Complying with an executive directive to identify savings and cut costs is the biggest challenge facing chief procurement officers (CPOs). According to a recent Analyst Insight report from Aberdeen Group, 75 percent of respondents say this is their prime concern.
The matter far outweighs other top concerns CPOs cite in the report, including lack of proper data to drive category strategies (44 percent), increased supply chain complexity due to globalization (40 percent), and lack of category expertise in strategic spend areas (38 percent).
Aberdeen states that CPOs must view strategic sourcing “as the machine that will deliver on more cost savings to [an] organization than ever before.” With this, however, must come “clear visibility into the sourcing process,” if an organization is to “have the opportunity for incredible growth, financial gains, and compliant contracts.”
Aberdeen notes that whether the leadership of an organization is risk-averse or risk-taking, “the greater visibility an organization has, the less risk it assumes.” The more visibility that CPOs have in sourcing, the more time there will be “to make effective, informed decisions.”
The top 20 percent of respondents that Aberdeen rates as “best-in-class” typically have an 89 percent level of spend under management, generate an 85 percent rate of purchasing transactions compliant with contracts, and achieve 12 percent average yearly savings.
The 50 percent of companies that Aberdeen labels as “industry average,” in contrast, have a 66 percent level of spend under management, a 41 percent rate of purchasing transactions compliant with contracts, and 6 percent average yearly savings.
The “laggards,” in the bottom 30 percent, have only a 32 percent level of spend under management, an 8 percent rate of purchasing transactions compliant with contracts, and 4 percent average yearly savings.
Other keys to improving spend management are aligning procurement strategy with organizational objectives (53 percent say this is the most important step), maintaining a focus on managing strategic spend categories (45 percent), enhancing data reporting and analysis for rapid and informed decisions (40 percent), and increasing strategic sourcing to improve CPO spend levels (35 percent).
Aberdeen advises companies to aggressively use business intelligence (BI) capabilities to improve the speed of information acquisition and decisions. Respondents with managed file transfer programs, for example, get almost half the information they require at least 80 percent of the time, compared with a 31 percent retrieval rate for companies without the programs. The time to decision is only 1.2 days with managed file transfer versus 7.8 days without. Time to resolution, meanwhile, is five days as opposed to 19 days without the capability.
Aberdeen offers that in the future, success for CPOs will come from “what they can control and what they have visibility into.” Web- and cloud-based platforms, software and mobile capabilities, combined, provide the means for organizations to achieve high operational efficiency and significant rates of return on global supply.
The companies that take full advantage of what’s available will quickly separate themselves from those that do not, and profit accordingly, the research pointed out.