2006
PA survey - Transforming procurement
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15 June 2006
Leading organisations have realised only one quarter of the potential benefits from best practice procurement. To deliver the full potential, CEOs and CFOs must invest in their procurement organisational capability
PA's study of purchasing practice in leading organisations reveals that most have made demonstrable progress in adopting best practices in the past five years, and have focused on price leverage and overhead cost reduction. However, organisational constraints have meant that most are only half way along the journey to best practice and have realised less than one quarter of the potential benefits.
Key conclusions
Procurement functions are principally directed to deliver cost benefit to their organisations. To deliver this benefit they have focused on price leverage and reducing procurement overheads. However, only one of these areas, price leverage, has actually delivered significant benefit.
Whilst only half of the total potential improvements have been addressed and one quarter of the potential benefits actually realised, the further benefit in reducing procurement overheads is small compared with total opportunity. The disproportionate focus on reducing procurement overheads risks undermining the ability of many organisations' procurement functions to deliver significant sustainable benefit.
In order to achieve a genuine procurement transformation and realise the full value of procurement improvement, CEOs and CFOs must invest in procurement capability through restructuring the procurement function to enhance its influence; re-skilling the staff to extend their capability; rotating them through the business to increase their awareness; and recruiting to fill any remaining gaps.
Participant profile and study methodology
The study incorporates previous work* and extends the number of participating organisations to over 100, representing over £150B of spend, ranging from local businesses and public authorities to central government organisations and global commercial and industrial companies. Most participants are senior Purchasing Managers, Purchasing Directors or Head of Purchasing within small to medium scale divisional and large to very large corporate procurement organisations. Managed spend ranged from £30MM, €100MM and $100MM at divisional level to £4B at corporate level.
The organisations studied are drawn from the following sectors:
* Public: broadcasting, central government agencies; health authorities and local government
* Commercial: banking, finance; insurance, retail, utilities and wholesale
* Industrial: aerospace, automotive, chemicals; construction; defence, electronics; engineering, FMCG, pharmaceutical and shipbuilding.
Improvements and resulting benefits were investigated in 27 best practices across five key areas of procurement activity:
- Competition and leverage: development of supplier competition and leveraging of price
- Requirements and specifications: influencing of end-user requirements and design specifications
- Risk reduction: the development of cost avoidance and risk reduction techniques to reduce project costs
- Supplier collaboration: collaboration to improve supplier business processes and reduce their costs
- Internal costs of acquisition: the reduction of both procurement and non-procurement overheads.
Information for the study was gathered by questionnaire, structured interview and first hand observation of current purchasing practices. This information and data was analysed using PA modelling techniques to determine both the level of saving potentially achievable for each area of improvement and the further savings possible from implementation of best practice in each area.
To request a copy of our full survey report, which includes charts and interviewee quotes, please contact Linda Pearse - tel: +44 1763 267137 or e-mail: linda.pearse@paconsulting.com
For more information, please contact: Linda Pearse Tel: +44 1763 267137 E-mail: linda.pearse@paconsulting.com
Notes to editors
About PA
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