In the contemporary procurement world, the typical CPO strives to drive value to the procurement organization via a multitude of strategies, solutions, and core competencies. During last month’s webinar, Procurement Today: Are You Top Tier?, I discussed not only recent research findings from the landmark Ardent report, CPO Rising: Keeping Score, but also highlighted how procurement executives can leverage Best-in-Class capabilities to reach that top-tier level of success.
The webcast was sponsored by Coupa and featured a case study conversation from Hyrum Kirton, Vice President of Procurement at Avalon Health Care.
I began my presentation with a discussion of the key capabilities in place at a majority of procurement organizations today before easing into a discussion of key procurement performance metrics and the drivers that improve them. I was able to highlight specific instances where procurement professionals lack proper visibility into key parts of their operations, such as visibility into contract compliance rates, which can severely affect the aforementioned cost savings, and visibility into supplier risk, which, as we all know, can disrupt product development and unsettle revenue pictures. I also presented a full outline of Ardent’s Best-in-Class framework, which details the performance advantages held by the top 20% of market performers as compared to all other organizations. These advantages include:
- Higher rate of spend under management. Spend under management represents the opportunity that procurement has to influence and impact the enterprise. And, while there is no guarantee that managing more spend will result in superior performance, Ardent Partners’ research has consistently shown that the procurement groups that manage more spend report superior performance across most other key metrics. Ardent Partners’ research has shown that for every dollar that is placed under management of the procurement department, the average enterprise sees a benefit of between 6% and 12% during the first contract cycle. Best-in-Class procurement organizations have visibility and control over their enterprise spend and have a better opportunity to drive value in areas like savings, quality, innovation, supply assurance, and the other key procurement metrics that can impact the larger enterprise.
- Slight uptick in cost savings. While I noted during the webcast that savings aren’t as prevalent (or as high) as they were in years past due to both inflation and sourcing exhaustion, this is still a critical metric for procurement teams to track, monitor and gauge in the pursuit
- Higher contract compliance rates. Savings leakage, a longstanding thorn in the sides of procurement professionals, is linked directly to poor contract lifecycle management. Best-in-Class organizations are driving a nearly 70% rate of procurement contract compliance, allowing them to avoid the leakage issue and assist in driving both spend visibility and spend under management.
- Superior supplier enablement. Best-in-Class organizations have enabled nearly 40% of their suppliers and have cultivated a strong link between procure-to-pay processes (often times, automated) and support stronger strategic supplier initiatives.
The webinar also included a full discussion of Ardent’s patented CPO Scorecard, which assists procurement executives in understanding their business, the financial impact of their efforts enterprise-wide, prowess within people management and technology, and the value of customer relationship attributes. If procurement’s transformation is to continue, a more balanced approach to measuring its performance is needed. The modern CPO should work to develop this CPO Scorecard™ and plug in hard financial metrics, stakeholder metrics and process-related metrics to gain a clearer picture of their group’s value and impact across the greater organization.
My participation in webinar concluded with some final recommendations for the many procurement professionals in attendance, including:
- Adopt the main Best-in-Class “levers”
- Seek open visibility and communication
- Deliver regular updates on goals and objectives
- Promote active, formal and constant collaboration between internal units
To hear an interactive discussion of these ideas and hear a great case study from Avalon Health Care – click here to access the webinar archive.
