Corporate Purchasing Confidence Presents Risks for Long-Term Savings, Warns Research

MALVERN, Pa.--(BUSINESS WIRE)--The continuing downturn in the global economy has led to a strengthening in the position of Chief Purchasing Officers (CPOs) within their organizations but the strategies that many are pursuing could have negative consequences over the next 12 months, according to research findings unveiled by BravoSolution (www.bravosolution.com).

“However, this is not sustainable. Future planning, risk assessment and innovation must take precedence in the coming months if large businesses are to build sustainable purchasing strategies in leaner times.”

The research, conducted by independent research consultancy Loudhouse, surveyed the views of 400 CPOs and Purchasing Directors of large organizations across five countries (US, UK, France, Spain and Italy). It indicates that 74% of organizations have seen an increased need for cost savings over the past 12 months, whilst 44% anticipate wider mandates for cost control and 38% see an increased strategic input for procurement over the next 12 months.

78% of purchasing professionals stated they have seen unexpected opportunities as a result of the economic downturn. For example, 51% believe they are now in a stronger negotiating position with suppliers and 48% state they have more flexibility when it comes to reviewing existing contracts. 40% also noted that cost cutting priorities have increased at the board level.

Risk evaluation - there may be trouble ahead

There are underlying concerns that could destabilise current procurement confidence. 69% of purchasing professionals are yet to examine the impact of the last six months on their supply management strategy, leaving them exposed to potential long-term problems. Of the 31% that have examined the impact of the recent economic downturn, almost three quarters (72%) are introducing changes to their supplier management strategy, indicating that there is a fundamental need for purchasing professionals to evaluate the risks that recession has created if they are to effectively manage future changes.

Of those purchasing professionals that have introduced new systems and processes to their supplier management strategy over the past 12-24 months, a large proportion report a clear return on investment within six months: 41% have made savings from greater supplier performance management, 31% witnessed improvements from eSourcing tools and templates, and have experienced general process improvements within this time frame.

“When costs need to be cut and supplier contracts renegotiated, it is clear that procurement can play a leading role in steering their businesses through the current economic turbulence,” says Nader Sabbaghian, CEO of BravoSolution. “However, our research clearly shows that many purchasing professionals are currently following short-term strategies that could lead to long-term problems. Distracted by this, CPOs are failing to evaluate the full impact that the last six months has had on their businesses. Overlooking risk in the mid-term and lacking investment in process efficiencies, many businesses will feel pain in the next 12 months with the potential of supplier flexibility drying up.”

“Purchasing professionals find themselves in a unique position during the downturn. They move towards centre stage within corporate strategy and are empowered as a result of supplier instability,” says Billy Hamilton-Stent, Director, Loudhouse Research. “However, this is not sustainable. Future planning, risk assessment and innovation must take precedence in the coming months if large businesses are to build sustainable purchasing strategies in leaner times.”

With 40% of businesses agreeing that procurement is viewed as an area to invest in during the downturn, the majority of organizations may face internal budget challenges over the next 12 months. Only 12% of businesses expect purchasing (operational) budgets to increase in 2009/10.

“CPOs can deliver cost savings today by hard negotiation, however tomorrow’s efficiencies must be realised through evolving business strategies and addressing the top 3 procurement challenges of ‘cost saving’ ‘speed’ and ‘visibility’,” continues Nader Sabbaghian. “Ignoring this necessity will make change all the more difficult in future, especially with purchasing departments facing the challenge of doing more with less.”

52% of respondents felt that the economic downturn had created negative obstacles that had prevented them from achieving their procurement goals, with unstable supplier credit the biggest challenge (29%). Supplier bankruptcies (22%) and lack of negotiation confidence (10%) were also highlighted as areas of concern.

The research was conducted by Loudhouse Research and consisted of 400 telephone interviews with purchasing professionals in the UK (100), US (100), France (65), Spain (65) and Italy (70). Interviews took place in February and March 2009. The minimum turnover of each organization was $250 million and 25% of the sample had a turnover in excess of $1 billion. Average spend per organization was $480 million per year.

About BravoSolution

BravoSolution is a leading international provider of Supply Management Excellence, delivered through software, professional services and category expertise;
Delivering global support to clients from 12 offices in 8 countries (Italy, France, Mexico, Spain, U.K., China, The Netherlands and U.S.) across 3 continents;
Supply management expertise from 420 employees with 37 nationalities
Supporting 400 clients in 30 countries;
Offering supply management software used by over 20,000 procurement professionals and 230,000 suppliers worldwide.