CPO Rising 2023: Procurement Complacency Risk - 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 the ills of procurement complacency, as well as the current state of the average procurement department’s performance and operational results.

Complacency is Highly-Contagious. Also, it Kills.

Complacency is a dangerous pitfall that procurement leaders must actively avoid because it can lead to an absence of innovation, risk-taking, and growth. When individuals or organizations become complacent, they may stop pushing themselves to improve or challenging the status quo. This can result in missed opportunities for growth and improvement, as well as a loss of competitive edge. Despite generally positive evaluations from C-level executives, the reality is that the procurement landscape in 2023 remains fraught with challenges and uncertainty.

Procurement leaders who become complacent and fail to adapt to the changing environment risk falling behind their peers and failing to meet the needs of their organizations.

Procurement leaders who rest on their laurels and become complacent risk losing their competitive edge and failing to deliver on organizational demands. Complacency is highly-contagious. It can lead to a decline in motivation and engagement, as employees may feel their contributions are not valued or there is no room for growth or advancement. This can lead to high turnover rates, lower productivity, and a negative impact on overall organizational culture. CPOs must vaccinate their organizations against complacency with regular reviews, constant feedback, and clear guidance.

In an increasingly competitive and uncertain business environment, procurement leaders must remain vigilant and proactive, constantly seeking new ways to improve their operations and deliver greater value to their organizations. This means staying abreast of the latest trends and best practices in procurement by reading the latest research and attending networking events and webinars as well as continually assessing and improving their own performance.

The 2023 Procurement Benchmarks

The 2023 Procurement Benchmarks reflect the current state of the average procurement department’s performance and operational results. The average percentage of spend under management has decreased slightly from 2022 to 64.9% in 2023, indicating there is still room for improvement in terms of procurement’s control over enterprise spend. As Ardent notes every year, enterprises see a significant return on investment from increasing this metric. Research shows that every new dollar of spend placed under procurement’s control can result in savings between 6% and 12%, as well as improved quality and lower risk.

Savings is both the CPO’s top priority and top performance metric, with the average actual savings achieved last year (2022) at 6.1%, essentially flat from the prior year but still down significantly from two years ago. The 2023 savings target (6.6%) is trending up slightly from last year, indicating that procurement teams are aware of the need to improve their savings performance. However, this target is still lower than before and during the height of the pandemic, suggesting that CPOs are anticipating continued challenges from inflation in the coming year.

Addressable spend that is sourced increased in 2022 to 47.1%, indicating that procurement teams are making progress in identifying and sourcing more spend categories. However, room remains for more sourcing. In fact, there should always be room for more sourcing, especially when a proficient centralized eSourcing team is in place. Spend that is contract compliant has increased slightly to 63.2%, suggesting that procurement teams need to focus on ensuring greater compliance with contract terms and conditions. The percentage of enabled suppliers jumped almost ten percent to 46.2% in 2023, an indication of the continued digital shift for procurement and its suppliers.

Next week, we’ll cover best-in-class procurement performance and the characteristics of what best-in-class represents.