2011 was rather eventful. In our first blog of last year, the PIU argued that procurement would become increasingly irrelevant. There is some evidence, at least there may be some evidence to suggest this could be the case. However, part of the driver for this conclusion was the improved outlook that the PIU foresaw last year.
Keep in mind, the economic performance only deteriorated from the day that the prediction was made. 2011 lurched from one crisis to the next, with spluttering recovery in the US and a currency crisis in the Eurozone.
Learning from our lessons of last year, the PIU adopts the view that discretion was the better part of valour, and will refrain making any predictions in a highly uncertain market. We shall, however, direct your attention to a recent FT survey of 83 economists which forecasts increased gloom for this year.
Aside from this economic pessimism, there may be a number of key trends in 2012 which affects the running of procurement.
Perhaps leading amongst these is the increased tendency towards shortening the supply chain. Not only does this reduce risk in the supply chain, but it may even provide a cost-neutral alternative to off-shored facilities.
The PIU’s CPO Strategy 2012 found that procurement functions are increasingly considering shortening their supply chains. Interestingly, the drivers for this seem to be cost savings and increased agility.
According to a report issued by the Boston Consulting Group towards the end of 2011, there is a rising trend for US manufacturers to return production back to American shores.
The consultancy forecasts that by 2015, the average Chinese labourer's salary will increase to 17% of his American counterpart's. A significant rise from its 3% proportion in 2000. This has reduced cost savings from 25% to 15%, without taking into account the price of transportation.
An article in the Harvard Business review last year also detected a trend in the IT services sector, with a greater number of call centres being relocated to developed countries. Interestingly, there is a trend for a greater use of rural locations, as an alternative means to evade high wage levels in commercial centres.
The interesting corollary of this micro-level trend is that it is fuelling macro-economic de-globalisation. Since 2008, we have seen banks cut their capital from overseas ventures as sovereign risk and uncertainty abounds. However, as companies seek increasingly to shorten their supply chains, then the world may look a lot less interconnected by the end of 2012.