A.T. Kearney Study Finds That CEOs Can Rapidly Increase Earnings and Boost Merger Synergies Through a Harder Focus on Their Single Largest Cost
The Assessment of Excellence in Procurement 2017 shows that the best companies enhance their earnings per share, stock valuations and merger synergies through a hard focus on what is typically their single largest cost - spend with suppliers. Fewer than 10% maximize the capabilities and insights of their suppliers to reduce costs, increase innovation and manage risk.
CHICAGO, Sept. 19, 2017 /PRNewswire/ -- Global management consulting firm A.T. Kearney has released their research findings, the Assessment of Excellence in Procurement 2017 (AEP) – "Mobilizing for Excellence in Supply Management." Corroborated by companion A.T. Kearney studies and unmatched client experience, AEP shows that leaders drive a 3x higher return and a broader range of value from their supply management capability.
Many companies use AEP as an assessment tool to develop a multiyear plan to achieve and sustain leadership. "We worked with A.T. Kearney to do a rapid assessment based on the Assessment of Excellence in Procurement (AEP). What we learned was that we could double our annual contributions to the company by dramatically improving our process discipline along with the interface to our internal business and functional partners," said the Chief Procurement Officer of a Fortune 50 global manufacturer.
The AEP research shows that company performance falls into four distinct categories:
- Leaders (7 percent) demonstrate excellent supply management capabilities and spectacular performance
- Aspirants (11 percent) produce solid results and are making significant strides toward becoming leaders
- The Pack (55 percent), while adding value, are not transforming fast enough
- Strugglers (27 percent) barely cover their costs, let alone add value
"Given that spend with suppliers is typically a company's single largest cost, it is increasingly important that procurement is treated as a strategic, as opposed to tactical, capability in business as usual and merger situations," said Mike Hales, A.T. Kearney partner and co-author of the report. "With the rise in populism and greater focus on sustainability, companies are rethinking their basis from globalism to localism which may force major shifts in their supply base footprint. Disruptive technologies such as advanced analytics, artificial intelligence and Robotic Process Automation (RPA) are changing business models. M&A increasingly relies on cost synergies and supply management is a proven merger money machine. Business leaders will need to work closely with their chief procurement officers – regardless of size or location – to accelerate change and deliver competitive advantage," said Hales.
Formula for Success
The study found that leaders achieve nearly three times higher return on supply management assets versus other companies, and they also deliver a broader array of value including structural cost reduction, innovation and risk management. They follow a three-part success formula, including team excellence, category excellence and supplier excellence.
Team excellence provides a catalyst by which supply management aligns with and helps shape the strategic goals of the company. It also enables sustainable results through operating process standardization, technology investments, talent development, and performance management.
Category excellence is the most powerful cost reduction lever – generating about 73 percent of procurement's value. Additionally, it provides key insights about supply markets that help to shape the company's business strategy.
Supplier excellence ensures that suppliers comply with contractual requirements, and, more importantly, that the company secures competitive advantage through more rapid and impactful innovation, and proactive risk management from supply markets.
Using this success formula enables the "Leaders" to structurally increase earnings which drives their EPS and stock valuations. "It is surprising that fewer than 10% of the companies are sufficiently focused on this proven success formula," said John Blascovich, A.T. Kearney partner and co-author.
About the Assessment of Excellence in Procurement
Beginning in 1992, A.T. Kearney has conducted an ongoing series of in-depth global research studies on supply management to help the profession and C-suite executives understand the state of the art and the impact that excellence can have on business performance. The Assessment of Excellence in Procurement (AEP), now in its ninth edition, examines the use of leadership practices across eight dimensions and their impact on business results. Study participation comes from a broad mix of industries (60 percent manufacturing, 40 percent services) and geographies (31 percent Americas, 46 percent Europe and Middle East, and 23 percent Asia Pacific). Three recent A. T. Kearney companion studies provide additional perspectives on supply management performance. The Return on Supply Management Assets (ROSMASM) Performance Check research series tracks key benchmarks of financial performance for supply management organizations. The Voice of the CFOs and Finance Community research explores their views on supply management's contributions to financial performance, while The Voice of the Stakeholders research expands that research to provide a 360-degree perspective on supply management's performance. This research, coupled with our Fortune 1000 client experience, provides the most comprehensive view available of supply management's role and impact across more than 5,000 companies.
About A.T. Kearney
A.T. Kearney is a leading global management consulting firm with offices in more than 40 countries. Since 1926, we have been trusted advisors to the world's foremost organizations. A.T. Kearney is a partner-owned firm, committed to helping clients achieve immediate impact and growing advantage on their most mission-critical issues. For more information, visit www.atkearney.com.
Contact:
A.T. Kearney: Kerry Sugrue
Phone: 312 223 6246
Email: [email protected]
SOURCE A.T. Kearney
Share this article