spend trends report - accenture filespend trends report, a combination of the accenture supply watch...

Spend Trends Report Q2 2014

2 Copyright © 2014 Accenture. All rights reserved.

Insights Born from Experience

We are pleased to bring you the newest edition of the Accenture

Spend Trends Report, a combination of the Accenture Supply Watch

and Procurian Spend Trends Report, which reflects the best thinking,

insights, and intelligence from our global team of more than one

thousand category specialists.

Our team helps more than one hundred clients optimize billions of

dollars of spend across the globe. This means they are in each major

supply market dozens, sometimes hundreds of times a year. The

result: powerful aggregate supply market intelligence and a unique

set of cross-client spending and spend management insights.

With this unique set of intelligence and insight, we have compiled a

summary of the top trends we are observing in each major area of

spend—whether changing market dynamics or new spend

management strategies—and offer new initiatives to consider.

Our core commitment is to deliver actionable insights and market

intelligence to you, our clients. We welcome and encourage your

feedback to help make this report more valuable to you.

Keith Hausmann

Managing Director, Procurement

Accenture Operations

Author:

Mark Hillman—Manager, Market Insights & Analysis—Accenture Operations

Category Specialist Contributors:

Logistics—Ed Sands, Scott Youngs, Matt Harris

IT/Telecom—Ryan Shadle, Gunasheel Krishnamurthy

Marketing—James Keetley, Suzanne Liss, Dave Mula

Media—Perianne Grignon

Corporate Professional Services-Audit & Risk—David White, Daniel Correa

Travel—Dan Maschoff, Allan Brown

Equipment, Engineering, & Construction (EEC)—Rod Freeman

Industrial & Maintenance, Repair & Operations (MRO)—Rick Husovsky, Terry

Briganti, Barbara Moser

Energy—Gary Landsberg, Cobb Pearson, Jille Luijckx, Francisco Iglesias

CATEGORY EXPERTISE ANNUAL

PROJECTS

SUPPLY MARKET

EXPERTS

MRO / Facilities 1,125 ~ 80

Logistics 203 ~ 40

Marketing 1,197 ~ 80

Corp. Services 1,796 ~ 70

IT/Telecom 2,460 ~ 120

Direct Materials 160 ~ 20

Capital (EEC) 1,562 ~ 40

Travel 456 ~ 30

Energy / Sustainability 965 ~ 40

Sourcing & Contract

Management Support -- ~ 520

TOTAL 9,924 ~ 1,040


Executive Summary

Notable Macro Trends from the Second Quarter:

• Labor markets continue to slowly improve. As

unemployment rates fall (U.S. 6.3 percent; Eurozone

11.5 percent), pockets of wage inflation are emerging in

sectors like manufacturing, technology and logistics.

• As corporate transactions activity increases (mergers &

acquisitions [M&A] activity accelerated in Q2, rising 75

percent year-over-year in the first half of 2014),

executives are focusing on risk management while

monitoring regulation that could impact business

strategy (e.g. proposals to limit tax inversion strategies).

• Business capital investment is finally materializing (up

more than 6 percent in 1Q 2014 vs. sub-1.5 percent in

all of 2013). With high corporate cash levels, low

interest rates, and increasing capacity utilization, the

capital investment cycle looks sustainable, potentially

pressuring input costs including construction materials.

• Although energy prices remained volatile, oil and gas

prices pulled back in recent weeks despite rising

geopolitical tension. The recent pull-back provides some

respite for energy users, and the opportunity to

reexamine both demand and supply-side strategies.

Despite geopolitical and weather-related macro shocks in the first half of 2014, forward-looking indicators continue to point

to a slow-but-steady global economic recovery. Global mergers and acquisitions (M&A) activity accelerated in the second

quarter. Business capital spending has also improved in 2014 and near-term indicators including business credit issuance

and forward-looking sentiment indicators all point to improving demand ahead. Concurrently, more commodity and labor

cost pressure is materializing, requiring more local market knowledge and expertise to contain costs associated with

supporting growth objectives.

Q2 Spend Trends: The Big Five

• Logistics: Tightening European Markets Still Offer Savings Opportunity:

European markets face similar issues as the U.S.—aging drivers, onerous

regulation, and rising wages. But the right local market knowledge reveals

opportunities to drive cost savings in Europe’s fragmented logistics markets.

• Risk Management: Securities Actions Keep Enterprise Risk Management on

the CFO Front Burner: More clients are taking a fresh look at evaluating their Total

Cost of Risk, and applying a more rigorous and structured review process to ensure

they are minimizing risk exposure with best-in-class fees and rate structures.

• Travel: Evolving Regulations Serve as Reminder to Reexamine Corporate Card

Agreements: Corporate credit cards represent a low-friction change opportunity

that, if executed effectively, can yield significant savings. Proposed European

Parliament regulations on card fees are a reminder to reexamine card agreements.

• Capital: Growing Construction Demand Puts Pressure on Input Prices:

Increasing investment in manufacturing capacity and recovering public sector

infrastructure funding are driving inflation in building materials like concrete, pushing

buyers to evaluate long and short-term contracting strategies.

• Energy: Demand Management Techniques Grow in Importance: As more

renewable energy sources come online, power producers are responding with more

real-time pricing and demand response programs—creating new opportunities for

buyers to link demand-side intelligence with buy-side procurement to drive savings.


Macroeconomic Backdrop

More Signs of Cost Inflation Emerge Despite Economic Speed Bumps,

but Near-Term Opportunities Exist: As the economic recovery has

progressed and companies have begun to slowly increase investment to

meet demand, signs of inflation are emerging. U.S. unemployment is now

down to 6.1 percent while Eurozone unemployment hovers at 11.6 percent,

and several sectors in the U.S. are seeing labor cost pressure—namely

logistics, tech, manufacturing, and oil & gas related occupations. A July

2014 survey by The National Association of Business Economics (NABE)

found that 43 percent of respondents’ firms had increased wages, up from

35 percent in an April 2014 survey—and for the first time since October

2012, no respondents reported declining wages at their companies.

Europe’s recovery is trailing that of the U.S., but similar inflationary

pressures are present in sectors like logistics. Armed with the right local

market intelligence, however, savings opportunities remain (see page 7).

Energy Prices Continue Long-Term Uptrend, but Short-Term Pull-

Backs Provide Opportunity to Re-Assess Energy Agreements: Energy

prices are another area experiencing inflation. As the charts at right depict,

oil and gas prices have risen steadily over the past several years. That

trend is likely to continue—The International Energy Agency (IEA) forecasts

oil demand will accelerate in 2015 as macroeconomic growth improves.

However, oil and natural gas prices have pulled back in recent weeks,

offering energy users some short-term relief and the opportunity to deploy

layered hedging strategies to match expected demand with price risk

tolerance (see page 14).

Cost pressures are also beginning to emerge in construction materials like

concrete as construction spending continues to rebound and public

infrastructure spending recovers (see page 12). To combat this combination

of increasing labor, energy, and input costs, directing more investment

dollars toward productivity-enhancing capital equipment looks like an

increasingly appealing choice for corporate executives, and there are signs

that capital spending is finally starting to rebound after years of slow growth

(see next page).

Source: US Energy Information Agency

Source: US Energy Information Agency

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Cushing (U.S.) vs. Brent (Europe) Crude Oil Weekly Futures Contract Price (past five years)

Cushing Oil Futures Contract Europe Brent Spot Price FOB

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Henry Hub Weekly Natural Gas Price (past five years)


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Repurchases Capex Dividends

2011 2012 2013 2014E


Investment Spending Finally Starting to Materialize: One of the major

missing links of the recent economic recovery has been the relative lack of

business capital investment spending. For S&P 500 listed companies,

capital expenditures were essentially flat year over year in 2013 compared

to 2012. However, bottoms up analyst estimates pointed to improvement in

2014 with analysts expecting capex growth of about 6 percent. Now that

results from the first quarter have been fully tabulated, the numbers showed

capex growth of 6.2 percent in the first quarter, and full year estimates are

now for 6.7 percent growth in 2014.

The Manufacturers Alliance for Productivity and Innovation (MAPI) released

a report in June also pointing to a more robust industrial outlook. MAPI’s

estimates are for 4.5 percent growth in investment spending in 2014,

followed by 6.5 percent growth in 2015.

Drivers Supporting Investment Spending Growth: Aside from growth of

aggregate demand, which requires businesses to invest to meet

incremental demand, several factors support an environment of more

capital investment. First, financing—credit conditions remain favorable,

banks continue to loosen credit standard, interest rates are low, and credit

growth is increasing. Second, capacity utilization is increasing and

approaching the long-term average at the same time that the age of fixed

assets is at multi-decade highs. Finally, business investment relative to

corporate cash flows is well below historical averages, indicating that

corporations have more capacity to invest.

In an era of uncertainty about demand, businesses have focused more on

returning cash to shareholders than investing for growth. Dividends (+24

percent in 2013) and share repurchases (+23 percent in 2013) hit a record

of $241B in the first quarter of 2014. But share repurchases are getting

more expensive as share prices rise, and companies finally seem to be

shifting more dollars to capital expenditures to drive growth.

M&A Binge Continues: After a torrid pace of more than 50 percent growth

in the first quarter, the already healthy M&A market accelerated dramatically

in the second quarter, bringing M&A volumes to 75 percent year-over-year

growth for the first half of 2014. Not only have companies been rewarded in

their valuations for pursuing M&A transactions, but rising markets provide

acquirers with more currency (in the form of stock) to deploy. Part of the

cross-border M&A activity also appears to be driven by so called tax-

inversion strategies, but discussion of regulation to curb tax inversions could

cool that practice—or encourage a rush of additional activity before any new

rules come into effect.

S&P 500 Companies’ Use of Cash (USD in Millions)

(4)%

24%

11% 0%

7%

22% 7%

Source: FactSet Research Systems, Inc.



Worldwide Gross Domestic Product (GDP) Growth

Forecasts Tick down for 2014 as Emerging Economies

Slow; Outlook Stable for 2015: The U.S. experienced

extreme weather that was to blame for an actual GDP

contraction in the first quarter of 2014. As much of the affected

economic activity was delayed, not permanently lost, economic

activity is expected to rebound strongly in the second quarter (3

percent or higher) but full year GDP estimates are being

revised lower after the first quarter contraction.

For Europe, the IMF recently lowered its full year GDP forecast

to 1.1 percent from its April forecast of 1.2 percent due to

slightly weaker demand, but the transition from recession to

recovery continues and 2015 GDP growth is expected to be 1.5

percent. Emerging economies continue to experience volatility,

but China reported 7.5 percent GDP growth for the second

quarter, slightly above estimates, as recent stimulus measures

begin to show some impact.

Meanwhile, surveys of consumer and business sentiment

remain near multi-year highs, signaling more confidence in the

near-term outlook. In addition to strong U.S. consumer and

business confidence numbers, regional activity surveys such

as the recent Philadelphia Fed and Empire Manufacturing

surveys also point to improving business activity. European

indicators are more mixed, but the recent Reuters TANKAN

survey showed slightly improving expectations from both

manufacturing and non-manufacturing firms.

The IMF now forecasts slightly lower worldwide GDP growth of

3.4 percent in 2014 vs. its prior 3.6 percent estimate, but 2015

growth estimates remain steady at 4 percent. So, the overall

trend remains positive and early signs of cost pressure are

likely to continue, requiring market-specific intelligence to

navigate these cost pressures effectively.

Source: International Monetary Fund World Economic Outlook

3.1%

3.8%

2.9%

3.6%

3.0%

3.7%

3.9%

3.2%

3.6%

3.9%

3.4%

4.0%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

2013 2014 2015

IMF Worldwide GDP Forecast Updates

Jul-13 Oct-13 Jan-14 Apr-14 Jul-14

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Consumer, Business Confidence Levels Near Multi-Year Highs

University of Michigan Consumer Confidence NFIB Small Business Optimism

Recession


ENERGY

EQUIPMENT,

ENGINEERING, &

CONSTRUCTION

CORPORATE

SERVICES—

TRAVEL

CORPORATE

SERVICES—

AUDIT & RISK

MARKETING

& MEDIA

LOGISTICS

INFORMATION

TECHNOLOGY

INDUSTRIAL

& MRO

Top Trends in Logistics

Savings Opportunities Still Abound in Tightening European Over-the-Road Logistics Market: Does this scenario sound familiar?:

An aging driver population, increasing regulatory burdens restricting available supply of drivers and trucks leading to over-the-road

logistics cost pressure. Interestingly, many of the same issues described above, which have come together to put upward pressure on

North American over-the-road logistics costs, are also present in Europe. However, in addition to increasingly tight supply, additional

challenges are present in Europe. Namely, the European market is highly fragmented with more than six hundred thousand road freight

operators, Europe is more regional (country and region-specific carriers and rules), is more local (85 percent of goods shipped move

less that 150km), has more physical barriers (both borders and terrain), and lacks a coordinated pan-European intermodal capability.

The implication for shippers is that it takes a different sourcing approach that relies more upon local/country level market knowledge,

different contracting norms, different fuel programs, etc. to drive savings in a tightening supply environment.

Key Action: Shippers should take a rational inventory of their internal logistics market intelligence to determine if they are prepared for,

or at a disadvantage for, upcoming sourcing initiatives. Although supply-side pressures abound, we have leveraged local market

knowledge to help clients achieve savings in the 10 percent range based on recent sourcing events.

Shippers will soon be adapting to a major new dynamic in the parcel

shipping market. Earlier this year, FedEx Corporation (FedEx)

announced a new Dimensional Pricing model will apply to all shipments

starting January 1st, 2015 (formerly, dimensional pricing was only applied

to packages larger than three cubic feet). United Parcel Service (UPS)

quickly followed suit. Dimensional pricing models calculate shipping cost

based on package volume—the amount of space a package occupies in

relation to its weight. This is a major market event because the new

pricing model will affect roughly 70 percent of packages shipped by

volume today, and shippers could be looking at potential rate increases

in the range of 20 percent above current levels when the dimensional

pricing models are applied to the smaller packages they ship today. This

is before other standard rate increases and assessorial charges.

Key Action: Shippers should be working with their carrier

representatives now to understand how the new dimensional pricing

models will apply to them and what the potential impact on shipping

costs will be. In parallel, shippers should take a fresh look at their overall

delivery networks and perform a bottoms-up analysis of network and

competitive options to optimize total shipping costs.

Revised Pricing Models Take Parcel Shipping Pricing into a Whole New Dimension, Leading to Likely Higher Shipping Costs:

Source: Accenture, FedEx 2014 Rate Guide


ENERGY

EQUIPMENT,

ENGINEERING, &

CONSTRUCTION

CORPORATE

SERVICES—

TRAVEL

CORPORATE

SERVICES—

AUDIT & RISK

MARKETING

& MEDIA

LOGISTICS

INFORMATION

TECHNOLOGY

INDUSTRIAL

& MRO

Top Trends in Information Technology

Getting to Know Legal a Little Too Well? Reexamine Policies to

Get IT Agreements under Control: One challenge of IT

investments is that contracts and agreements related to IT software

and services can be so cumbersome. Is this unique to IT? To answer

that client inquiry, we analyzed our spend and project data. What we

found was illuminating: less than 15 percent of the total spend we

help clients manage is IT/Telecom-related…however, IT/Telecom-

related legal agreements account for 45 percent of the agreements

in our databases. It’s no surprise that legal agreements for IT

products and services—which touch on issues like data ownership,

intellectual property ownership, liability, security, and enterprise

risk—are more complicated than agreements for fasteners and paper

products, but it is surprising that IT agreements outnumber

agreements for the next two largest categories of spend combined

(namely, professional services and marketing). This naturally raises

the question, what are the best practices for managing the complex

legal agreements related to IT products and services?

Key Action: Organizations should examine their IT agreement

landscape and establish sensible policies to help triage legal

requests and balance risk levels with the legal and other resources

required to manage them (i.e., “contracts under $20,000 don’t require legal review,” etc.). This is dependent on the type of IT product and risk

tolerance of the organization, but the goal should be to protect the business while optimizing resources and not inadvertently increasing risk

(i.e. an overly cumbersome process could push IT buyers to avoid procurement/legal altogether).

Start-ups Increasingly Represent a Compelling Way to Access Innovation, but Careful Risk Mitigation Is Required: CIOs and their

teams are often at the bleeding edge of technology, being asked to deliver innovative new solutions and embrace new and emerging

technologies. Sometimes, the sources of best innovation come from early stage tech start-ups. Working with start-ups has its advantages. As

an early customer representing a large proportion of revenue, companies can influence the development roadmap resulting in technology

solutions customized to your requirements. But there are downsides and risks to consider—there is no guarantee the start-up will attract

enough customers (and revenue) to remain a sustainable business. Staff turnover is another concern, and start-ups are takeover fodder for

larger IT providers looking for innovation via mergers and acquisitions. Buyers must be prepared for low probability scenarios like insolvency

and acquisition and protect data and I.P. rights.

Key Action: IT teams engaging with start-ups need to apply an extra layer of scrutiny with a focus on understanding financial stability (long-

term goals and transition plans for data), insurance elements (limitations on access to personally identifiable information [PII]), cyber liability,

tech errors and omissions), and personnel (turnover rates and stability of key personnel).

Source: Accenture

0%

10%

20%

30%

40%

50%

% Contracts under Mgmt

Contracts vs. Spend Under Management by Spend Category


ENERGY

EQUIPMENT,

ENGINEERING, &

CONSTRUCTION

CORPORATE

SERVICES—

TRAVEL

CORPORATE

SERVICES—

AUDIT & RISK

MARKETING

& MEDIA

LOGISTICS

INFORMATION

TECHNOLOGY

INDUSTRIAL

& MRO

Top Trends in Marketing & Media

Although the Relationship between Marketing and Procurement Continues to Improve, There Is More Upside for Marketers to

Capture: The Association of National Advertisers recently released the results of a broad survey on the state of the Marketing/Procurement

relationship. Survey respondents represented the three constituencies with major stakes in this game—Marketing, Procurement, and Agency

executives. Marketing and Procurement have often been at odds with one-another. Marketers want to protect their relationships with key

agency and creative partners and doubt that Procurement understands their needs. Meanwhile, Procurement has tended to view Marketing

(like many other spend categories) as an area to drive cost savings—not what a marketer wants to hear. The new survey shows signs that this

sometimes contentious relationship is improving: 55 percent of marketers and 61 percent of procurement executives say that the

Marketing/Procurement relationship is strong, and more than 60 percent of procurement executives believe the relationship has improved in

the past year. It seems clear that Marketing and Procurement know that they need to work more closely together and bridge their differences to

drive higher ROI and effectiveness of marketing dollars.

Key Action: Despite improving trends, the survey data highlights the need for Marketing and Procurement to come to the table early in the

process to align on marketing strategy and objectives, and how Procurement can deliver value vis-à-vis sourcing and execution strategies. The

onus is on Marketing to engage with Procurement earlier, and for Procurement to build deep relationships with Marketing so that they are

included upstream of activity by investing in compelling market intelligence that can be used to shape marketing activity.

The U.S. Hispanic Demographic Represents a Fast-Growing Target

Market—with Below-Market Pricing—Offering an Opportunity for

Marketers to Exploit: The US Hispanic demographic is one of the faster

growing market segments, measured by population growth and media usage.

Interestingly, however, marketing costs to reach this segment remain below the

General Market (GM). The multi-channel success of the FIFA World CupTM

tournament brought high profile advertisers who were rewarded with strong

ratings results driven in part by strong Hispanic viewership (and innovative

campaigns). The number of high-quality media outlets targeting Hispanic

audiences continues to grow ([.g., Univision Communications Inc., Unimas (a

division of Univision), ESPN Deportes, FOX Broadcasting Company], creating

an opportunity for advertisers to more cost-effectively reach an attractive

demographic, but advertisers must be wary of potential pitfalls.

Key Action: Marketers should examine opportunities to take advantage of the

attractive cost and ROI profile of the U.S. Hispanic vs. GM pricing environment

while it lasts. At the same time, advertisers should leverage market intelligence

and benchmark information to avoid overpaying for media at a time when

media outlets could engage in opportunistic pricing (i.e., the World Cup halo

effect) to close the price gap. The same discipline applies to evaluating

Hispanic-focused agencies: overall costs may be lower, but per-FTE costs may

be less competitive.

Source: US Census


ENERGY

EQUIPMENT,

ENGINEERING, &

CONSTRUCTION

CORPORATE

SERVICES—

TRAVEL

CORPORATE

SERVICES—

AUDIT & RISK

MARKETING

& MEDIA

LOGISTICS

INFORMATION

TECHNOLOGY

INDUSTRIAL

& MRO

Top Trends in Corporate Services: Audit and Corporate Risk

Auditing Your Audit Firm: Earlier this year, the European Union Parliament introduced new proposed regulations for audit firms. The draft

agreement applies to public-interest entities (including stock exchange listed companies, banks, and insurance companies) and places a

time limit on how long a company can keep the same audit firm. Ten years is the new maximum, but that can be extended to twenty years if

the audit is put out for bid and twenty-four years in the case of joint audits involving more than one audit firm. Although these proposed

regulations are at least two years away from becoming reality, they highlight an important underlying issue: most companies keep the same

audit firm indefinitely, and rarely put their audit work out for bid. This can lead to rates for audit services becoming non-competitive over time

when fees are based on prior year fees and benchmarks (provided by the auditor) vs. competitive bidding. As a best practice, firms should

already—at a minimum—be doing what the regulations propose, if not more.

Key Action: Audit relationships are often executive or board-of-director negotiated arrangements and therefore rarely involve Procurement.

Companies should be actively benchmarking rates to ensure that they are competitive, and open work to competition to combat

complacency and ensure competitive pricing (recent market data shows non big-four auditors gaining market share).

Focus on Risk Management Is on the Rise: We have seen a notable increase in client project activity focused in the enterprise risk

management area—specifically in insurable areas like directors and officers (D&O) liability insurance, property and casualty, fiduciary

responsibility, product liability, and other related areas. More

executives are focused on Total Cost of Risk (TCOR), which

provides a measure of the costs associate with risk financing

including the internal and external cost factors (insurance

premiums, administrative costs, broker fees/commissions, and

self-insured [retained] losses). Securities filings against

corporations related to class actions, Mergers & Acquisitions, and

related claims remain a significant risk with maximum dollar loss

exposure over $125B, which keeps risk as a front-of-mind CFO

issue. Although corporate risk is a C-level issue, executing risk

management sourcing strategies is complex and time-

consuming…and potentially very costly without accurate market

intelligence and price benchmark data.

Key Action: Organizations should ensure that they have a current

and accurate view of their TCOR and benchmark whether they are

receiving best-in-class broker fees in fixed fee arrangements and

program pricing. Through structured review and sourcing

processes, we have seen clients drive savings in the 10-20

percent range while freeing up business leaders’ time to focus on

more core operational responsibilities Source: Accenture

Client Project Work Related to Insurance Carriers and

Related Activities Is Rapidly Rising

0

5

10

15

20

25

2012 2013 2014 YTD

+150%

+300%


ENERGY

EQUIPMENT,

ENGINEERING, &

CONSTRUCTION

CORPORATE

SERVICES—

TRAVEL

CORPORATE

SERVICES—

AUDIT & RISK

MARKETING

& MEDIA

LOGISTICS

INFORMATION

TECHNOLOGY

INDUSTRIAL

& MRO

Top Trends in Travel

Corporate Credit Card Programs May Offer a Low Hanging

Savings Opportunity—New Regulations Make It Worth a Look

Now: In recent months, we’ve seen a spike in client activity in credit

card sourcing, and based on the savings opportunity and increasing

competition in the space, now is an excellent time to explore this

area. Most companies make a corporate card decision and stick

with it for years without competitively sourcing the category, and for

that reason alone, current deals may be uncompetitive and re-

sourcing the category can deliver substantial savings. Another

major consideration is current regulatory activity in Europe: The

European Parliament has proposed rules that would cap the

interchange fees charged by credit card networks. However, in its

current form, the rules don’t apply to all cards. Visa® and

MasterCard ®, which operate as four-party card networks, are

subject to the cap, while more traditional corporate cards American

Express ® and Diners Club ® (three-party networks) are not subject

to the caps. This creates an additional competitive dynamic in the

credit card space.

Key Action: Organizations should benchmark credit card pricing

and take advantage of the current environment of uncertainty.

Relative to other options in the travel area, changing card providers

is a relatively low friction change to implement, and across large

dollar volumes, small per-transaction savings can generate millions

in savings opportunity.

What Is the Cost of Employees “Doing Their Own Thing?”

Reexamine Travel Policy Compliance and Potential Risks:

Many employees go outside of corporate-mandated travel booking

systems to try to secure better airfares and hotel rates (often on

their preferred air or hotel loyalty programs). They have good

intentions—they think they are saving money for the firm while

utilizing their preferred brands. But most are unaware of the hidden

costs and potential risk exposure to the firm.

As this practice grows, incremental dollars that shift to online sites

(Expedia ®, priceline.com ®, etc.) can decrease corporate discounts

and rebates or potentially put the firm at risk of missing minimum

volume requirements for corporate deals. The other major risk is

visibility—if a geopolitical event occurs (see figure below depicting

major events in the recent past), corporate travel and HR may lack

visibility to where in the world their employees are, exposing the

firm to duty of care risk or liability.

Key Action: Organizations should examine travel policy and

compliance levels for potential cost and risk exposure. Part of

effectively communicating a strong travel policy is explaining the

benefits of compliance to both the company and the employee.

Some companies go as far as to open corporate booking tools and

discounts to employee use to drive travel dollar spend and

negotiating power with suppliers.

Source: Accenture

Recent Events Highlight Potential

Employer Duty of Care Risk

Severe

Storms

Plane

Crash

Hurricane/

Tsunami Earthquake

Terrorist

Attack


ENERGY

EQUIPMENT,

ENGINEERING, &

CONSTRUCTION

CORPORATE

SERVICES—

TRAVEL

CORPORATE

SERVICES—

AUDIT & RISK

MARKETING

& MEDIA

LOGISTICS

INFORMATION

TECHNOLOGY

INDUSTRIAL

& MRO

Top Trends in Equipment, Engineering, and Construction

Increasing Construction Demand Puts Pressure on Overall

Construction Costs and Requires New Sourcing Focus:

Numerous factors are driving higher demand for key construction

materials like concrete, aggregate, and reinforcing bars (rebar). In

the U.S., the multi-year economic recovery is stoking demand, while

firms are beginning to re-shore manufacturing and build out new

production capacity to take advantage of lower energy costs and

highly-skilled, more competitively priced labor. Another driver of

demand is an expected increase (albeit slow) in public sector

funding for highways and bridges, which consume large quantities

of heavy building materials. Material purchases account for more

than 50 percent of the cost of construction, so inflation is a major

cost concern for manufacturers. Because materials like concrete are

heavy, supply markets are largely local or regional captive markets

due to high logistics costs (high weight, low value per pound).

Prices for cement and aggregate, two major components of

concrete, are rising. Cement prices are expected to increase 9

percent through 2015, which will contribute to rising concrete prices.

Meanwhile, rebar prices have fallen in recent years thanks to the

construction slowdown in China releasing more inventory into the

global market.

Key Action: Strategy will vary by material, but with concrete prices

expected to rise, now is a good time to consider establishing long-

term pricing and supplier relationships. Evaluate opportunities to

utilize pre-cast concrete elements (faster speed of erection, but less

flexible and higher logistics costs) vs. cast-in-place concrete. Cost of

goods sold is a major cost driver, so buyers should focus on

developing strong upstream market intelligence for major cost

drivers (oil, steel, etc.). In evaluating suppliers, keep in mind that

vertical integration can lower total landed costs while reducing risk

(supply reliability and availability).

Capacity utilization

approaching long-term

average of approx. 80

Source: U.S. Federal Reserve

$0

$50

$100

$150

$200

$250

$300

$350Jan

-10

Ap

r-10

Ju

l-10

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10

Jan

-11

Ap

r-11

Ju

l-11

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11

Jan

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Oct-

12

Jan

-13

Ap

r-13

Ju

l-13

Oct-

13

Jan

-14

Ap

r-14

Non-residential Construction 2010 to date (USD $B)

Source: U.S. Census Bureau

60

65

70

75

80

85

Jan

-04

Ju

l-04

Jan

-05

Ju

l-05

Jan

-06

Ju

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Jan

-07

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Jan

-11

Ju

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-12

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Jan

-13

Ju

l-13

Jan

-14

Total Industrial Capacity Utilization (2004-Date)

Highest reading

since June 2008


ENERGY

EQUIPMENT,

ENGINEERING, &

CONSTRUCTION

CORPORATE

SERVICES—

TRAVEL

CORPORATE

SERVICES—

AUDIT & RISK

MARKETING

& MEDIA

LOGISTICS

INFORMATION

TECHNOLOGY

INDUSTRIAL

& MRO

Shifting Competitive Dynamics in the Industrial Supplies/Distribution Market Opens New Options and Opportunities for Industrial

Buyers: In the Industrial / Maintenance, Repair, and Operations (MRO) distribution markets, major distributors have offered a one-stop shop

solution in the form of vast catalogs of MRO supplies at competitive prices to complement the one-stop-shop convenience. However, the

market has evolved further, with some of the major distribution players such as Applied Industrial Technologies (AIT) and Motion Industries

expanding into new, adjacent product delivery and value added services areas they had not been in before. For example, rather than just

selling bearings as they had in the past, these major distributors are increasingly offering tools and industrial supplies that accompany the

base products they are selling. The benefit for the distributors is to expand “share of wallet” with customers and offer more competitive

pricing (sometimes at lower margins, but capturing more gross profit dollars by increasing the size of overall customer orders). The benefit for

buyers is the potential for efficiencies due to fewer suppliers and the ability to negotiate better terms on higher volumes. The added benefit is

that new competition is created in some areas where it did not previously exist, as well as increased opportunity for continuous improvement

and supplier-enabled innovation.

Key Action: The key takeaway for customers is to be open-minded about re-opening supplier agreements. You may be pleasantly surprised

that there is new competition in a sub-market that had not been there before. Suppliers with expanded scopes of services may also identify

savings and product improvement opportunities through possible substitute products. It is also worth exploring vending and / or RFID

solutions that can impact demand management and support more efficient materials management methods, improved inventory accuracy,

and working capital efficiency. Customers should be considering all these areas as they re-evaluate supplier contracts and relationships

through a true Total Cost of Ownership approach.

Brand Owners Leverage Supplier Conferences to Access Innovation—but Beware Pitfalls: Companies are increasingly seeking ways

to access innovation, from crowdsourcing to closer partnerships with strategic suppliers. Supplier innovation conferences can help brand

owners gain access to new ideas and innovation that leverages suppliers’ work across multiple brand owners and customer segments.

Improvement ideas can range from ways to utilize new or substitute materials to process efficiencies. However, supplier conferences often

flounder due to lack of executive sponsorship, unclear expectations, and lack of clear process and structure.

Key Action: In areas like packaging, supplier conferences can be a strong source of innovation delivering waste reduction and value

enhancement ideas that can drive savings and improve sales performance. However, to be successful, brand owners need to approach

conferences as an opportunity to collaborate more closely with strategic suppliers and involve executives and cross-functional teams

representing R&D, supply chain, sales, marketing, and quality—not just procurement.

Top Trends in Industrial and Maintenance, Repair, and Operations


ENERGY

EQUIPMENT,

ENGINEERING, &

CONSTRUCTION

CORPORATE

SERVICES—

TRAVEL

CORPORATE

SERVICES—

AUDIT & RISK

MARKETING

& MEDIA

LOGISTICS

INFORMATION

TECHNOLOGY

INDUSTRIAL

& MRO

Top Trends in Energy

Demand Response Strategies Mature and Evolve: We are seeing an increase in the number and variety of demand response and real-time

pricing programs as power generation markets rapidly evolve with increased renewable energy sources and changing power plant fuel

sources. Demand response typically works like this: when the electric system experiences very heavy load, electric system operators ask

demand response customers to reduce electricity usage. Customers receive payments for enrollment and participation in these programs and,

in most cases, receive payments even if they are never called upon to reduce consumption. As more renewable energy sources (solar, wind)

come online, grid power supply becomes more unstable because solar and wind power, unlike traditional gas, coal, or nuclear generation, is

intermittent/does not have a constant base load. This creates a fluctuating electric supply leading to grid instability and the potential for

interesting scenarios. For example, when there is over-supply of power (i.e. when all renewable sources are producing at max capacity),

demand response programs could ask customers to temporarily increase power consumption. Power markets are responding to this changing

supply mix through new time-of-use rates, real-time pricing, and a variety of demand response programs. Clients, meanwhile, are responding

with more sophisticated demand management strategies that can include deployment of demand management control systems, renewables,

and on-site storage/peak limiting hardware.

Key Action: Demand programs usually start with efficiency/reducing usage. This is changing as more users examine sophisticated energy

management systems leveraging smart meters, data connectivity, and analytics. Organizations should look to harness their energy data to

alter usage profiles and quantify financial benefits and revenue opportunities. The ultimate value comes from linking demand-side intelligence

with supply-side energy procurement strategies to maximize financial benefit (savings and potential revenue).

Falling Global Liquefied Natural Gas (LNG) Prices May Affect U.S. LNG Export Growth: Pending U.S. legislation (H.R. 6) would expedite

the review process of 14 LNG export applications totaling 15.64 Bcf/day (additional Canadian projects total 23.78 Bcf/day). Compare this to

Liquefied Natural Gas Prices by Region (June 2011 to Date)

$0

$5

$10

$15

$20

$25Ju

n-1

1

Se

p-1

1

Dec-1

1

Ma

r-12

Ju

n-1

2

Se

p-1

2

Dec-1

2

Ma

r-13

Ju

n-1

3

Se

p-1

3

Dec-1

3

Ma

r-14

Ju

n-1

4

$/m

mB

tu

UK Spain Cove Pt. (US)

Japan Argentina

total current U.S. gas production of 85 Bcf/day and approved

export capacity of 4.46 Bcf/day. Meanwhile, global LNG prices

have fallen sharply in recent months (European and Asian LNG

prices down 40-50 percent in 2014) which could delay U.S. export

ramp-up beyond the currently expected 2015-2018 timeframe.

Exports of U.S. gas to Mexico continue to rise and China’s

appetite for gas is also growing, although its recent thirty-year

purchase agreement with Russia is a major development that will

create an effective floor of around $4/mmBtu for U.S. natural gas.

Long-term energy demand and prices will continue to increase

while short-term volatility will remain high as we move toward a

global natural gas market.

Key Action: The pull-back in LNG prices is a nice respite for

European and Asian users, but buyers globally should be

evaluating layered hedging strategies that align expected demand

with price risk tolerance.

Source: Thomson Reuters


Sources and References

EXECUTIVE SUMMARY:

• Kim, Soyoung and Roumeliotis, Greg, “Global M&A at Seven-year High as

Big Corporate Deals Return,” June 20, 2014. Retrieved from:

http://www.reuters.com/article/2014/06/30/us-deals-m-a-

idUSKBN0F50A920140630

• National Association of Business Economics, NABE Business Conditions

Survey, July 2014. Retrieved from:

http://nabe.com/NABE_Business_Conditions_July_2014_Summary

• International Energy Agency, “IEA Releases Oil Market Report for July,” July

11, 2014. Retrieved from:

http://www.iea.org/newsroomandevents/news/2014/july/iea-releases-oil-

market-report-for-july.html

• FactSet Buyback Quarterly: June 18, 2014, Retrieved from:

http://www.factset.com/websitefiles/PDFs/buyback

• FactSet Dividend Quarterly: June 24, 2014, Retrieved from:

http://www.factset.com/websitefiles/PDFs/dividend

• FactSet Cash & Investment Quarterly: June 24, 2014, Retrieved from:

http://www.factset.com/websitefiles/PDFs/cashinvestment

• Meckstroth, Daniel J., Ph.D., Manufacturers Alliance for Productivity and

Innovation, “U.S. Industrial Outlook: Accelerating Growth Ahead,” June 6,

2014. Retrieved from: https://www.mapi.net/research/publications/us-

industrial-outlook-june-2014

• International Monetary Fund World Economic Update, July 2014:

http://www.imf.org/external/pubs/ft/weo/2014/update/02/

EXECUTIVE SUMMARY (CONTINUED):

• Thomson Reuters Corporation/University of Michigan Surveys of Consumers:

http://www.sca.isr.umich.edu/

• National Federation of Independent Business (NFIB):

http://www.nfib.com/research-foundation/surveys/small-business-economic-

trends

MARKETING:

• Association of National Advertisers, “2014 ANA Procurement/Marketing

Relationship Survey,” June 5, 2014. Retrieved from:

http://www.ana.net/miccontent/show/id/rr-procurement-marketing-relationship-

survey-report

EQUIPMENT, ENGINEERING, & CONSTRUCTION:

• US Department of Commerce, Census Bureau, Total Private Construction

Spending, Nonresidential. Retrieved from:

http://m.research.stlouisfed.org/fred/series.php?sid=PNRESCONS&show=ch

art&

• Board of Governors of the Federal Reserve System, Industrial Production and

Capacity Utilization, Retrieved from:

http://www.federalreserve.gov/RELEASES/G17/Current/default.htm

ENERGY:

• BIA/Kelsey, “BIA/Kelsey Forecasts U.S. Social Ad Revenues to Reach $11B

in 2017,” Retrieved from: http://www.biakelsey.com/Company/Press-

Releases/130410-U.S.-Social-Ad-Revenues-to-Reach-$11B-in-2017.as


About Accenture

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Combining unparalleled experience, comprehensive

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The company generated net revenues of US$28.6 billion for

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