This spring, Xchanging, one of the four largest Procurement Outsourcing Providers and a provider of Procurement and Sourcing technology (through MM4) released the initial results of its 2015 Global Procurement Study. According to the study, the role of Procurement has changed. It has evolved from a cost saving function to an invaluable strategic partner.
Based on the results of the study, the doctor doesn’t agree. If Procurement is an invaluable strategic partner, the kind that generates value for the organization, then why are the top 4 most important KPIs that Procurement is measured against cost related? And, more specifically, why is cost-savings realized, at 47%, 2.5 times as important as the next most important metric of revenue impact, at a mere 19%. If Procurement was really strategic, should not revenue impact be (almost) as important as cost-savings realized? And, more importantly, why is ROI only the 8th most important metric at 8%?
A truly strategic Procurement function generates value, and value is measured not just as savings (realized), not just (additional) revenue (impact), but overall profit margin, captured in an ROI metric. And not just one that captures savings from outsourcing/technology partners.
Moreover, the rest of the results are not that impressive either.
- The most common reason for missed objectives is lack of internal engagement.
- The most important skill set with the greatest perceived skills gap is relationship management.
- The most common challenge is time pressure, faced by 79% of operations.
- 59% consider talent shortage a challenge and 13% consider it an extreme challenge.
Procurement is on its way to becoming strategic. The realization that relationship management is key, that skills are needed, that new talent will be required, and that there is never enough time will push the organization to adapt better practices, processes, and technology, and this means that Procurement will evolve and get more strategic over time. However, it’s strategic and value to the overall organization will be limited until the organization measures Procurement more strategically. If a CPO’s bonus, and more importantly, a CPO’s job, depends on hitting an ill-defined cost-savings measure, than that is where the CPO is going to focus, and while doing so, miss out on a number of mid-term and long-term value generation activities that could, over time, take the organization from average to best in class. (There’s a reason that it’s the Hackett Group top 8%, and that’s because very, very few organizations realize what it takes to truly take Procurement to the next level.)
Regardless of the results, Xchanging should be applauded for undertaking this study across 830 Procurement professionals across the US and the EU. Until the C-Suite puts their measurements where their mouth is, the reality must continue to be documented.