65% of procurement execs lack visibility past tier 1 suppliers
- Cost reduction continues to be a high priority for chief procurement officers (CPOs), as more than three quarters of about 500 respondents in a Deloitte procurement survey said it is a top business strategy.
- In addition, the majority (61%) of CPOs said they delivered better savings than the previous year, with only 23.5% saying the savings performance was worse.
- Transparency, however, tends to be poor in the overall supply chain. In the survey, 65% said they have limited to no visibility beyond their tier 1 suppliers.
The good news is many procurement officers delivered on costs savings, and they're continuing to make that a priority with specific focuses such as consolidating spend and reducing lifecycle costs.
But on the flip side, visibility in the value chain is lacking. Only 6% of CPOs surveyed said they have "full transparency" of their entire supply chain.
The lack of visibility is a concern as consumers desire more information about the origin of their goods, and companies strive to meet goals in sustainability and ethical labor. Even if a company knows its supplier is paying fair wages to its workers, what about the supplier's supplier? Poor visibility also makes it more difficult for a company to manage risk head on, before it happens.
"Many organizations are leaving themselves exposed to potential supply chain disruption and margin erosion by having limited visibility of their supply chains beyond the first tier," Deloitte's survey said.
Numerous technology solutions have been developed to attempt to increase visibility throughout the supply chain. Blockchain is one of the most notable, with companies such as Unilever, JD.com and Maersk seeking to use the technology for better transparency. Software tools are also being tapped to help itemize risks in the supply chain beyond the first two tiers.
While technology develops quickly, adoption tends to be more sluggish.
"Despite recognizing digital technologies, their impact and imminent uses, few organizations appear to be progressing at the rate that their C-suite executives consider necessary for achieving overall goals," Deloitte's survey stated. "The level and speed of digitalization across procurement functions is lower than expected and needed."
Deloitte outlines numerous gaps when it comes to technology. While most (83%) CPOs have a digital procurement strategy, only one-third of them believe the strategy will help them deliver on procurement objectives.
Analytics will have the most impact on procurement in the next years — with use cases for cost optimization, process improvement and management reporting — but only one-third of respondents are using predictive analytics and collaboration networks.
There's no overstating the importance of cost reduction; at the same time, however, a prioritization of savings could result in other important factors, including visibility and technology, falling to the wayside.
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