GEP, a provider of a full suite of procurement technology, released its 2020 Outlook report that itself has a suite of forecasts for the year, including economic and geopolitical developments as well as trends in technology and business that bear watching.
Since Brexit just began after years of uncertainty, we got an update on GEP’s expectations for the UK and Europe. And we’ll explore some of the report’s more interesting findings — which focused on the concept of “budget-to-pay” and the resurgence of should-cost modeling.
To understand the GEP’s outlook, it’s important to understand the global economic situation and the forecast for it. The report uses IMF data that says the global GDP fell to 3% growth in 2019 from 3.6% growth in 2018. The global GDP is expected to fall this year to 3.4% but should rise to 3.6% each of the next two years. (The U.S. GDP in 2019 fell to 2.4%, and for 2020 is expected to drop to 2.1%, then fall to 1.7% and 1.6%. Europe’s GDP saw a sharp decline from 2018’s 2.2% to 1.5% in 2019, but a rise to 1.7% is expected this year and the next two.)
“In this increasingly tumultuous world, more will be asked from procurement,” the report said. “The longstanding focal areas of cost and efficiency won’t disappear but will become secondary to a digital and leadership platform that will be a vector for driving change. The next decade will likely be a dynamic and surprising one, led by the ‘New CPO’ and the beginning of the ‘strategic procurement’ function.”
To help us navigate the findings and forecasts, we talked with GEP Vice President John Piatek, who focuses on procurement and supply chain issues, among others.
The report mentions that budget-to-pay will develop because the technology has advanced enough that procurement’s role will expand and that the insights from procurement can help the finance department earlier in the process — in the budgeting stage. Spend Matters considers the current overall procurement process to be “source-to-pay,” and GEP’s solution covers all of the technology functions in S2P. (See how GEP ranks against other vendors in our SolutionMap S2P rankings, and read more about GEP’s offering in our seven-part review from last year.)
But for more on how John Piatek views these developments, let’s turn to our Q&A.
Spend Matters: Is GEP’s prediction that “budget-to-pay” will come to pass based more on any specific technology development or is it more of a change in philosophy that procurement should collaborate more with finance?
John Piatek: Budget-to-pay is an evolution of the latest philosophy of indirect spend management but is empowered by technology. In many ways, budget-to-pay is an exciting new frontier in the world of indirect spend management. Direct spend, for most companies, has strong links with ERP systems and master data, while indirect spend is managed very differently across regions and functions (Marketing, IT, etc.) with very different levels of technology, budget controls, software systems and even the level of detail of the spend. Leading firms have made investments in this area but are not always seeing the value. There have been many high-profile cases of where zero-based budgeting has been proven to be harmful and not sustainable. Furthermore, many CEOs and CFOs are still skeptical of the real value of procurement due to a lack of P&L visibility.
Budget-to-pay combines a single source of record with a truly closed loop system from the budgeting process through the end payment. A budget data hub is used to centralize the baseline details and for P2P operations and spend control towers to work from. The end result is a visualized, trackable system that shows how every requisition of request will impact budget availability.
The UK didn’t experience a “hard Brexit” as the report contemplated. There will be an 11-month transition period. So what effect does Brexit have now that it has begun, and how should businesses respond?
The long Brexit process has been a good reminder that business leaders should remain patient and continue with their long-term planning. In many ways, the Brexit “effect” has been already accounted for in the market. The debate in the UK and in Europe has taken several years, and most businesses already have some plans in place.
However, 2020 looms very interestingly. The free trade negotiations post-Brexit and other major details of the separation of the United Kingdom and Europe are difficult to predict. Whether the UK will continue is very tight economic link with Europe or pivot instead of the United States, is very unclear. An insulated UK with close ties with neither could further complicate the issues for business leaders. Procurement leaders with a large footprint in the UK and Europe should seize this year as the opportunity to get more lean and digital, which enables more agility among the uncertainty.
What is your favorite part of the report?
The digital should-cost modeling is my favorite part of the 2020 Outlook report. Cost modeling and should-cost modeling are old ideas. They are often done in very basic spreadsheets but operated by very capable people. Some of the very best cost models are probably written in notebooks somewhere!
The digital assets available to procurement today for this area truly are a gamechanger. All cost inputs and data streams can be migrated to the cloud, allowing for major improvements in accuracy and tracking. As one cost input changes, you can make the same change across all relevant models, even in there are hundreds in your system. As costs change, data visualization makes it easy for users to see areas that don’t look right or possible areas for improvements. Artificial intelligence can even help users anticipate budget challenges and recommend the best time for sourcing projects.
Yesterday’s procurement leader would spend the first part of their day responding to fires and deciding how to prioritize their time. Tomorrow’s leader will have digital tools do this for them.
To get the full 2020 GEP Outlook report, go here.
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