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Local procurement at a digital crossroads

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Although local chief procurement officers (CPOs) are under increasing pressure to rein in costs in a stagnant market, they are also being presented with a unique opportunity to embrace digital business processes and bypass inefficient legacy systems.
Globally, CPOs are concerned with rising risk levels and a skills shortage, with the former being fuelled by weakness in global economic metrics and geopolitical uncertainty. This is according to the most recent Global CPO Survey 2016 released by Deloitte.
In line with the global sentiment, local CPOs are under increasing pressure amidst widespread market volatility and general economic malaise. Faced with political conflict, a crippling drought, and a beleaguered rand, local organisations have to find new supply chain solutions and adjust their strategies.
Lerato Sithole, director: supply chain management at Deloitte South Africa, explains that local CPOs will be focusing on the same four areas as their global counterparts in order to deliver value over the next 12 months: Cost reduction, new product/market development, increasing cash flow and organic expansion.
“Given that the South African economy is highly resource driven, cost reduction and increasing cash flow will be particularly important for CPOs in 2016,” comments Sithole. “However, consolidation of spend in the procurement office will have to be balanced with BBEEE imperatives – and in the mining sector, CPOs will also have to be conscious of still meeting Mining Charter and transformation requirements.”
In addition to curbing spend, the Global CPO survey revealed that CPOs would be looking to increase levels of supplier collaboration and restructure existing supplier relationships.
“Locally, most CPOs are reducing their investment in expansions, which is very much in line with the global trend,” says Khutso Sekgota, associate director: supply chain management at Deloitte South Africa. “While CPOs do indeed need to look at consolidating, we believe this requires a holistic view. In our market, CPOs need to be cautious of neglecting local stakeholders; ideally, they should reinforce the need for closer working relationships with suppliers and avoid antagonism around price reductions.”
Taking into account the weak and volatile local currency, Sekgota also highlights the importance of seeking out local suppliers and reinforcing existing relationships with local partners.
A major theme of this year’s Global CPO Survey 2016 was the need to implement new and emerging technologies in order to streamline processes. The survey found that digital technology spend is rising, with 70% of CPOs investing in self-service solutions, up by more than one-third in a year, while investment in mobile, cloud and social media is also increasing. In South Africa, there is undoubtedly a unique opportunity to leapfrog legacy systems and move straight into the digital era.
“The old scenario of needing 12 to 18 months to adopt and implement a new technology platform no longer exists,” explains Sekgota. “The emerging cloud computing, mobile and portal platforms are quick and easy to implement – and they are accessible for medium-sized businesses as well as public service organisations. Unlike in previous years, public service organisations can very quickly unlock the value of key technologies and immediately reap the benefits.”
In order to embrace the digital realm, however, local CPOs need to have a very clear strategy in place – particularly with regards to skills and human resources. While new digital platforms only require a basic, intuitive grasp of online applications, there still needs to be a strong foundation in the form of skilled and efficient employees.
“Although little technical training is required in order to implement new platforms such as self-service portals, local organisations do need to invest in training their existing resources,” cautions Sithole. “Skills are a critical enabler, and CPOs need to carefully balance cost reduction with strategic investment in human resources and emerging technology. Without this investment, CPOs will struggle to realise value in an extremely challenging ecosystem.”
Key findings of the global CPO survey include:
* 45% of CPOs reported a rise in procurement related risk;
* 55% reported an increase in external financial and economic uncertainty;
* Of all the industries surveyed, consumer business respondents were the most concerned;
* 62% of CPOs said their team does not have the skills and capabilities to deliver their procurement strategy;
* Less than half of CPOs reported that attracting talent in the last 12 months has been difficult; and
* One-third reported that their training budgets are now less than one per cent of total operating budgets.