When it comes to the maturity of procurement organizations, it’s Spend Matters' belief the majority are at the foundational, or basic level. It’s not a bad place to be, at least when it comes to starting a true procurement transformation, as Jason Busch, Spend Matters founder and head of strategy, points out in the research paper “Reframing Maturity Models: Empirical Perspectives On Radically Improving Procurement Performance.” Yet these procurement organizations should aim to reach other industry peers that are fully integrating source-to-pay processes with the supply chain, accounts payable, finance and other departments and leveraging advanced technology suites, platforms and networks.
According to Spend Matters research, roughly 75%-90% of procurement organizations are at the foundational level of procurement maturity. These organizations, as the research paper describes, encourage basic technology usage within procurement but have immature procure-to-pay processes and lack automation and integration with other business functions.
About 10%-15% of procurement organizations, on the other hand, are at what Spend Matters refers to as “modern” procurement maturity levels. Characteristics of this group include having procurement strategies that begin to consistently capture indirect spend, where buying processes are integrated with e-procurement deployments and where supplier networks are frequently used for onboarding and for sharing information and documents.
Again, this “modern” level isn’t a bad place to be at — if this is where your organization currently sits, you are certainly doing better than the majority of your peers. But as Busch points out in the research paper, which was developed in partnership with Tradeshift, there are significant benefits to advancing your procurement organization to the next maturity level. For the very few organizations that have reached Spend Matters calls the “business enabling” procurement maturity level, benefits they experience include:
- Ability to consistently implement “strategic” procurement activities including true value creation – e.g., tapping supplier innovation and guidance
- Transaction platforms become compliance/capture platforms – and systems become interconnected with a new type of master data that sits between organizations (with controls, permissions, etc.)
- Finance can count on procurement for P&L and EBITDA impact (measured, accounted for — in finance terms)
- Consistent impact across all spend types
The benefits become more granular and specific when focusing solely on supplier management maturity levels or how advanced a procurement organization is with invoicing and accounts payable processes. The few organizations Spend Matters believes have reached the highest, “business-enabling” invoicing and A/P maturity level, for example, see benefits such as:
- Reporting and visibility drive continuous improvement
- A/P becomes a tool for broader compliance aspects/risk management •
- Gaining a new “external” system of record — measurable, auditable, etc.
Achieving these benefits and this high level of maturity should be a goal for any procurement organization, Busch said. Leading organizations — or those with business-enabling maturity levels — are seeing significant value in having truly flexible and dynamic systems, in capturing transactions and digitizing processes for supplier management and document sharing both internally and externally.
“Once you have this, you can begin to do some really clever things that go beyond savings and go beyond making sure supplier goods ship on time and that you don’t overpay them,” Bush said.
Ultimately, as procurement becomes more mature, the organization becomes more aligned with other areas of the business and provided more value overall. Procurement goes from not just focusing on spend savings and supply insurance, but how it can contribute to strategic business goals for the company overall.
But where do you begin this maturity transformation process? How do you make your procurement organization more sophisticated? We will tackle that in the next post and include tips on how an organization can self-assess itself to identify its current level of maturity.