Most organizations have a Procurement function – ranging from a bare-bones organization to a robust team with dozens professionals. Yet, the question of productivity and results comes up time and time again, particularly for the Strategic Sourcing function.
Is your Strategic Sourcing team experienced? Is the team performing at best-in-class level? Last year, Duncan Jones, a VP at Forrester Research published findings of a survey that revealed that Procurement professionals thought very highly of their own capabilities – with 65% of those surveyed judging themselves as Expert while just 4% Procurement teams rated themselves as Beginners. Business Units – Procurement’s customers – on the other hand viewed Procurement’s maturity very differently, with findings diametrically opposed to Procurement’s self-assessment. 60% of Business Unit executives assessed Procurement as Beginners, with just 16% judging their Procurement teams as Advanced.
How is it possible that such wide gap of perspectives exists … particularly between a service organization (e.g. Procurement) and its customers (e.g. Business Units)?
To answer this question, it is helpful to understand the maturity spectrum for Strategic Sourcing.
The maturity spectrum and its various segments will be familiar to most in Procurement field. What may surprise some is that at least 75% of organizations operate at relatively low levels of Strategic Sourcing Maturity. These organizations may not have a formal Strategic Sourcing function, or the function may be described as “order taker”. On the end of the spectrum, fewer than 5% of organizations evidence advanced Strategic Sourcing capabilities ranging from a strong collaborator partner all the way through leading EBITDA accretive sourcing work along with proactive performance management.
The vast majority of Strategic Sourcing teams – those in the Rudimentary and Emerging categories – will average <3% cost savings on Enterprise Vendor Spend and many teams will evidence Vendor Spend increasing in-line or faster than Revenue growth. The small minority of Strategic Sourcing teams in the Advanced and Strategic categories will average in excess of 15% cost reduction; while the remainder – the ~20% of Strategic Sourcing teams in the Established category – will average 3%-5% cost reduction of total Enterprise Vendor Spend. These ratings are consistent with industry surveys, including those conducted by Ardent Partners and Hackett Group.
As a result, it isn’t surprising that Business Units judge the Strategic Sourcing capability as ‘Beginner’. The challenge for most firms is to find a path that quickly moves up the maturity spectrum to generate a material EBITDA contribution and deliver on the promise of a true value-added business-partner. The fastest way to get there is by example — by leveraging expertise to leapfrog to Advanced or Strategic level within a short period of time.
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Where is your team on the Strategic Sourcing maturity spectrum? What is your team doing to increase EBITDA contribution from Strategic Sourcing activities? How else is your team delivering value to your stakeholders?