The ROI on Skills

Elevating Procurement's value proposition


By Andrew K. Reese

Earlier this year the Council on Competitiveness, a Washington, DC-based non-profit organization focused on increasing the United States' economic competitiveness in the global market, issued a report called "Thrive: The Skills Imperative," which called for a national skills strategy to ensure that Americans are prepared to compete in the global economy and that global companies continue to invest in the United States.

The report actually outlines four strategies, and it makes for an interesting read. But it suffers the same weakness as similar manifestos: It provides little in the way of a plan for how or where to make the investments necessary to realize a national skills strategy, let alone fact-based insight into the return on investment that the nation could expect from the implementation of that strategy.

In the supply chain industry, on the other hand, consulting firms have gone to the trouble of identifying both strategies for improving performance and the ROI on investments in those strategies. One of the leading advisory groups in this regard is The Hackett Group, which each year offers up its Book of Numbers to report on where world-class procurement organizations are investing and what they are getting back in return.

This year's edition, "2020 Vision: Delivering on the Evolving Value Proposition of Procurement," reports that top-performing organizations now spend 22 percent less than typical companies on procurement operations (.64 percent of spend for world-class companies versus .82 percent for typical) and operate with 37 percent fewer staff (48.4 per billion dollars of spend for world-class companies versus 76.4 for typical). They also generate 129 percent higher spend cost savings while also delivering great stakeholder satisfaction and support for initiatives in sustainability, innovation, working capital improvement and other areas.

Hackett offers a vision for elevating Procurement's value proposition from "supply assurance" to "purchased cost reduction," and from there on up to "total cost of ownership reduction," "demand management" and, finally, "value management." The consultants also offer a look at the investment and capabilities required for each level, and the return that world-class companies can expect versus industry-average performers.

Speaking about the overall lessons to be found in this year's Book of Numbers, Chris Sawchuk, procurement practice leader at Hackett, notes that leaders in the supply chain must have a clear-eyed view of their organization's current capabilities, realistic goals for where those capabilities need to be and a step-by-step strategy for attaining those goals. Importantly, supply chain leaders must ensure that those goals and strategies align with where the overall business is headed. "I've never seen a procurement leader taken out their job because they haven't saved enough money," Sawchuk says, "but I've seen them taken out many times because they haven't aligned with the business."

One other nugget of note from the report: Sawchuk and co-author Pierre Mitchell point out that while supply organizations must look to increase skill levels within their functions, these better-trained and therefore more value-adding staff members are likely to become sought-after, or "poached," by other firms. The analysts urge functional leaders to ensure that they have appropriate retention plans in place for both "high-potential" as well as "high-performing" employees. "Such plans can comprise career development, job rotation programs and a commitment to training," Hackett writes, adding, "Simply investing in more training will not guarantee better financial performance, but it does demonstrate the commitment that top performers have to executing well-honed internal development programs."

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