Achieving High Performance through Procurement Outsourcing

Accenture research shows that companies that position procurement as a strategic capability outperform competitors. The current economic downturn presents opportunities for procurement leaders to reduce costs while improving efficiencies, moving beyond the function’s traditional boundaries and helping to prepare their organizations for growth when the upturn comes. Procurement outsourcing has a key role to play in achieving these goals.

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The current economic downturn is clearly a challenge for companies—but it also presents an opportunity for those prepared to use adversity to create competitive advantage. Accenture’s analysis of the performance of companies in the recession of 1990-91 showed that high-performance businesses were able to combine the necessary cost management with building sustainable future value.

High Performance through Procurement: Accenture Research and Insights into Procurement Performance Mastery, 2008 further showed how companies that successfully position procurement as a strategic capability really do outperform competitors. The current economic situation offers a real opportunity for an invigorated focus on costs.

To investigate the impact of the new economic reality on procurement, Accenture turned to the Accenture CPO Circle, an online global community of chief procurement officers or CPOs. Accenture asked more than 300 members how the current economic situation had affected their companies, and how they and their supply chain partners were responding.

• All procurement heads agreed that the downturn is having an impact on them, with 77 percent describing that effect as significant.
  
  
• More than half of respondents reported budget cuts—as high as 15 percent for many.
  
  
• Savings targets have increased at the same time, with almost one in five chief procurement officers now required to deliver savings of 15 percent or more.
  
  
• Many raw materials are more freely available than they were in 2007, while prices are lower.
  
  
• The majority of respondents felt that supplier risk had increased. More than 50 percent indicated that suppliers had increased prices, thus placing strain on the relationship.
  
  
• Security of supply also emerged as a key concern, with almost 20 percent of respondents reporting that suppliers were unable to meet their needs. Almost 15 percent of the CPOs said that suppliers had actually gone out of business or had been forced into a merger. As a result, around 70 percent of respondents said they were now monitoring the financial stability of suppliers more closely.

Chief procurement officers maintain that they face a combination of short-term problems and longer-term challenges.

Short-term responses to the economic crisis include cash conservation, cost reduction, supplier collaboration and relationship management. However, longer-term initiatives are being left untouched. Near unanimous feedback from the Accenture CPO Circle is that procurement transformation programs will continue with few or no changes despite the present economic situation.

In the current economic climate, companies are under pressure to improve cash flow and liquidity, drive immediate and sustained cost savings and also position themselves for growth. Thus, many high-performance businesses are considering outsourcing as a strategy to balance these imperatives in a hugely volatile environment.

This approach is supported by Accenture’s research titled Outsourcing and Procurement Mastery, published in early 2008. The survey of 600 procurement executives revealed the strong links between procurement mastery and procurement business process outsourcing. These procurement masters achieved savings that are 30 percent higher than low performers—despite running procurement organizations that cost half as much to operate.

When procurement masters outsource procurement, the benefits are even more far reaching. When the current downturn ends—as it will—Accenture research suggests that those businesses that are positioned correctly will emerge even stronger. These businesses are those that have seen the downturn as an opportunity to improve business performance, take market share and make fundamental changes to drive growth and sustainable benefits.

One such opportunity is the move to procurement business process outsourcing as part of a broader strategy to lower costs and improve efficiencies and ultimately achieve high performance.

Contact Accenture to discuss how we can help you use procurement outsourcing to survive the current downturn and position your company to achieve high performance in the long term.