Companies ‘Don’t Realise Value of Procurement’

Only one in 10 chief financial officers (CFOs) have been engaged successfully and recognise the value and contribution of their procurement team, while measurement of procurement value is not uniform suggest a survey.

The inaugural return on supply management assets (ROSMA) performance check report, entitled ‘Building the Brand of Procurement and Supply’ is a combined initiative from three organisations – AT Kearney, The Chartered Institute of Purchasing & Supply (CIPS) and the Institute for Supply Management (ISM), to bring common value management visibility and practices to the procurement profession.

The report found that leading procurement teams deliver significant value to their organisations, but without a credible standard allowing companies to consistently track and score procurement performance, many CFOs question the performance of and benefits delivered by their procurement teams. Only 10% of procurement functions have established recognition with their CFOs over how procurement contributes value and that the benefits are real and measureable.

“There are many opportunities to change the brand of procurement across the profession, within our enterprises, and to attract, develop, and sustain best athlete-calibre talent. Adopting value management practices is necessary for the future.,” said Joe Raudabaugh, AT Kearney partner and report co-author.

David Noble, group chief executive officer (CEO), CIPS, noted: “There is no doubt that the profession has to be seen as supporting the strategic aims of the enterprise and to have relevance to its goals and success. We must be able to demonstrate value in a quantitative way.”

Among the report findings:

• Top-quartile performers report hard financial results in excess of seven times their costs and investment base in procurement, providing a strong basis for reinvestment and recognition. These leading procurement functions generate nearly £1m in financial benefits per procurement employee each year.
• Middle-tier performers are accretive, typically generating four to five times the investment and cost of their supply management assets, including people and technology, but they have not improved their productivity since tracking began in 2011. Bottom quartile teams are dilutive, with financial benefits that do not cover the cost of and investment in their organisations.
• Most organisations lack the reporting and tracking capabilities to provide ongoing, accurate visibility of procurement’s value-creating activities. They do not have a grasp of – and therefore cannot manage – their resources to optimise them with the same level of precision as is typically done in other functions.
• Research among CFOs showed that only 10% of procurement functions have captured the respect, understanding, and mindset of their financial colleagues regarding the value they contribute. Almost 15% are ‘out of mind’ or ‘inconsequential players’ to the CFO community and 75% have mixed and yet-to-be developed ‘brands’.

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