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As we explore critical procurement benchmarks in this year’s CPO Rising 2022 Report, it’s important to look beyond just savings. While a valuable metric, there are other areas where procurement has influence. Let’s take a look.
The 2022 Procurement Benchmarks represent the performance and operational results of the average procurement department in the market today. The percentage of spend under management at the average enterprise sits at 67.4% in 2022, a 7% increase over last year’s number. Ardent Partners continues to believe that tracking this metric is important and trying to increase it makes sense because the research shows that enterprises realize a savings of between 6% and 12% on every new dollar of spend placed under procurement’s control.
There are other benefits beyond savings that also result from procurement’s influence, including improved quality and lower risk. Over time, the gross amount of spend being managed by procurement is less important than the overall impact of procurement’s efforts on results. Approximately 5% of CPOs rank this number as one of the “Top Three” metrics that they track each year, which explains why this number has not risen significantly over the last decade.
Despite the difficulty in measuring procurement’s true impact on it, savings remains the top metric for CPOs to track. Ardent Partners has written extensively about the problems that can arise when savings are over-weighted in the evaluation of a procurement organization, but it has always been key. As discussed earlier, it has risen as a priority for many more CPOs this year reversing a long trend. Last year’s “actual” average savings (6.04%) was down 18%, a significant number when compared to the 2021 value (7.37%).
The savings target for procurement teams for 2022 (6.12%) is almost 19% lower than what organizations planned last year (2021 – 7.51%). These are very significant drops year-over-year and are a clear indication that inflation impacted performance in 2021 and is expected by CPOs to do so again in 2022. The numbers also show that many CPOs missed their 2021 savings targets by a sizable amount.
Many CPOs appear to have the confidence of their executives considering the reasonably good grades shown on the CPO’s Report Card.
With an increased focus on savings and a higher average annual target, one would assume that competitive sourcing would increase. In a somewhat counter-intuitive finding, competitive sourcing has tracked downward this year compared to last (44.3% vs. 47.9%). Prices are on the rise and suppliers in many markets are gaining power.
CPOs, however, must remember that sourcing and eSourcing, in particular, provide many important benefits beyond price discovery and savings. Contract compliance and compliance-related metrics are tracking as a strong second most utilized CPO metric. Despite this, the average compliance numbers in the market remain uninspiring, with 61.2% representing the amount of spend that is contract compliant in 2022.
One critical area of growth over the past year is within the realm of supplier enablement: On average, 43.8% of the average enterprise’s supplier base is electronically enabled to transact (i.e., receive orders, send invoices, etc.) compared to 38.1% last year. This number has almost doubled since 2017 when the value was 24.1%. This is an interesting metric in the greater discussion of digital transformation, as the “digitized enterprise” is one that leverages seamless and holistic process workflows for maximum efficiency and knowledge sharing. With a newfound focus on the “smart” procurement function that holds the ability to influence other key areas of the business, this higher level of enabled suppliers is a positive signal.
Next week we shift from benchmarking to procurement performance and the advantages for those regarded as best-in-class performers. Learn how the spend under management metric guides Ardent’s Best-in-Class Framework.
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