NASHVILLE, Tenn.—At its Smarter Commerce Global Summit 2013 here, IBM announced a study that says companies with high performing procurement organizations are driving better bottom-line results.
According to the study, these organizations report profit margins of 7.12 percent as compared with just 5.83 percent for companies with low performing procurement organizations. Also, companies with top performing procurement organizations report profit margins 15 percent higher than the average company—and 22 percent higher margins than companies with low performing procurement organizations, IBM said.
The 2013 Chief Procurement Officer Study was conducted by the IBM Institute of Business Value (IBV) and highlights the business impact that chief procurement officers (CPOs) can have on a company’s competitive advantage and profitability. It explores how top performing CPOs can increase their influence over strategic business imperatives by driving efficiency and performance, introducing innovative new processes, and uncovering new insight into supplier networks that have a measurable effect on the bottom line.
“This is all about helping procurement officers meet the need of their customers,” said Alisa Maclin, vice president of marketing for Smarter Commerce at IBM, at a press conference introducing the study.
Maclin touted the IBM study as the largest of its kind. It surveyed 1,128 procurement executives in 22 countries across North America, Europe and Asia Pacific. Of the respondents, 15 percent were found to be top performers, defined by their ability to exert influence and drive innovation across their companies, while also excelling at procurement fundamentals, said Chris Wright, a senior product strategist at IBM.
The study identified several common actions that enable top performing procurement organizations to achieve superior results. One such action is they gain insight through big data analytics. By using analytics to tackle big data challenges, CPOs can gain new insights into internal business operations and their supplier networks to identify vulnerabilities. Eighty-three percent of high performing CPOs excel at leveraging analytics, compared with just 63 percent of the low performers.
Moreover, high performing procurement organizations collaborate well within and beyond the enterprise. Social business technology helps global procurement organizations connect with internal and external partners. According to the study, 80 percent of high performing companies report that collaboration across departments, such as IT, marketing and sales, is both a key strength and an investment priority, compared with only approximately 45 percent of low performers. High performing procurement organizations see the benefit of close partner collaboration and therefore are more likely to create strategic alliances. For example, top performers direct 38 percent more of their annual spend through strategic alliances than low performing organizations.
Rudy Chang, vice president and general manager of ecommerce at Pitney Bowes, said social business is key for his organization. “The push for social really allows every one of our organizations – every silo – to participate,” he said during a customer panel. “Our push has been on enhancing the employee social network to bring people together to work better with the customer.”
IBM: Top Chief Procurement Officers Drive Higher Profits
Top performing organizations also are turning to social business for innovative ways to manage their global teams and collaborate with their suppliers. The study found that high performers are more likely to use social tactics such as crowd sourcing (81 percent) and collaborating on product development with suppliers (88 percent), versus their low performing counterparts (38 and 47 percent, respectively).
The third common trait of high performing procurement organizations is that they adapt to changing market conditions. By using big data insights and collaboration, high performing CPOs are in a better position to quickly respond to changing internal and external conditions, from demand changes to supply disruptions and product redesigns. The study showed that 73 percent of top performing procurement organizations are effective at gathering insights from the supplier community, compared with only 16 percent of lower performing counterparts.
“There are tens of millions of dollars at stake, and the IBM IBV CPO study reveals how and why high performing procurement leaders have significant impact on their organization,” said Craig Hayman, general manager of IBM Industry Solutions, in a statement. “As CPOs take a broader view of their role and embrace technology, they have an unprecedented opportunity to become even more instrumental in transforming their organizations by modeling themselves against the world’s most innovative and effective procurement organizations.”
As companies realign their organizations to take a more customer-centric approach, the role of procurement professional is changing from a traditional back-office, transaction-oriented role to one with more visibility and influence among C-suite executives, IBM said. CPOs are well-positioned to help identify and mitigate supply-related vulnerabilities because they serve as the bridge between suppliers and internal consumers. Similarly, procurement teams can utilize data analytics to help improve demand forecasts and identify additional savings opportunities within spend categories.
Moreover, there is a strong correlation between being a top performing procurement organization and effectively using procurement technologies, IBM said. For example, in regard to Supplier Relationship Management, the study found that 94 percent of top performing companies are highly effective in their use of procurement technologies, compared with 44 percent of all surveyed companies are average or below average in their technology effectiveness. The study also found that CPOs think that supplier intelligence solutions, including 360-degree global views of supplier relationships and procurement performance dashboards, will be the most important area of investment over the next three years.
In addition, the study showed that CPOs of top performing procurement organizations understand that success depends on getting the skills and expertise needed to execute the mission they have been given. By percent, twice as many top performers as low performers view recruiting and talent development retention as a key strength. Top performers also extend these human capital advantages because they are equally aggressive in their investment plans for retention, recruiting and talent development, IBM said.