Top Procurement Organizations See Financial Benefits More than 7.5 Times Cost
A new study found that top performing procurement organizations improved their performance versus the 2014 report results with most delivering 10 to 15 times returns.
Top performers were also found to deliver 7.5 times the costs and investment base in procurement and are expanding their advantage.
The 2015 Return on Supply Management Assets (ROSMA) Performance Check Study, “Building a Bolder Legacy: The Procurement Mission is Under Way,” reported that these leaders generate about $1.25 million in financial benefits per procurement employee per year. The study is conducted by the A.T. Kearney, the Institute for Supply Management and the Charted Institute of Procurement & Supply.
“Procurement faces a transformational period, similar to other corporate disciplines over the past 30 years,” said Joe Raudabaugh, A.T. Kearney partner. “ Beginning with manufacturing in the 1980s, and moving on to supply chains, research, engineering, and more recently sales and marketing, the mission for procurement organizations is underway – whether procurement is ready or not.”
The study also found that although top-performing procurement organizations are already delivering substantial financial benefits to their companies, 50% of financial executives believe that bottom quartile procurement organizations return less than 1.5 times their cost in value.
CPOs from these bottom-quartile teams validated this perspective, reporting dilutive performance results with financial benefits insufficient to cover their activities. “The growing interest and popularity of the value-from-procurement topic continues to shape the conversations and forums serving the profession,” said Thomas W. Derry, CEO of the Institute for Supply Management. “This is not a disruptive force, but a welcomed constructive change agent that challenges us all to ‘raise our game,’ both in terms of productivity and overall results.”
David Noble, CEO of the Chartered Institute of Procurement & Supply, noted, “We can strengthen the position of procurement as a critical source of strategic enterprise value, establish the CPO as a core executive team member integral to the leadership narrative, and position procurement as a preferred career platform for tomorrow’s best talent.”
The study also found that performance varies widely across all of procurement’s key value drivers, including spend coverage, sourcing program velocity, sourcing project yields and outcomes, compliance rates, and operating costs. Procurement remains a function plagued with inconsistent performance in delivering strategic activities. Many companies are beginning to embrace Zero-Based Budgeting (ZBB). Companies employing ZBB demonstrate game-changing improvements in shareholder value performance by forcing rigorous alignment of resources and expenses. The transparency of ZBB provides top procurement organizations with the opportunity to bring significant value to financial decisions through knowledge of details, behaviors and costs.
Looking at talent within procurement organizations, it seems they have the opportunity to attract millennials if the profession is willing to make changes regarding performance tracking and accountability. Millennials are a generation that prefers to join organizations with value-management practices, specifically where there is transparency, accountability, and recognition of their achievements. Procurement offers millennials the opportunity to learn the business from end-to-end, secure executive access and exposure, and have a significant impact on business performance.
