Editor’s Note: As we reflect on 2015 with our “best of” series, Ardent Partners would like to invite you to our Procurement 2016: Big Trends and Predictions webinar that we are hosting on Thursday, January 28 at 2 PM EST. This is a fantastic way to prepare for the year ahead. Register here!
Ardent Partners recently published my annual CPO-themed report – CPO Rising 2015: The Agility Agenda (click to download, registration required) – that is drawn from the responses of more than 300Chief Procurement Officers and other procurement executives (as well as 26 CPO interviews) and presents a comprehensive, industry-wide view into what is happening in the world of procurement. As we do each year, we like to discuss the research report in a series of articles that examines some of the key findings and major takeaways from the study.
Should We Be Doing Better?
It goes without saying that procurement has come a long way since it was first established as an actual business function by the railroad industry during the second industrial revolution. It also goes without saying that procurement has come a long way in more recent times too, particularly since the late 1990s and the introduction of the commercial internet and what we refer to as supply management technology (e.g., Spend Analysis, eSourcing, eProcurement, etc.). There are many clear indications of procurement’s broad-based transformation throughout this young century among them the general acceptance by business executives that the function is a value-added business process worthy of investment and support and the establishment of the role of a Chief Procurement Officer (or single executive leader) at almost 90% of all enterprises.
Ten years ago, I spent a significant amount of my time defining the term “spend under management” and extolling its importance as a procurement metric. Today, almost every CPO knows within a percentage point or two exactly what that number is for their procurement operation; most have a specific plan to increase their percentage in their current reporting year. Today, CPOs understand that the opportunity to influence spending is that the core of the value that they help to generate. Ardent Partners research has shown that for every new dollar that is placed under the management of procurement, the enterprise saves, on average, between 6% and 12% during the first contract cycle. All CPOs may not be intimately familiar with our research statistics, but they are certainly acquainted with the concept.
For the past decade, we have seen the market average percentage of spend under management slowly rise to above 60%. In 2015, Best-in-Class procurement departments manage an astonishing 90% of total spend. Both numbers are impressive in their own rite, especially considering where procurement was as a profession just a few years ago.
But, we have come to a point in time in procurement’s evolution where we must begin to discern simply managing spend from managing the spend well or very well. This is acknowledged, perhaps implicitly, by the fact that nine out of every 10 CPOs believe that their procurement departments should be performing better today. In fact, three-quarters of Best-in-Class CPOs believe that their teams are underperforming today.
Certainly, most CPOs view their department’s work on a performance continuum, and the procurement transformations they lead are typically multi-year journeys with clearly-defined milestones, but generally, no final destination – continuous improvement, after all, is a standard business practice. Nonetheless, most CPOs see room for immediate improvement.
It is important to understand that the strategies, ideas, and approaches that have come to codify procurement best practices over the last decade remain as relevant and important as when they were first established. In point of fact, a majority of procurement organizations have not fully adopted them. Nonetheless, the context of what procurement can do for the enterprise has changed. Globalization and the ongoing advances in technology and communication have created extraordinary opportunities beyond the four walls of the enterprise… The procurement department is best positioned to access them.Executives need more from procurement today than they did yesterday, and they will need even more from procurement tomorrow. But, what has worked in the past is no longer good enough in 2015; it will be even less so in the future.
Procurement can do better. Nine out of 10 CPOs agree that their teams should be doing better right now. This discussion and our review of the report will continue….
Those interested in reading the full report now can click this link (registration required) – CPO Rising 2015: The Agility Agenda