How CPOs Achieve Savings In A Less Frugal Economy

As the economy improves, analysts are watching corporations become a bit less conservative in their spending, choosing to focus on growth rather than cutting costs. But cost savings priorities haven’t fallen by the wayside. Instead, new research from procurement service provider Zycus finds that Chief Procurement Officers are now tasked with retaining the spend discipline that many in the corporate world gained during the economic recession.

In a new report published last week, Zycus found new trends in the corporate procurement space – including how procure-to-pay technologies are helping CPOs achieve cost savings goals even as their companies loosen their purse strings.

Juggling Priorities

According to Zycus’ “Pulse of Procurement” 2015 report, in today’s market climate, CPOs must save their companies money, even while their companies focus on expansion.

[bctt tweet=”In today’s market climate, CPOs must save their companies money, even while their companies focus on expansion.”]

“Effectively controlling expenditure – even as economic recovery enables a return to at least modest top-line growth – is a major focus for CPOs and a major contributor to preserving or enhancing profitability,” said Zycus CEO Aatish Dedhia in a statement Monday (Aug. 31) announcing the results of the survey. “CPOs are gearing up for this new challenge, focusing on process improvements – efficiency, execution, and effectiveness – and forging stronger, more engaged and collaborative relationships with business partners and suppliers.”

For the first time since Zycus began its annual report in 2011, researchers found a decline in the number of procurement officials reporting that their companies have a mandate for procurement departments to mandate spending.

Researchers called the finding “worrisome,” especially in the context of economic recovery. According to Zycus, this decline – along with a backslide in multiple performance indicators this year – suggests that businesses are focusing more on expansion and growth within an improved economy, instead of continuing to focus on “defensive business strategies.”

Still, cost savings were cited by 79 percent of those surveyed as their No. 1 priority – a strategy Zycus highlights as a “defensive” objective, even as the rest of the corporation might be taking other approaches to business success.

This trend shows procurement officials scrambling to adjust their strategies accordingly. Now, in addition to focusing on cost savings, CPOs have turned their attention toward strengthening relationships with suppliers, regulatory compliance management, and other overall business performance boosters.

Technology To The Rescue

Procurement technology, Zycus found, is key to maintaining CPOs’ cost savings goals.

[bctt tweet=”Procurement technology, Zycus found, is key to maintaining CPOs’ cost savings goals.”]

“Across the board on virtually every measure, state-of-the-art procurement technology coincides with substantially higher reported performance levels – for cost savings, spend under management by procurement, contract compliance, and procurement technology adoption,” the report concluded.

One of the most effective procurement technology solutions explored by Zycus is a procure-to-pay service, allowing officials to purchase what their corporation needs, obtain an invoice, and reconcile payments in a seamless manner.

This year, P2P tools saw increased adoption among procurement officials – with 64 percent now having P2P solutions in place — and these technologies, including enterprise resource planning and procurement suite tools, are helping employees achieve their cost savings goals. Analysts found that 82 percent of high cost savers reported having a P2P solution in place – while less than half of low savers had one.

According to Zycus, for a corporation with an annual spend budget of $500 million, having a P2P solution in place can lead to $15 million worth of spend savings every year.

An Ongoing Challenge

While CPOs must achieve cost savings goals for their corporations, Zycus research suggests their efforts are an uphill battle.

Researchers found that the most advanced procurement departments surveyed delivered an average of 12 percent cost savings to their companies – above the average 8 percent goal cited by businesses. “This proves the frequent lament that big procurement successes often only whets executives’ appetites for greater savings over time, raising the pressure on procurement to find creative ways of identifying and then delivering on actionable opportunities,” researchers said.

To achieve their companies’ ever-heightening goals, CPOs are focusing on adopting even more sophisticated procurement technologies. A significant portion of those surveyed said they continue to use in-house procurement tools, and many continue their dependence on spreadsheets and work processing.

Still, the research found a large potential among CPOs for technology upgrades.

Nearly half of those surveyed said their P2P solutions are behind-the-curve, but more than half described their tools as state-of-the-art. The highest savers were also found to be more likely to upgrade their procure-to-pay tools than low savers.

CPOs, Zycus analysts suggest, are taking on an evolving role in their corporations, making sure their companies can grow in an improving economic climate, while still achieving demanding cost savings goals.

Procure-to-pay solutions seem to play a key role in this balancing act. And with the highest performing CPOs looking to upgrade their solutions, P2P service providers could find new potential for innovation and market growth to land their tools in the procurement department.