CEB Procurement Transformation Leadership Metrics (Part 1)

Ben Federlein, Senior Director at the CEB’s Procurement Leadership Council, gave a metrics-packed presentation at Corporate United’s Synergy event in Chicago yesterday. In a two-part series examining his presentation and some takeaways from it, I’ll share some of the more insightful metrics and observations. If you haven’t seen Ben speak before, he brings a keen sense of procurement empathy and humor, and is equally at home trading up numbers and anecdotes – in other words, we highly recommend him.

One of the first sets of metrics that Ben shared focused on overall measurement of procurement organizations. CEB suggests that the bottom quartile of performers have 60% spend coverage compared with 84% of the top quartile of performers (we know – “spend coverage” is a metric that’s very much open to interpretation). A more standardized metric that’s easier to compute between organizations is procurement ROI. In this regard, CEB’s benchmarking efforts suggest that bottom quartile performers deliver a 6.77X ROI compared with top performers, whose ROI exceeds 13X.

More interesting (at least to me) is what Ben shared around what procurement winners do differently based on procurement transformation product portfolio composition. In short, top performing organizations that go through transformations “place bigger bolder bets.” What kind of bets? Not the standard sourcing usual.

For example, the bottom quartile of performers prioritized strategic sourcing 57% of the time. This compares with top performing companies that prioritized it only 33% of the time. Bottom performers going through transformation prioritize demand management 23% of the time (compared with 20% for top performers). In contrast, bottom performers prioritize cost structure transformation 12% of the time, compared with 27% for top performing companies. Moreover, for product and brand impact of procurement transformation, only 9% of bottom providers prioritize this compared with 19% of top performers.

This CEB data is fascinating, but shouldn’t be a surprise for procurement organizations that have gotten past the basics. Muddling through strategic sourcing, demand management, supplier rationalization, standard compliance and related efforts is just the ante to succeed. But while you won’t find any disagreement from us on these areas, we might also add the following elements that we frequently observe among top performing procurement organizations:

  • Tighter finance and procurement collaboration, especially in budgeting, savings implementation and measurement, req-to-pay systems, risk management, treasury/working capital, and tax
  • Advanced sourcing approaches that engage suppliers as creative partners versus simply vendors to negotiate with
  • Broader supply risk and commodity management awareness that doesn’t just forecast and plan predicatively, but asks why. For example, why and when do predicative models for a commodity forecast break down?  What are social media indicators of supplier risk – and how might these change?
  • A focus on acting as a services provider (i.e., “how can we serve you?”) that crosses all aspects of the business versus as a functional area
  • Ability to influence complex services categories and optimal business decisions such as marketing spend (managing and holding the agency of record accountable, marketing analytics reporting, etc.)

Stay tuned as our coverage continues. And kudos to the CEB’s Ben Federlein for giving a great chat at Corporate United’s Synergy event (including sharing a Mad Men clip to highlight the importance of challenging and influencing teams and how to sell ideas).

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