Study identifies common actions that help top performing procurement organizations get results
NASHVILLE—IBM has released a study that says companies with high-performing procurement organizations are driving better bottom-line results. According to the study, these organizations report profit margins of 7.12 percent as compared to 5.83 percent for companies with low-performing procurement organizations. Also, companies with top performing procurement organizations report profit margins 15-percent higher than the average company—and 22-percent higher margins than companies with low performing procurement organizations.
The 2013 Chief Procurement Officer Study was conducted by the IBM Institute of Business Value (IBV) and highlights the business impact that Chief Procurement Officers (CPOs) can have on a company’s competitive advantage and profitability. It explores how top-performing CPOs can increase their influence by creating efficiency and performance, introducing innovative new processes and uncovering new insight into supplier networks that have a measurable effect on the bottom line.
The study surveyed 1,128 procurement executives in 22 countries across North America, Europe and Asia Pacific. Of the respondents, 15 percent were found to be top performers, defined by their ability to exert influence and drive innovation across their companies, while also excelling at procurement fundamentals.
The study identified several common actions that enable top performing procurement organizations to achieve such impressive results. They:
“There are tens of millions of dollars at stake, and the IBM IBV CPO study reveals how and why high performing procurement leaders have significant impact on their organization,” said Craig Hayman, general manager, IBM Industry Solutions. “As CPOs take a broader view of their role and embrace technology, they have an unprecedented opportunity to become even more instrumental in transforming their organizations by modeling themselves against the world’s most innovative and effective procurement organizations.”
As companies re-align their organizations to take a more customer-centric approach, the role of procurement professionals is changing from a traditional back-office, transaction-oriented role to one with more visibility and influence among C-suite executives. CPOs are well-positioned to help identify and mitigate supply-related vulnerabilities because they serve as the bridge between suppliers and internal consumers. Similarly, procurement teams can utilize data analytics to help improve demand forecasts and identify additional savings opportunities within spend categories.
To be influential and secure a seat among C-suite executives, procurement professionals must exploit their unique position as a conduit between the enterprise and the outside world to improve their company’s responsiveness to dynamic market conditions, while minimizing risk, volatility and price fluctuations that can compromise profit margins. In reviewing the survey findings, key capabilities to achieve these objectives include employing best practices with procurement technologies and talent development.
There is a strong correlation between being a top performing procurement organization and effectively using procurement technologies. For example, in regards to supplier relationship management, the study found that 94 percent of top performing companies are highly effective in their use of procurement technologies, compared to 44 percent of all surveyed companies are average or below average in their technology effectiveness. The study also found that CPOs think that supplier intelligence solutions, including 360-degree global view of supplier relationships and procurement performance dashboards, will be the most important area of investment over the next three years.
Top-performing organizations also are turning to social business for innovative ways to manage their global teams and collaborate with their suppliers. The study found that high performers are more likely to use social tactics such as crowd sourcing (81 percent) and collaborating on product development with suppliers (88 percent), versus their low-performing counterparts (38 and 47 percent respectively).
CPOs of top-performing procurement organizations know that success depends on getting skills and expertise needed to execute the mission they have been given. By percent, twice as many top performers as low performers view recruiting and talent development retention as a key strength. Top performers also extend these human capital advantages because they are equally aggressive in their investment plans for retention, recruiting and talent development.