Gep procurement-outlook-report-2017

TABLE OF CONTENTS
Executive Summary 3
Global Business and Economic Supertrends and Their Implications
Global Trade, Populism, and Economic Growth 4
Geopolitical Instability 5
Lower Commodity Prices 6
Climate Change Uncertainty 7
Expansion of Digital Technologies 8
At a Glance: Trends and Their Impact 11
Category Trends
Business Travel 12
CAPEX & Construction 13
Professional Services – Corporate Real Estate & Facilities Management 14
Energy & Utilities 15
Logistics 15
Marketing – Advertising & Digital Agencies 17
MRO 18
IT & Telecom 19
Packaging 20

PROCUREMENTPROCUREMENT
OUTLOOK REPORT 2017
GLOBAL SUPERTRENDS AND THEIR IMPLICATIONS
3
EXECUTIVE SUMMARY
Fundamental changes in political and economic spheres characterized 2016, and will continue to have
far-reaching effects on the global business environment in 2017 and beyond. These changes spanned
regions across the world as nationalist political movements took root in various countries, challenging the
prevailing orthodoxy and status quo. The new leadership, with diverging and often contradictory ideas,
is poised to have a lasting impact on how countries and economies interrelate. 2017 is shaping up as a
repudiation of current political and economic policies, which is likely to create uncertainty in the global
economic and business environment.
Historically, financial markets abhor uncertainty, and enterprises tend to invest less in uncertain times.
Lower investments will have a dampening effect on overall global economic growth. The Conference
Board projects economic growth to continue to stagnate into 2017.
The policy agenda and personal style of the new U.S. president, Donald Trump, are a wild card. Will he
and his administration be able to realize his neo-populist political and economic program or discredit it?
The immediate answer is simply not clear. Furthermore, the United States — while still unquestionably a
global political, cultural, and economic powerhouse — is increasingly sharing the spotlight with a growing
list of emerging global players — the BRICS (Brazil, Russia, India, China and South Africa) nations among
the most prominent. We expect this evolution to continue over time, but with countervailing headwinds
increasingly possible in the near term. The huge influx of refugees in Europe and across the developed
world is pushing social cohesion to its limits and is increasingly being cited as one of the reasons behind the
rise of anti-globalization sentiments and nationalism.
The continuing debate and lack of international consensus on climate change is another possible
destabilizing factor. While there had been some measurable progress in global cooperation to combat
climate change, increased nationalism is already starting to have a dampening effect on international
policy and coordination in this area. On the potentially brighter side, a push for lower taxes, both
corporate and individual, as well as reduced government regulation, may provide a stimulus in both the
United States and Europe, if enacted. Lower growth in BRICS nations, especially China, would mean
lower demand for key commodities. Reduced demand would keep commodity prices in check.
The evolution and adoption of new, innovative technologies, such as the Internet of Things, artificial
intelligence, and virtual reality will have a profound impact on the global socioeconomic environment.
2016 saw the expansion of Internet-enabled devices and the increased use of decision-support tools
across the value chain. 2017 will be no different, except that the impact of digital will increasingly affect
sectors that formerly lagged in the application of digital technology.
Based on the above, GEP has identified the following five global supertrends to watch out for in 2017:
1. Global Trade, Populism, and Economic Growth
2. Geopolitical Instability
3. Lower Commodity Prices
4. Climate Change Uncertainty
5. Expansion of Digital Technologies
The impacts of each of these supertrends on the global economic and business environment is discussed
in the following pages, along with implications for procurement and supply chain teams.

GLOBAL SUPERTRENDS AND THEIR
IMPLICATIONS FOR PROCUREMENT LEADERS
Global Trade, Populism, and Economic Growth
Global populism has come to center stage with the Brexit vote, followed by the election of Donald Trump as
president of the United States and the fall of Italy’s reformist government. The anti-globalization sentiment
and growing sense of nationalism across the globe will put a strain on international cooperation.
There is uncertainty around trade relations between the United Kingdom and the European Union in a
post-Brexit environment, even after Prime Minister Theresa May expressed a commitment to free trade
in her speech at Davos. In the United States, President Trump has indicated strongly that protectionism
would be the rule of the day under his leadership, but this may be offset by members of his own party
and business supporters. President Xi Jinping of China, on the other hand, has talked about the need
to make the process of economic globalization more vigorous, more inclusive and more sustainable.
The recent decision of the U.S. president to pull out of the Trans-Pacific Partnership deal may mark the
beginning of a new role for his Chinese counterpart: — one that the new U.S. leadership is apparently
unwilling to play: spokesperson for world trade.
The Conference Board predicts global economic
growth to continue to stagnate throughout 2017.
Proposed tax cuts and deregulation may provide
short-term stimulus, but longer-term issues remain
— sluggish growth in advanced countries as well as
BRICS, growth of protectionism, and overall weak
business investment. Global GDP growth is expected
to end the year at a tepid 2.5 percent, with a
modest rise to a projected 2.8 percent for 2017.
Procurement Implication: Focus on Cost and Efficiencies
In 2017, the continued push against globalization and protecting national markets will force companies
to grapple with higher purchasing costs by attaining savings in other areas. They will have to look
for more local supply sources as tariffs and other policies drive up the cost of imported goods. The
anticipated continued slowdown in global trade will have an upward effect on overall procurement costs
as competition is reduced.
GEP advises procurement and supply chain leaders to focus on improving efficiencies to drive down
costs to counter upward pressure from protectionist policies. Additionally, we believe cost control will
be even more important in the face of low economic growth. As cost pressures rise, the importance
of procurement in the enterprise will be heightened to not only reduce prices of goods purchased, but
also to develop long-term collaboration with key suppliers to drive down total cost of ownership.
In 2017, anti-globalization and resulting
protectionism will drive up cost of imports and
goods purchased locally. Economic growth
is expected to continue to be tepid in both
the advanced economies as well as emerging
markets, such as BRICS. Potentially lower
taxes and less regulation offer enterprises an
opportunity to drive greater profitability.
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OUTLOOK REPORT 2017

Geopolitical Instability
Political instability was a key theme in 2016 — the refugee crisis and its dramatic impact on Europe,
conflagrations in the Middle East, and China and Russia’s assertive stance on regional issues. We are
quickly moving to a tri-polar world in which the United States’ political leadership and dominance in
global markets is increasingly being challenged by Russia and China.
Moreover, with the wave of anti-establishment populism discussed earlier, the global business
environment is characterized by risk. Three of the top five global risks identified by the World Economic
Forum deal with fiscal, political, and social instability (see Figure 1).
There’s also growing concern about diminishing commitment to global cooperation — be it through
international trade pacts or security mechanisms — on common issues and goals.
The impact of these trends is not lost on business executives — 84 percent believe that overall instability
will have an important impact on their global businesses. Business executives are increasingly convinced
that economic and political instability will need to be actively managed to minimize negative impacts.
0% 5% 10% 15% 20% 25% 30% 35% 40%
Water Crises
Terrorist Attacks
Failure of Urban Planning
Data Fraud / Theft
Cyberattacks
Interstate Conﬂict
Unmanageable Inﬂation
Failure of Critical Infrastructure
Asset Bubble
Failure of Financial Institution
Profound Social Instability
Failure of National Governance
Fiscal Crises
Energy Price Shock
Un/Under Employment
Figure 1: Global Risks of Highest Concern for Doing Business
Source: World Economic Forum
In the face of unprecedented change, global corporations must build resilient capabilities. The challenge
before businesses in 2017 will be to develop and employ the ability to continue to pursue their goals in
the face of these events.
2017 will be a year of increased change and greater supply chain risks for global corporations.
The ability of enterprises to develop and implement capabilities to effectively manage these
risks will determine winners and losers in the global economy. Political and economic instability,
disruptive events, and emerging innovation and technology will be the new normal.
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OUTLOOK REPORT 2017

Procurement Implication: Proactive Mitigation of Supply Chain Risks
Geopolitical instability is driving an increased focus on managing supply chain risk in 2017. Business
leaders will have to develop risk management capabilities to effectively address these risks. Better and
more timely information, driven by the implementation and integration of new tools and applications,
will help business leaders address these risks, but a more focused effort toward supply chain risk
management will be necessary in 2017.
Procurement, specifically, will be expected to identify, mitigate, and monitor supplier performance with
respect to potential risks to ensure efficient supply and protect supply performance outcomes. The cost
of risk is factored into the overall total cost of ownership. GEP recommends that enterprises develop and
implement a well-defined risk management process with clearly documented responsibilities.
Additionally, enterprises must use risk management tools to actively track identified risks and get real-
time information on supplier dependencies. This will allow them to immediately know where to focus
their efforts to prevent or mitigate the impact of these risks.
Lower Commodity Prices
While commodity prices rebounded in 2016, they will remain relatively low in 2017, largely due to muted
economic growth predictions in the backdrop of previously discussed economic and geopolitical trends.
In 2016, gains in oil prices were the best since 2009, but the ongoing “resource slump” will continue
as wider macroeconomic factors will keep the price of oil historically low in 2017. While we will not
experience the decade-low $29 per barrel (January 2016), oil is not expected to exceed $60 per barrel in
the near future as shown in Figure 2.
Futures
68 percent conﬁdence interval
0
40
80
120
160
200
2010 11 12 13 14 15 16 17 18 19 20
Figure 2: Oil Prices in U.S. Dollars per Barrel
Source: International Monetary Fund World Economic Outlook, October, 2016
Demand for oil is not expected to grow substantially, with slower economic growth driving down demand
in former powerhouses like China and the increasing push toward alternative sources of energy globally.
Growing concerns around trade relations between the United States and China — due to President
Trump’s protectionist policies — have also clouded the outlook for global energy demand and recovery
in oil prices. Global demand for oil could shrink further if the United States ramps up its oil production
under the new leadership’s ‘America First’ energy plan.
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OUTLOOK REPORT 2017

However, there are some factors contributing to recent price increases — OPEC agreeing on a cut in
production and supply shocks in oil-producing countries, such as Canada and Nigeria. Overall, the supply
picture is still relatively strong, especially as Iran reaches its pre-sanctions output level.
Prices for primary metals and agricultural commodities
experienced increases in 2016 as well, but again, broader
economic factors will keep them stable this year. Declining
economic growth in emerging countries, such as China
and Brazil, has weakened the demand for metals.
Agricultural production has been hit by natural disasters
in various locations (e.g., drought in Brazil, El Niño, etc.)
but prices are expected to increase marginally in 2017.
Procurement Implication: Drive Overall Value from Lower Commodity Prices
While commodity prices rebounded in 2016, they are expected to be historically low throughout 2017.
Enterprises should continue to take advantage of lower prices, but not at the expense of building long-
term supply relationships that drive down the total cost of ownership. GEP believes that procurement
professionals should develop strategies to mitigate the risk of volatility in commodities markets, not just
lower the price of each unit.
Additionally, supply chain risk should be factored into the total cost of ownership and supplier
relationships (as noted above). Suppliers may be more open to building collaborative relationships that
address customer concerns beyond price.
Climate Change Uncertainty
Environmental risks have a substantial impact on various other risk categories. According to the 2017
Global Risk Perception Survey from the World Economic Forum’s Global Risks Report, four of the top 10 risk
interconnections involve environmental risks — with water crises and failure of climate change mitigation and
adaptation cited most frequently.
Ineffective management of the earth’s shared natural resources, such as the atmosphere, high oceans,
and the Antarctic, could have far-reaching local and global consequences. For example, rapid changes
in weather patterns could lead to severe drought situations and water crises. These, in turn, could spark
geopolitical and societal risks, such as mass involuntary migration and local or regional unrest, particularly
in underdeveloped economies and geopolitically sensitive areas.
While there has been growing global cooperation to combat climate change, the election of Donald Trump
as president of the United States and increased nationalism globally may introduce stumbling blocks for
global climate change policy. The Global Risks Report cites several positive moves to reduce climate change:
ratification of the Paris Agreement, the International Civil Aviation Organization’s agreement to no net
growth in aviation emissions after 2020, agreement of parties to the Montreal Protocol to reduce the use of
hydrofluorocarbons, and an investment of $266 billion in renewable energy in 2016. However, the change
in the U.S. administration can hinder progress if the United States pulls out of the Paris accord or simply
does not adhere to the standards.
The global economy will be positively
impacted by relatively low commodity
prices in 2017, especially for oil. Lower
commodity prices will keep supply
costs low and tend to offset higher
costs resulting from political instability
and reduced global trade.
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OUTLOOK REPORT 2017

This is especially important as the United States is the leading producer of greenhouse gases and
therefore an important participant in the accord. Additionally, nationalist movements in other countries
may end up stalling the successes of United Nations efforts in this area.
However, individual countries have pledged to continue
vigorous efforts to reduce greenhouse gas emissions,
and many global corporations are on board as well.
Continued and, indeed, increased efforts to combat
climate change and drive sustainability are underway
by companies such as Coca-Cola, Nestlé, Wal-Mart,
China Steel, H&M and others. Many are signatories
to the Statement on Fiduciary Duty and Climate
Change Disclosure, which provides comprehensive and
consistent information on climate change efforts. They
collectively believe that taking action on climate change
is a fiduciary responsibility of corporations since it
impacts operations and revenues.
Procurement Implication: Drive Broader Sustainability Programs and Goals
While the growth of populism, especially in the United States, has impacted the climate change agenda,
individual governments and companies will continue to push green and sustainability initiatives. GEP
anticipates this effort to continue and increase in 2017. Global enterprises have been integrating
sustainability programs into their business activities for some time, and that trend will accelerate in 2017,
even in the face of anti-globalization efforts.
Procurement leaders will need to factor sustainability programs and goals into relationships with vendors.
These programs will increasingly gain importance as enterprises include sustainability costs into their
calculation of total cost of ownership. Procurement will need to clearly define sustainability goals and
objectives and build them into longer-term contracts with suppliers.
Expansion of Digital Technologies
Another key trend that could have far-reaching impact on the global socioeconomic environment is the
emergence and adoption of new, innovative technologies, such as the Internet of Things (IoT), artificial
intelligence (AI), virtual reality (VR), 3-D printing, and blockchain.
In 2016, we saw the expansion of Internet-enabled devices and the increased use of decision-support
tools across the value chain. In 2017, we expect the trend to continue and gain momentum in sectors
that formerly lagged in the application of digital technology. Intelligent automation technologies, such
as IoT and AI, will continue to gain traction, along with new technologies, such as VR, that have many
potential commercial applications.
Gartner predicts IoT will grow to 26 billion units by 2020, representing a 30-fold increase from 2009. This
will result in an estimated $1.9 trillion in global value added. The number of mobile devices will continue to
increase. Moreover, mobile data traffic is expected to experience dramatic growth through 2020, as outlined
While the United States may opt out
of the Paris Agreement on climate
change, individual governments will
continue to drive stricter regulations
to achieve their environmental
control targets throughout 2017.
Additionally, sustainability efforts by
global corporations will grow as these
efforts become entrenched in their
business strategies and are rewarded
by consumers.
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OUTLOOK REPORT 2017

0
5
10
15
20
25
30
35
2016 2017 2018 2019 2020
ExabytedperMonth
Figure 3: Mobile Data Trafﬁc
Exabytes per Month
Source: Cisco VNI Mobile, 2016
in Figure 3. By 2020, mobile-connected devices are projected to generate nearly eight times more traffic
than they generated in 2015. This means more people — consumers, business partners, suppliers, etc. —
will increasingly be going digital.
Additionally, 2017 will see growth in the VR experience — applying this emerging technology to
commercial activities. Alibaba’s Singles Day (the largest shopping day in the world) in November
2016 saw transactions worth $17.8 billion in a single day. Shoppers were able to use Alibaba’s Buy+
virtual shopping experience to “shop” in Macy’s in New York City without leaving the comfort of
their homes.
2017 will see the continued march
of digital capabilities across industries
and functions. It will be a driver of
growth for those that previously
lagged in digital application. AI-
enhanced tools as well as advanced
analytics will continue to grow across
the value chain.
For enterprises, information is power, driving smarter,
more efficient decisions. Increased use of digital
technology is having a profound impact on businesses,
their customers, and the relationships between the two.
Enterprises across industries are increasingly looking at
adopting cloud-computing solutions for core as well as
non-core functions. According to the International Data
Corporation IDC, the total spend on IT infrastructure
products deployed in cloud environments will hit $44.2
billion (£36.6bn) in 2017.
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OUTLOOK REPORT 2017

10
Procurement Implication: Don’t Ignore New Technologies
New technologies are transforming the way companies relate not only to their customers, but also
their business partners. The adoption of technology, both devices and software applications, across the
procurement function will continue at a rapid pace. GEP recommends that enterprises transition from
legacy, on-premises software to cloud-based solutions that are scalable and do not require substantial
investments in hardware and maintenance.
As more devices contain processors and Internet access, a growing number of indirect- and direct-spend
categories will be monitored automatically without manual intervention. For example, internet-enabled
sensors can be used to monitor categories, such as machine or building maintenance, and determine
when replacement parts or supplies need to be ordered.
Artificial intelligence is a logical next step as machines “learn.” Procurement specialists will browse,
select, order, and process services and products more efficiently using artificial intelligence. This will
further reduce the level of manual intervention required. While the impact of cutting-edge capabilities
such as artificial intelligence has yet to play out, 2017 will see them become more embedded in
how procurement functions. These new technologies will raise the profile of procurement in the
supply chain.
Continued on page 11
OUTLOOK REPORT 2017

At a Glance: Trends and Their Impact
Trend Prediction Procurement Strategy
Global Trade,
Populism,
and Economic
Growth
Uncertainty around the effect on free trade between
the United Kingdom and European Union in
a post-Brexit environment
Stagnating global economic growth with weak demand
for exports in both developed and developing countries
Potentially lower taxes and less regulation
in the United States
Optimize processes and drive
greater efficiencies to reduce costs
Identify and develop more local
sources of supply
Collaborate long-term with key
suppliers to drive down total
cost of ownership
Geopolitical
Instability
Anti-establishment sentiments around the world
to increase business and economic risks
Failure of national governance to impact trade,
job creation, and economic development
Develop and enhance supply chain
risk management capabilities
Identify, mitigate, and monitor
supplier performance with
respect to potential risks
Deploy risk management tools to actively
track identified risks and get real-time
information on supplier dependencies
Lower
Commodity
Prices
Oil prices unlikely to exceed $60 per barrel
due to various macroeconomic factors
Prices for primary metals and agricultural
commodities likely to remain stable
Develop purchasing strategies to mitigate
the impact of volatile commodities market
Focus on building long-term supply
relationships that drive down the total
cost of ownership and minimize risk
Climate
Change
Uncertainty
The new leadership in the United States may have a
dampening effect on global climate change policy
Many governments will continue to drive
stricter regulations to achieve their environmental
control targets
Nationalist movements in some countries
may stall the efforts of the United Nations
Overall, sustainability efforts by global
corporations will grow
Clearly define sustainability
goals and objectives
Factor sustainability programs
and goals into relationships
with suppliers
Expansion
of Digital
Technologies
Spend on IT infrastructure products deployed
in cloud environments will continue to grow
Continued expansion of internet-enabled devices
and increased use of decision-support tools across
the value chain in new sectors
Intelligent automation technologies, such as the
Internet of Things (IoT) and artificial intelligence (AI),
to gain traction
Application of virtual reality (VR) technologies in
commercial activities
Transition from legacy, on-premises
sourcing and procurement software
to cloud-based solutions
Explore robotic process automation
and AI-enabled tools for automating
sourcing and procurement processes
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OUTLOOK REPORT 2017

CATEGORY TRENDS
Business Travel
In 2016, high-profile mergers and Brexit caused ambiguities in the travel industry. In 2017, besides the
evolving travel-related technologies and payment solutions, shared-economy consolidation in business
travel portfolios and traveler safety will take center stage in corporate travel programs.
Traveler Safety
With nearly 50 percent of travel sourcing managers expecting a rise in travel-related risk, employee safety,
security and tracking for cross-border travel assignments will remain an area of focus for employers.
Travel risk management companies (TRMCs), such as iJET, SOS, Drum Cussac, and red24, have begun
offering clients travel tracking, real-time intelligence, country profiles, medical and evacuation support
as well as proactive risk assessment. In 2017, an increasing number of employers will upgrade their
travel risk programs from basic duty-of-care subscriptions or technology services to include emergency
assistance services.
The shared-economy business model will play an integral role in the corporate travel industry with names,
such as Airbnb, Lyft, and Uber, continuing to redefine traditional travel programs. Airbnb has so far
partnered with three travel management companies (American Express GBT, BCD Travel, and Carlson
Wagonlit) for nearly 10 percent of overall corporate bookings. Ride-sharing apps such as Lyft and car
rental companies have gained momentum in ground transactions and, in some cases, also collaborated
with each other, making possible a three-way tie-up that sourcing managers can consider during the next
negotiation cycle.
Virtual Cards
Another trend in business travel that will continue to gain momentum in 2017 is that of virtual card
payments, such as the Sabre virtual payment solution and Amadeus B2B prepaid wallet, for air, rail,
car rental and ancillary services. These virtual cards allow corporate travelers to earn rebates, automate
payments to suppliers and avoid surcharges on certain merchant transactions. The year-on-year growth of
travel agencies using virtual cards increased by 130 percent in 2016.
AMEX GBT acquired the corporate travel and expense management technology firm KDS to boost its
online booking presence with the latter’s proprietary online booking platform, Neo, which helps travel
managers optimize spend. Similarly, Concur, a travel expense management platform, recently partnered
with analytical services firm Scope 5 to simplify tracking of carbon emissions from business travel and
internal carbon accounting.
Usage of wearable technology aimed at smart business travel is expected to grow among industry
stakeholders. Hospitality firms, such as Starwood Hotels & Resorts Worldwide and International Hotels
Group, have developed apps that allow guests to control their room access, navigate the city or even
translate multiple languages using an all-in-one integrated system worn on the user’s wrist.
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OUTLOOK REPORT 2017

Airfare & Hotel Rates
Airfare in North America is forecasted to increase by 3 to 4 percent in 2017 due to rising oil prices and
increasing investments in new products and services. Hotel room rates are also set to increase by about
4 percent due to accommodation shortages and rising investments in technological upgrades.
In the aviation space, Delta and Virgin Atlantic plan to cut capacity for trans-Atlantic routes due to
concerns over stagnant business and the impact of Brexit. The Asia-Pacific (APAC) region is expected to
witness moderate growth in hotel and airfare rates with key markets, such as China, Japan, and India,
experiencing overcapacity. The emergence of new partnerships for low-cost carriers will be something to
watch out for in 2017.
CAPEX & Construction
The global Engineering, Procurement and Construction (EPC) market is poised for steady growth in
2017. Major policy changes will drive construction activity in the United States, while investments
in India and China will spur construction projects in Southeast Asia. Europe — impacted by policy
uncertainty — and Latin American countries affected by economic contraction are likely to see lower
growth in 2017.
Infrastructure Push in the United States
The stimulatory policy platform proposed by the new U.S. government is expected to bring favorable
changes to the EPC sector in the long term, although its short-term impacts may not be visible. Though
the new government has plans to invest almost $550 billion to rebuild the country’s infrastructure,
it’s likely that the proposal will not be approved by Congress until fiscal 2018 (which starts in October
2017). Moreover, getting the necessary permits could further delay infrastructure projects. The fiscal
stimulus of tax cuts and infrastructure spending would only be reflected in the GDP growth of 2018
and 2019.
Uptick in the Oil & Gas Sector
The slowdown in China impacted commodity and crude oil prices in 2016. However, crude oil prices are
predicted to recover and stabilize in 2017 with OPEC’s decision to limit production. This price increase
could bring back investments in the oil and gas sector and provide a marginal thrust to the engineering
and procurement spend across the industry.
Overall, the CAPEX and construction spend in 2017 will grow by 1 to 2 percent in developed economies
and at a marginally higher rate in developing regions. Sales of construction equipment are expected to
increase by around 5 percent in 2017, after nearly five years of slowdown.
For procurement managers, “Design and Build” and “Management Bid” will continue to remain the two
most popular methods of managing large-scale construction projects.
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OUTLOOK REPORT 2017

Professional Services – Corporate Real Estate &
Facilities Management
Corporate real estate global leasing for office areas in 2017 will remain near stagnant or exhibit low,
single-digit growth in Europe and North America. South America and APAC regions will exhibit stagnant
or decreasing growth.
End-clients will focus on benchmarking their real estate KPIs against industry standards and identify
opportunities to reduce their footprint. In some firms, the ratio of employee to station is gradually
decreasing to one. However, companies that want to maintain their brand image will continue to exempt
their global and regional headquarters from these parameters.
In line with the global push for climate change policies and regulations, the use of sustainable real estate
practices is an emerging trend in the property management sector. Developing efficient designs to reduce
energy consumption by buildings is a high priority, incorporated into the earliest stages of a project.
The use of renewable sources and continuous measurement of energy consumption helps managers to
maximize cost savings.
In 2017, knowledge management will be the biggest “barrier breaker” between corporate real estate
and the facilities management sector. The changes can be in the form of strategic ideas, paradigm shifts
or better operational processes. Category managers could turn to service bundling and performance-
based pricing models to generate savings and drive innovation among suppliers.
Growth of Integrated Facility Management
In the facility management category, the growth of outsourcing services will remain strong with
significant contributions from the emerging APAC markets. As time progresses, enterprises will face
higher scrutiny and tighter regulations from health and safety regulatory bodies. Many companies will
outsource their regulatory compliance requirements to facility management services providers, with
service-level agreements in place, to take on the associated risks.
The Integrated Facility Management (IFM) market, which is expected to grow at a 6 to 8 percent CAGR
and touch the $1.3 trillion mark in 2018, will further fuel the growth of outsourcing.
The go-green trend will continue in 2017 and beyond, with increasing number of facility managers
looking for ways to make their operations more environmentally friendly through recycling, reducing
waste and using environmentally safe products.
Intelligent Automation Technologies
Another key trend in facility management will revolve around the rapid adoption of IoT, which is currently
in its early stages. IoT will connect data, objects, processes, and people to make work environments
smarter and soon will become the new normal. In the near future, IoT will be supported by Light Fidelity
(LiFi), which would provide super-fast wireless network connectivity through LED lighting. This has the
potential to minimize infrastructure commitments, reduce associated capital expenses and ongoing
operating costs, and also reduce emissions and waste.
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OUTLOOK REPORT 2017

Energy & Utilities
The dynamics of the global energy sector continued to change in 2016, with most economies favoring
a mixed portfolio of energy supply, including nuclear, coal, oil, natural gas, and renewables, such as
wind, solar and biomass. In 2017, declining per-megawatt costs, auctions, technology innovations and
favorable policy regulations will drive the growth of renewable energy. This year, the market will continue
to see significant gains in renewables and natural gas due to the increasing demand for cleaner energy
sources and the price/supply advantages of natural gas.
In 2016, natural gas surpassed coal to become the leading energy source for power, with price difference
being a key driver. The outlook for the coal industry in 2017 remains subdued, with declining demand
from major energy-consuming economies, such as the United States, China, and India, that are
increasingly switching to other sources of energy.
According to Energy Information Administration (EIA) reports, the global oil inventory build is at an
all-time high, and 2016 witnessed crude oil prices in the range of $42-$55 per barrel. These prices are
expected to moderately stabilize in 2017 if the OPEC and non-OPEC members, including Russia, agree to
revert to July 2016 inventory levels. This reduction will account for just 2 percent of the global supply, and
the subsequent rise in prices may lead to the United States and OPEC increasing production, resulting in
price drops in the latter half of 2017.
In the United States, oil drilling and shale extraction is likely to increase energy independence. The Keystone
XL Pipeline is expected to get approval in 2017, supporting the infrastructure-building commitment of the
new administration. With factors such as China building strategic reserves and the increasing preference for
alternative energy sources, the demand for oil should experience its slowest growth since 2014.
Changing political landscapes in the United States will challenge many environmental regulations, imposed
by former administrations, which are viewed as over-reaching and damaging to the economy — particularly
the U.S. Clean Power Plan of 2015, which in February 2016 was temporarily blocked by the government.
These repeals could, over the next decade, slow down the premature mothballing of usable assets and spur
new CAPEX investment.
With growth in confidence in the U.S. economy under lower taxes and less regulation, anticipated federal
rate hikes in 2017 are likely to have a negative impact on the high-debt power and utilities business. This
may moderate some investments and share prices, but would likely be offset by higher demands from rising
GDP levels.
Logistics
The logistics industry witnessed several game-changing events in 2016. The impact of many of these
events would continue well into 2017. While the news of Hanjin Shipping’s bankruptcy dominated most
logistics discussions, there were many other key changes in the market landscape, including TransForce’s
acquisition of Con-Way Truckload (XPO), Schneider’s dual acquisition of both Watkins & Shepard and
Lodeso, and other technology-related acquisitions. M&A activity is expected to go up in 2017 as more
enterprises view it as a strategy to reduce debt or quickly add capacity.
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OUTLOOK REPORT 2017

Internal supply chain changes, such as near-shoring, optimization of networks, or greater reliance on drop
shipping, may impact the way enterprises interact with their logistics partners. The churn in the carriers’
client base will increase in 2017 and help keep pricing in check. The $1 trillion infrastructure investment
committed by the new American leadership to improve roads, bridges, ports, and airports is only about a
quarter of what is actually required, according to the American Society of Civil Engineers. But it will also
help mobilize some public-private investment that will further improve infrastructure.
Modal Trends
Truckload: The U.S. economy is predicted to
grow at a rate of 2 percent in 2017. Though the
first half of 2017 may remain sluggish, conditions
may change in the next 12 to 18 months. If it
grows at a faster rate, total truckload market
capacity will be consumed and carrier prices will
increase. To tackle this uncertainty, enterprises
must secure rates and capacity with carriers in the
first half of 2017.
Less-Than-Truckload: Carriers in this category
are reforming themselves to align for a higher
market share — evident from recent mergers
and increased real estate purchases for expanded
cross-dock and warehouse locations. This will help
shippers grow and expand e-commerce, and also
fulfill drop-ship requirements for many of them.
Nominal year-on-year rate increases are expected
in 2017.
Ocean: The ocean freight market was in
turbulent waters last year, and this situation will
continue due to excess capacity. Like Hanjin,
several more carriers continue to be at risk. Every
aspect of the industry — from shipbuilding to
drayage — will focus primarily on survival and
gaining market share. Rates are expected to
remain lower than pre-recessionary levels for
at least another 12 to 18 months.
Air Freight: Air freight has been impacted by many of the same challenges affecting ocean freight — the
global economic slowdown, supply/demand imbalance and currency fluctuations. This drove down carrier
load factors and yields, while providing double-digit savings in 2016. Expect 2017 to be stronger for air
freight across most trade routes with the exception of Latin America.
16
Disruptive Technologies
Technological advancements will have
far-reaching impacts on transportation in
the years to come. In September 2016,
the U.S. Department of Transportation
enacted new rules that allow
manufacturers to circumvent a patchwork
of state approvals for autonomous/semi-
autonomous vehicles. Until December
2016, eight states allowed these vehicles
on the roads; this number is expected to
double in 2017.
Innovations in automotive technology,
such as hydrogen-powered fuel cells and
lighter and easier-to-maintain vehicles
made from composite materials, as well
as integrated in-cab dynamic routing —
though years away — will change the
transportation market quickly.
In 2017, we will see larger acceptance
of technology-driven activities, such as
“convoying,” “Uber-ing,” “roadies” and
“simplifiers,” which take advantage of
the complex, data-driven supply chain to
engage available market capacities and
provide timely, cost-effective service.
OUTLOOK REPORT 2017

Railroads: In 2016, Class I rail lines witnessed the lowest total tonnage in 10 years and this trend is likely
to continue in 2017. Weaker demand and pricing will benefit commodities using intermodal transport,
but the rail lines themselves will struggle with a glut of previously ordered rail cars as well as lower
demand for fuel/shale oil.
Strategies to address short-term market fluctuations:
• Source in the initial months of 2017
• Focus procurement activities on driving value, not just savings
• Infuse innovation into supplier contracts
• Use data-driven analytics optimally
• Manage risks and remain flexible to change
Marketing – Advertising & Digital Agencies
The growth rate of the global advertising industry in 2016 was about 4 percent. Major events such as
the Rio Olympics and the U.S. presidential elections boosted demand, although slowdowns in China and
Brazil restricted the growth rate. The industry is expected to cross the $550 billion mark in 2017 with a
steady growth rate of 4.5 percent.
Brexit had no tangible effect on macro indicators, and so had very little impact on the advertising industry.
However, the next six months could see reduced advertising budgets across the United Kingdom.
Digital Spend to Continue to Grow
Digital spend is expected to rise from 31 percent in 2016 to 33 percent in 2017, driven largely by mobile
and social media. Digital is likely to contribute one-third of the overall ad spend this year.
Mobile ads, which are fast replacing desktop ads, are expected to contribute around 67 percent of the
digital spend in 2017, and touch the 70 percent mark by 2019.
Television would continue to grow at 3 percent, while print is expected to decline at 3 to 4 percent.
Greater Adoption of Programmatic Advertising
Programmatic advertising will continue to be the fastest-growing digital channel, with a growth rate
of 30 percent in 2017. It is expected to contribute to 55 to 60 percent of the total display ad spend.
Many TV, radio and digital OOH platforms have started providing automated inventory data.
As more aggregators enter this space, programmatic tool companies will look at expanding their
service capabilities.
With increasing spend on programmatic advertising across channels, content disruption will remain one of
the major challenges for marketers. An increasing number of digital agencies have begun offering a suite of
content strategy and marketing automation technologies to address these challenges.
17
OUTLOOK REPORT 2017

Clients are demanding better marketing automation and integrated marketing analytics, tools and
services. This has led service providers from multiple domains, such as core analytics, digital, marketing
automation, and consulting to enter this space. APAC and Latin American markets have witnessed
the emergence of new integrators. Many digital activities, such as digital analytics, will continue to be
outsourced to emerging markets.
MRO
The global MRO market — estimated at $500 billion in 2016 — is expected to grow moderately in 2017,
driven by new capital additions and a drop in the average age of private equipment (around nine years).
The demand from commercial, institutional, and government sectors will be stronger compared with
the construction and utility segments. General MRO companies, such as MSC Industrial and Wesco, are
expecting a sluggish first half in 2017.
The growth of Amazon Business is expected to continue as the marketplace will see a renewed challenge
from the online giant. Within its first year (2015), Amazon Business had revenues over $1 billion and by
mid-2016 it had about 400,000 accounts. Although the company’s initial target customers were small
and medium enterprises, larger firms have also shown interest in buying from Amazon Business.
In the MRO space, Grainger increased its online sales to almost 46 percent of the total share by Q2
2016. With buyers comparing prices and choosing the best offers, this trend of increasing online sales
is expected to continue in 2017. Amazon Business goes a step further and offers negotiated prices,
customized for each buyer. Currently, the Amazon Business product portfolio is much broader than
Grainger, MSC Industrial, and W.B. Mason.
Rationalization and supplier consolidation continue to be the preferred avenues for cost savings for
many enterprises. Bundling value-added services, lower freight costs, and payment discounts are some
additional means through which buyers can capture further savings.
18
OUTLOOK REPORT 2017

19
IT & Telecom
This sector witnessed events in 2016 that will have far-reaching impacts in 2017 and beyond for both
the supply- and demand-side stakeholders. Sweeping changes in the supply landscape resulting from
multiple amalgamations across IT categories, subdued spending sentiments arising from uncertain global
politics, increasing consternation surrounding enterprise security, and the massive onslaught on the labor-
arbitrage economy led by the rapid emergence of automation/AI is set to transform buy- and sell-side
equations as never before.
Rise of Bimodal IT Enterprises
The rise of bimodal IT enterprises has changed the rules of engagement between enterprises and
suppliers. While Mode 1 of the bimodal setup primarily focuses on the traditional technology stacks
that are predictable and well understood, Mode 2 will be more enterprising and risk-taking in approach.
In 2017, IT sourcing and procurement executives will be expected to realign approaches and category
strategies — not only with the CIO but also other stakeholders, such as the strategic business unit heads
and the CMO, who are expected to own the budget on digital and emerging technology stacks.
Receding Labor-Arbitrage Economy
Several factors, such as sub-optimal buyer experiences, lack of innovation and an overt focus on cost
reductions, have supported the rise of the automated economy. While the impact of automation
on innovation is questionable, its impact on generating incremental and unmatched cost savings is
unquestioned. There will be a spurt in insourcing activities in 2017 and beyond as buyers will seek to
lessen their dependence on labor-driven outsourcing relationships and introduce automation approaches
in their own offshore captive centers.
Third-party advisory services will be sought to identify the right automation platform and vendor.
Traditional IT outsourcing service providers will remain afloat — some will evolve into go-to-market
partners for automation software and platform providers, and others will invest in their own automation
initiatives to propose “economical” outsourcing partnerships to their prospective bidders.
Cloud 2.0
In 2017, enterprises will look at incorporating the multi-cloud element into their infrastructure and
software category strategies. In the past, IT sourcing organizations have experimented with multiple
providers and contracts for PaaS, IaaS, and SaaS, but in 2017 — as the Cloud 2.0 phase kicks in —
enterprise buyers will target building strategic vendor relationships and seek to consolidate their vendor
portfolio. Service providers offering an aggregated bundle of IaaS, PaaS and SaaS offerings are likely
to benefit from this shift. As we move closer to 2018, the acceptance and penetration of cloud-based
products will increase, and getting stakeholder buy-ins for the on-premises approach will become
increasingly difficult.
OUTLOOK REPORT 2017

20
Impact of Software-Defined Everything (SDx) on Spend Portfolios
The Open Networking Foundation-led software-defined movement is beyond theory, with commercial
offerings and use cases around networking (SDN), wide-area networks (SD-WAN) and storage (SDS)
being available. With many enterprise hardware contracts nearing their end, IT sourcing and procurement
executives will be pushed to evaluate SDx
offerings that offer increased flexibility and
better cost savings than traditional hardware.
SDN and SD-WAN technologies will be more
popular as the use cases point to savings in
the range of 30 to 45 percent over traditional
hardware approaches (for a three- to five-year
contractual arrangement).
In 2017, IT sourcing and procurement
managers cannot simply confine themselves
to tactical tasks and metrics that are largely
targeted toward cost savings. With the
increasing relevance of a bimodal approach,
IT sourcing and procurement managers
will be challenged to be more agile and
responsive. Many IT global category
managers will choose to have two separate
teams — a core cost-optimization team
that focuses on delivering incremental cost
savings, and a new cohort of category experts
that deliver on the non-tactical strategic goals
of innovation and risk mitigation.
Telecom Services and Media Stacks
Saturation in subscriber growth has impacted
traditional revenue streams of communication
service providers. In 2016, leading
telecommunication services companies lined up
to acquire media and advertising firms in a bid
to expand and diversify their revenue streams. In
2017, communication service providers will focus
on providing integrated omni-channel experiences
for their user base and have a transformative
impact on sourcing and procurement. It
is expected that budgeting decisions for
communication services and media/content
distribution services will be consolidated, and
procurement executives will need to seamlessly
collaborate with the CMO and CTO offices for the
consolidated portfolio. In 2017, expect sourcing
executives to drive aggressive savings discussions
(and seek to generate savings in double digits) as
the spend portfolios converge.
Packaging
The packaging industry enjoyed higher profit margins in 2016 due to falling oil prices. However, 2017
will be unpredictable, factoring in OPEC’s cutbacks on production and muted demand from the world’s
largest consumer, China. Packaging manufacturers are expected to absorb the volatility until oil prices
stabilize, while growing at 3.4 percent annually to reach $60 billion in 2020. GEP expects global pricing
to increase on average by 3 percent in paper packaging and by 5 percent in plastic packaging in 2017.
Digitalization will govern buyers’ outlook toward packaging, and competitive pressure will compel
enterprises to quickly adopt new products and innovative technologies. Packaging is likely to get more
interactive and socially connected in 2017.
Influenced by connectivity and mobility, packaging labels are becoming interactive through Near Field
Communication (NFC) and Bluetooth Low-Energy (BLE). This smart, active and intelligent packaging
stores information, such as whether the product is genuine or has been opened and resealed. Companies
like Wal-Mart and Amazon are pushing intelligent packaging to new levels with help from innovative
OUTLOOK REPORT 2017

21
digital companies. Wal-Mart leveraged technology to provide its suppliers instant access to inventory
via smartphones, while Amazon Go enabled checkout-free stores with RFID-embedded packaging that
interacts directly with smartphones.
The industry will continue to move rapidly toward sustainable packaging made from recycled or
biodegradable material. While North America and Europe lead the globe in sustainable packaging, Asia
is expected to catch up quickly. With the pressure of environmental legislation to reduce the ratio of
packaging to product weight and new lines of high-performance resins for packaging, the industry is
expected to down-gauge materials. 3-D printing, active packaging and Modified Atmospheric Packaging
(MAP) will gain traction to fight waste production in the supply chain
OUTLOOK REPORT 2017

RECOMMENDED READING FOR SOURCING AND PROCUREMENT PROFESSIONALS
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