August 11, 2023 | Procurement Strategy
It’s a pivotal moment for chief procurement officers right now, with questions abounding on how to drive digital transformation amid pervasive uncertainty. Up to 44% of CPOs surveyed in Ardent Partners’ annual State of Procurement survey are feeling a “great deal” of uncertainty about what will happen in 2023. Market and economic factors have only exacerbated the dilemma.
Budgetary constraints top the list of challenges for procurement leaders this year. 38% of survey respondents cited this as their top three hurdles. Managing supplier performance and/or supply assurance and stakeholder engagement round out the top three.
With the focus on cost control and minimizing the impact on budgets from the myriad risks affecting sourcing teams and supply chains, what are the most important procurement metrics to look at to drive performance?
It maybe shouldn’t come as a surprise that savings has become paramount today. Inflation and other cost pressures have made savings a top priority for 46% of CPOs this year. In an uncertain business environment, it’s critical for sourcing professionals to continue to identify cost-saving opportunities.
Average actual savings in 2022 came in at 6.1%, lower than this year’s target of 6.6%. Procurement teams are aware of the need to improve performance in this metric, but inflation may limit what they can actually achieve.
The average procurement department manages 64.9% of total enterprise spend, indicating there is still ample room for progress in getting control of spend. Research shows that every new dollar of spend under management can drive savings of 6-12%, making this a critical metric for reducing costs.
As supply chain disruptions and market uncertainties persist, an enhanced focus on spend under management empowers leaders to streamline sourcing processes, consolidate supplier relationships, and extract optimal value from expenditures, thus fostering resilience and agility in the face of evolving challenges.
This metric encapsulates the portion of spend that is amenable to strategic sourcing practices, fostering cost savings, supplier diversification and innovation. For enterprises, addressable spend that was sourced rose to 47.1% in 2022.
Channeling efforts into optimizing addressable spend through competitive sourcing not only bolsters bottom-line performance but also strengthens supply chain resilience, thereby exemplifying a strategic approach that aligns with prevailing market complexities.
Procurement leaders should closely examine not only savings, spend under management and competitively sourced addressable spend but also factors such as spend compliance. With the capabilities that new AI-centric tools are providing for procurement teams, it is more possible than ever to make data-driven decisions and uncover hidden opportunities to maximize.
Ongoing global disruptions underscore the need for cost optimization, making savings a critical goal.
Effective spend under management demonstrates streamlined procurement processes, contributing to agility and risk mitigation. Addressable spend that is competitively sourced not only fosters cost efficiency but also enhances supplier relationships and innovation.
By focusing on these metrics, procurement leaders can put themselves in a position to better navigate uncertainty, improve supply chain resilience and achieve sustainable success in a dynamic marketplace.
To get the full list of procurement metrics that CPOs should be focusing on to drive their strategic priorities, download the full report from Ardent Partners, “Procurement Metrics That Matter in 2023” from GEP’s Knowledge Bank today.