Data prepared by the Economist Intelligence Unit
1 on behalf of professional services organization KPMG International reveals that, encouragingly, three-quarters of senior procurement executives believe their business understands the importance of procurement issues. However, 54 percent feel misunderstood by their own organization.
The image problem which procurement suffers from is reinforced by the fact that 53 percent of respondents with a non-procurement role feel it is too focused on cost at the expense of value, while 40 percent feel it focuses on compliance ahead of innovation.
However, the report, entitled Beyond Purchasing: Next steps for the procurement profession, also suggests that a rosier future for procurement could be on the horizon if issues are addressed around skills gaps, leadership and integration at Board level.
Commenting on the research findings, KPMG Advisory’s James Hunter, a partner within KPMG’s Australian firm, said: “These are important times for procurement teams around the world. The maturity of the physical, financial and information supply chains has created the opportunity for global, effective procurement operations. So, having come to terms with their main raison d’être — cost-effectively securing goods and services which meet specific business requirements — they now find that expectations have been raised dramatically.”
“There is an incredibly complex balance for procurement to strike, managing factors such as tightening economic conditions, demands for cost reduction, commodity price rises and fluctuations, supply market risks, increased globalization and business sustainability. Leading companies are increasingly using innovation, global sourcing, more strategic supply planning and full lifecycle procurement to try to strike that balance. Juggling such demands mean that sustainable cost reduction programs are as much about senior management needing to understand and appreciate strategic procurement as they are about trying to extract a further 5–8 percent from the supply market. Procurement teams have often felt under-leveraged but now could be their chance to shine; to show the business what they can really do when they adopt a strategic, proactive and integrated approach.”“A prime example of where procurement has a new, important role to play is in monitoring the health of a company’s suppliers. In these post-credit crunch days, the risk of a key supplier getting into financial difficulties should rank as a major concern. But who is better placed than the procurement team to keep an eye out for the warning signs? This is just one instance of where a procurement team could become a much more valuable contributor to strategic, Board level decisions.”Other areas in which Hunter thinks procurement could raise its game and make itself more valuable to senior management include lifecycle procurement, working capital cash management and tax efficient supply chain management. However, all of these disciplines require skill sets which many procurement teams may currently be lacking. Above all though, he claims, procurement needs stronger leadership which can help it to better align its skills with the strategic, long term planning needs of senior management. Otherwise, it risks drifting along in fairly rudderless fashion, perceived by the business as nothing more than a process driven, basic purchasing team.
Hunter continued:
“There are two sides to the procurement coin. On one side are the dedicated procurement professionals whose expertise is crucial in keeping costs down; something which is so important in an increasingly competitive market. On the other side though, are the more strategic benefits which can be derived from a function which has its finger on the pulse regarding innovation, opportunities, competitor behavior and suppliers’ health. A team which performs well on both sides of the equation can drive innovative supplier arrangements and realize real, bottom line cost savings. A team with a more limited approach may deliver nothing more than knee-jerk cost reductions at a contract level which are rarely adopted and realized to the bottom line.”“The cost-down pressures which are currently felt worldwide have already resulted in some significant short term knee-jerk initiatives. Effective management of a company’s third party expenditure is clearly back on the Board agenda and the best procurement teams have a great opportunity to further their sphere of influence within the business. If they are to take this opportunity though, they will have to face up to a demanding wish-list of cost reduction, compliance, risk management and innovation. Few may be properly resourced to do this so work should commence immediately to start filling those gaps. Get it right though and procurement could become a more strategically valuable partner at Board level.”
1. For the purposes of the research, almost 600 senior executives worldwide were surveyed. Fifty percent of respondents were procurement or supply chain professionals but the survey also included a range of other decision-makers including CEOs, CFOs and COOs. About the research:KPMG International commissioned the Economist Intelligence Unit to write Beyond Purchasing: Next steps for the procurement profession. The report is based on the following research activities:
- The Economist Intelligence Unit conducted a global survey of almost 600 senior executives. Nine out of ten of those executives have a direct influence on procurement decisions in their companies, while the rest were executives who used the procurement function’s services.
- Fifty percent of respondents were procurement or supply chain professionals, but the survey also included a range of other decision makers including CEOs, CFOs and COOs.
- The survey reached a cross-section of industries. Over half (58 percent) of companies surveyed had annual revenues of over US$1bn.
Contact:Simon Griffiths, Global Advisory Corporate Communications, KPMG in the U.K.
Mobile: +44 121 232 3760
e-Mail:
simon.griffiths@kpmg.co.uk