CPO Study Provides Practical Insights to Increase Profitability and Performance Through Analytics
June 21, 2013
By TMCnet Special Guest
, Product Marketing Leader at IBM,
IBM’s (News - Alert) Institute for Business Value (IBV) recently completed its groundbreaking Chief Procurement Officer Study, one of the largest known surveys of procurement organizations at global companies. TheIBV surveyed more than 1,100 CPOs and senior procurement executives in 22 countries around the world. The goal of the study was to harvest insights to better understand the impact of procurement performance on business performance.
The results showed a striking correlation between the proficiency of the procurement organization and a company’s bottom line: Companies with high-performing procurement organizations have profit margins 15 percent higher than the average company and 22 percent higher than those of companies with lower performing counterparts.
So how are these top performing CPOs driving profits? By using analytics to tackle big data challenges, high-performing companies gain new insights into internal business operations and their supplier networks to identify vulnerabilities and opportunities. According to the study, 83 percent of high-performing companies excel at deploying analytics compared to just 63 percent of the low performers.
Big data becomes even more powerful when the organizations excel at applying the right procurement technology in the right way. The IBM study documents a very strong correlation between being a top performing company and capitalizing on procurement technologies: 94 percent of top-performing companies are highly effective in their use of procurement technologies, as compared to 44 percent of all surveyed companies. Supplier management, contract management and spend analysis technologies were three of the more impactful technologies referenced in the IBM report.
This link between data analytics and procurement technologies, and their impact on business performance, becomes much clearer when you look at specific applications and the success of leading procurement organizations. For instance, best-in-class spend analysis solutions can enable companies to consolidate, cleanse and classify spend data from across disperse and disparate systems to provide a deep, accurate and unified view of global spend. By enriching spend data and improving its accuracy, spend analysis empowers companies to achieve tangible business benefits like identifying new savings opportunities, reducing maverick spending and eliminating savings leakage. According to the Aberdeen (News - Alert) Group, companies leveraging spend analysis solutions have, on average, 24 percent more spend under management and cost avoidance rates twice their competitors.
A global procurement manager at a Fortune Global 500 company recently explained, “A deep, granular level of spend visibility opens up a lot of doors for procurement and allows us to do more strategic savings targeting and inform other strategic initiatives.” Another Fortune 500 company, with 28 separate financial systems, estimated that it had achieved more than $170 million in savings through spend analysis technology.
Even some of the most fundamental aspects of a business such as contract management can yield significant business results by marrying data analytics with the right technology applications. Of course, managing the unstructured data from tens of thousands of active contracts, which a typical Global 2000 company would have to manage, is a daunting task. From a data management perspective, contract management solutions can help companies centrally collect and manage contract data – making it easy to search, access and report on the intelligence held within the global contract portfolio.
One Fortune 500 technology company reduced contract search, creation and approval times by more than 50 percent by leveraging a contract management solution. They also increased contract volume per lawyer by more than 25 percent and reduced contracting cost by more than 35 percent. The company uses a single solution aided by data analytics to manage its global contracts in more than 100 countries with 40+ governing laws.
Contract management solutions can also enable companies to structure more profitable contracts, streamline the contracting process and increase compliance. According to an IBM study, companies using best-in-class contract management technology achieve, on average, 90 percent contract compliance.
Why is this relevant? A survey by Inside Counsel magazine and IBM found that 75 percent of General Counsels and in-house attorneys rated managing contract risk as of critical or high importance. Yet, 66 percent of companies don’t track risk at the contract level and 71 percent don’t track key metrics related to contract risk. Contracts are the basis for every business relationship – and if a company is not protecting itself at the contract level, it is leaving itself exposed.
By using data-driven insights powered by big data and data analytics, high-performing procurement organization are in a better position to quickly respond to changing internal and external conditions, such as supplier risks and supply disruptions. The IBM CPO study showed that 73 percent of top performing procurement organizations are effective at gathering insights into the supply base, compared to only 16 percent of lower performing counterparts.
That gives a little perspective how data and analytics can directly impact business performance. And it may explain why CPOs think that supplier intelligence, including solutions providing a 360-degree global view of supplier relationships and procurement performance dashboards, will be the most important area of technology investment over the next three years.
Doug Macdonald is a product marketing leader for procurement at IBM.
Edited by Rachel Ramsey