Sourcing Budgets Increase for 2004

Roughly half of the global executive respondents to a March 2004 IT Toolbox survey indicated that sourcing was very important to their organization’s business strategy, and more than one-third deemed the function as somewhat important. The survey, sponsored by Ariba, was designed to identify the role sourcing plays in business, while analyzing trends, goals and challenges for successful implementations.

As a result of the growing importance of sourcing, 48 percent of respondents expected to somewhat increase their 2003 spending into 2004. More than half of the Asian companies and the global small-sized companies that were surveyed reported that they would somewhat increase their sourcing budgets, while only 38 percent of the North American companies responded the same.

The majority (19.7 percent) of the global respondents’ 2004 sourcing budget will be devoted to IT costs, followed by consulting costs (16.2 percent), software costs (15 percent), analysis (14.9 percent), supplier management (12.3 percent), and compliance (10 percent).

Organizations’ reason for sourcing were mostly to benefit customers, as more than two-thirds cited “improve services offered to customers” as their target objective for sourcing. More than three-quarters of the small businesses that were surveyed reported the same customer-related objective, compared to only 58 percent of medium-sized businesses. Nearly 80 percent of Asian businesses and 70 percent of North American organizations indicated service improvements for customers as the primary sourcing objective, while more than two-thirds of European respondents were using sourcing as a way to lower purchasing costs.

Objectives for Sourcing Operations in 2004
Improve services offered to customers	66.2%
Increase effectiveness of procurement process	51.3%
Lower purchasing costs	50.0%
Lower managing costs	50.0%
Manage supplier relationships	44.8%
Reduce inventory investment	31.2%
Increase flexibility and responsiveness of manufacturing	28.6%
Reduce sales costs	21.4%
Reduce out of stocks	20.1%
Increase flexibility and responsiveness of transport operations	19.5%
Other	7.1%
Base: 157 global executives
Source: IT Toolbox

Despite expected improvements to efficiency, only 26 percent of the global respondents indicated that they were using a single automated system for sourcing. “Most organizations are still relying on traditional, paper-based sourcing processes which are inefficient and time-consuming for the sourcing department. A single automated system streamlines the processes and enables organizations to more easily achieve their sourcing objectives,” said an IT Toolbox representative.

“To achieve maximum efficiency and leverage best practices, a single automated system would seem to be integral to the business practice. However, the integration efforts would likely be cumbersome, thus hindering some organizations from implementing one.”

The majority of the survey participants were IT systems directors/managers (19.6 percent) from the United States (34 percent), working in large companies of more than 1,000 employees (38 percent).