CIPS News


Study Finds That Top Procurement Organisations Continue to Deliver Financial Benefits in excess of 7.5 Times Their Cost and Investment Base

CIPS 7 December 2015

Seventy-one percent of CFOs report that procurement lags most other functions in terms of rigor and depth of performance tracking.

The 2015 Return on Supply Management Assets (ROSMA) Performance Check Study, "Building a Bolder Legacy: The Procurement Mission is Under Way", found that top performing procurement organizations improved their performance versus the 2014 report results with most delivering 10 to 15 times returns. Top performers were also found to deliver 7.5 times the costs and investment base in procurement and are expanding their advantage. These leaders generate about $1.25 million in financial benefits per procurement employee per year.

The second annual ROSMA Performance Check Study is once again a collaboration between A.T. Kearney, the Institute for Supply Management (ISM), and the Charted Institute of Procurement & Supply (CIPS). The joint initiative’s objective is to build the brand of procurement and encourage the profession to embrace advanced value-management practices and stronger CPO-CFO partnerships.

Joe Raudabaugh, A.T. Kearney partner stated, “Procurement faces a transformational period, similar to other corporate disciplines over the past 30 years. Beginning with manufacturing in the 1980s, and moving on to supply chains, research, engineering, and more recently sales and marketing, the mission for procurement organizations is underway – whether procurement is ready or not.”

Although top-performing procurement organizations are already delivering substantial financial benefits to their companies, the second part of this ROSMA research, which surveyed 226 senior financial executives from Australia, France, Germany, the UK and the United States, found that 50 percent of financial executives believe that bottom quartile procurement organizations return less than 1.5 times their cost in value. CPOs from these bottom-quartile teams validated this perspective, reporting dilutive performance results with financial benefits insufficient to cover their activities.

Thomas W. Derry, CEO of the Institute for Supply Management, commented, “The growing interest and popularity of the value-from-procurement topic continues to shape the conversations and forums serving the profession. This is not a disruptive force, but a welcomed constructive change agent that challenges us all to ‘raise our game,’ both in terms of productivity and overall results.”

David Noble, CEO of the Chartered Institute of Procurement and Supply, noted, “We can strengthen the position of procurement as a critical source of strategic enterprise value, establish the CPO as a core executive team member integral to the leadership narrative, and position procurement as a preferred career platform for tomorrow’s best talent.”

The study found that performance varies widely across all of procurement’s key value drivers, including spend coverage, sourcing program velocity, sourcing project yields and outcomes, compliance rates, and operating costs. Procurement remains a function plagued with inconsistent performance in delivering strategic activities.

Many companies are beginning to embrace Zero-Based Budgeting (ZBB). Companies employing ZBB demonstrate game-changing improvements in shareholder value performance by forcing rigorous alignment of resources and expenses. The transparency of ZBB provides top procurement organizations with the opportunity to bring significant value to financial decisions through knowledge of details, behaviors and costs.

The study authors also note that procurement organizations have the opportunity to attract millennials if the profession is willing to make changes regarding performance tracking and accountability. Millennials are a generation that prefers to join organizations with value-management practices, specifically where there is transparency, accountability, and recognition of their achievements. Procurement offers millennials the opportunity to learn the business from end-to-end, secure executive access and exposure, and have a significant impact on business performance.

The report also includes validating insight commentary from one of the largest private equity firms reflecting on the procurement performance of their portfolio companies, CPOs of two Fortune 100 companies, the Americas CFO of a major North American F500 company, and the CEOs of ISM and CIPS.

Ends

About the 2015 ROSMA Performance Check Study and the Voice of the CFO and Finance Community
The ROSMA Performance Check Benchmarking Study collects the financial performance of procurement as reported by participating CPO organizations. A.T. Kearney began ROSMA Performance Check benchmarking in 2009. The cumulative database has more than 520 completed benchmarking surveys. For this report, insights are drawn from 168 surveys that were completed in the last year. For the Voice of the CFO and Finance Community section of the report, 226 senior financial executives from Australia, France, Germany, the UK and the United States completed the survey this year with 384 unique voices cumulatively.

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