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Optimizing Procurement Spends Creates Competitive Advantage

Optimizing Procurement Spends Creates Competitive Advantage

July 25, 2022
Companies with forward-thinking procurement strategies rebounded three times faster from COVID than those without, according to Kearney research.

Even as a number of challenging pressures including COVID, including sharply rising geopolitical tensions, and severe commodity inflation sent companies scrambling to secure essential raw materials, parts, and services, some supply change organizations rose to the challenge. They did this not only by substantially mitigating supply risk but also by driving up company revenues and margins and by advancing the broader sustainability agenda.

These were among the key findings in The 2022 Assessment in Excellence Procurement report by Kearney, which analyzed more than 600 companies worldwide, all with at least $2 billion in annual revenues.

What Procurement Leaders Do

Kearney's research shows that manufacturing companies spend 55 cents for every dollar in revenue with suppliers; for companies in the service industry, this is about 30 cents on the dollar. Optimizing this third-party spending represents a significant source of competitive advantage. However, the study found that leading supply management organizations represent just 6% of the 2022 sample. These procurement leaders:

  • Rebounded 3x stronger through COVID, with some reaching all-time highs across key performance metrics
  • Contributed 200 basis points more to EBITDA from their third-party spend, helping their companies deliver nearly 2x more total shareholder return than the other companies studied
  • Were twice as likely to see a high impact in supply resilience, and six times more likely to see their innovations significantly enhance growth and margins

In an era that demands constant adaption, these leaders integrated suppliers into their enterprise innovation, risk management, and ESG efforts; they pushed digital technology to drive greater effectiveness, efficiency, and user experience; and put in place an aspirational talent strategy across the full talent lifecycle.

The study, according to Mike Hales, a Kearney partner and an author of the 2022 AEP report, is designed to help C-suites "understand, in terms they respect, why they need more strategically capable supply management." The business case for building such capabilities, Hales asserts, "is very sound."