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  - June 10, 2009 -  

Supply Chain News: What Makes Procurement Leaders Different?

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First, they Simply Manage more Spend, ATKearney Study Says; Collaboration and Advanced Measurement also Key



SCDigest Editorial Staff

SCDigest Says:
The companies Kearney classifies as procurement leaders manage about 70% of the enterprise's total spend through the formal procurement organization, versus just 40% for the followers.

In all sectors and functions, there are leaders, followers, and laggards. What’s often difficult, however, is really identifying what makes those leaders different from the rest.


Every few years, the consultants at ATKearney take a look at this question in the area of procurement.


One finding that is perhaps obvious at one level, but a bit non-intuitive at the same time, is that the top procurement organizations simply manage more of a company’s total spend – and generate more total savings as a result.


As shown in the graphic below, the companies Kearney classifies as procurement leaders manage about 70% of the enterprise's total spend through the formal procurement organization, versus just 40% for the followers. Kearney also finds the leaders deliver almost 5.5% spend savings, versus just 4% for the follower group.



Of course, there are questions about cause and effect. What is it about managing more of corporate spend that causes a greater total cost reduction percentage? Or is it that the more capable procurement organizations that deliver better total results naturally assume more and more responsibility? Or some of both?


Kearney also goes on to say that procurement leaders exhibit the following organizational qualities:


Focus on Collaboration. Leaders expand and augment well-accepted practices such as strategic sourcing, category management and supplier relationship management. They employ new techniques with their suppliers, including innovation networks, product tear-downs, collaborative cost reduction and price benchmarking. They are more likely to use collaborative design initiatives with suppliers, or to work on common strategies, such as sustainability. Kearney says 70 percent of leaders collaborate with suppliers to the level of shared, compared to just 6 percent of the overall study participants.

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Focus on Risk Management. Procurement leaders are more likely to use advanced internal risk mitigation strategies to avoid supply disruptions. Some are also factoring in megatrend analysis to understand the potential impact of trends such as population growth, improved standards of living and alternative energy sources.



Broader use of Emerging Markets: Almost 80 percent of companies, and 100 percent of the leaders, source from emerging markets. Study participants anticipate sourcing more from Brazil, Russia and India in the next several years, and less from China, Southeast Asia, Mexico and Eastern Europe, due to concerns over quality, safety and intellectual property issues.


Focus on Sustainability: More than two-thirds of our study leaders are serious about sustainability. For example, DuPont and GE are reducing energy use and waste, P&G and BASF have a holistic future-oriented focus on sustainability, and Coca-Cola and Unilever are expanding “green” initiatives to their extended enterprises.


Advanced Use of Technology and Measurement: The study leaders have generally deployed advanced procurement technologies to reinforce supplier contracts, track spending, manage demand and power collaboration. They are twice as likely to measure procurement’s effectiveness in terms of risk and supply chain security, sustainability and innovation. The study finds 25% of companies are still not using e-sourcing tools.


What do you think makes a “procurement leader?” Why the big difference between companies in the percent of spend managed by procurement? Let us know your thoughts at the Feedback button below.

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