Organisations in the UK and across the globe are ignoring the economic power that bulk buying can bring. The result, according to KPMG’s Global Procurement Benchmarking survey, is low level procurement capability, negatively affecting economic performance and business effectiveness.
The survey, based on the views of 585 senior purchasing professionals, explores levels of influence exerted by company buying functions, within their organisation. It reveals that just 31 percent of procurement teams are involved in decisions about whether their organisation should ‘make or buy’ products. Worryingly, the data also shows that only 4 percent of companies are rated as ‘excellent’ when it comes to managing risk in their supply chains – implying that the purchasing process exposes too many organisations to un-necessary trading hazards.
Richard Nixon, Corporate Advisory Partner at KPMG, says: “It really is a case of ‘buyer beware’ because organisations don’t seem to give their buyers the authority they need to deliver results. Procurement has always been seen as a back office, administrative function focused on delivering products at the lowest possible price, in the quickest possible time. As much as the current economic climate means that cost reduction is critical to business survival, organisations failing to spot the difference between delivering value and reducing short-term costs will continue to struggle. They will keep plodding along from one tactical purchase to another rather than ensuring decisions about what to buy are intrinsically linked to the strategic needs of their business.”
Key findings from the report reveal that:
purchasing departments influence less than 60 percent of company spend – either for their own use or for buying goods sold on elsewhere
just 17 percent of purchasing departments lead initiatives designed to reduce their organisation’s use of consumable products, resulting in un-necessary spend and high levels of waste
little over half (51 percent) of in-house procurement teams own the relationship between their organisation and key suppliers – though this figures climbs in the manufacturing sector (82 percent), amongst technology businesses (64 percent) and utility companies (63 percent)
businesses are exposing themselves to financial and reputational risk, with just 48 percent of money spent on products used within the organisation being managed under a contract. However, the data does show that the retail sector bucks this trend, with 72 percent ensuring contracts are in place
only 4 in 10 procurement functions take part in the reviewing and auditing of supplier contracts, exposing many organisations to high levels of risk in the supply chain
1 in 5 organisations still require manual intervention with at least 30 percent of their invoices, suggesting that the value of technology investments is not being realised
purchasing teams in the UK (15 percent) lag behind their counterparts in Asia (27 percent), but are ahead of colleagues in North America (6 percent) when it comes to influencing ‘demand led’ purchasing decisions.
Nixon continues: “Twenty years since the birth of strategic sourcing there are still far too few organisations that do it well enough. It may be down to executives failing to understand the true value of procurement teams, a conceited belief that they are already ‘best in class’ and don’t need to improve, or simply too much focus on the immediate need to drive out cost. Whatever the cause, business leaders need to pay attention to the purchasing function within their organisation. Leaving buying decisions to chance, or personal relationships, risks profligate spending – something most organisations, irrespective of their geographical location, can ill afford.”
Amanda Aldridge, partner in KPMG’s Risk Consulting practice, says: “Procurement will be in the line of fire if there is an operational or financial impact stemming from failure to manage supplier risk issues, yet the survey indicates low levels of maturity in respect of supplier risk management. The Procurement function has the opportunity to take a lead in bringing together the relevant functions in the business to manage supplier risk effectively, starting with pre signing due diligence and continuing through the life of the contract.”
The survey concludes by revealing that the UK lags behind Europe and North America when procurement teams are assessed for the ‘value and growth’ they provide in conjunction with organisational strategy. Even where procurement teams are embedded within an organisation it is clear UK businesses need to follow examples set elsewhere as asked the extent to which they are involved in purchasing decisions for products used internally, 27 percent of respondents in Asia claimed they lead the decision-making process, compared to just 15 percent in the UK.
Mike Petrook, KPMG Press Office
020 7311 5271 (t), 07917 384 576 (m) or email@example.com
Notes to Editors:
KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and operates from 22 offices across the UK with over 11,000 partners and staff.
The UK firm recorded a turnover of £1.7 billion in the year ended September 2011. KPMG is a global network of professional firms providing Audit, Tax, and Advisory services. We operate in 152 countries and have 145,000 professionals working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity.
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