To reduce risk and boost ROI, procurement needs to be at the executive table: A.T. Kearney

Dive Brief:

Firms with more strategically integrated procurement functions see two to three times greater supply chain return on investment than average firms and 10 times greater than "break-even" firms in the survey's bottom quartile, a new report from A.T. Kearney reveals.
The study found the perception of procurement as a function has improved in recent years, with 90% of CFOs believing procurement leaders have a role at the executive table. However, the C-suite's view of procurement's role can still be too narrow, A.T. Kearney found, focusing purely on the function's cost-cutting potential as opposed to its "broader strategic impact."
"Procurement executives must rise to this challenge," the report says. "They must demonstrate to stakeholders that they understand internal business requirements. And they must communicate that state-of-the-art procurement is more than cost savings."

Dive Insight:

In AT Kearney's survey of 153 companies, the top 7% of surveyed firms in terms of procurement excellence were singled out as "leaders." This category saw procurement functions providing significantly higher benefits in a variety of areas, including working capital reduction and supply chain risk, compared to average firms.

Leaders are defined in the report as the top 7% companies.

Credit: Morgan Forde / Supply Chain Dive, data from A.T. Kearney

There are three key ingredients to developing an industry-leading procurement function, the report finds: team excellence, category excellence, and supplier excellence.

"While 80 percent of leaders focus more than 70 percent of their procurement team on strategic activities," the report reads, "only 17 percent of other companies do the same." High-performing firms invest in multi-faceted procurement talent and mentoring, while integrating advanced technologies such as artificial intelligence and analytics platforms to help teams analyze and act on data as effectively as possible.

Having long-term category-specific strategies is the second area where leading firms have pulled ahead. Using data to construct a multi-year view of procurement activities and needs can help function leaders communicate business priorities to the C-suite and drive stakeholder value beyond cost-analysis alone.

Eighty percent of the leaders AT Kearney surveyed create such plans for key spend areas and risk analysis and mitigation as well. Despite the prevalence of analytics solutions to aid in this process, the survey found 40% of respondents continue to use Excel-based methods.

Finally, supplier excellence proved to be a key differentiator for leading procurement functions, as "70 percent of leaders have differentiated programs for strategic and mainstream suppliers, compared to less than 5 percent of others." The report found 70% of leading companies had formal supplier innovation and process targets, whereas the remaining firms reported a more ad hoc approach.

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