Chief financial officers are failing to understand the full benefits that effective procurement can bring, according to a survey.
In a report AT Kearney said over half of CFOs primarily see procurement as a function to negotiate savings that isn’t working strategically to achieve further business goals.
“While some leading organisations are ‘there’, many CFOs’ perceptions of procurement still remain too narrow. They see the value of procurement through the lens of hard cost savings only, and fail to understand procurement’s broader strategic impact,” said AT Kearney in its 10th Assessment of Excellence in Procurement survey.
External procurement spend is a companies largest cost and has a high impact on business performance, so effective procurement management is crucial, said the report.
The report ranked 153 procurement organisations based on a formula involving financial results divided by supply management operating costs. The top 25% – dubbed leaders – had the highest return on investment in procurement, and performed better than other companies at reducing working capital, operational efficiencies, cost savings and supply risk management.
Well-performing companies were more effective than companies that “barely covered cost” because they prioritised management of categories, suppliers, and teamwork across departments and the supply base.
These firms went beyond simply achieving cost reductions to deliver further value, set long-term category management strategies, used analytics and advanced sourcing methods, and worked with suppliers to improve innovation and risk management.
“The benefits of state-of-the-art procurement go far beyond costs, as the role of state-of-the-art procurement has shifted toward becoming a business partner that supports the organisation in achieving the broader enterprise goals,” said the report.
Respondents revealed that 80% of procurement leaders focused over half their team on strategic activities including category management, supplier management and talent acquisition, compared to only 17% of other companies.
All C-suite executives believed digital investments brought a competitive advantage in areas such as risk management, automation, and artificial intelligence, said the survey.
However, while leading companies viewed analytics as an investment that could have a wider impact, 40% of other companies only used analytics for spend analysis.
AT Kearney found barriers to adopting digital solutions included “the slow pace of change, lack of investment, competing initiatives, and shortage of talent”.
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