High Performance through Procurement: Accenture Research and Insights into Procurement Performance Mastery

By explaining the basic dimensions of procurement mastery, followed by its relevance to four procurement processes and three key enablers, this Accenture report shows how procurement mastery contributes to high performance.

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This report—which documents the principles, practices and perspectives associated with procurement mastery and explains its relationship to high performance—is part of an ongoing series of cross-industry studies in supply chain management.

During 2006, Accenture surveyed executives whose principal roles involve procurement specifically, or procurement as a key subset of broader supply chain management responsibilities, at companies from a wide mix of industries and geographies across North America, Europe and Asia. Eighty-two percent of the interviewees were chief procurement officers or directors of procurement and 50 percent represented businesses which, in 2005, had annual revenue of US$5 billion or more.

Nearly 600 responses were received, of which Accenture undertook an extensive analysis of the 225 most detailed to generate this report.

The dimensions of procurement mastery are total cost of ownership; total controllable spending; the ratio between total cost of ownership reduction and procurement operating cost; leverage in new product design/ introduction; and supplier management.

Accenture's research revealed that procurement masters:

• Excel across the board in all these dimensions.
• Achieve high performance through procurement.
• Achieve higher savings.
• Face fewer organizational challenges.

Procurement mastery is influenced by the four procurement processes—strategy; sourcing and category management; requisition to pay; and supplier relationship management—and also by the three key enablers: workforce, organization and technology. Key findings from this component of the survey showed that:

• The strategies of procurement masters enjoy boardroom awareness and boardroom support.
  
  
• Procurement masters are 10 times more likely to provide clear and documented buying channels to the end user.
  
  
• Procurement masters commonly use a supply-base segmentation strategy.
  
  
• All procurement masters log and manage contracts centrally, using a structure of centrally led category management.

Procurement has become a strategic, proactive process that contributes as much as, or more than, other business functions to profitability, corporate growth and competitive advantage—and thus to high performance.

Yet its core goals have changed very little: they are about obtaining high-quality goods and services for the lowest possible total cost of ownership. Today, new processes and strategies, insights, partnerships and technologies are applied to the singular objective of acquiring low-cost, high-quality products. Yet most companies continue to undervalue and under optimize their procurement functions.

Companies that excel in procurement still face significant challenges in their ongoing efforts to outpace the competition, but fundamentally they operate more efficiently and effectively than companies that do not excel in procurement. Procurement masters do more with less.

There is a direct link between procurement mastery and the measures that companies use most frequently to gauge the efficacy of their own procurement operations.

These measures are:

• Total cost of ownership savings.
• Percentage of spending controlled by procurement.
• Total cost of ownership savings as a percentage of procurement operating costs.
• Percentage of new product designs/introductions in which procurement has a material role.
• Share of suppliers managed through a formal process.

With respect to high performance, three big-picture traits should be added to the list of masters'characteristics profiled in this report:

• Virtually all procurement masters take a supply-chain-wide view of the practice of procurement.
  
  
• They are ever mindful of the total cost of ownership of a product, category or stock-keeping unit.
  
  
• They know that changing demographics can turn today's low-cost source of materials and components into tomorrow's mid-cost source.

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