Monday, July 01, 2013

Top Chief Procurement Officers Drive 22% Higher Profit Margins

In the largest procurement study ever conducted, a new IBM Institute for Business Value survey finds that top performing Chief Procurement Officers (CPOs) are increasing their influence in the c-suite and, as a result, are making a direct impact on the bottom line.

Companies with top performing procurement organizations report profit margins 15 percent higher than the average company – and 22 percent higher margins than companies with low performing procurement organizations.  High performers were found to have built an agile supply network designed to adapt to changing market conditions.

For example, the study showed that 73 percent of high performing  CPOs are highly effective at responding to product redesign and demand challenges compared to just 16 percent of the low performers.  They excelled through the use of analytics and collaboration:
  • 83 percent of high performing CPOs excel at leveraging analytics compared to just 63 percent of the lowest performers.
  • 80 percent of high-performing companies report that collaboration across departments, such as IT, marketing and sales, is both a key strength and an investment priority, compared to only approximately 45 percent of low performers
  • Top performers direct 38 percent more of their annual spend through strategic alliances than low-performing organizations
At it’s customer event, the Smarter Commerce Global Summit, this week in Nashville, IBM will highlight several customers who are realizing the returns on procurement excellence, including L'Oreal USA, who is using an advanced IBM cloud analytics solution and IBM’s procurement software to transform the way it buys from its network of North American suppliers.  Another customer, Florida Blue, is using IBM’s procurement solutions to help procurement align with lines of business across the organization to create new business processes that create value for the company and align to the organization’s business strategy.


For more information or to download the full report visit  www.ibm.com/business/value/chief-procurement-officer



7 comments:

Terry Reeves said...

Great info graphic.

"High performers were found to have built an agile supply network designed to adapt to changing market conditions." Isn't that what high performers do in any industry?

It is nice to see credit going to those who excel as a rule. Unfortunately, there is too much "old school" thinking in every aspect of the business world.

Cimetra

Terry said...

Great info graphic.

"High performers were found to have built an agile supply network designed to adapt to changing market conditions." Isn't that what high performers do in any industry?

It is nice to see credit going to those who excel as a rule. Unfortunately, there is too much "old school" thinking in every aspect of the business world.

Cimetra

Terry said...

Great info graphic.

"High performers were found to have built an agile supply network designed to adapt to changing market conditions." Isn't that what high performers do in any industry?

It is nice to see credit going to those who excel as a rule. Unfortunately, there is too much "old school" thinking in every aspect of the business world.

Cimetra

Katie Sorenson said...

Great article! I think a great way to sum up this realization is by saying that top performing procurement specialists are implementing Kaizen within their companies and their practices. Kaizen combines the number two, three and five points that were presented on the “New CPO” diagram. It is the idea of continuous small improvements combined with more large-scale innovations while making sure that everyone in the process is on board and involved.

The one thing that seemed odd to me from this diagram was the statistics on big data analytics. Of the lower performing companies from a procurement standpoint, it seems that they are not necessarily not participating in the big data analytics, but they simply do not know how to interpret the information they gain from the analyses. If 63% are using big data, then why are only 17% able to react to the market conditions that are revealed by big data. Is it because they aren’t using the data they have or is it because they do not know how to react correctly to the information they interpret?

Katie Sorenson said...

Great article! I think a great way to sum up this realization is by saying that top performing procurement specialists are implementing Kaizen within their companies and their practices. Kaizen combines the number two, three and five points that were presented on the “New CPO” diagram. It is the idea of continuous small improvements combined with more large-scale innovations while making sure that everyone in the process is on board and involved.

The one thing that seemed odd to me from this diagram was the statistics on big data analytics. Of the lower performing companies from a procurement standpoint, it seems that they are not necessarily not participating in the big data analytics, but they simply do not know how to interpret the information they gain from the analyses. If 63% are using big data, then why are only 17% able to react to the market conditions that are revealed by big data. Is it because they aren’t using the data they have or is it because they do not know how to react correctly to the information they interpret?

Kasi Alagappan said...

This is an insightful report and a testimony to the fact that procurement has become more and more strategic than being just a support function. "80 percent of high-performing companies report that collaboration across departments, such as IT, marketing and sales, is both a key strength and an investment priority, compared to only approximately 45 percent of low performers". This shows that the need for a collaborative, often centralized, and strategic sourcing can significantly influence performance. The data that strategic procurement is drive 22% higher margins shows the enormous opportunity that procurement plays to the bottom line of any company.

Kasi Alagappan said...

This is an insightful report and a testimony to the fact that procurement has become more and more strategic than being just a support function. "80 percent of high-performing companies report that collaboration across departments, such as IT, marketing and sales, is both a key strength and an investment priority, compared to only approximately 45 percent of low performers". This shows that the need for a collaborative, often centralized, and strategic sourcing can significantly influence performance. The data that strategic procurement is drive 22% higher margins shows the enormous opportunity that procurement plays to the bottom line of any company.