Leading Procurement Organizations Generate Twice the Average Measurable Cost Reduction

They use procurement to drive durable business performance through excellence in managing categories, suppliers and teams

ChicagoOct. 23, 2014—Leading company procurement organizations reap double the measurable cost reduction vs. other companies, while also driving competitive advantage through supplier-driven innovation and risk management. While procurement organizations for leading companies continue their upward trajectory, most companies only sustained the gains they made between 2008 and 2011.

These findings were reported in a study released by A.T. Kearney, titled Procurement-Powered Business Performance: Assessment of Excellence in Procurement (AEP) Study 2014. This year’s AEP is the eighth edition in a series that started in 1992.

John Blascovich, A.T. Kearney partner and co-author of the report, noted, “We were surprised that after the gains made between 2008 and 2011, many companies only sustained their improvements over the last three years. The typical company may be ‘wasting a crisis’ by not continuing to enhance one of the most powerful levers to improve profitability and competitive advantage.”

The reasons that many companies are not reaching the next level of procurement performance include the lack of designated responsibility to take the lead for all major spend categories and explore broader value creation opportunities, weak strategic and organizational links to the rest of the business, and difficulty communicating the function’s return on investment.

Leading Practices

Leading procurement organizations found ways to advance, delivering even greater impact since the 2011 study. Integrating more closely with business units and regions increased their relevancy, influence and impact. These organizations achieved breakthrough financial results from procurement—generating double the Return on Supply Management Assets (ROSMASM) performance levels compared to the typical company, and delivering benefits at a rate 10 times greater than the cost of their people, technology and external support.

Leading companies achieved this performance by:

  • Building high-performance teams as a catalyst for business alignment.
  • Reducing cost through category excellence.
  • Creating competitive advantage through supplier capabilities.
  • Investing in the procurement team to deliver durable superior performance.

Stephen Easton, A.T. Kearney partner and co-author of the report, said, “Leading procurement organizations communicate what the function delivers to the company in terms that the business can understand, typically by using finance organization language to measure and share performance data.”

Alex Ferrer, A.T. Kearney procurement and analytic solutions director, said, “As procurement excellence helps to generate benefits and have greater business impact, companies will be more inclined to free up funds for innovation, growth and improved shareholder value.”

About the Study

A.T. Kearney's 2014 Assessment of Excellence in Procurement study is the eighth in the series since 1992. The objective of this latest study is threefold:

  • Evaluate how procurement progressed since 2011.
  • Determine how ready procurement is for the future.
  • Identify lessons learned from leading procurement organizations.

The study includes input from procurement and supply chain executives at more than 185 companies in the manufacturing (33 percent), process (41 percent) and services (26 percent) sectors, with average annual revenues of approximately $15 billion. Participants are from all regions of the world: 43 percent from Europe, the Middle East and Africa, 41 percent from the Americas, and 16 percent from Asia Pacific.