Procurement: Emerging Trends Driving New Operations Strategies

Despite some recent improvement, ongoing uncertainty about the economy is keeping executives focused on containing costs. Procurian, a leading provider of comprehensive procurement solutions, just released its quarterly Spend Trends Report which highlights several trends driving cost management strategies in a number of areas. I'd like to highlight some of the most interesting conclusions from the report.

A major concern of all corporations is spending for information technology (IT) that can easily get out of control. It surprised me to learn that most firms have 15 percent more software licenses then they actually use. Simply identifying redundant and unused licenses can have an immediate impact on the bottom line. And a growing number of firms are getting out of the hardware business altogether, contracting with third-party Cloud providers. Using on-demand computing services can free a company from owning, managing, and maintaining hardware and software internally.

Marketing is another area to monitor as a growing number of companies shift more dollars to digital media. With a threefold increase in spending on digital media from 2012 to 2013, advertisers are struggling to make sure every dollar is well spent--from measuring the effectiveness of digital marketing programs, to managing an increasingly diverse and complex portfolio of marketing agency partners.

Another really interesting insight that had escaped my attention is that the digital revolution, which encourages mobile work/telecommuting, is reducing corporate need for space to accommodate employees. "As a result, the average firm now has 30-50 percent more real estate than it needs," the report stated. "Furthermore, for every $100 million in real estate, ongoing operating costs frequently average $40 million annually."

Procurian found that the natural gas revolution had dramatically altered the calculus for global energy and manufacturing costs. "Clients are reconsidering global supply chain strategy to take advantage of local price/cost opportunities and taking a new look at where new capacity should be located, dramatically impacting long-term supply network strategy."

And it should come as no surprise that the rising cost of healthcare and health insurance associated with the mandates of Obamacare is driving many companies to evaluate new tools such as private exchanges and surgical benefits management. A recent survey by my colleagues at the National Association of Manufacturers (NAM) found that 82 percent of manufacturers cite the rising cost of healthcare and insurance as their top concern. Corporations across the board are reviewing the fine print of the Affordable Care Act looking for ways to cut their health insurance tab.

The trends outlined in this report point to tangible cost management strategies that companies can employ to drive savings that could significantly improve financial performance. The insights and conclusions in the report were derived from detailed analysis of billions of dollars of corporate spend data and thousands of savings initiatives. You can access the complete report by clicking here: Procurian Spend Trends Report--2Q13.

Jerry Jasinowski, an economist and author, served as President of the National Association of Manufacturers for 14 years and later The Manufacturing Institute. Jerry is available for speaking engagements. August 2013