The Strategic Importance of Procurement Transformation
In today’s volatile environment, transformation at scale is more critical than ever for leaders looking to achieve a lasting performance advantage. Our research shows that one way to gain and sustain that advantage is to upgrade the procurement function.
We analyzed thousands of companies’ transformation results across more than 340,000 transformation initiatives, which collectively represent more than $200 billion in value. We find that procurement value is a reliable predictor of a transformation’s overall value. Procurement typically accounts for more than 20 percent of the total financial impact in a transformation program. Most important, we find that when procurement achieves its savings target, the company is nearly twice as likely to achieve its business-wide savings target.
Scope of Analysis
The scope of our analysis includes a comprehensive review of transformation initiatives in various industries, with a focus on procurement-led transformations and their impact on overall organizational performance.
Key Findings
Our analysis reveals three critical differences between successful “procurement stars” and their peers:
- Raising ambitions: Procurement stars set ambitious savings targets and build large initiative pipelines.
- Setting a quick pace: Successful transformations achieve significant impact in the first six months by moving fast and breaking through barriers.
- Building capabilities: Proactive capability-building efforts across teams lead to sustained performance improvement over time.
Stretch: Raising Ambitions
Stretching beyond high expectations is crucial for successful procurement transformation. Procurement leaders need to challenge existing assumptions, encourage innovation, and prioritize resource allocation effectively to achieve ambitious savings targets.
Speed: Setting a Quick Pace
Speed is a critical factor in successful procurement transformation. Companies that achieve significant impact in the first six months are more likely to reach their savings targets within the desired timeframe.
Skill: Building Capabilities to Sustain the Pace
Continuous performance improvement requires ongoing skill development. Cross-category capability-building efforts help procurement teams perform at their best and deliver successful transformation outcomes.
Market Trends
The procurement landscape is evolving rapidly, with trends such as digitalization, sustainability, and supply chain resilience shaping the industry. Companies that adapt to these trends and invest in procurement transformation are better positioned for long-term success.
Recommendations
Based on our research and analysis, we recommend the following actions for organizations looking to enhance their procurement function:
- Set ambitious savings targets and build large initiative pipelines.
- Move quickly and break through barriers to achieve significant impact in the early stages of transformation.
- Invest in ongoing skill development and cross-category capability-building efforts to sustain performance improvement.
FAQ
Q: How can companies measure the success of their procurement transformation?
A: Companies can measure the success of their procurement transformation by tracking key performance indicators such as cost savings, supplier performance, and process efficiency.
Q: What are the benefits of investing in procurement transformation?
A: Investing in procurement transformation can lead to cost savings, improved supplier relationships, enhanced risk management, and increased agility in responding to market changes.
Conclusion
Research into the mechanics of transformations shows that transforming procurement has a halo effect on the rest of the organization. The resulting improvements pave the way for overall organizational success. Companies that prioritize procurement transformation and invest in building capabilities are better positioned to achieve lasting performance advantages in today’s volatile business environment.
