accenture spend trends report · spend trends report, a quarterly strategic report that brings...

Accenture Spend

Trends ReportQ1 2015

2 Copyright © 2015 Accenture. All rights reserved.

Insights Born from Experience

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

Spend Trends Report, a quarterly strategic report that brings

together the best thinking, insights, and intelligence from our global

team of more than nine hundred 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 combination of intelligence and insight, we have

compiled a summary of the top trends we are seeing 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 BPO

Accenture Operations

Author:

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

Category Specialist Contributors:

Logistics—Ed Sands, Scott Youngs

IT/Telecom—David Workmann

Marketing—David Pegg, Suzanne Beaudoin

Financial Services—Bhupesh Mulchandani

Travel—Allan Brown

Equipment, Engineering, & Construction (EEC)—Heath Mitchem

Packaging—Barbara Moser, Vladimir Ryabovol

Energy—Cobb Pearson

CATEGORY EXPERTISEANNUAL

PROJECTS

SUPPLY MARKET

EXPERTS

IT/Telecom 2,933 ~ 190

Logistics 251 ~ 50

Marketing 1,438 ~ 115

Energy 1,013 ~ 70

Equipment, Engineering, &

Construction (EEC)2,705 ~ 85

Basic Materials & Packaging 214 ~ 35

Industrial & MRO 481 ~ 60

Human Resources 1,008 ~65

Contingent Labor 281 ~ 30

Professional Services 947 ~ 100

Facilities 805 ~80

Travel 532 ~ 45

TOTAL 12,608 ~ 920


Executive Summary

After a volatile end to 2014, global markets remain turbulent. Significant market swings in everything from interest rates to

currencies and commodities make forecasting more of a challenge. On the other hand, these same market swings create

windows of opportunity to take advantage of favorable interest rates and low-cost capital, use layered hedging strategies,

and drive bottom line value. Although the outlook for Europe is stabilizing and oil prices have rebounded from recent lows,

there are enough concerns about the global economy that volatility—and opportunity—is here to stay.

Notable Macro Trends from the First Quarter:

• Oil Bounces but Supply Still an Overhang: Global oil

prices bottomed near $46 in January 2015 and have since

rebounded over 30 percent. Despite the rapid rise, oil-

related input costs are well below year-ago levels, and

although rig counts are down, ample global supply will

likely keep the recovery contained.

• Is the U.S. Dollar Rally Over or Just Resting? The U.S.

dollar’s dramatic 2014 rally accelerated into March 2015

when the dollar peaked, up more than 30 percent versus

the Euro since January 2014. Despite falling 7 percent

since March, the dollar’s rise could continue thanks to

global monetary easing, the ongoing U.S. recovery, and

looming U.S. interest rate hikes.

• Wage Pressure Lurks as a Risk: Global employment

trends are still improving, and with lower unemployment,

employer surveys point to potential wage pressure on the

horizon, another concern for executives.

• Stock Buybacks Become Favored Use of Capital:

Organizations are announcing record levels of share

repurchases fueled by low-cost debt. Buybacks are

expected to rise 18 percent to $707B in 2015 (2 percent of

the value of shares traded on U.S. stock exchanges).

Q1 Spend Trends: The Big Five

• Logistics: Unprecedented Market Volatility Requires Exceptional Flexibility: For

most of 2014, shippers faced rising demand, tight market capacity, and high fuel costs.

When fuel prices plummeted, new challenges emerged (West Coast Port Strike, etc.)

leaving logistics teams to react to regional cost pressures and opportunities.

• IT: Mobile Data Explosion Puts Focus on Managing Mobile Costs: With the

proliferation of high-speed mobile devices and data hungry apps, mobile data volumes

are exploding. Organizations will need to take a fresh look at how they manage

mobility costs and develop policies to manage mobile devices and users.

• Corporate Professional Services: Market Environment Favors Mergers and

Acquisitions (M&A) and Other Finance Opportunities: M&A is exploding as

organizations capitalize on low-cost capital, elevated stock prices, and currency and

tax-driven opportunities to create value. But organizations can create even more

bottom line impact by formalizing how they approach high-value advisory services.

• Industrial Equipment: Focus Shifts to Outcome-Based Metrics: With increasing

regulation governing everything from emissions to water and energy use,

manufacturers are increasingly focusing on output-based metrics to align supplier

incentives, verify that compliance requirements are met, and that ROI is achieved.

• Energy: Recent Price Trends May Be Flashing Buy Signs: Once an organization

defines its tolerance for price risk, it needs a disciplined way to approach when and

how to lock in long-term energy contracts. Our recent analysis indicates that now may

be an opportune time to lock in a portion of demand.


Macroeconomic Backdrop

Source: International Monetary Fund World Economic Outlook

Worldwide Growth Outlook Stabilizes Thanks to Improving Europe and

Lower Oil Prices: Although there is no shortage of concerning macro

factors—namely the ongoing negotiations over Greek debt and bailout

funds, slowing Chinese growth, poor first quarter growth in the U.S., and

lower commodity prices affecting emerging economies, to name a few—the

biggest positive change is the improving outlook for growth in Europe

overall. The European Central Bank’s (ECB) quantitative easing program is

helping to lower interest rates and borrowing costs, and push the value of

the Euro lower, improving the competitiveness of European exports. This is

most beneficial for Germany, the largest, most export-driven European

economy, where GDP forecasts are rising. Overall, European stocks remain

near their highs, and business confidence is rising. Thanks in part to

improvements in Europe, the International Monetary Fund (IMF) maintained

its 2015 global GDP growth forecast of 3.5 percent (after lowering its

forecast the prior two quarters), and raised its 2016 forecast slightly to 3.8

percent.

As the Euro Area is showing signs of stabilizing, the U.S. economy is also

forecast to show solid 3.1 percent growth in 2015 and 2016. Although there

are some concerns over the fact that first quarter U.S. GDP growth was a

disappointing 0.2 percent, and some other first quarter economic indicators

were weaker than expected, a recent analysis showed that since 2010, first

quarter GDP growth has averaged 0.6 percent while the rest of the year has

averaged 2.9 percent growth. This abnormally large discrepancy may

indicate a problem in how seasonal adjustments are being applied, but with

consumer and business confidence at near cycle highs and with

employment, housing, and investment data continuing to improve, 3 percent

U.S. GDP looks achievable.

Meanwhile, Chinese GDP growth is hovering near 7 percent and is forecast

to slow to the 6.5 percent range while India is forecast to improve to a 7.5

percent rate from 6.9 and 7.2 percent in 2013 and 2014. Latin America is in

transition particularly impacted by Brazil which is expected to report

negative 1 percent GDP growth in 2015, while an improving Mexican

economy should show growth of more than 3 percent in 2015 and 2016.

Forecast as of:

2.2%

-0.5%

7.0%

2.9%2.4%

0.9%

6.8%

1.3%

3.1%

1.5%

6.6%

0.9%

3.1%

1.6%

6.4%

2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

U.S. Euro Area Emerging Asia Latin America

IMF Regional GDP Forecasts

2013 2014 2015E 2016E

3.4%

4.0%

3.3%

3.8%

4.0%

3.3%

3.5%

3.7%

3.4%3.5%

3.8%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

2014 2015 2016

IMF Worldwide Gross Domestic Product (GDP) Forecast Updates

Jul-14 Oct-14 Jan-15 Apr-15

Source: International Monetary Fund World Economic Outlook


Macroeconomic Backdrop

Divergent Global Monetary Policies Create Complexity and

Opportunity: 2014 and early 2015 have been punctuated by significant

currency movements. Around the world, central banks are taking action to

stimulate growth (through lower interest rates and currency devaluation) or

stem rising inflation (through higher interest rates) (see map at right). With

global monetary easing and rising U.S. interest rates on the horizon, the U.S

dollar rose 30 percent against the Euro from January 2014 to March 2015.

The dollar has pulled back by 10 percent in the past month, but this

heightened currency volatility makes forecasting difficult for corporate

finance teams. At the same time, divergent global interest rates and tax

regimes create opportunity (discussed in detail later in the report). Global

firms have rushed to issue Euro-denominated debt at record low interest

rates, and M&A activity is set to reach record levels in 2015 based on low-

cost capital, elevated stock prices, and tax inversion opportunities.

Oil Prices Rebound from Lows, but Where Do We Go from Here? The

oil price plunge was one of the top stories of 2014. The global Brent price

fell further to a low of $45 in January 2015. As we enter 2Q 2015, prices

have rebounded to around $64 per barrel, but current prices are still more

than 40 percent lower than the 2Q 2014 average price of $109. Lower-cost

oil should be an input cost tailwind for most businesses for the next quarter

or two, and related commodities are still much lower versus the year ago

period. Organizations are closely monitoring whether lower energy costs will

translate into better consumer spending in the rest of 2015.

Earnings Growth Will Be a Challenge in 2015, but Organizations

Should Seize Near-Term Opportunities: Analysts currently estimate that

Q1 2015 earnings for global S&P 500 companies will grow by only 0.1

percent, representing the lowest year-over-year quarterly earnings growth

rate since Q3 2012. Full-year earnings are forecast to grow by only 2

percent in 2015. Despite the challenges posed by violent currency and

commodity price fluctuations, overall corporate profit margins have the

potential to stay at current record levels or rise as organizations take

advantage of cost optimization opportunities in areas like corporate finance,

travel, telecom, marketing, and energy discussed in this report, and take

advantage of low cost capital for strategic investments in growth areas.

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

35%

Jan

-14

Fe

b-1

4

Ma

r-14

Ap

r-14

May-1

4

Ju

n-1

4

Ju

l-14

Au

g-1

4

Se

p-1

4

Oct-

14

No

v-1

4

Dec-1

4

Jan

-15

Fe

b-1

5

Ma

r-15

Ap

r-15

Euro

British Pound

Japanese Yen

Australian Dollar

+23% vs. Euro

+13% vs. Yen & AUD

+7% vs. Pound

U.S. Dollar vs. Euro, Yen, Pound, and Australian Dollar

(Jan 2014 to date)

Source: Capital IQ

Worldwide Interest Rate Policy on the Move

Source: Accenture


ENERGY

EQUIPMENT,

ENGINEERING, &

CONSTRUCTION

TRAVEL

FINANCIAL

SERVICES

MARKETING

& MEDIA

LOGISTICS

INFORMATION

TECHNOLOGY

PACKAGING

Top Trends in Logistics

Diesel, Jet Fuel, and Bunker Fuel Prices Closely Track Oil Price

Logistics Teams Forced to Adapt to Unprecedented Market Volatility: In early 2014, shippers were adjusting to a persistent reality:

steadily rising logistics costs driven by rising freight demand, very tight truckload market supply, high fuel costs, and driver hiring and

retention challenges. But several prevailing trends abruptly changed, and shippers have had to adapt to a volatile operating

environment. Oil prices started their more than 50 percent slide, and the threat of a major West Coast Port work stoppage loomed.

Shippers diverted some cargoes to East Coast ports and supply networks are still adapting to those new flows. North American energy

production is falling in reaction to falling oil and gas prices and this is opening up some rail capacity and reducing competition for

drivers in some markets. And with the West Coast port strike resolved, shippers with West-bound freight may have a savings

opportunity as carriers offer enticing rates to get the truck capacity they need to move backlogged cargo at the ports. More broadly,

spot rates look favorable on a year-over-year basis, thanks in part to lower fuel costs, but the strong U.S. dollar is likely to support

continued imports and freight volumes, and there is no telling where the next market shock will come from. Is your team prepared?

Key Action: The lesson of the past year is that shippers need incredible flexibility to respond to market volatility. We are working with

clients to proactively look at various supply chain network design options to prepare for potential shocks and take advantage of local

market opportunities like short-term supply/demand imbalances that produce temporarily favorable rates. The recent volatility in the

logistics market is likely here to stay, but volatility also provides opportunity after suffering through an extended period of rising rates.

2014 Now Next Twelve Months?

Shale energy production boom ramping rail demand;

competition for drivers

Oil & gas rig counts declining loosening

demand for rail capacity and driver competition

Long-term energy production should be

strong; short-term unpredictable

Oil prices peak at over $100/barrel before unexpectedly

plummeting

Oil prices drop more than 50 percent carriers

dealing with loss of fuel surcharge revenue; oil

market searching for stable price range

Oil prices may have bottomed, but

expect continued volatility

West Coast port strike looms Some cargo diverted to

East Coast; supply chains adjust to new flows

West Coast port backlog Network adjusting to

West Coast demand and new East Coast flow

Will some volume shifted to East Coast

stay permanently?

Intermodal demand spikes rail hub congestion

exacerbated

Rail congestion and slower average train speeds

make service levels a bigger consideration

Will energy rebound?

Polar vortex drives energy price volatility and freight

demand volatility

Q1 severe weather abnormally calm (e.g., tornado

activity very low following quiet hurricane season)

Is Q1 the calm before the storm?

Logistics costs across most modes trending up due to

solid demand/tight capacity

Capacity is up, spot rates are down, but significant

regional variance as network adjusts to shocks

Spot rates down, but line-haul rates

steady; will carriers maintain margins?

Parcel rate increases by major carriers; Dimensional

pricing introduced parcel rate pressure

Market consolidation (FedEx Corporation/TNT

Holdings B.V.) but also more competition

Will revamped USPS offerings inspire

competition (e.g., flat rate pricing)

7

ENERGY

EQUIPMENT,

ENGINEERING, &

CONSTRUCTION

TRAVEL

FINANCIAL

SERVICES

MARKETING

& MEDIA

LOGISTICS

INFORMATION

TECHNOLOGY

PACKAGING

Copyright © 2015 Accenture. All rights reserved.

Top Trends in Information Technology

Source: Cisco Visual Networking Index: Global Mobile Data Traffic

Forecast Update 2014–2019 White Paper

Multiples of Data Traffic by Device TypeRising Use of Mobile Applications Is Causing an Acceleration in

Mobile Data Use…and Challenging How Enterprises Manage

Telecom Costs: Data growth related to mobile devices was once

simpler to define and predict, but as more users adopt smartphones,

wireless data speeds increase, and mobile applications evolve beyond

messaging into more data-rich apps, data volumes are ramping in

harder-to-predict ways. Mobile carriers are seeing mobile data growth

of around 100 percent across their networks, but many enterprises are

seeing mobile data growth of 130 percent or more.

These trends create challenges for enterprises trying to control mobile

data costs. The mobile data explosion puts increasing importance on

Telecom Expense Management (TEM) solutions and corporate

policies around data usage. As a result, there is increasing client

activity in the TEM area, and more focused efforts by organizations to

become more sophisticated in how they profile mobile users, forecast

application adoption, and predict data consumption.

Key Action: Organizations first need to analyze their mobile user base

to understand mobile usage patterns by employee profile and

geography, how those usage trends are evolving over time, and how usage is being driven by mobile app adoption. Some organizations are

exploring third-party solutions that allow them to control or limit data usage on devices and control data roaming (so that users don’t generate

unnecessarily high costs by inadvertently roaming without appropriate mobile plan coverage). We also see organizations pressuring carriers

to offer more competitive plans that mimic consumer plans with “all-you-can-eat” tariffs.

Corporate Response to the Bring Your Own Device (BYOD) Evolves to More Hybrid Models: Users want mobile access to corporate

data and systems, but prefer their personal devices. Enter BYOD where the user purchases his/her own device (sometimes with a corporate

subsidy) and is responsible for maintaining the hardware, while the company provides the software to access corporate IT assets and may

pay for some or all of the connectivity costs. This satisfies the device preferences of the user, and shifts the hardware procurement and

maintenance burden away from the company. However, BYOD programs also increase the need for robust Mobile Device Management

(MDM) solutions (the ability to remotely decommission or wipe a device); create potential legal issues about who owns the device; and make

mobile threat management more important. More companies are standardizing on a limited number of specific devices (vs. overall mobile

operating system (OS) support) to reduce the complexity and costs associated with MDM, threat management, and app development.

Key Action: When it comes to mobility, more OS and device diversity equals more cost and complexity related to security and threat

management, device management, and mobile app support. Organizations should examine current policy and look for opportunities to

consolidate mobile platforms and devices, without compromising on delivering the right business tools to mobile users.

0

20

40

60

80

100

120

Fe

atu

re p

hone

M2M

Modu

le

Weara

ble

Devic

e

Sm

art

phone

Ta

ble

t

Lapto

p

8

ENERGY

EQUIPMENT,

ENGINEERING, &

CONSTRUCTION

TRAVEL

FINANCIAL

SERVICES

MARKETING

& MEDIA

LOGISTICS

INFORMATION

TECHNOLOGY

PACKAGING


Top Trends in Marketing and Media

Source: IEG, LLC.

Global Sponsorship Market

As Digital Marketing Channels Mature, Marketers Can Tap New Ways to Optimize and Measure Sponsorship Dollars: The global

sponsorship market is expected to surpass $57 billion in 2015, representing four percent annual growth over 2014. To put this marketing

category in context, organizations spend more on sponsorship marketing than on mobile internet advertising (although mobile digital ad

spend is growing at a much faster rate and is estimated to be an approximately $46 billion global market in 2015). These two markets are not

completely independent, however—digital platforms provide marketers with new ways to leverage sponsorship relationships, deliver more

customized audience experiences, and better quantify and measure the value of sponsorship investments.

Sponsorships generally involve cash payments or the provision of services to support an event or organization in return for access to exploit

the commercial potential associated with that property. Sports sponsorships remains the biggest category at 40 percent of the market.

Sponsorships can be an extremely powerful marketing vehicle, but there are several pitfalls that organizations need to avoid. First, ensure

that sponsorships are integrated with overall marketing strategy. In the worst case, sponsorships are treated as “trophy” investments driven

by executives in an ivory tower, and organizations overpay for and underuse these relationships. Second, don’t ignore or underestimate

“activation” costs and resources—these are the investments related to exploiting the commercial elements of the sponsorship, from access to

celebrities and athletes to use of logos and other assets in advertising campaigns, digital experiences, and other audience engagement.

Activation costs, sometimes an afterthought, typically represent 1.0-1.5x the sponsorship cost.

In many categories, sponsorship is a sellers market because “inventory”

is limited, the market can be competitive and somewhat emotional, and

valuing sponsorship investments is as much an art as a science. For

example, providing a client CEO with exclusive access to a sponsorship

experience may be of extremely high value to one organization, while

ensuring the ability to use logos and likenesses for targeted digital

campaigns in the APAC market may be more important to another

organization. If sponsorship strategy is integrated with overall marketing

strategy, procurement can add tremendous value by helping to

benchmark the value of the sponsorship elements that matter the most,

and ensure that the key drivers of value are carefully defined in the

contract and that risk is well managed.

Key Action: The end goal should be a three-to-five year integrated

sponsorship strategy, but in the short term, organizations should assess

current sponsorship activities and whether they are integrated with the

overall marketing strategy. Creating this alignment helps organizations

leverage the spend they have already committed. With alignment

established, organizations should ensure that business objectives and

ROI measurements are aligned, and that the terms and conditions of the

sponsorship agreements support those objectives. Organizations should

challenge themselves to take advantage of all activation opportunities and

leverage social and digital media to maximize reach and engagement.

$48.6

$51.1

$53.1

$55.3

$57.5

0%

1%

2%

3%

4%

5%

6%

$45.0

$47.5

$50.0

$52.5

$55.0

$57.5

$60.0

2011 2012 2013 2014 2015E

Global sponsorship spending ($b)

Year-over-year % change

9

ENERGY

EQUIPMENT,

ENGINEERING, &

CONSTRUCTION

TRAVEL

FINANCIAL

SERVICES

MARKETING

& MEDIA

LOGISTICS

INFORMATION

TECHNOLOGY

PACKAGING


Top Trends in Corporate Services: Financial Services

Global Financial System Volatility and Complexity is

the “New Normal” Challenging Finance Organizations

to Get Better Visibility, and Become Much More Nimble

and Responsive: The operating environment for Finance

executives is becoming increasingly complex and dynamic.

In the past year, the U.S. dollar has appreciated

approximately 20 percent against a basket of global

currencies, while the Russian ruble and Swiss franc

experienced periods of extreme volatility. Drastic currency

swings put extraordinary pressure on Finance teams’ ability

to forecast and respond to revenue and cost impacts

through currency hedging, pricing, and materials sourcing.

Significant Opportunities Emerge: Fluctuating exchange

rates create management challenges but are mitigated by

historically low interest rates. Low-cost capital makes

acquisitions highly attractive to companies and are being

rewarded by investors—2015 is expected to be the second

biggest year ever for global M&A deal volume. Global

corporations are also rushing to issue new Euro-

denominated debt to take advantage of low interest rates

and pursue tax arbitrage opportunities. The strong dollar

combined with low costs of capital and favorable off-shore

tax scenarios will continue to fuel cross-border M&A and tax

inversion-driven deals.

Complexity in the finance function is only increasing. Finance teams require a much more real-time view of their organization’s

financials to manage forecasts and monitor markets. Companies with better processes, systems, and advisors, can then capitalize on

opportunities as they arise, like issuing debt at favorable rates, or quickly executing on strategic acquisitions.

Key Action: Not surprisingly, we have seen an increase in client project activity around Treasury Management Systems, optimizing

banking relationships, business advisory, investment banking, and tax advisory services. Paramount in selecting a treasury

management system is understanding the level of system integration, utility beyond cash and foreign exchange management, and

impact of reporting and forecasting enhancements. We are also working with clients to facilitate a more systematic approach to

knowledge-based consulting such as investment banking and tax advisory services, including pre-negotiating rates and establishing

preferred partner relationships to verify the right resources are available when needed and avoid unexpected costs that can result

from last-minute, time-sensitive agreements.

Source: FactSet, The Wall Street Journal, The Financial Times.

28.1% average 2014 tax rate

for S&P 500…down 40 bps

vs 2013

54 of S&P 500 companies at

least partially exempt from

corporate income tax

€27.2 billion Euro-based debt

issued by U.S. companies

through March 24, 2015 –

a six-year record

$1 trillion combined dollar

value of announced M&A

through April 8, 2015

10

ENERGY

EQUIPMENT,

ENGINEERING, &

CONSTRUCTION

TRAVEL

FINANCIAL

SERVICES

MARKETING

& MEDIA

LOGISTICS

INFORMATION

TECHNOLOGY

PACKAGING


Top Trends in Travel

Source: Accenture

Travel Policy Compliance Remains One of the Most Effective

Tools to Drive Travel Program Savings…So Why Can’t

Organizations Do a Better Job? Most companies have travel

policies and programs in place. The goal of most travel policies is to

control overall travel costs by providing guidance about what

business cases justify business travel (i.e., sales call, customer

support visit), rules for employees about how to book travel

(booking tools, travel agents, advanced purchase requirements),

and drive volume to preferred providers (air carriers, hotel chains,

corporate credit card) to take advantage of negotiated rates.

How a travel policy is constructed, communicated, and enforced

says a lot about corporate culture because of the inherent trade-offs

between the conflicting goals of minimizing total travel cost vs.

maximizing traveler comfort and preferences. The travel policy also

needs to balance rigidity of rules, exception management, and the

“investment” value of travel to support business goals.

Barring significant personal inconvenience, most business travelers

want to do the right thing, but all too often they make decisions

intentional or not) that cost the business money. And these

compliance and other issues are present at every level of the

business. Consider this recent anecdote: a c-level executive

assistant had begun to systematically book travel through internet

sites in order to save the fee charged by the corporate travel

agency…not realizing the cost of lost discounts and preferred rates.

How much is policy non-compliance costing your business?

Calculating the impact is straightforward if you have access to the

right data and tools to manage compliance in near real time.

Key Action: The first step in driving better compliance is in the up-

front stage of communicating travel policy. It’s important to

communicate not just what the policy is, but why the policy is in

place (business goals), and why compliance is important. Give

travelers a sense of how much money is at stake (and how it can

impact things like profitability and bonus pools) if you want to

encourage employees to think like business owners. The compelling

business benefit of improved compliance is readily apparent with the

right analytics and measurement tools (see example below).

Example:

• $2.6M total spend; 12,000 room

nights per year

• 39% compliance to preferred

suppliers

• Avg. preferred rate: $190

• Avg. non-preferred rate: $240

Policy Compliance Savings:

• 50% compliance: $66,000

or 3% savings

• 75% compliance: $186,000

or 8% savings

Keys to Analysis:

• Understand reasons

for non-compliance

• Identify focus areas

to drive compliance

• Target markets for

improvements to

program

Analysis of Travel Spend and Compliance Data Reveals Savings Opportunity and Compliance Focus Areas

11

ENERGY

EQUIPMENT,

ENGINEERING, &

CONSTRUCTION

TRAVEL

FINANCIAL

SERVICES

MARKETING

& MEDIA

LOGISTICS

INFORMATION

TECHNOLOGY

PACKAGING


Top Trends in Equipment, Engineering, and Construction

Asset Owners Need to Focus on Output-Based Metrics, Not Just Activity-Based Metrics When Contracting for Industrial

Equipment: Purchasing a large piece of industrial equipment is a high-cost investment with an expected return on investment based on a

business case, but also fraught with potential risk. In the contracting process, most buyers take care to make sure that the supplier provides

ample warranty coverage for the equipment asset to perform as expected. However, we notice that organizations often overlook an

important element—the inclusion of a “performance guarantee”—as an explicit contract element that goes beyond the standard warranty.

Buyers can no longer ignore the question of when and how to use performance guarantees, especially in an environment of increasing

regulations governing everything from environmental emissions to energy efficiency standards to water use.

The scope of a typical warranty is focused on whether equipment is functioning properly, but it lacks a second, and potential ly more

important dimension related to ROI: is the asset performing to defined performance specifications? For example, production run-rates (does

the equipment meet production rates presumed in the business case?) or emissions levels (are emissions compliant with regulatory limits?).

Of course, a buyer can choose to award a large equipment contract to a supplier

without using a performance guarantee, but should they? To answer that question the

asset owner should think in terms of business impact. What is the cost to my business

if this unit goes down? What is the potential penalty if this unit fails to meet

environmental emissions standards? By jointly engaging suppliers in the performance

guarantee discussion early in the process, the asset owner and supplier can align their

interests and clearly define the conditions of performance and measurement.

Is machine

operational or

is warranty

repair needed?

Is output consistent

with business case

specifications (uptime,

output per hr. quality

standards, etc.)?

Is equipment operational

or is warranty repair

needed?

Does equipment meet EPA

and other regulatory mandates

specified in agreement?

Key Action: Performance guarantees are not applicable to every scenario, but

asset owners should be sure that they understand the relevant regulatory hurdles

and business case requirements that equipment must meet. The owner should then

formally define the specific obligations under the contract

performance guarantee in a clear and measureable way,

clarifying the conditions of performance, operating and

testing parameters, and the owners’ and suppliers’

responsibilities associated with the guarantee. The

document should also define resolution options in the

case of insufficient performance.

In an era when brands are being held to high standards

for product performance and environmental compliance,

investing the time to evaluate and implement performance

guarantees will be time well spent, protecting the owner

from risk, and aligning the incentives of asset owner and

equipment supplier.

Output vs. Activity-Based Metrics

Source: Accenture

12

ENERGY

EQUIPMENT,

ENGINEERING, &

CONSTRUCTION

TRAVEL

FINANCIAL

SERVICES

MARKETING

& MEDIA

LOGISTICS

INFORMATION

TECHNOLOGY

PACKAGING


Top Trends in Packaging

Mandatory Packaging Changes Create Another Reason to Be

Proactive about Packaging Substitution and Redesign

Options: In February 2013, New York City Mayor Michael

Bloomberg called for a complete ban of Styrofoam food

packaging in favor of recyclable packaging materials. Fast

forward to 2015, and the ban on Styrofoam packaging materials

is set to finally take effect: as of July 1st, Styrofoam packaging will

be outlawed. The new regulations will not only affect food trucks

and local eateries—the ban applies to food establishments as

well as manufacturers and prohibits businesses from possessing,

selling, or offering single-use Styrofoam containers and related

products including “packing peanuts.” Exemptions are available

for some smaller businesses, but for national businesses that

have standardized on Styrofoam products from coffee cups to

shipping material, the new rules could require significant

packaging redesign and reformulation.

New York City’s ban is not an isolated occurrence. In the United

States, the cities of San Francisco, Seattle, and Portland (and

nearly one hundred other municipalities) have already banned the

use of foam-based packaging containers, and globally, full or

partial bans on foam packaging exist in locales ranging from

Paris to India to Taiwan.

Other common materials have been subject to bans (such as

numerous municipalities outlawing the use of single-use plastic

bags) or significant negative publicity and health concerns (for

example the debate about the safety of Bisphenol A or “BPA”

used in polycarbonate and epoxy resins used in food packaging

applications). Evolving regulations and grass-roots consumer

campaigns as well as corporate sustainability initiatives combine

to create an evolving set of challenges for packaging teams to

negotiate.

The best practice, evidenced by many organizations, is to

constantly explore the potential for packaging innovation and

substitutability to optimize the trade-off between packaging

performance, cost, and local market and customer preferences.

The process of regularly re-evaluating packaging materials and

designs can help organizations proactively take advantage of

market opportunities to reduce costs (for example, an input cost

change that make one material more cost-competitive than

another) and not be caught flat-footed when local-market

packaging regulations change.

Key Action: The drastic fall in the price of oil and natural gas

already has leading organizations re-examining the packaging

materials they use for substitutability and cost savings

opportunities. For those organizations not already engaged in the

practice, New York City’s recent foam packaging ban provides

another incentive for organizations to reinvigorate packaging

innovation efforts. Organizations should start by understanding

customer preferences and trends by local market, evaluate the

sensitivity of packaging materials to input cost changes (including

raw material, labor, and other cost drivers), and consider the use

of supplier innovation councils to institute collaboration with key

suppliers, tap into best practices and foster tighter collaboration.

13

ENERGY

EQUIPMENT,

ENGINEERING, &

CONSTRUCTION

TRAVEL

FINANCIAL

SERVICES

MARKETING

& MEDIA

LOGISTICS

INFORMATION

TECHNOLOGY

PACKAGING


Top Trends in Energy

If History Doesn’t Repeat Itself, but It Rhymes, What Does

History Suggest Is the Optimal Energy Procurement Strategy in

Today’s High Volatility Environment? One foundational element

of our energy procurement work with clients is developing a

customized Risk Management Plan or RMP. In building a

customized RMP, every organization should consider these

fundamental questions: 1) What is the tolerance for price risk or

volatility? (this determines what portion of demand an organization

will attempt to purchase at fixed vs. floating rates); 2) Given the

price/risk tolerance, how will the organization determine when to

lock-in fixed-rate prices?

The answers to these questions largely determine contracting

strategy. A fixed-price contract provides insurance in the form of

price/cost certainty. However, the buyer pays a premium because a

fixed price transfers risk to the energy supplier. An organization may

pay more over time for fixed-price contracts in exchange for price

certainty, predictability, and protection from spot market volatility.

For these same reasons, some organizations may prefer 100

percent spot-rate contracts on the assumption that over the long

run, they can’t “beat the market,” especially if they must pay a

premium to lock in fixed-price contracts. However, although these

companies may achieve lower long-term costs, the trade-off is much

more volatile and unpredictable energy costs which makes

budgeting and forecasting a challenge.

But once an organization decides to utilize fixed-price contracts, it

needs a strategy to determine when and how to lock in fixed prices.

Based on recent Accenture analysis, one strategy that can improve

the odds for buyers is to lock in fixed prices only when futures prices

are at or below 10th percentile levels (i.e., when current prices are in

the bottom 10 percent of observed prices for the past three years).

The chart at the top-right depicts price history for henry hub gas

futures for the winter 2013-2014 period (the polar vortex) showing

what an organization would have paid to lock in fixed prices over the

three years leading up to the delivery period. The green data points

indicate when prices were below the 10th percentile of historical

prices (in other words, at that moment in time, prices were higher

than today’s price 90 percent of the time over the prior three years).

No one can predict the future, but our analysis shows that by using

this heuristic rule, by buying at or below the 10th percentile, buyers

would have achieved price protection while also beating the market

(the settlement price) six of the last eight summer/winter seasons.

Key Action: Why discuss strategies like these now? Because

prices in many markets are at the 10th…or even the 0th percentile

today, signaling a terrific buying opportunity. Accenture works with

organizations to create a customized RMP for energy markets and

employs proprietary tools and disciplines, such as percentile buying,

to help clients execute their strategy and achieve their energy goals.

Source: Accenture, FC Stone.

$3.00

$3.50

$4.00

$4.50

$5.00

$5.50

$6.00

Dec-1

0

Ma

r-11

Ju

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'13-Mar'14 Percentile Buying

< 10th Percentile > 10th Percentile Settlement


Sources and References

EXECUTIVE SUMMARY:

• Wang, Lu and Renick, Oliver, Bloomberg Business, “American Companies

Are in Love With Themselves,” March 3, 2015. Retrieved from:

http://www.bloomberg.com/news/articles/2015-03-03/company-cash-bathes-

stocks-as-monthly-buybacks-set-record

• International Monetary Fund World Economic Update, “Uneven Growth:

Short- and Long-Term Factors,” April 2015. Retrieved from:

http://www.imf.org/external/pubs/ft/weo/2015/01/

• FactSet Earnings Insight: May 1, 2015, Retrieved from:

http://www.factset.com/websitefiles/PDFs/earningsinsight/earningsinsight_5.1

.15/view

INFORMATION TECHNOLOGY:

• Cisco Systems, “Cisco Visual Networking Index: Global Mobile Data Traffic

Forecast Update 2014–2019 White Paper,” February 3, 2015. Retrieved

from: http://www.cisco.com/c/en/us/solutions/collateral/service-

provider/visual-networking-index-vni/white_paper_c11-520862.html

MARKETING:

• IEG, LLC., “IEG Projects North American Sponsorship Spending to Increase

Four Percent in 2015.” Retrieved from: http://www.sponsorship.com/About-

IEG/Press-Room/IEG-Projects-North-American-Sponsorship-Spending-

t.aspx

FINANCIAL SERVCES:

• FactSet Earnings Insight, April 17, 2015, Retrieved from:

http://www.factset.com/websitefiles/PDFs/earningsinsight/earningsinsight_4.1

7.15/view

• Cimilluca, Dana, Mattioli, Dana and Raice, Shayndi, The Wall Street Journal,

“Rising Optimism Fuels Deal Rebound,” April 8, 2015. Retrieved from:

http://www.wsj.com/articles/rising-optimism-fuels-deal-rebound-1428538721

• Platt, Eric, The Financial Times, “US Companies Sell Record Euro Debt,”

March 23, 2015. Retrieved from: http://www.ft.com/intl/cms/s/0/36cf4210-

cf2e-11e4-b761-00144feab7de.html#axzz3ZW5wrUDU

PACKAGING:

• Dockterman, Eliana, Time, “New York City Bans Single-Use Styrofoam

Products.” Retrieved from: http://time.com/3660943/new-york-city-styrofoam-

ban/

• The Official Website of the City of New York. “De Blasio Administration Bans

Single-Use Styrofoam Products in New York City Beginning July 1, 2015,”

January 8, 2015. Retrieved from: http://www1.nyc.gov/office-of-the-

mayor/news/016-15/de-blasio-administration-bans-single-use-styrofoam-

products-new-york-city-beginning-july-1-2015.


About Accenture

Copyright © 2015 Accenture.

All rights reserved.

Accenture, its logo, and High performance. Delivered. are trademarks

of Accenture.

This document makes descriptive reference to trademarks that may be

owned by others. The use of such trademarks herein is not an

assertion of ownership of such trademarks by Accenture and is not

intended to represent or imply the existence of an association between

Accenture and the lawful owners of such trademarks.

Accenture is a global management consulting, technology

services and outsourcing company, with approximately 323,000

people serving clients in more than 120 countries. Combining

unparalleled experience, comprehensive capabilities across all

industries and business functions, and extensive research on the

world’s most successful companies, Accenture collaborates with

clients to help them become high-performance businesses and

governments. The company generated net revenues of

US$30.0 billion for the fiscal year ended Aug. 31, 2014. Its home

page is www.accenture.com.

http://www.accenture.com/home.asp

accenture spend trends report · spend trends report, a quarterly strategic report that brings...

Documents