CPO Rising 2023: Best-in-Class Procurement Performance - 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 best-in-class procurement performance and the characteristics of what best-in-class represents.

Best-in-Class Procurement Performance

In this report, Ardent Partners has determined Best-in-Class procurement performance by analyzing the spend under management metric and identifying the top 20% of performers. This elite group achieved an impressive average of 91.5% spend under the management of the procurement organization, which is 60.3% higher than their peers. Ardent considers spend under management a crucial starting point in the development of its Best-in-Class Framework and a key driver of deeper analysis and discussions about strategies, capabilities, and results.

There are real challenges that organizations face when trying to manage more than 70% of their spend, nonetheless, managing 50% or less of total spend is not enough. Ardent’s research shows that Best-in-Class enterprises consistently outperform their peers across critical procurement, sourcing, compliance, and supply management metrics. For instance, they source 23% more of their addressable spend competitively and have 42% more electronically-enabled suppliers. The basic fact that they influence more than 90% of their spend shows that they have strong systems and processes in place and a full view into the scope of their activities.

The savings achieved by both maturity classes (Best-in-Class and All Others) were almost the same last year. However, the Best-in-Class group applies this savings rate to a much larger spend portfolio, leading to a significantly larger bottom-line impact. Interestingly, the savings goals for the two groups in 2023 differ substantially, with the “All Others” aiming 7% higher. Meanwhile, the Best-in-Class continue to minimize their savings leakage by driving a significantly higher percentage of compliant spend (73.5% vs. 60.3%). In a high-inflation environment, maverick spending can be even more disastrous than usual, so it’s essential to enhance communication regarding contracts and policies and remain vigilant.

The Key Characteristics of the Best-in-Class

As we proceed deeper into 2023, Best-in-Class procurement teams maintain their position as leaders in a variety of hard and soft capabilities. These top-performers demonstrated exceptional organizational leadership, spearheaded technology adoption initiatives, provided better training and support to their staff, and utilized technology to drive critical business processes. The consistent display of such capabilities is not new, as Best-in-Class groups have been setting benchmarks for high-performing procurement teams for several years. But with large and looming decisions on the horizon related to internal operations and the global supply chain, CPOs should look towards the Best-in-Class for guidance and inspiration, modeling key attributes where possible.

This year’s survey reveals that Best-in-Class procurement teams are adopting key technologies at a much higher rate than their peers. This trend is observed in all major technology categories across the full Source-to-Pay process. Ardent Partners research shows that top-performing procurement teams are twice as likely to adopt Services Procurement for Contingent Workforce (VMS) technologies, 60% to 80% more likely to adopt Supplier Management technologies, and 40% to 70% more likely to adopt P2P technologies than their peers. The Best-in-Class also claims deeper levels of proficiency and faster returns on their tech investments as a result. Effective vendor management is critical to controlling spend and maximizing the value obtained from suppliers. Investing in vendor management can help organizations drive value in a more scalable way.

In today’s fast-paced business environment, technology adoption is critical for driving strong procurement performance, but it is not the only factor. User training and support that drive proficiency and consistently high levels of usage, are equally important to achieving business objectives. Best-in-Class procurement leaders understand the multi-dimensional nature of procurement technology and appreciate its ability to connect and enhance business processes.

For instance, spend analysis is a crucial component of procurement technology, but it is not enough to simply understand enterprise spend behavior. By integrating spend analysis with other source-to-settle processes such as sourcing, contract management, and supplier management, procurement teams can leverage the resulting insights to make more informed decisions across the board. They can optimize sourcing decisions, control rogue spend and errant suppliers, and mitigate a range of supply risks such as price fluctuations, savings leakage, and contract non-compliance. This is just one example of how Best-in-Class procurement teams use technology to achieve outstanding performance and drive business value.

When it comes to general operations, Best-in-Class procurement teams continue to outperform their peers by standardizing processes at a rate between 1.3 and 1.7 times, despite not having exceedingly high process capabilities. The most common capabilities of top-performing procurement teams are standardized contracting (70%) and sourcing processes (65%). While there is room for improvement even among the Best-in-Class, their process standardization provides a competitive edge, contributing to their commanding lead in procurement performance. This finding reinforces the importance of focusing on process standardization to achieve procurement excellence.

Next week, we’ll focus on on how CPOs can drive enterprise value and achieve next-level performance by improving their analytical capabilities, building better supplier relationships, and communicating and collaborating more effectively.