Is the Power of Procurement Being Overlooked?

March 4, 2020
If external procurement spend is a major expense for most companies, why doesn’t the CPO play a more visible role in overall organizational strategy? A.T. Kearney attempts to answer this in a new report.

With external procurement spending being the largest expense for more organizations, giving procurement departments a seat at the corporate table would seem to make good logical sense. But according to a new A.T. Kearney study, the transformative power of procurement is still being overlooked by many C-level executives.

In “Realizing the Power of Procurement,” the global consulting firm delves into the supply management practices of more than 150 different companies across various industries and geographies. In addition to procurement executives, A.T. Kearney solicited input from other C-suite executives and stakeholders regarding the procurement function’s value to business performance.

Representing 30% of a service company’s revenue and at least 50% of a manufacturing company’s revenue, procurement represents both a major expense and a huge opportunity to transform business performance, A.T. Kearney states in its report.

“Recent shifts in the perception of procurement by CFOs and other C-suite executives are overdue and welcome,” the company said in a press release, “but still more than half of CFOs surveyed think of procurement as a transactional function that is primarily useful for negotiating hard cost savings.”

Three Areas Where Procurement Excels

In assessing where top procurement organizations excel, A.T. Kearney points to these three areas: 

Team excellence. Procurement executives at leading companies act as strategic business partners by maintaining strong credibility and visibility within the enterprise. “They work collaboratively with business units to go beyond cost reduction by evaluating trends and identifying new drivers of value,” the firm states. “Importantly, these executives are starting to invest in digital tools to improve the efficiency and effectiveness of working with their supply base.”

Category excellence. Leading companies have robust, long-term category strategies in place. “They embed analytics to assess and monitor key cost drivers and employ advanced strategic sourcing levers,” A.T. Kearney adds.

Supplier excellence. Best-in-class companies have a defined supplier relationship management process and team accountability structure that allow the full supplier life cycle to be monetized. “They also have multi-year, robust collaborative processes in place with strategic suppliers for innovation and risk management, and proactively manage their supply base to ensure they have the right number of suppliers with the right capabilities,” A.T. Kearney adds, noting that most also assess supply risk and deploy systematic risk management strategies.

Leading the Way

According to A.T. Kearney, procurement executives at leading companies see themselves as “strategic enterprise business partners,” versus 75% at other companies. The most substantial gap between leaders and other companies in this area is the extent to which they focus on strategic activities. “While 80% of leaders focus more than 70% of their procurement team on strategic activities,” the company states, “only 17% of other companies do the same.”

Top companies are also more likely to have purposeful procurement talent strategies and to place an emphasis on creating high-performing teams. Approximately 80% of procurement leaders have proactive internal and external recruiting strategies, compared to 30% of other companies. The latter are largely reactive, A.T. Kearney says, and simply fill job vacancies as they arise.

Finally, the consulting firm says that supplier excellence represents the most significant untapped opportunity for companies. For example, top companies have put defined supplier relationship management (SRM) processes and team accountability measures in place that enable the monetization of the full supplier lifecycle.

To procurement executives that want to flex their departmental muscles, A.T. Kearney suggests taking the time to show stakeholders that they understand internal business requirements. Also, communicate that state-of-the-art procurement is more than cost savings. “In an increasingly unpredictable environment, procurement is vital to success,” it concludes. “To enjoy growing profit, we need to focus on the single largest cost—and pay close attention to the factors that could influence it in coming years.”

About the Author

Bridget McCrea | Contributing Writer | Supply Chain Connect

Bridget McCrea is a freelance writer who covers business and technology for various publications.

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