Report: It pays to be a ‘procurement master’

Accenture—which describes itself as a global management consulting, technology services and outsourcing firm—surveyed 225 executives from organizations around the world to quantitatively define procurement leadership and to document what procurement leaders do differently. According to Accenture, 82 percent of the respondents were chief procurement officers or directors of procurement and 74 percent were responsible for procurement on a companywide level.

According to Accenture, the survey results “clearly show that procurement mastery does contribute to high performance.”

“The bottom line is that a strong and clear-cut case can be made for procurement mastery,” the Accenture report says. “Companies that excel in procurement still face significant challenges in their ongoing efforts to outpace the competition. … However, procurement masters have a clear advantage over the competition: Fundamentally, they operate more efficiently and effectively than companies that do not excel in procurement. Procurement masters do more with less.”

Procurement masters excel in six areas

Survey questions focused on procurement as it relates to six functional areas: procurement strategy; sourcing and category management; requisition to pay; supplier relationship management; work force and organization; and technology. Through the survey questions, Accenture researchers distinguished procurement masters from “mid-range performers” and “low performers.”

Procurement masters, the report asserts, excel across all six of the functional areas. According to Accenture, only 16 percent of respondents met the criteria for procurement mastery, while 67 percent were labeled mid-range performers and 17 percent were labeled low performers.

According to the report, it pays to be a master.

“As shown in this report, the 16 percent of surveyed organizations whose procurement achievements warrant ‘master’ status enjoy productivity levels that are 30 percent higher than companies of lesser stature,” the report says. “Yet the masters’ procurement organizations typically cost half as much to run. Lower cost and higher productivity are the hallmarks of procurement mastery.”

Procurement masters more likely to use balanced scorecard approach

After distinguishing between procurement masters, mid-range performers and low performers, Accenture researchers attempted to link the relationship of the three categories to specific performance levels attained by the 225 respondents’ procurement organizations. The five performance-level categories were:

• Total-cost-of-ownership savings (compared to “controlled, normalized spend”).
• The ratio between total-cost-of-ownership reductions and procurement operating cost.
• Percentage of spend controlled by the procurement organization.
• Percentage of new product designs/introductions in which procurement has a material role.
• Share of suppliers managed through a formal process.

Through this analysis, Accenture found that:

• The most highly rewarded procurement practitioners nearly always were the masters, based on the five performance-level categories. In other words, companies with the best performance scores also were shown to be the best strategists, the best at sourcing and category management, the best at supplier relationship management and so forth.
• Survey respondents qualifying as masters achieve savings equal to 10 times the cost of running their organizations. By contrast, the savings achieved by low performers are only four times their costs. Put another way, masters achieve procurement savings that are 30 percent higher than low performers. Yet, masters’ procurement organizations cost about half as much to run.
• Procurement masters excel across all six of the functional areas that Accenture measured. In other words, companies demonstrating master status in procurement strategy also were extremely likely to be masters in sourcing and category management, requisition to pay, supplier relationship management work force/organization and technology.
• Masters are five times more likely than low performers to use a balanced scorecard approach and almost 20 times more likely to benchmark procurement performance against competitors.
• Compared to low performers, masters are almost four times more likely than low performers to outsource one or several procurement functions.
• Procurement masters are 16 times more likely than low performers to have a dedicated sourcing analyst pool that provides support during the sourcing and category management process.
• Procurement management is centrally led at 100 percent of masters’ organizations, compared to only 26 percent of low performers’ organizations.
• Eighty four percent of masters use a supply-base segmentation strategy that aligns approaches and types of relationships with specific supply markets and supplier characteristics. Almost no low-performing organization operates similarly.
• Seventy nine percent of masters have successfully implemented a common and automated requisition-to-pay platform, compared to just 3 percent of low performers.
• Procurement masters face fewer organizational challenges. And the challenges they do confront are generally less constrictive or severe than those faced by procurement organizations of lesser stature. According to Accenture, this implies a more effective operation—one whose structure encourages the pursuit of greater savings or increased operational effectiveness.

Demographics

According to the report, the largest percentage of survey participants (20 percent) came from North America, followed by France (14 percent), Italy (11 percent) and the United Kingdom and Germany (8 percent each), among others.

The largest percentage of survey participants by industry came from “resources” (20 percent), followed by “communications and high tech” (17 percent) and “industrial products” (12 percent). Three percent of the survey participants were identified as government procurement practitioners.

To download the entire report, click here.