Publication

PA survey - Transforming procurement

Leading organisations have realised only one quarter of the potential benefits available from implementing best practice procurement. To deliver the full potential, CEOs and CFOs must invest in their procurement organisational capability.

A study of purchasing practices in leading organisations reveals that most have made demonstrable progress in adopting best practice in 2000-2005, 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.

Participant profile and study methodology
This study incorporates previous work* and extends the number of participating organisations to over 100, representing over £150 billion 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 £30 million, €100 million and $100 million at divisional level to £4 billion 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.

The study findings are in three sections:

• Procurement improvements observed
• Business benefits reported
• Conclusions.

To request a copy of our full survey report, please e-mail procurement.study@paconsulting.com

* 'Removing the barriers to successful purchasing initiatives', PA Consulting Group/CIPS, 2003