Thought Leadership

Seeking Evidence of Procurement’s Impact and Momentum

Vishal Patel, VP Product Marketing, Ivalua

Much has been made in 2019 about the gap between the findings of procurement self-assessments and where each organization stands when they are evaluated against their peers using objective measures. Just as procurement’s impact on the organization is quantitatively captured using metrics such as savings and spend under management, the maturity and digital readiness of the function can be objectively tracked and benchmarked (check out Forresters Digital Procurement Maturity Assessment)

Whether procurement is trying to track their financial impact or evaluate their maturity relative to earlier benchmarks or leading players in their industry, it is critical to study what ‘the numbers’ reveal.

In a recently released report, Procurement Metrics That Matter in 2019, Ardent Partners reveals the results of research involving 308 procurement professionals across 20 industries. The report shines a light on the most critical – and action oriented – procurement metrics and what they indicate about how much progress they are making along the maturity curve. Most interesting of all is what we learn about the importance of those metrics in the face of overly rosy or overly critical subjective self-assessments.

Findings of note from the Ardent Partner research paper include:

  • For 2019, procurement organizations have targeted an expected savings rate of 7.5%, nearly the same as the 7.6% savings realized in 2018.
  • Spend under management has been effectively flat since 2012, with procurement organizations averaging 63.2% of total enterprise spend under management. Interestingly, fewer CPOs are focused on driving this particular metric than in the past despite its continued importance.
  • The average addressable spend being sourced in 2019 is 51%, compared to 46.9% in 2018 (a modest 8.7% increase).
  • 57% of CPOs believe procurement made a “major” or “significant” impact on the enterprise in the last 12 months.
  • 92% of respondents believe procurement’s momentum has increased over the last 3 years, 20% of those say it has increased significantly. 8% report their momentum as the same. Interestingly, 0% of CPOs report any loss of momentum.

If procurement wants to validate that they are evolving or progressing rather than just repeating the same actions year in and year out, there should be some kind of alignment between quantitative findings (savings and spend under management) and more subjective measures (perceived impact and momentum).

When we look at the findings listed above from that point of view, some disconnects quickly come to light.

Procurement Impact?

Procurement may feel they made a major or significant impact in the last year, but it wasn’t captured in savings, spend under management or sourced spend. Even supplier enablement, defined for the research as “those who can transact electronically”, was relatively flat year over year despite today’s emphasis on supply base digitalization. 35.6% of suppliers were enabled in 2019 v. 32.4 in 2018 (an approximate 10% increase).

Increased Momentum?

If procurement’s speed and force are accelerating, there is little evidence of it in year over year measures. Savings are flat. Spend under management is flat. Sourced addressable spend and supplier enablement saw modest one-year gains between 8-10%. Add to this the fact that 0% of respondents, not one CPO in the pool of over 300, reported negative momentum. This seems unlikely to be true – not only at first pass, but when compared to other findings from the same respondent group. 9% declared themselves “not agile” and 11% reported that their impact was “small, insignificant or negative”.

A push for digital transformation implies that procurement welcomes change. And while some things may be changing in procurement, the evidence isn’t born out in the performance metrics they have become accustomed to using. Either procurement isn’t making as much change as they think they are, or the time has come to select and define a group of new metrics that better capture the organization’s impact and momentum while incentivizing the right activities.

Access the full Ardent Partners Report here.

Vishal Patel,
VP of Product Marketing
Ivalua

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