Procurement 2020: A Different World. Bi-Lo Holdings Graham Leary V-P Strategic Sourcing.

Transcription

1 Procurement 2020: A Different World Bi-Lo Holdings Graham Leary V-P Strategic Sourcing

2 Procurement 2020 A Different World.. Sourcing Interests Group, Global Executive Summit Amelia Island, FL Presented by: Graham Leary V-P Strategic Sourcing, Bi-Lo Holdings LLC March 11,

3 Agenda A look back at historical procurement contributions and U.S. corporate profit growth Effect of the great recession and other recent developments on procurement s contributions and the profession Global changes that could shape procurement into the year 2020 and beyond Discussion of how the procurement profession may need to adapt in light of expected changes 3

4 Procurement technology innovations, process improvements, and global sourcing have contributed to major corporate profit growth Corporate profits after tax Billions of dollars Partnering continuous improvement Multi-step ERP sourcing Outsourcing systems Cost process modeling sourcing Competitive Inquiry E- sourcing P2P Source: U.S. Dept. of Commerce: Bureau of Economic Analysis Low-cost country sourcing Global sourcing U. S. recessions Indirect sourcing Spend Analytics 3x increase in corporate profits from late 1990s through early 2000s 4

5 A recent survey of senior procurement executives suggest that spend analytics and SRM have been key game changers Most Important Least Important Spend analytics and SRM Supplier partnering Multi-step sourcing process Globalization/low-cost country sourcing Cost modeling Outsourcing Indirect sourcing ERP systems Purchase-to-pay (P2P) e-sourcing Source: Graham Leary 2014 survey of senior procurement leaders 5

6 Procurement costs have also benefited from recent low rates of inflation (buying tail-winds ), but overall recessionary effects may not be healthy in the long term Inflation (CPI) Total, Annual growth rate Percent Global economic weakness = limited pricing power "Economic oxygen" caused by reserve banks, easy money policies likely unsustainable 2 1 OECD inflation averaged ~2% since Source: OECD 6

7 The recession and accompanying trends have had destabilizing effects on corporations and the procurement profession CPO departures have eroded foundation of purchasing knowledge, training, and benchmarking Layoffs have affected bench strength Millennial generation less motivated for long-term career in single company Notable breakthroughs in process and technology have slowed 7

8 Looking ahead, our survey of procurement executives ranked technology innovation and big data as the most important drivers of procurement by 2020 and beyond Most Important Least Important Technology innovation Big data for macro insights Geopolitical instability Social media Corporate responsibility/sustainability Energy prices Demographic /psychographic shifts Global population growth Group purchasing Insourcing Health and wellness Global pollution Source: Graham Leary 2014 survey of senior procurement leaders 8

9 Looking ahead, global trends may make it more difficult to contribute to corporate profitability on the basis of cost Potential examples of changes requiring us to adapt 1. Global population increases will likely cause demand (and prices) for food, water, and energy to rise 2. Demands for health/wellness- related products and services in both developing and developed countries are calling for changes in the supply chain 3. Rising labor costs in China and the country s anticipated need to rein in pollution will drive the cost of goods even higher 4. Although oil prices seem to be abating, interest rates are projected to rise Procurement function will need to be creative in finding new ways to support corporate profitability 9

10 Recognized demographic analysts project population growth of 500M by 2020 and 800M by 2025 World population projections Billions World pop. projection: 2014: 7.2B 2020: 7.7B 2025: 8.0B Source: World Bank 10

11 China holds 20% of world population, but has only 7% of the world s water. As China s demand for protein grows, it puts cost pressure on the global food supply chain China meat consumption Millions of tons Pork Chicken Beef Water needed to produce protein Thousands of liters per kilogram Ovine Eggs Chicken Pork Nuts Beef Source: Matthew s Asia; USDA, FAQ; Mekannen and Hoekstra (2010) 11

12 At the same time, consumers in developed countries are increasing demand for healthier products in contrast to the lowcost, mass-produced food supply chain we have built Consumer response to: When shopping, I look for foods and beverages that... Percent Are minimally processed Contain only ingredients I recognize Are locally grown or produced Have the shortest list of ingredients Source: The Hartman Group Health & Wellness Reports

13 Food preferences in developed countries are shifting towards categories which are potentially lower yielding and more expensive to produce Product claims important to U.S. shoppers Percent Whole grain Low sodium Low sugar High fiber No preservatives No trans fats No chemical additives Low calorie No/low fat No HFCS Natural Low carb Non-GMO Low cholesterol Heart healthy Antioxidant rich Certified organic Vitamin enriched Calcium fortified Gluten free Source: FMI U.S. Grocery Shopper Trends (2014) 13

14 China s landed costs are expected to equal U.S. by 2015, largely driven by wage inflation and a stronger RMB Total landed cost Composite index 1.10 China wages in manufacturing Thousands of Yuan U.S China Mexico India Source: AlixPartners analysis; China Bureau of Labor Statistics 14

15 Because of its economic size relative to countries that industrialized earlier, China s industrialization will have a much greater impact on global CO 2 levels and ultimately on costs Average daily levels of atmospheric CO 2 Parts per million Critical threshold U.S U.K Japan 1968 China Bubble sizes correspond with the size of the economy at roughly U.S. $8,000 GDP per capita Source: Matthew s Asia 15

16 As new energy sources such as U.S. oil shale enter the supply chain, OPEC s 2014 forecast projects oil at $110/barrel in 2020 lower than today's prices in real terms OPEC reference basket price assumptions Dollars per barrel Nominal price Real price (2013) Source: OPEC - World Oil Outlook (2014) 16

17 Interest rates are expected to rise again which could have flow impact to investment, currency fluctuations, and prices Benchmark policy interest rates Percent Bank of England Projected U.S. Federal Reserve European Central Bank Source: Thomson Reuters; Bloomberg; The Economist (Oct. 21, 2014) 17

18 Procurement executives surveyed also noted these additional areas which could impact the profession by 2020 or beyond Values and leadership styles of millennials entering top management will bring unknown changes P2P process fully automated Talent, mobility, and tenure of procurement professionals Cyber security Knowledge management and networking Risk management Greater consumer personalization Instant vendor data M&As and greater vendor consolidation Fragmentation of media spend Automation vs. low-cost labor Global centers of excellence 2014 survey of senior procurement leaders. Briefly describe 3 factors 18 you believe will have the largest impact on procurement by 2020 and beyond

19 In summary Procurement made a significant contribution to the growth in US corporate profits over the past 20 plus years. As we look ahead to 2020 and beyond: Cost savings will likely remain foundational; however the tail-winds of the past decade plus, could transition into head-winds Procurement professionals must provide thought leadership to adapt and continuously reinvent the profession as structural changes in supply, demand and consumer behaviors are likely to have a downstream impact on many of our industries and supply chains To ensure we remain relevant, we must answer questions like these: How can the profession preempt change, e.g., expanding capability from supply chain cost manager to; supply chain risk manager or; supply chain entrepreneur? What education, training and skills are needed for the next generation of procurement professionals, to operate in a different world? 19

20 How should the profession adapt in light of these changes? 20

21 Contact Info Graham Leary 21

22 Evaluation How-to: Why? Your feedback drives SIG Event content By signing and submitting your evaluation, you are automatically entered into a prize drawing How? Option 1: App 1. Select Schedule 2. Select Schedule by Day 3. Select Day 4. Select Session 5. Scroll to Description 6. Click on the Evaluation link Option 2: Browser 1. Go to 2. Select Session (#16) Complete and submit!

23 Session #16 Procurement 2020: A Different World Speaker: Graham Leary Bi-Lo Holdings grahamleary@biloholdings.com bit.ly/downloadameliaapp Tweet using: #SIGspring15

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