Q1 2014 Spend Trends Report Insights

2 Copyright © 2014 Accenture. All rights reserved.
Insights Born from Experience
We are pleased to bring you the new Accenture Spend Trends
Report, which combines the Accenture Supply Watch with the
Procurian Spend Trends Report and reflects the best thinking,
insights, and intelligence from both publications. We are excited
about having doubled the size of our team though the combination of
category specialists from Accenture and Procurian, which provides
even more market activity, data, and experience to draw upon.
Our team helps more than one hundred clients optimize billions of
dollars of spend across the globe. This means they are in each major
supply market dozens, sometimes hundreds of times a year. The
result: powerful aggregate supply market intelligence and a unique
set of cross-client spending and spend management insights.
With this unique set of intelligence and insight, we have compiled a
summary of the top trends we are observing in each major area of
spend—whether changing market dynamics or new spend
management strategies—and offer new initiatives to consider.
Our core commitment is to deliver actionable insights and market
intelligence to you, our clients. We welcome and encourage your
feedback to help make this report more valuable to you.
Keith Hausmann
Managing Director, Global Delivery for Procurement BPO
Accenture Operations
Author:
Mark Hillman—Manager, Market Insights & Analysis—Accenture Operations
Category Specialist Contributors:
Ed Sands—Logistics
Ryan Shadle—IT/Telecom
Greg Coletto—Marketing
Perianne Grignon—Media
Peter Hirano—HR
Manfred Vogels—Contingent Labor
Allan Brown—Travel
Luis Gile—Equipment, Engineering, and Construction
Vladimir Ryabovol—Packaging
Ravi Sethi—Global Raw Materials
Cobb Pearson—Energy
CATEGORY EXPERTISE
ANNUAL
PROJECTS
SUPPLY MARKET
EXPERTS
MRO / Facilities 597 ~ 80
Logistics 291 ~ 50
Marketing 989 ~ 80
Corp. Services 1,036 ~ 60
IT/Telecom 1,464 ~ 70
Direct Materials 282 ~ 30
Capital (EEC) 765 ~ 40
Travel 589 ~ 30
Energy / Sustainability 515 ~ 30
Sourcing Utility/Spend Managers -- ~ 600
TOTAL 5,158 ~ 1,050

Executive Summary and Macroeconomic Backdrop
Notable highlights from the first quarter:
• S&P 500 Index +176% since the March
‗09 bottom; +19% in the past year
• Business sentiment improving;
consumer confidence strong
• Developed markets strengthening;
emerging markets hit speed bumps
• Mergers & Acquisitions activity +52%
y/y, best start since 2007
• Two-year budget deal helps reduce
regulatory/governmental risks
• Cash levels continue to reach record
levels but high capacity utilization levels
point to higher capital spending
Overall economic conditions continued to improve in the first quarter of 2014. There are signs that confidence is
returning to the market with global mergers and acquisitions (M&A) activity up more than 50 percent vs. the same
period last year. Business demand for credit is on the rise, and survey data indicates that more CEOs plan to
boost capital spending in the coming years to meet more stable demand. At the same time, improving global
demand growth could lead to more commodity cost pressure. In such an environment, businesses will require
keen supply market intelligence in order to support growth initiatives while managing cost pressures.
50
60
70
80
90
100
Jan-07
Apr-07
Jul-07
Oct-07
Jan-08
Apr-08
Jul-08
Oct-08
Jan-09
Apr-09
Jul-09
Oct-09
Jan-10
Apr-10
Jul-10
Oct-10
Jan-11
Apr-11
Jul-11
Oct-11
Jan-12
Apr-12
Jul-12
Oct-12
Jan-13
Apr-13
Jul-13
Oct-13
Jan-14
Apr-14
Consumer, Business Confidence Levels Near Multi-Year Highs
University of Michigan Consumer Confidence NFIB Small Business Optimism
Recession

Worldwide Gross Domestic Product
(GDP) Growth Forecasts Tick Down for
2014 as Emerging Economies Slow;
Outlook Stable for 2015: The U.S.
economy has continued its slow and steady
recovery while Europe, still dealing with high
levels of unemployment and highly varied
levels of economic activity across the Euro
zone, is moving from recession to recovery.
At the same time, emerging economies are
experiencing more volatility and GDP growth
estimates for China continue to moderate in
the 7 percent range after nine years of
growth in excess of 9 percent.
Bringing it all together, in its most recent
World Economic Outlook Update, the
International Monetary Fund (IMF) slightly
lowered its outlook for 2014 (3.6 percent vs.
prior 3.7 percent estimate) based on
emerging markets volatility, while the outlook
for developed economies remains strong.
The IMF continues to expect GDP growth to
accelerate to 3.9 percent in 2015.
Source: International Monetary Fund World Economic Outlook
3.3%
4.0%
3.1%
3.8%
2.9%
3.6%
3.0%
3.7%
3.9%
3.6%
3.9%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
2013 2014 2015
IMF Worldwide GDP Forecast Updates
Apr-13 Jul-13 Oct-13 Jan-14 Apr-14

$200
$300
$400
$500
$600
$700
Repurchases Capex Dividends
2011 2012 2013 2014E
Outlook for Investment Spending Continues to Improve: A curious
chicken-and-egg problem has been a recurring theme of the current
economic recovery: corporations have been hesitant to make new capital
investments because of concerns over whether the economic recovery is
sustainable…but in order to have confidence in the recovery we need to
see more capital investment.
The result of this dynamic has been that corporations have focused on
returning cash to shareholders though growth in dividends (+24 percent in
2013) and share repurchases (+23 percent in 2013) at the expense of
capital investment (see chart below), but that trend is expected to change.
According to data from FactSet Research Systems, Inc., analysts estimate
that capital spending will rise 6 percent in 2014 after rising by less than 1
percent in 2013. One possible reason: the strong rise in stock market prices
means that share repurchases are more expensive and deliver less bang
for the buck than they did just six to twelve months ago, making share buy-
backs a less appealing use of capital.
Other factors support the case for improving capital spending. The age of
corporate fixed assets is at multi-decade highs, and capacity utilization
reached 79.2 percent in March (see page eleven), a post-recession high. At
levels above 80 percent, strong capital investment tends to follow.
Additionally, nearly half of the 122 CEOs surveyed in February and March
by the Business Roundtable said they planned to boost capital spending in
2014 vs. 39 percent of CEOs last year.
Another survey just released by the National Association for Business
Economics showed that 61 percent of corporate economists expect their
firms to increase capital spending in 2014 compared to an average reading
of 52 percent over the past four quarterly surveys.
Improving Confidence Driving Robust M&A and IPO Activity: Investors
seem to be encouraging companies to focus on growth over simply
returning capital to shareholders. Global M&A volumes climbed more than
50 percent in the first quarter of 2014, but most notably, for announced M&A
deals of $1B or more, 72 percent of the acquiring companies saw their
share prices rise after announcing acquisition (vs. the long-run average of
50 percent). This implies that investors are applauding efforts to grow the
top line via acquisitions. In addition, with the rise of the stock market over
the past several years, potential acquirers have stronger currency (stock)
with which to make potential acquisitions.
Initial public offerings (IPOs) also grew 41 percent year over year to more
than $11B, reflecting strong demand in capital markets and providing more
capital for growing companies to invest.
S&P 500 Companies Use of Cash (USD in Millions)
(4)%
24%
11% 0%
6%
22%
7%
Source: FactSet Research Systems, Inc.

Keep an Eye on Inflation as Economic Activity Rebounds: Increased
economic activity and growth in capital spending is almost universally
positive. However growth in investment and end demand can mean greater
risk of inflation. A recent survey conducted by the national Association of
Business Economics found that 31 percent of businesses saw higher
material costs in the first quarter (double the prior survey) and 35 percent
reported rising wages and salaries.
Oil prices continue to climb steadily higher (see below) with potential
impacts on a variety of input costs as well as logistics costs. Natural gas
also continues to rise, and experience elevated levels of volatility (see page
thirteen). As growth picks up, labor shortages are more likely to be
exacerbated, requiring companies to consider new approaches to manage
recruitment and retention, as well as likely labor cost inflation.
As we will discuss throughout this report, to effectively capitalize on growth
opportunities while also managing inflationary risks will require deep skill
and category market insight.
Q1 Spend Trends: The Big Five
• Coping with Skills Shortages Becoming a Core Competency: As the
economy recovers, skills shortages and wage inflation pressures are
rising for more skilled and semi-skilled occupations, requiring firms to
adopt a more robust total workforce management strategy to meet
demand for skills and keep a lid on labor costs while also managing risk.
• Tightening Logistics Market Requires New Strategies to Fulfill
Demand: In the over-the-road market, carriers have been reluctant to
add new capacity, fearful of another economic pullback. Now, with
demand improving, shippers need to look at ways to become more
driver-friendly as they are forced to compete for scarce supply.
• Energy Budgets Under Pressure from Volatility, not Just Rising
Costs: In Q1, energy and power prices reached levels of volatility not
seen for years—requiring energy users to consider new strategies to
manage energy costs and risk.
• Regulations Increasingly Driving Capital Investment Cycles: Not
only are assets aging, and capacity utilization levels high, but regulations
on air pollution and water use are forcing capital upgrades—and
opportunities for major efficiency gains—in certain segments.
• Rise of Shadow IT Shifts Role of IT Organization: The pervasiveness
of Software-as-a-Service (―SaaS‖) has allowed functional departments to
acquire point solutions for specific functions, resulting in unmanaged
―Shadow IT‖ spend which IT will need to tackle through increased
partnership with business stakeholders.
Source: US Energy Information Agency
$30
$40
$50
$60
$70
$80
$90
$100
$110
$120
Apr-09
Oct-09
Apr-10
Oct-10
Apr-11
Oct-11
Apr-12
Oct-12
Apr-13
Oct-13
Apr-14
Cushing Crude Oil Weekly Futures Contact Price
(past five years)

ENERGY
EQUIPMENT, EN
GINEERING, &
CONSTRUCTION
CORPORATE
SERVICES—
TRAVEL
CORPORATE
SERVICES—HR
MARKETING
& MEDIA
LOGISTICS
INFORMATION
TECHNOLOGY
INDUSTRIAL
& MRO
(4)%
(2)%
0%
2%
4%
6%
8%
10%
Jan-07
Jul-07
Jan-08
Jul-08
Jan-09
Jul-09
Jan-10
Jul-10
Jan-11
Jul-11
Jan-12
Jul-12
Jan-13
Jul-13
Jan-14
12-Month % Change 12-Month Moving Avg.
Top Trends in Logistics
Competing on Convenience? New Strategies Required in Tightening Over-the-Road Supply Market: So, you spent the winter
months successfully negotiating favorable truckload rates for your most important routes…but now there seems to be a problem: your
preferred carriers are not taking your loads, resulting in higher than expected truckload costs. The result: scrambling to find carriers
with capacity (likely at a higher rate than anticipated) and the risk of poor delivery performance to your best customers. Several factors
are at play. As the economic recovery continues, demand for over-the-road capacity continues to rise. At the same time, there is a
supply crunch as carriers struggle with aging workforces, high turnover rates, and regulations forcing them to hire more drivers to ship
the same volumes. Although average hourly wages for drivers are on the rise, recruitment remains a challenge for carriers. With more
demand and tight supply, carriers and drivers are pickier about which loads they will accept. If drivers have to spend six hours waiting
for a slot on the distribution center dock, they lose earnings potential (most drivers are paid on a per-mile basis). Shippers increasingly
need to ask, ―Am I a driver-friendly shipper with a facility that is efficient and well managed?‖ to lower the risk of delivery performance
problems and higher logistics costs.
Key Action: The increasingly tight truckload market is raising this issue to the executive level. Shippers should investigate the costs of
being driver un-friendly, and actively discuss ways to create driver-friendly facilities, build top-to-top relationships with carriers, and
provide more visibility to forecast demand and customer requirements.
P3 Alliance Ushers in a New Era for Ocean Shipping—How
to Respond: In March, US regulators gave approval to the
―P3‖ Alliance which combines the three largest global container
shipping firms into one operating alliance that could control
more than one-third of global shipping volume. The ocean
freight market has dealt with overcapacity for years, leading to
favorable rates for shippers. The alliance promises better
vessel utilization, and potentially better profits for ocean
carriers. The competitive response to—and ultimate impact
of—the P3 alliance is yet to be determined, but if prices were to
rise 25-50 percent (likely what shippers need for sustainable
economic returns), companies will need to re-assess global
sourcing strategies.
Key Action: Rising labor costs in emerging markets and the
US shale gas boom already have companies examining re-
shoring. There is elevated risk that ocean freight pricing will
rise; you should at least be considering that risk as part of mid-
term and long-range global supply network planning. Source: U.S. Department of Labor
Year-over-year % Increase in Hourly Wage; Long-haul Trucking

ENERGY
EQUIPMENT, EN
GINEERING, &
CONSTRUCTION
CORPORATE
SERVICES—
TRAVEL
CORPORATE
SERVICES—HR
MARKETING
& MEDIA
LOGISTICS
INFORMATION
TECHNOLOGY
INDUSTRIAL
& MRO
Top Trends in Information Technology
Act Now to Get a Handle on “Shadow IT”: The rise of Software-as-a-Service (SaaS) continues to reshape how companies buy
software. Increasingly, software purchase decisions are being made at the functional department level (Marketing or HR, for example)
because perceived technical integration requirements are lower, and the per-user, per-month subscription fee model allows
departments to build these costs into operating budgets rather than capital budget approval processes. Most companies don‘t have a
handle on how much of this ―Shadow IT‖ purchasing is happening, but most acknowledge that it is occurring. The result is potential
over-spending on redundant software [we‘ve seen cases of executives in different departments fielding request for proposals (―RFPs‖)
for the same software], elevated costs due to poor sourcing, and elevated risk to the enterprise. Tackling the Shadow IT issue is a
challenge for IT, which must deftly balance its mandate to ensure enterprise security and enforce policy, while also supporting the
needs of the business users (some of whom may have resorted to shadow buying due to poor support from IT).
Key Action: By becoming a center of excellence for multiple solutions, IT departments can ensure they are the go-to resource for
best-in-class solutions, thus helping reduce Shadow IT spending (and waste), and in partnership with IT procurement can deliver
lower costs and higher service levels to business users through a win-win partnership.
As Companies Embrace Cloud Computing Services, New Capacity Planning and Governance Considerations Are Required:
We have discussed the maturity of and growing interest in cloud services in the past, and the importance of demand management
and governance to control costs of customer-facing cloud
services (mistakes in estimating projected workloads and
demand can quickly blow up a cloud service budget).Similar
principles apply to moving internal functions to the Cloud. We
are seeing increased interest from clients in enterprise cloud
storage as internal storage demands continue to grow and
cloud storage solutions mature, requiring IT departments to
evaluate new strategic options.
Key Action: With enterprise data growing at more than 40
percent annually, strong demand is a certainty. Beyond
anticipating demand, IT must weigh concerns including
security, internal resource planning, storage tiering strategy
and performance requirements, along with total cost of
ownership over time, when evaluating cloud storage services
vs. internal on-premise storage, or a hybrid approach to satisfy
performance requirements.
Source: Accenture
Storage
Networking
Database
Compute
Enterprise Apps
…Higher Shadow IT
risk. Establish buying
platform and preferred
supplier programs
…Areas that are
typically under the
control of the centralized
IT Organization
IT-Driven
CRM
Productivity Apps
Desktop BI
HR
Marketing
Business-Driven

ENERGY
EQUIPMENT, EN
GINEERING, &
CONSTRUCTION
CORPORATE
SERVICES—
TRAVEL
CORPORATE
SERVICES—HR
MARKETING
& MEDIA
LOGISTICS
INFORMATION
TECHNOLOGY
INDUSTRIAL
& MRO$0.0
$1.0
$2.0
$3.0
$4.0
$5.0
$6.0
$7.0
2012 2013 2014 2015 2016 2017
Display Spending Native Spending
Social Display: 16.1% CAGR
Social Native: 22.9% CAGR
Top Trends in Marketing
As Ad Dollars Continue to Shift to Digital, Marketers Embrace Data Management Platform (“DMPs”) to Improve Audience
Targeting and Campaign ROI: Consumers are becoming more and more digital, consuming media across multiple digital devices. This
trend creates more ways for advertisers to reach consumers—but also increases the complexity of advertising strategies, which must
target the right messages to the right audience through the right advertising vehicle and with strong message relevancy. At the same
time that marketers are embracing programmatic media buying to execute media buys more efficiently, we are seeing increased interest
from clients in evaluating DMP solutions. Marketers are looking to DMP as a means to collect and analyze data from multiple sources
(first-party data, external audience data, social data, etc.) for use in refining marketing plans, improving audience targeting, and
measuring actual campaign performance against expectations. Depending on the sophistication of the marketing team and the current
marketing strategy, teams need to evaluate whether a standalone DMP solution will meet their strategy, targeting, and measurement
requirements, or whether it should be paired with a Demand Side Platform (―DSP‖) to seamlessly enable automated media buys based
on the insights and recommendations coming from the DMP.
Key Action: Leading marketers ready to adopt DMP are taking a holistic approach, looking not only at the tools and technologies, but
making sure they have the right technology and analytics skills either in-house or through partners, in order to capture the ROI that a
DMP can deliver.
Going Native—Content Marketing Drives Growing Focus on
“Native” Advertising: To get potential customers to engage with
their messages, advertisers are trying to make them look less like
traditional ads and more like content that is contextually aware and
organic for the user‘s experience. So-called ―native‖ advertising looks
more like a news story than an overt advertisement—content that
adds value and insight, rather than a purely sales-related message.
This approach can be highly effective, but in order for it to work, the
content needs to be very strong. To compete—and deliver
valuable, engaging content—can be expensive, requiring additional
investment in talent outside of existing internal or partner agency
teams. This incremental spend competes for tight budget dollars but
can increase the effectiveness of existing marketing investments.
Key Action: Native requires a new form of highly tailored, lower
frequency content that could drive content costs up. Advertisers
need to refine native strategy and decide whether to in-source or
outsource content development as more publishers offer content
solutions.
US Social Display vs. Native Ad Spend (2012-2017 Forecast)
Source: BIA/Kelsey

ENERGY
EQUIPMENT, EN
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& MEDIA
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INDUSTRIAL
& MRO
Top Trends in Corporate Services: HR
The Global Payroll Myth: As companies increasingly move to operate as seamless, global organizations, they also look to
implement global systems to deliver consistent processes, at lower costs while managing risk. Many view payroll as a simple or
routine function, but in reality there are myriad country and geography-specific tax and statutory requirements that must be complied
with. Keeping current on payroll-related tax and statutory requirements in every country or geography requires a major investment in
human capital and may still leave a company exposed to high levels of compliance risk. In looking for external solutions, those
companies that choose to outsource payroll will discover that there is no single provider with truly global coverage, requiring
companies to balance costs, coverage, and risk in defining an optimal global payroll solution.
Key Action: Implementing global payroll is rarely a ROI-based decision, but is driven by an operating and risk-mitigation strategy.
Executives need to consider whether an in-house solution, outsourced solution, or a hybrid approach is best, and compare available
solutions against their footprint of worldwide operations to identify coverage gaps and how to address them.
Managing Talent in an Era of Scarcity Requires a Total Workforce Approach: As the global economy continues to
rebound, more pockets of labor and skills shortage are emerging. Since the trough of the recession, labor rates in
logistics, energy, andconstruction trades have exceeded overall averages due
to high demand scarcity of skilled labor. In many U.S.
metropolitan areas, unemployment rates are below the
5.2-5.6 percent level considered by the Federal Reserve
as full employment, leading to competition for scarce
talent and higher wage and benefits costs. These talent
shortages are only likely to grow. There are signs that
companies are making more use of contingent labor to
address the skills shortage and retain flexibility in the
event of any hiccups in the recovery. Increased use of
contingent labor strategies can afford greater flexibility
and help address short-term needs, but can also increase
risks (such as co-employment risk) and costs
(decentralized departmental spend).
Key Action: Contingent workforce strategy should be
considered as part of a larger total workforce strategy
encompassing talent acquisition/retention, SOW
management, and viewing temporary labor as a talent
pool for future recruitment.
Source: American Staffing Association
-40%
-30%
-20%
-10%
0%
10%
20%
30%
20
40
60
80
100
120
140
160
Jan-08
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ASA Staffing Index (100 on 6/12/2006) Y/Y % Change
Temp staffing
growth accelerating
American Staffing Association Staffing Index (2008-date)

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Top Trends in Travel
Firms Look for More Ways to Drive Improved Compliance
and Lower Costs in Travel by Encouraging Employees to
Think More Like Business Owners: In looking at the many
ways to manage travel costs, travel spend managers and
management teams often focus on the big ticket, high
visibility items such as negotiating better air travel discounts
or hotel rates. Another key element is establishing travel
policies designed to minimize costs by encouraging early
travel booking to secure lower airfares and mandating use of
preferred suppliers to monitor that volume requirements are
reached and discounts are maximized. However, many
companies seem to be missing out on an even more basic
opportunity to encourage better decision-making by managers
and employees to meter costs: utilizing an effective pre-trip
approval (PTA) process.
Done poorly, pre-trip approval processes can add to
bureaucracy and inadvertently increase costs. But executed
well, PTA processes can be effective in encouraging
managers—and employees—to think more like business
owners and view travel through the lens of ROI and business
benefit. One way to evaluate the effectiveness of a PTA
process is by the percentage of trips not approved. In
practical terms, any percentage greater than zero indicates
that actual criteria are being applied and some trips are being
rejected.
The key is not to implement a simply mechanical process that
can result in slow approvals (and higher costs if, for
example, a good fare expires) and management focus on
Key Action: Establishing a PTA process can result in 5–10
percent (or more) overall travel budget savings if implemented
effectively. The key is to encourage employees to think about
travel in terms of business impact, but also to train managers
about how to evaluate and approve (and reject some) travel
requests. Training employees to proactively ask, ―Is this trip
worth it‖ can improve the impact of travel while eliminating
unnecessary expense.
Source: Accenture
Does your company have a formal pre-trip
approval process in place?
Yes
25%
No
75%

ENERGY
EQUIPMENT, EN
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CONSTRUCTION
CORPORATE
SERVICES—
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& MEDIA
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INDUSTRIAL
& MRO
19
20
20
21
22
1965
1970
1975
1980
1985
1990
1995
2000
2005
2010
Years Average Age of Private Fixed Assets
Top Trends in Equipment,
Engineering, and Construction
In Addition to Capital Replacement Cycle, Regulations
Increasingly Impact Major Capital Projects: The average
ages of capital assets on the books of corporations are at
multi-decade highs—one of the reasons that many
economists and forecasters are predicting an acceleration in
capital spending in 2014 and 2015. Another major factor in
play is the role of regulation driving the need for capital
upgrades or replacements. For example, a regulation
affecting Industrial Boilers and Process Heaters (referred to
as the ―Boiler MACT‖ standard) was finalized in January
2013, with a January 1, 2016 deadline for compliance. The
regulations that apply to new and existing boilers will require
compliance tests and may result in expensive retrofits to
control air pollution (filter systems, scrubbers, etc.) or
conversions of boilers to natural gas power. New installations
can take one to two years, so the time to act is now. Asset
owners need to be aware of numerous other regulations that
will affect major facilities (The Agricultural Water
Conservation Act of 2009 is a major consideration for
companies with California operations for example).
Key Action: Most companies will consider regulations of this
type very onerous, but regulation is a fact of life for
manufacturers and heavy energy users. But the flip-side of
the regulatory mandate is the opportunity to fully optimize
major capital decisions like these. The benefits of an
integrated large capital project program include not only lower
risk through regulatory compliance, but also can deliver lower
total project costs, lower total emissions and carbon
output, reduced energy consumption, maximized use of
rebates and credits, and improved ROI on capital projects.
Source: BEA, Haver Analytics, Deutsche Bank Global Markets Research
Capacity utilization
approaching long-term
average of approx. 80
Source: U.S. Federal Reserve
60
65
70
75
80
85
Jan-04
Jul-04
Jan-05
Jul-05
Jan-06
Jul-06
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Jul-08
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Jul-09
Jan-10
Jul-10
Jan-11
Jul-11
Jan-12
Jul-12
Jan-13
Jul-13
Jan-14
Total Industrial Capacity Utilization (2004 to date)
Highest reading
since June 2008

ENERGY
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CONSTRUCTION
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& MEDIA
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TECHNOLOGY
INDUSTRIAL
& MRO
Top Trends in Industrial and
Maintenance, Repair and Operations
Industry Consolidation Trend in Corrugated Segment Raises Packaging Cost Risk: The corrugate industry has been undergoing
supply consolidation. Since 1987, the number of plants in the U.S. has declined by 25 percent. As a result of consolidation, share of
the top four containerboard suppliers reached over 70 percent in 2012, compared to 1984 when the top five suppliers held 34 percent
market share. Supply base concentration reached its peak with a wave of multi-billion dollar acquisitions over the last two to three
years. The net result of this consolidation wave is that suppliers achieved greater negotiating leverage, allowing them to successfully
implement four price increases since 2010, while better managing capacity and paper availability—therefore avoiding over-supply and
protecting pricing. However, the outlook for buyers may be improving. The price increases have led to higher industry margins, which
is attracting new competition (both green-field projects and conversion of unprofitable paper grades to containerboard). This may shift
market share away from dominant suppliers and drive more competitive pricing in the mid-term. But this may also lead to more
capacity closures and M&A activity in the long-term driven by the major suppliers trying to maintain favorable market dynamics.
Key Action: Users of corrugate have had to endure a multi-year period of cost pressure. We recommend that buyers actively
encourage new supplier development and promote cost transparency to help even the industry supply and demand balance and
better control supplier margins. In parallel, buyers should perform value analysis of their current specifications to reduce over-
engineered structures and rationalize the complexity of types and grades purchased.
With Oil Prices at risk of Remaining Stubbornly
High, Companies Explore New Ways to Combat Volatility:
We hear from many of our clients that with all of the available oil
supply and rising production, prices should be declining—and
so should the price of oil-based raw materials. However, oil
prices have continued to march upward, raising the risk that the
oil price reprieve many expect will not materialize, leaving
manufacturers to consider new ways to deal with rising—and
volatile—input costs.
Key Action: As a result of the shale oil and gas boom, new
cracker capacity is finally coming to North America (BASF
SE, Chevron Phillips Chemical Company, Dow Chemical
Company, Exxon Mobil Corp, Formosa Plastics Corp, Ineos
Group Limited, LyondellBasell Industries, Sasol Limited, Royal
Dutch Shell plc, Westlake Chemical Corporation, and Williams
Companies have all announced cracker projects). Companies
should be looking at the cost-benefit analysis of connecting their
supply chains to these new sources of supply as a way to
reduce the volatility, and potentially the costs, of oil-based input
prices.
Source: US Energy Information Agency
$0
$20
$40
$60
$80
$100
$120
Apr-09
Oct-09
Apr-10
Oct-10
Apr-11
Oct-11
Apr-12
Oct-12
Apr-13
Oct-13
Apr-14
Cushing OK Crude Oil Futures Contract 1 $/bbl
Henry Hub Nat Gas Price (BTU Equivalent)
Crude Oil vs. Natural Gas (BTU Equivalent) Weekly Futures Price
(past five years)

ENERGY
EQUIPMENT, EN
GINEERING, &
CONSTRUCTION
CORPORATE
SERVICES—
TRAVEL
CORPORATE
SERVICES—HR
MARKETING
& MEDIA
LOGISTICS
INFORMATION
TECHNOLOGY
INDUSTRIAL
& MRO
$0
$10
$20
$30
$40
$50
$60
$70
$80
$90
$0
$50
$100
$150
$200
$250
$300
$350
$400
$450
$500
1/2/14 1/17/14 2/1/14 2/16/14 3/3/14 3/18/14
DayAheadGasPrice($/MMBTU)
Dayaheadpowerprice($/MWH)
ISO-NE Algonquin
Day-ahead power prices move
in line with gas prices—but are
much more expensive for
consuming companies
$0
$2
$4
$6
$8
$10
$12
$14
Jan-02
Jul-02
Jan-03
Jul-03
Jan-04
Jul-04
Jan-05
Jul-05
Jan-06
Jul-06
Jan-07
Jul-07
Jan-08
Jul-08
Jan-09
Jul-09
Jan-10
Jul-10
Jan-11
Jul-11
Jan-12
Jul-12
Jan-13
Jul-13
Jan-14
Monthly Settlement 4-yr average
Recent settlements above
4-yr average for the first
time since 2008 could
signal sustained up-trend
Top Trends in Energy
Natural Gas and Power Prices Reach
Unprecedented Levels of Price Volatility Requiring
More Energy Expertise and Intelligence than Ever:
Even casual observers are aware of the extreme winter
weather events that impacted North America in the first
quarter, and the resulting price spikes in natural gas
and power. Not only are natural gas prices trending up
in general, but the volatility of gas and power prices
reached unprecedented levels during the quarter. As
prices exploded to multi-year highs owing to record
natural gas consumption on January 7, day-ahead
natural gas prices reached nosebleed levels of more
than $100/MMBTU in portions of the Northeast and
Midwest, with power prices averaging nearly
$200/MWH in some regions for the month of January.
Customers with index exposure saw bills three to four
times above normal levels in some cases.
Key Action: Energy consumers, especially in high-
volatility regions like New England, New York, the
Midwest during the winter months, and Texas during
the summer months, should layer on fixed price
protection during the highest-volatility periods. Gas
users can peg pricing to NYMEX Henry Hub
(Louisiana) instead of Northeastern price points that
are susceptible to weather and pipeline constraints.
With the right energy specialist knowledge, companies
can quantify the budget risk that exists in volatile
regional markets, and identify value-based or upside
risk-protection price targets in key markets.
Finally, buyers should work to identify suppliers who
will provide more flexibility around consumption bands
so that volatile day-ahead market exposure is avoided.
Monthly NYMEX Nat. Gas Settlement Price vs. 4-yr. Rolling Avg.
New England Region Day-Ahead Power & Gas Prices (Jan-March 2014)
Source: SNL Kagan

Sources and References
EXECUTIVE SUMMARY:
• Thomson Reuters Corporation/University of Michigan Surveys of Consumers:
http://www.sca.isr.umich.edu/
• National Federation of Independent Business (NFIB):
http://www.nfib.com/research-foundation/surveys/small-business-economic-
trends
• International Monetary Fund World Economic Update, April 2014:
http://www.imf.org/external/pubs/ft/weo/2014/01//
• Las Vegas Review-Journal, ―Survey Suggests Businesses Feeling Pinch of
Higher Costs‖, Retrieved from:
http://www.reviewjournal.com/business/survey-suggests-businesses-feeling-
pinch-higher-costs
• FactSet Buyback Quarterly: March 25, 2014, Retrieved from:
http://www.factset.com/websitefiles/PDFs/buyback
• FactSet Dividend Quarterly: March 24, 2014, Retrieved from:
http://www.factset.com/websitefiles/PDFs/dividend
• FactSet Cash & Investment Quarterly: March 26, 2014, Retrieved from:
http://www.factset.com/websitefiles/PDFs/cashinvestment
LOGISTICS:
• U.S. Department of Labor, Bureau of Labor Statistics, Wages/Earnings:
Transportation and warehousing – General freight trucking, long-distance,‖
Retrieved from:
http://beta.bls.gov/dataViewer/view/timeseries/CEU4348412008
MARKETING:
• BIA/Kelsey, ―BIA/Kelsey Forecasts U.S. Social Ad Revenues to Reach $11B
in 2017,‖ Retrieved from: http://www.biakelsey.com/Company/Press-
Releases/130410-U.S.-Social-Ad-Revenues-to-Reach-$11B-in-2017.asp
CONTINGENT LABOR:
• American Staffing Association, ―ASA Staffing Index Historical Data,‖
Retrieved from: https://www.americanstaffing.net/statistics/historical_data.cfm
EQUIPMENT, ENGINEERING, & CONSTRUCTION:
• Deutsche Bank Capex Outlook--An aging capital stock and a pick-up in
economic growth will boost capex in 2014, Torsten Slok, Peter Hooper, and
Matthew Luzzetti
• Board of Governors of the Federal Reserve System, Industrial Production and
Capacity Utilization, Retrieved from:
http://www.federalreserve.gov/RELEASES/G17/Current/default.htm
INDUSTRIAL & MRO:
• Young, Steve, Association of Independent Corrugated Converters.
―Consolidation in the Corrugated Industry‖, Retrieved from:
http://www.fppa.net/events/2013convention/Impact_of_Consolidation.pdf
• U.S. Energy Information Agency, NYMEX Futures Prices, Retrieved from:
http://www.eia.gov/dnav/pet/pet_pri_fut_s1_w.htm
ENERGY:
• BIA/Kelsey, ―BIA/Kelsey Forecasts U.S. Social Ad Revenues to Reach $11B
in 2017,‖ Retrieved from: http://www.biakelsey.com/Company/Press-
Releases/130410-U.S.-Social-Ad-Revenues-to-Reach-$11B-in-2017.as

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Q1 2014 Spend Trends Report Insights

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