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30 October 2014

Leading procurement functions "provide benefits ten times greater than cost"

Content team

The world's leading procurement functions provide significant advantages for their organisations, new research has revealed.

A study carried out by AT Kearney has revealed the best teams deliver benefits at a rate that is ten times greater than the combined cost of their people, technology and external support.

The organisation also found leading procurement departments tend to generate double the return on supply management assets than their less effective counterparts.

It said this superior performance has been achieved through four key differentiators - building high-performance teams, reducing costs through category excellence, establishing competitive advantage through supplier capabilities, and investment.

The report stated: "Procurement leaders communicate what the function delivers to the company in terms that the business can understand, typically by using the finance organisation's language to measure and share performance data.

"They also ensure that their own organisation is aligned by regularly engaging the entire procurement function around the three-to five-year vision."

Moving forward, AT Kearney said procurement departments must make one of two choices. They can either maintain the status quo or look to improve by "unleashing the full potential of their supply base".

The organisation warned those companies that choose to stay on their existing course will see the impact of procurement decrease. However, those that choose to improve will enable the function to become an "even greater strategic business contributor".

Last month, a study was released by A.T. Kearney, the Chartered Institute of Purchasing and Supply and the Institute for Supply Management, which found the leading procurement departments deliver a typical return on investment of around 700 per cent. This equates to each procurement employee in an organisation generating £1 million in financial benefits per year.

In August, a Hackett Group study found leading procurement functions tend to operate at costs that are 20 per cent lower than their counterparts. These teams typically have 27 fewer employees and generate savings that are nine times the overall cost of procurement.

Content team, Bureau van Dijk

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