Ardent recently completed its sixteenth annual CPO-themed market research study, “The State of Procurement & the CPO”, which is part of an ongoing dialogue that my team and I have had with Chief Procurement Officers (CPOs) and other procurement leaders for more than a decade. Over the next few weeks, we’ll be discussing the results from this year’s study in a series of articles on this site. If you’d like access to this report, make sure to register for our newsletter with a business email address.
A Best-in-Class procurement operation remains a competitive advantage with far-reaching results, and the role that technology plays in enabling top performance continues to increase. Managing nearly 90% of spend is an accomplishment worthy of accolades and celebration. By surveying thousands of distinct organizations over the years, Ardent Partners has been able to clearly establish that the groups that manage very high levels of spend perform significantly better across the other key performance and operational metrics tracked by procurement departments. Ardent Partners’ 2021 Best-in-Class Framework for Procurement continues to validate that point and is reason for all procurement departments to continue to try to increase their spend under management.
The savings rate advantage for the Best-in-Class last year (2020) compared to All Others appears small when looking at the values, but it is important to remember that the average savings rate of the Best-in-Class was applied to a significantly larger spend portfolio. The result is that the Best-in-Class impact on total savings is significantly larger than their peers, making it clear that the development of a Best-in-Class procurement operation is well worth the investment. Based on early estimates, the Best-in-Class savings advantage is expected to flatten in 2021.
Of course, savings alone does not fully capture the value of procurement activity. For example, in an inflationary market, savings may not be possible on a specific project. That does not mean that a sourcing team did not add value along the way. Speaking of sourcing, the Best-in-Class continue to source a significantly higher percentage of their addressable spend than their peers each year (63.7% vs 43.9%). But truth be told, there is no shame in competitively sourcing more than 40% of overall spend as the All Others group has done. Because many sourcing considerations are now global in nature, supply market Of course, savings alone does not fully capture the value of procurement activity. For example, in an inflationary market, savings may not be possible on a specific project. That does not mean that a sourcing team did not add value along the way. Speaking of sourcing, the Best-in-Class continue to source a significantly higher percentage of their addressable spend than their peers each year (63.7% vs 43.9%). But truth be told, there is no shame in competitively sourcing more than 40% of overall spend as the All Others group has done. Because many sourcing considerations are now global in nature, supply market leadership is much more difficult to maintain than in years past. It is certainly not critical to have the market leader in every category of spend as an active supplier, but it is wise to avoid the laggards and fading stars. Because the recent level of eSourcing activity has been historically lower than it ideally should be for most procurement teams, the reasons why a supplier was originally selected over other suppliers may not be known by the current sourcing and category teams. Active sourcing ensures that the enterprise is contracting with the highest-value suppliers based on the latest and most relevant award criteria.
Best-in-Class enterprises have shown that investments in improving internal systems and processes and enhancing external relationships with key partners are proven paths to better performance. The Best-in-Class have also differentiated themselves with superior performance across the primary procurement metrics. These leaders have utilized specific levers for success like higher levels of automation and greater technology proficiency, a focus on visibility into data and processes, and strong and decisive leadership to a greater degree and greater impact. The result is that they have generated a sizable, competitive advantage in the market.
If you are interested in learning more about the key procurement and CPO data collected in our annual research study, consider listening to Ardent’s brand new “Procurement Rising” podcast series. Click below to listen to new episodes. The podcast is also available on Apple, Spotify, Stitcher, Google, or wherever you get your podcasts.
