14-plus percent, Europe: ~15 percent). The fuel
price is expected to increase by 3-5 percent in 2018,
impacted by the volatile political situation prevailing
in the Middle East.
The trend of large M&A activities in the logistics sector was muted in 2017 in contrast to the previous years,
barring the alliances among ocean liners. In 2018, some large M&A activities are expected. Shippers are
increasingly considering TMS/4PL solutions to provide end-to-end supply chain visibility as well as optimize
consolidated shipments, routing, etc. The adoption rate of TMS/4PL solutions by small and midsize companies is
increasing due to reduced implementation costs from earlier years.
Modal Trends
• Warehousing
North American warehouse markets have seen a moderate price increase of 5-plus percent since Q3 2017.
E-commerce firms, 3PLs and distributors are the three key end-user segments that drove warehouse demand
in 2017. The need to improve warehouse productivity has pushed the demand for modern logistics space.
Shippers are increasingly considering TMS/4PL
solutions to provide end-to-end supply chain
visibility as well as optimize consolidated
shipments, routing, etc. The adoption rate of
TMS/4PL solutions by small and midsize companies
is increasing due to reduced implementation costs
from earlier years.

25. 25
It is expected that warehouse demand growth will slow down in 2018 from previous years. Warehouse rental
growth is expected to be moderate at 2-3 percent from the earlier rental growth of ~5 percent.
When the 2017 numbers are tallied, European warehouse absorption is expected to be in excess of 19 million
square meters and the European aggregate vacancy is expected to fall to 5 percent. Despite the low supply of
quality warehouses, rental growth was flat in most of the markets across Europe. With speculative building
around 22 percent of the under-construction space, we expect the European market to have similar vacancy
levels in 2018. Increased accelerated growth in Europe might result in higher rentals.
Within Asia-Pacific, rising wage levels are expected to result in increased warehousing costs. Specific to India,
large end users are in the process of re-establishing their supply chains after the recent implementation of
GST. Based on this, the demand for large, modern warehouse spaces in logistics hubs should remain strong.
• Road Freight
Due to cyclical changes in industry fundamentals and disruptions due to hurricanes, North American truck
rates for 2017 hit the accelerators in Q3/Q4. The natural disasters affected as much as 10 percent of truck
routes nationally and allowed carriers to push rate increases because of the increased demand. Carriers
turning down loads was also widespread in H2 2017. We expect the rate increase to continue through H1
2018 due to increased economic momentum. Carriers have been reluctant to add capacity, which will be
reflected in next year’s rates. The truckload segment is still seeing driver turnover above 90 percent and
carriers are expected to face a tight supply of drivers. We expect an increase of 2.4 to 5.3 percent in the
2018 contracted rates in the North American market.
A major process disruption that might see an increased uptake in 2018 is technology-enabled brokerage
service providers like Convoy and Uber Freight, fueled primarily by increasing traditional freight rates.
Adoption will mainly depend upon the service levels offered by these providers at the initial try-out phase for
various shippers.
In the European market, a rate increase of 5 percent is expected, with true rate impacts varying by country.
The recent market situation has deteriorated significantly, and transportation providers have a huge
challenge on their hands in the form of driver availability in the labor market. Significant impacts are being
felt in the German domestic market (truck capacity has never been so low, according to local players) and
in Central/Eastern European countries, especially for the “outbound” routes as trade flows are completely
unbalanced and it is harder to secure capacity (Poland outbound has recently seen a double-digit increase).
Implementation of GST in India is reducing transit time by 4-5 percent and this cost reduction will be passed
on to the end customers by the transport providers once the market stabilizes.
• Ocean
After two consecutive years of slow growth, 2017 saw contract rate increases for most of the global
lanes due to supplier consolidation, increase in bunker prices, slower capacity growth and better capacity
management by carriers. A few lanes, especially in Asia/China, had rate increases as high as 50-60 percent.
Late 2017 saw a slight drop in spot rates, without any weakening in capacity or service cuts.

26. 26
In 2018, the growth in supply is expected to be ~5.1 percent while the growth in demand is expected to be
3.2 percent. With supply exceeding demand growth, we expect the rates to increase moderately due to idle
fleet management and highly consolidated market structure. Across the lanes, moderate increases of freight
rates in the range of 2-10 percent are expected, depending upon the trade lanes.
Figure 4 Source: GEP Market Intelligence
Packaging
The global packaging industry will continue to grow at a healthy pace of 3-4 percent year-on-year and cross the
market value of $1 trillion by 2022. The growth will be led by emerging countries from Asia, Eastern Europe
and Africa, creating new opportunities for the market players in those regions. In parallel, mature regions like
the United States and Western Europe will undergo significant business and demographic changes that will
transform value chains in the packaging segment.
The desire to maximize the end-user experience, cost optimization and recyclability, catalyzed with technological
developments, will be key influencers in the packaging market. This market is susceptible both to gradual
changes in technology and to the need to satisfy rapid market developments.
For example, Alibaba’s Singles Day (November 11) impacted the global packaging industry more than many
analysts would have expected. Alibaba posted ~$25.3 billion in sales on November 11. Emerging markets
such as China and India are increasingly shopping online, preferring digital convenience over physical retail
experiences. This is prompting changes to several key aspects of packaging. For example, 20-30 percent of
online purchases are returned, meaning that their packaging must be easily opened and resealed.
Gradual changes along the supply chain brought by technology developments like 3-D printing, the Internet
of Things (IoT), cloud computing and high-performance materials will have great implications for the future of
“smart,” “active” and “intelligent” packaging. These categories include pure absorbers, oxygen scavengers,
4%
3% 3% 3% 2%
3%
10%
0%
2%
4%
6%
8%
10%
12%
Global
Transpacific
(EB)
Transpacific
(WB)
Asia Europe
(EB)
Asia Europe
(WB)
Transatlantic
(EB)
Transatlantic
(WB)
Intra-Asia
S.China -Brazil
S.China -Africa
2018 Ocean Freight Rate Forecast - By Trade Lane
Flat
±1%
Flat
±1%
Flat
±1%

27. 27
microwave susceptors, moisture or humidity absorbers, odor absorbers or emitters, anti-microbiological
packaging, data communicators and others. These technologies are expected to address rising concerns about
food safety, waste reduction, regulatory compliance and counterfeiting.
Due to increasing public pressure on governments, brand owners and retailers to reduce the environmental
impact of packaging, the industry will continue to focus on reuse and reconditioning of packaging, rather than
down-gauging to cut its carbon footprint.
The packaging industry will also focus on innovations that will boost both mass-market affordability and product
demand. As a result, suppliers in emerging countries will start manufacturing fast, low-tolerance packaging lines
in their own backyards.
Strong competition between rigid plastic packaging and flexible plastic packaging will continue to impact
the way the industry moves. With massive capacity expansions planned in the United States and China, there
would be no shortage of raw material for these types of packaging whatsoever. From a cost perspective,
the flexible packaging segment is better placed in
relation to its rigid counterpart, as the combination
of environmental pressures and volatile polymer
prices still exists. Flexible packaging as a segment uses
fewer resources and is less energy dependent than
rigid polymers, and this directly results in substantial
reductions in packaging costs, materials use and
transport emissions.
A glass bottle costs 10-20 percent less than a PET
bottle, and this price advantage probably will be
largely responsible for the supremacy of glass
in specific applications like beer packaging. However, from a general packaging industry perspective, glass
packaging will be the slowest moving segment. This reflects the longer-term transition of glass from an essential
commodity in packaging to a luxury material specified to create a premium feel and sophisticated impression.
General & Professional Services
Geopolitical instability, increasing regulatory factors, technological advances, and wage rate inflation are factors
that will influence general & professional services categories for buyers in 2018. Costs for general & professional
services categories will face 2-4 percent upward pressure in 2018, although the levels and factors driving cost
increases vary within specific category segments. Likewise, we expect to see corporate clients taking varying
sourcing-related approaches within category segments to deal with market trends and situations in 2018.
Travel
Travel volume in 2018 will likely mimic 2017. However, in 2018, improving economic factors may boost travel
volumes, and this demand, paired with oil cost pressures, will drive moderate cost increases in 2018 and beyond.
Airline pricing will remain relatively flat, with increases of 1-3 percent expected for regional and intercontinental
The packaging industry will focus on innovations
that will boost both mass-market affordability
and product demand. As a result, suppliers in
emerging countries will start manufacturing
fast, low-tolerance packaging lines in their
own backyards.

28. 28
business fares in Europe and the United States, and for regional economy fares. Hotel rates will rise 2-4 percent
globally, although some regions such as Africa and Asia-Pacific may see greater cost increases. In 2018, it will
be important for corporate hotel customers negotiating contracts to manage allocations of corporate preferred
room rates to ensure these meet demand, as hotel capacity will be strained at points in time.
We expect to see a continued trend of larger, multinational companies moving to globalized travel programs
supported through global travel management company (TMC) deals, unified corporate travel policies, and global
duty-of-care solutions. This transformation is being driven by the need to manage risk in a global employee base
while minimizing costs.
The development of AI and robotics will be key to supporting transformation, efficiency, and effectiveness in
corporate travel in 2018 and beyond. Good sourcing practices should place an emphasis on evaluating TMCs’
current and future technology and automation capabilities. In addition, a close eye should be kept on disruptive
developments in the market, such as the move by airlines to offer competitive pricing directly to corporate travel
customers outside of traditional GDS (global distribution system) pricing processes.
Temporary Labor
Corporate use of temporary labor will increase in 2018 as key global markets continue to recover from previous
economic turmoil, and as job growth continues. Fueling this trend, corporations will continue to incorporate the
use of temporary labor in their businesses to maximize organizational flexibility and to optimize talent to deliver
on business requirements. These factors are influencing continued investment into contingent labor solutions,
with a 6-8 percent increase in temporary labor revenue expected in 2018.
The U.S. unemployment rate is expected to drop to
4.1 percent in 2018, further reduced from 2017.
Furthermore, employment rates in the EU are
expected to continue to surpass targets, while other
regional markets vary but are largely improving. This
situation will place some burden on the buyer by
limiting availability of temporary labor staffing, and
will drive some inflation of pricing.
Roughly 75-80 percent of the costs paid for temporary
labor are for wages, benefits, and overheads. Ongoing pressures on increasing wage rates in North America,
the EU, and globally will have an impact on the total cost of ownership in 2018. GEP expects to see increases in
the trend for corporate customers to look for efficiencies in the costs for contingent labor. This includes using
effective sourcing techniques to optimize all segments of total cost, including evaluating vendor markups,
benefits, wage rates, and understanding regulatory aspects of costs. We expect to see large companies further
transform temporary labor category supply approaches by expanding master services provider (MSP) and vendor
management solutions (VMS) from application in the U.S. to Europe and beyond.
In North America, MSP users will focus on adjusting these programs to improve organizational servicing and
staffing quality, and to reduce costs. MSP customers are increasingly emphasizing service level agreement terms
We expect to see large companies further
transform temporary labor category supply
approaches by expanding master services provider
(MSP) and vendor management solutions (VMS)
from application in the U.S. to Europe and beyond.

29. 29
with MSPs to meet these objectives. In the EU, independent MSP solutions will develop further in 2018 and
continue to gain market traction, offering companies an opportunity to transform the sourcing approach for
temporary labor in these markets.
Expect continued pressures in 2018 on availability of light industrial labor in certain markets, as well as some
capacity restraints for professional services categories. To manage requirements in light of these trends, we
recommend that corporate temporary labor buyers must establish effective preferred supply arrangements,
including applying MSP and VMS solutions.
HR Services & Benefits
Business globalization and increasing requirements are driving more and more organizations to develop global
approaches for HR solutions. This trend, paired with technology advancements, offers buyers of HR services
the potential to drive enhanced employee servicing while gaining cost efficiencies. In 2018, this global trend
will continue.
In 2018, costs for HR services, including payroll, time-keeping, benefits administration, recruiting, and training,
are expected to increase roughly by 2-3 percent (along the lines of typical inflation). Some resource-driven
categories, such as training, may see greater cost increase pressures due to wage rate considerations.
We also expect to see large global companies expand the use of multiregional and global payroll solutions,
while ensuring that regulatory and quality considerations are appropriately met. There will be a continuing
integration of payroll and time-keeping solutions into multifaceted human capital management and
human resources information systems (HRIS). These multifaceted systems configurations and associated
integrations or partnerships will be a factor for HR sourcing professionals to navigate when establishing
supply agreements.
The costs of medical and HR-related benefits are
expected to increase by approximately 4-6.5 percent
in 2018, with 7-11 percent increase in prescription
drug prices and 17 percent for specialty drugs. To
combat ongoing pricing increases and optimize
employee servicing, there has been an increasing
trend of companies marketing (bidding) benefits
programs when these have been in place for 5-plus
years. We strongly recommend that this process
involve a thorough evaluation of provider and network
arrangements, and total costs.
The recent announcement of plans for pharmacy
benefit management (PBM) company CVS to purchase health care provider Aetna is a new and disruptive
dimension to the PBM industry landscape. There is also significant speculation that Amazon will enter the
pharmacy distribution market soon. Organizations should closely monitor PBM market developments. We
recommend that PBM clients actively negotiate or bid requirements to maximize pricing, servicing, and total
There will be a continuing integration of payroll
and time-keeping solutions into multifaceted
human capital management and human resources
information systems (HRIS). These multifaceted
systemsconfigurationsandassociatedintegrations
or partnerships will be a factor for HR sourcing
professionals to navigate when establishing
supply agreements.

30. 30
costs. Furthermore, a continued trend in 2018 will be for organizations to evaluate specific drug usage and
adjust formularies to manage employee requirements and TCO.
Financial Services & Consulting
The financial services and consulting industry is expected to grow by 3-4 percent in 2018, with a majority
market share dominated by large accounting and advisory firms. In 2018, we expect to see corporate clients
engaged with one or two key partners for tax, audit, and/or accounting requirements, with less fragmentation
of providers.
A key development to monitor in 2018 is audit reform, including mandatory audit firm rotation regulation
concepts that are gaining traction in the U.K., EU, Africa and other regions. While we do not expect these
regulations to go into effective implementation on a large scale in 2018, the significant growth of these
concepts will give more weight to procurement discussions with finance regarding the benefits to evaluating
audit providers periodically, both from a cost and organizational risk standpoint.
In 2018, buyers of corporate audit, tax, and consulting services may have less appetite for supply changes,
given increasing risks, complexity, and increased reporting needs. At the same time, large financial services and
consulting firms are facing continued pressure from corporate customers to drive efficiencies in their work. In
the coming year, we expect firms to be more open to recognizing various business lines with customers and
negotiating with the total business in mind.
Chemicals
The global chemical industry is slowly and steadily recovering; this very cyclical industry is finally making its
way back from the wrong end of the global economic crisis. For 2018, the industry is expected to get off to
a buoyant start, mainly driven by the U.S. market. Rebounding oil prices, massive capacity expansions of C2
(ethylene) and C3 (propylene) and their derivatives,
and large ethane exports to the East will be the major
factors driving profitability for the industry.
During 2018, favorable manufacturing policies in
the United States are expected to support both the
domestic and export demand for chemicals and
derivatives. In Europe and the U.K., the industry is
expected to remain sluggish due to high operating
costs and unfavorable operating margins. Europe
is expected to become a net importer of several
chemicals as a result of escalating margin pressures
as well as changing demand patterns. The market in Asia is expected to be led by India and China. However,
stricter environmental laws in China will translate into higher costs for the domestic chemical manufacturers in
that country.
Chemical manufacturers will continue to strategically rationalize their product portfolio by spinning off non-
core businesses and those that are grappling with weak demand. The industry will continue to see strong M&A
Chemical manufacturers will continue to
strategically rationalize their product portfolio by
spinning off non-core businesses and those that
are grappling with weak demand. Cost-cutting
measures and the imperatives for innovation and
competitiveness will also continue to be major
focus areas.

31. 31
activity through 2018 as companies sustain their interest in strategic partnerships to take advantage of scale and
synergies across the portfolio. Cost-cutting measures and the imperatives for innovation and competitiveness will
also continue to be major focus areas for chemical manufacturers.
Some commodities, including titanium dioxide, caustic soda and hydrochloric acid, will remain at a tight
premium regionally, while some such as ethylene, propylene and methanol will be available in abundance.
In conclusion, the industry’s impetus will continue through 2018 and beyond, backed by the sustained strength
across key demand segments, an improving world economy, and massive shale-linked capital investment.

32. GEP helps global enterprises operate more efficiently and effectively, gain competitive advantage, boost profitability, and maximize business
and shareholder value.
Fresh thinking, innovative products, unrivaled domain and subject expertise, and smart, passionate people — this is how GEP creates and
delivers unified business solutions of unprecedented scale, power and effectiveness.
With 14 offices and operations centers in Europe, Asia and the Americas, Clark, New Jersey-based GEP helps enterprises worldwide realize
their strategic, operational and financial objectives.
Named Best Supplier at the EPIC Procurement Excellence Awards, GEP is frequently honored as an innovator and leading provider of source-
to-pay procurement software by top industry and technology analysts, such as Forrester, Gartner, IDC, Spend Matters, PayStream and Ardent
Partners. GEP also earns top honors in consulting and managed services from the industry’s leading research firms, professional associations
and journals, including Everest Group on its PEAK Matrices of Procurement Services Providers and Supply Chain Services Providers; NelsonHall
on its NEAT Matrix of Global Procurement BPO Service Providers; HfS in its Blueprint Report on Procurement-as-a-Service; and ALM
Intelligence in its Vanguard Reports on both Procurement Consulting and Supply Chain Consulting.
To learn more about our comprehensive range of strategic and managed services, please visit www.gep.com. For more about
SMART by GEP, our cloud-native, unified source-to-pay platform, please visit www.smartbygep.com.
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