CPO Rising 2023: Procurement Performance, Results, and Impact « CPO RISING – THE SITE FOR CHIEF PROCUREMENT OFFICERS & LEADERS IN SUPPLY MANAGEMENT

Today, we feature our ongoing coverage of this year’s 18th-annual CPO-themed report, where my team and I continue our nearly two-decade-long dialogue with chief procurement officers (CPOs) and other procurement leaders.

The report is based on research by Ardent Partners and represents a comprehensive, industry-wide view of what is happening in the world of procurement and captures the experience, performance, perspective, and intentions of 341 CPOs and other procurement executives.

Our post today examines how critical it is for CPOs to keep score of their team’s performance, develop a set of metrics that can help prioritize and focus procurement resources, track and improve performance, and communicate the value that procurement delivers in support of enterprise objectives.

Procurement Performance, Results, and Impact

Businesses focus on measuring their revenues and profits because they matter. These numbers are critical to employees, shareholders, customers, and suppliers alike, and represent the final “score” of a game played last quarter or last year. As such, businesses play the game to win, and Chief Procurement Officers are no exception. Procurement results matter, and in 2023, they will matter more to the entire enterprise.

However, scoring procurement performance can be as complex and nuanced as the value that the function delivers. And linking that performance to overall business objectives and results can be even more challenging. It is incumbent upon CPOs to keep score of their team’s performance, develop a set of metrics that can help prioritize and focus procurement resources, track and improve performance, and communicate the value that procurement delivers in support of enterprise objectives.

To demonstrate clearly and unequivocally what procurement’s value proposition is to finance and the rest of the company, CPOs must play the game and play it well. Winning and advancing, while continuing to broaden the influence and impact that procurement has on the enterprise, is critical to the success of the function and the overall organization. What follows is an exploration of the importance of procurement performance in driving enterprise success and provides insights into the tools and strategies that top procurement teams deploy to impact the bottom line.

Procurement Performance has Become a Moving Target

The aggressive push for procurement agility that Ardent Partners began advocating in 2012 continues to pay dividends for the overall industry. The unprecedented market shifts over the last few years led many enterprises to change how procurement’s overall performance is measured. In 2022 and 2023, many enterprises introduced new metrics or frameworks, such as financial value frameworks, Days Payable Outstanding (“DPO”) measurement, operational efficiency metrics, and ESG metrics — including sustainability, social impact, and supplier diversity metrics. Others have shifted their focus from transactional facets to more proactive aspects, such as agility in sourcing, negotiating better deals, and resilience toward disruptions.

With the spike in uncertainty this year, there is increased focus on savings, cost avoidance, and strategies that impact cash — like payment terms, cash flow, and better inventory management. In 2023, there will also be a greater emphasis on risk management, such as supply assurance and risk-to-revenue forecasting. Of course, depending on the unique nature of their business, not all enterprises have made changes. What is important, however, is organizational agility that enables CPOs to adeptly shift focus and resources, as needed, to the critical initiatives of the quarter/year. To do so, CPO alignment with the C-suite is imperative.

Performance Results and Impact

When asked to evaluate their procurement department’s performance last year, the results showed that nearly three-quarters of respondents (78%) reported meeting or exceeding their procurement objectives for the year. Almost half of respondents (47%) reported that their procurement department met their objectives for the year, while 27% reported that they overperformed. Additionally, 4% of respondents reported that they significantly overperformed, indicating that their procurement departments had a major impact on overall business operations and results. On the other hand, 20% of respondents reported that they underperformed, while 2% were surprisingly unsure of their efforts. It should be noted that the 2022 objectives for many CPOs were adjusted lower, as an acknowledgment of the tough inflationary environment.

Today, most CPOs and other procurement executives are well aware of the impact their teams can make and the longer-term context of their influence. This year’s survey results show that a majority (57%) believe that their departments had a “major” or “significant” impact on the enterprise over the last 12 months, while another 24% believe that their impact was “solid.” These results are slightly lower than in recent years but demonstrate that, even as times get tougher, procurement can be relied upon to deliver. To ensure this, procurement teams should be building out an aggressive set of projects to deliver in the second half of 2023.

While CPO respondents tend to see their cups as half full, it is particularly noteworthy that only 2% of respondents reported little-to-no impact, while no respondents reported a negative impact. This indicates that even those organizations with less mature procurement functions are delivering value and have a seat at the table in at least some key decision-making processes. That said, there is always room for improvement.

Next week, we’ll cover complacency, a dangerous pitfall that procurement leaders must actively avoid because it can lead to an absence of innovation, risk-taking, and growth.