What kind of return on investment is your company getting from its spend on procurement staff and tools?
Interestingly, two recent reports from leading consultants have both taken a look at this issue, and come to the same basic conclusion: procurement leaders generate more than twice the return of the average company.
First, in its report The Hackett Group presented the following chart, showing the amount of purchase price savings that procurement leaders generate is more than double that of the average firm:
Source: The Hackett Group
As can be seen, this data says leaders generate some nine dollars of savings for every dollar invested, versus just over four dollars for middling performers.
Not long after that, a combination of AT Kearney, the Institute for
Supply Management, and the Chartered Institute of Purchasing and Supply also issued a new report,
based on Kearney's Return on Supply Management Assets (ROSMA)
methodology for measuring the value of supply management activities.
It contains the following chart, which shows procurement leaders receive a return equal to about 11 times
their investment in the function, while the median company (50% level) achieves a return
of just 4.5 on those dollars. The worst companies barely get any return
at all, seeing payback equal to less than their investment, at a ratio
of just .8.
The two sets of numbers measure slightly different things, but are remarkably similar in their main takeaways: procurement leaders simply drive considerably more value from what they spend on procurement than the average company, probably more than twice as much.
Which quartile or group is your company in? It would be interesting to know, would it not?
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