11 August 2008 | Helen Gilbert

Many firms are not confident their sourcing function has the ability to effectively manage change caused by price fluctuations, new research has revealed.

A worldwide survey of 257 chief procurement, financial, operating and supply chain officers, found some firms expressed concerns whether procurement departments have the skills to manage change effectively in the current economic climate.

Pricing pressures and attracting talent will be the biggest challenges for procurement functions over the next two years, according to Ernst & Young's Gaining Competitive Advantage: The Procurement Opportunity. Nearly a third of respondents claimed rising raw material costs and an increasing demand to reduce customer prices would impact on businesses.

Just over a quarter felt price fluctuations of critical commodities and services would have an effect and one in five expressed fears about their sourcing function's ability to deal with the changes. In addition, 30 per cent of respondents said attracting and retaining talent would have an impact on sourcing functions.

Dan O'Regan, lead author of the report and a partner in Ernst & Young with responsibility for managing procurement practice globally told SM: "The root cause [of concern] is about the skills and talent they have in the organisation to manage them [changes]. It's a combination of whether they have the underlying systems and process to help manage them and the ability to react to changing market conditions."

He added firms should prepare by managing transformation programmes, and explore growing markets such as India and China to source raw materials and products.

SMaug2008