Top CPOs drive higher profits

23 May 2013

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23 May 2013 | Paul Snell

Profits at companies with the best procurement teams are 22 per cent higher than poor performing rivals.

A study by the IBM Institute for Business Value found profit margin at companies where CPOs “rose to the challenge of the downturn” to contribute to strategic objectives was 7.12 per cent. This compared to 5.83 per cent at the worst performers. The average profit margin across all businesses surveyed was 6.19 per cent.

The 2013 Chief Procurement Officer Study, which canvassed 1,128 purchasing executives in 22 countries, described high performers as those who could combine traditional procurement capabilities with influence and innovation.

While half of respondents reported their organisation had strong purchasing capability, only a third said they enjoy ‘significant’ or ‘very significant’ influence over strategic goals, such as sustainability and maintaining cost leadership. “A significant number of companies must be struggling to convey the value they already contribute to the organisation,” the report said.

Innovation was also an area where procurement functions struggled, with just 27 per cent demonstrating characteristics such as value chain re-engineering or collaborative product development with suppliers.

The study also found twice as many of the best performing firms thought their recruitment and retention was a key strength, compared to the weaker performers. The top companies were also more willing to invest in hiring, career development and employee retention.

“As CPOs take a broader view of their role and embrace technology, they have an unprecedented opportunity to become even more instrumental in transforming their organisations by modelling themselves against the world's most innovative and effective procurement organisations," said Craig Hayman, general manager at IBM Industry Solutions.

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