Do Procurement Operating Models Affect Savings and Performance? KPMG Sets the Context
Pierre Mitchell and I are in the middle of working our way through a dense but valuable study by KPMG and Procurement Leaders. The study, titled High Impact Procurement Operating Models, is based on survey data from over 400 respondents in Q4 2012. The data itself can be called timeless and the study examines the relationship between procurement organizational structure, commercial model and governance with actual performance – and how these sets of structural components interact and evolve over time within a typical company. The study is not perfect (Pierre lived this stuff at Hackett for years and data gathering methodology and approach is so key when getting at these types of issues), but it’s deeply interesting and useful nonetheless.
In the analysis, KPMG considered the three different attributes that comprise procurement operating models: governance, commercial model and geographic structure. Governance is as it sounds and includes the structure of both direct and indirect spend reporting as well as overall CPO reporting structure. Commercial model requires explanation, and includes “spend under category management, structures for setting strategies and structures of category spending.” Geographical structure is as described and includes both procurement staff line reporting and the overall geographic footprint of staff.
There are certainly some questions of causality in terms of structure, governance and reporting. For example, as the study notes,
“In a decentralized environment, the most senior procurement officer tended to report to the COO. This may reflect the fact that decentralized models emerged from functions that were still evolving, and the purchasing arm developed from managing day-to-day operational and project needs. On the other hand, the majority of both center-led and centralized organizations had their CPOs report directly to the CEO. In many respects, this shows that the establishment of central structures formalizes the importance of the function to meet business need.”
More interesting than this is how these functions tend to evolve over time and if and how, as companies often follow a journey starting first with decentralization and moving into center-led and ultimate centralized systems (but potentially with a move to hybrid models), they affect procurement performance. Stay tuned for further discussion of this study.