‘Pricing pressures’ and ‘attracting talent’ are biggest challenges for procurement functions

LONDON, 30 July 2008 — The biggest impact on the procurement functions in organizations over the next two years will come from pricing pressures and attracting the right talent, according to a survey of 257 senior executives around the world published by Ernst & Young. The survey, Gaining Competitive Advantage: The Procurement Opportunity, also highlights that organizations are most concerned about the procurement function’s ability to manage change effectively in the current economic environment.

A ‘downward pressure on prices’ (cited by 33% of respondents) and ‘price fluctuations of critical commodities/service’ (26%) are among the top issues likely to impact businesses. In addition, the ‘requirement to change existing operating models’ (28%) and the ‘growing complexity of global supply chains’ (27%) were also high on the critical agenda.

Adrian Edwards, global head of supply chain and procurement, at Ernst & Young, says:

“Downward pressure on prices is seen to be critical; however this comes at a time when there is consistent and accelerating upward pressure on input costs. Collectively these issues create a significant barrier to companies achieving sustainable high performance. To respond to these challenges, companies must be able to manage complex transformation programs.”

The ability to deliver against the major issues facing the organizations is severely constrained, with 20% of organizations not confident that their sourcing function has the ability to effectively manage change arising from price fluctuations, and the same too for downward pressures on prices.

Despite the low confidence in dealing with pricing pressures, ‘controlling and containing costs’ (52% of respondents) and ‘driving EBITDA growth’ (37%) are the top two initiatives which will be a priority for the sourcing functions over the next two years. In fact, 77% of respondents believe in its ability to deliver shareholder value in terms of bottom line cost reduction..

Edwards continues: “There is a clear paradox here. However, the scope of the function is expected to grow considerably, with procurement playing a far more significant role across the whole organization to include driving EBITDA growth, support expansion into new markets and managing supply chain risk./p>

“The barrier to tackling these issues lies in the complexity of the current operating models, which only 49% of respondents are confident they will be able to manage effectively.”

The race for talent

Attracting and retaining talent is the second biggest issue, cited by 30% of respondents, to impact sourcing functions in the next two years. In fact, it is also the second biggest barrier to managing change, cited by

39% of respondents, just behind the complexity of the operating models (40%). Only 11% of respondents are confident of attracting and retaining the required talent.

Edwards concludes: “The return on investment from the procurement function can be considerable, and it can be an opportunity to create real differentiation. The success of delivering through these difficult times relies on the re-definition of global operating models and optimizing business processes, and those that are successful have the ability to create a wider performance gap against their peers, helping to achieve competitive advantage in the process.”

Source: Ernst & Young Global Press Release

About the survey

For this survey, the Economist Intelligence Unit surveyed 257 C-suite and board level executives on its panel.

The cohort included a significant number of CFOs. Respondents were drawn equally from North America (30%), Europe (34%) and Asia (33%) with the remainder from the rest of the world. All executives polled worked for businesses with a turnover in excess of US$1bn and businesses were cross-industry.

About Ernst & Young

Ernst & Young is a global leader in assurance, tax, transaction and advisory services. Worldwide, our 130,000 people are united by our shared values and an unwavering commitment to quality. We make a difference by helping our people, our clients and our wider communities achieve potential.

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