Fourth Dispatch from Synergy 2006

There are very few people that I know who can cover nearly fifty slides in an hour long keynote presentation. But there's no one who can cover that many "Pierre Mitchell" slides in an hour, except for the legend himself. Even before his number crunching days at Hackett, Pierre always had a thirst for putting as much content and data on a slide as possible with little regard to established frameworks or guidelines. The even scarier part is that much of the information he provides in these eye-sore disquisitions is incredibly valuable (very little is filler). Granted, while a year or two at McKinsey rather than ADL would have cleaned up his style a bit, it probably would have limited his creative genius when it comes to presenting the future of procurement and Spend Management, because just like his slides, you can't reduce the sector to pretty frameworks and arrow-pointing takeaways. This really is complex stuff. And Pierre gets it better than anyone.

Enough of a sidetrack -- Pierre's speech was titled "How world class procurement organizations are increasing value via functional alignment". While Hackett examines both direct and indirect spend in their benchmarking studies and consulting work, Pierre's analysis for Synergy focused on indirect procurement. As always, Pierre lived up to his philosophy that each slide in his presentation should have absolutely no white space left by the time he's done with it.

Pierre started his presentation examining the "good news" in procurement, as he put it. This includes the fact that purchased dollars are growing and companies are generating orders of magnitude ROI while generating C-Level visibility. At the same time, "CPO" is starting to show up on business cards, rather than just being an honorary title for procurement VPs. Transformational CPOs are also moving into business roles, and there are examples of center-led transformations in every industry. And last, companies are moving from foraging for low hanging PPV morsels to higher hanging TCO fruit.

Perhaps the best news is that investing in the right areas of procurement leads to tremendous returns. The annual ROI of procurement (as measured by annual spend savings relative to the annual cost of procurement) is 259% for average organizations versus 612% for world class ones (as defined by Hackett). What’s even more fascinating is that "world class" procurement organizations invest 57% more in procurement technology than average performing organizations (18.9% of procurement costs vs. 12% of procurement costs). At the same time, world class procurement organizations invest far more in high quality employees with an average fully burdened cost per FTE of $98,557 vs. $69,000 for the average performing procurement organization.

I plan to dig into the rest of Pierre's presentation in a post over the weekend or early next week. This first entry just scratches the surface of the data and insight Pierre presented. His analysis and prescription for more effective procurement and Spend Management is even more powerful. Stay tuned!

Jason Busch

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