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Chief procurement officers are under constant pressure to surpass procurement performance metrics year over year. Knowing how your procurement department compares to the best-in-class can provide a critical foundation for where to invest more resources. Begin by examining the spend under management metric to determine how you compare.
Best-in-Class Procurement Performance
Ardent Partners’ analysis in this report determined Best-in-Class procurement performance by identifying the top 20% of performers in the spend under management metric. As a group, they have placed, on average, 91.2% of spend under the management of the procurement organization — 53% more than their peers. Ardent continues to use spend under management as a starting point in the development of its Best-in-Class Framework and to drive additional discussion and deeper analysis of strategies, capabilities, and results.
Ardent’s thinking about the “spend under management” metric has evolved, somewhat, in the last few years. It remains an important and highly useful metric, but Ardent also understands the difficulties that organizations have in placing more than 70% under their influence, and that driving this number higher should not be a singular goal at the cost of other initiatives. That said, if an organization is managing around 50% of total spend, it is missing out on a large number of opportunities. Best-in-Class enterprises achieve top-tier performance across a series of critical procurement, sourcing, compliance, and supply management metrics. For example, they competitively source 38% more of their addressable spend and 46% more of their suppliers are electronically enabled.
Last year, savings between the two maturity classes were nearly identical. But, and it is a “big” but, the Best-in-Class apply that savings rate on a much larger spend portfolio. Net-net, the Best-in-Class deliver expansively more to the bottom line. Interestingly, the savings goals for the two groups in 2022 are quite divergent, with the All Others aiming at a higher target.
Meanwhile, the Best-in-Class continue to minimize their savings leakage by driving a significantly higher percentage of compliant spend. The impact of maverick spend in a high inflation environment can be devastating, so now is the time to increase communication regarding contracts and policies, while also being more vigilant.
The levers (parts one and two) that drive the Best-in-Class advantage are discussed below.
Best-in-Class Advantage Part 1
Alignment. The Best-in-Class CPOs understand the importance of executive support and engagement. They also understand that this is a two-way street and that it is critical for their departments to support the executive agenda. They are 57% more likely to be tightly aligned with the business and working to support its goals and objectives.
Strategic sourcing technology. Best-in-Class sourcing teams run significantly more competitive sourcing events because they are 51% more likely to have an eSourcing solution in place. These leaders show a dramatic advantage in their use of Advanced (optimization-based) Sourcing solutions, deploying them 2.3 times more often.
Sourcing and contracts linkage. One area of great disparity between Best-in-Class and All Other procurement teams is how tightly their sourcing and contracting processes are linked. While nearly three quarters of the Best-in-Class (71%) report tight linkage between the two, just 32% of All Other teams report the same — a whopping 220% difference.
P2P technology. The level and quality of procurement/AP collaboration varies dramatically among enterprises in the marketplace today. Best-in-Class organizations are effectively linking their P2P operations and systems nearly twice as often and to a much greater impact. The result is that a Best-in-Class P2P team is a competitive weapon that helps gain an advantage over rivals.
Best-in-Class Advantage Part 2
Supplier management. Best-in-Class procurement departments understand that suppliers should be viewed as a source of knowledge and expertise that can be leveraged to competitive advantage and mutual gain. The Best-in-Class extend their advantage to all areas of supplier management with solutions in place to manage information, performance, and risk between 2 and 3 times more frequently.
Compliance, tax, and GRC. Best-in-Class teams are nearly 60% more likely to have standardized their governance, risk, and compliance processes, including tax management, which helps mitigate risk and ensure regulatory compliance. Tax automation enables buyers to see, in real time, the tax component of an order and perform a total cost of ownership calculation.
Performance visibility. Having visibility into spend, process, and the supply base is the foundation upon which Best-in-Class procurement performance is built. The Best-in-Class do not possess universal visibility into key performance metrics, but the frequency in which they possess it compared to All Others is compelling, ranging as high as nearly 2.4 times greater when looking at areas like savings, compliance, and supplier performance.
Data intelligence. While data is valued equally across maturity classes, Best-in-Class CPOs are putting their money where their mouth is and are 73% more likely to have an active data strategy in place. The Best- in-Class are also more than twice as likely to be developing data science capabilities today.
In next week’s CPO Rising 2022 Report coverage, learn about the opportunties for procurement using advanced data anaytics. Take the first critical steps in big data management.
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