Measuring and Exploring Procurement Value

1. Leveraging supplier markets smartly: These organisations offer bold 'make versus buy' decisions, and have a better approach to managing outsourcing deals. “She named Apple and the Chinese car manufacturer Qoros Automotive as leaders.

2. Supplier development and collaboration: Those who do this well create 15 times the value of the average relationship, she said. Toyota were cited as an example of achieving this very successfully this well She said “Clearly leveraging some of the internal best practices in terms of manufacturing and lean to work with their suppliers. They are very selective about who they do this with, and systematic about how they do this”

3. Design-to-value: Procurement leads discussions on what’s waste, and what adds value to enable trade-offs. She said “People often say this is usually a product development role, what’s the role of procurement? Procurement can bring supplier insight, innovation, information around the value add of certain features, and the facts around what the customer really values, which is often missing from product development decisions.” “Companies are now talking about “procurement engineers”, who provide a liaison with product development teams.”

4. Analytics: “Procurement sits in a very privileged position in the value chain to have an overview of all the factors that affect value and to be able to provide transparency around decisions to the business that goes well beyond the function,” Many functions were building analytical capability to analyse the impact of both internal and external factors on business decisions to add superior value and competitive advantage to the company”

There was some interesting metrics comparing how top performing procurement functions compare to the average, here are some of MckInsey’s findings: 

• Procurement leaders, based on savings metrics through “procurement value creation,” deliver 2.1X the returns over procurement laggards
• The EBITDA performance of top performance in procurement, on average across industry, is 1.9X that of procurement laggards. In addition, procurement leaders also realize value from “non-financial measurements based on quality, risk management” and other benefits as well (which are often “industry dependent”)
• The value generated when robust supplier collaboration occurs between buyers and vendors is “15X higher” than the average supplier contract

To reed more about Liakopoulou's thoughts, see Supply Management and Spend Matters.