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Top Procurement Groups Deliver 7x Return on Investment According to Global Procurement Study

In a combined initiative to bring common value management visibility and practices to the procurement profession, three organizations – A.T. Kearney, the Institute for Supply Management, and the Chartered Institute of Purchasing & Supply – released the results of the inaugural ROSMASM Performance Check Report “Building the Brand of Procurement and Supply.”

The report found that leading procurement teams are delivering significant value to their organizations, but without a credible standard allowing companies to consistently track and score procurement performance, many CFOs question the performance of and benefits delivered by their procurement teams. In an independent survey of CFOs and financial function leaders the study found that only 10 percent of procurement functions have established recognition with their CFOs regarding how procurement contributes value and that the benefits are real and measureable.

The ROSMA Performance Check Report was developed to establish a uniform measurement of procurement’s value delivery to the organization. ROSMA or Return on Supply Management Assets is a revolutionary performance measurement standard that is helping companies around the world understand and measure how procurement contributes financially to the business.

The report is distilled from more than 400 completed, qualified, and accepted cumulative benchmarks along with more than 170 submissions focused on 2013 results. Contributors participated in the benchmarking through ROSMA Performance Check gateways in the CIPS and ISM websites as well as via A.T. Kearney’s 2014 Assessment of Excellence in Procurement (AEP) study. A.T. Kearney also contracted independent research to address the CFO community’s view of procurement.

Joe Raudabaugh, A.T. Kearney partner and co-author of the ROSMA Performance Check Report said, “There are many opportunities to change the brand of procurement across the profession, within our enterprises, and to attract, develop, and sustain best athlete-caliber talent. Adopting value management practices is necessary for the future.”

David Noble, Group Chief Executive Officer, CIPS, noted, “There is no doubt that the profession has to be seen as supporting the strategic aims of the enterprise and to have relevance to its goals and success. We must be able to demonstrate value in a quantitative way.”

Study Findings

The inaugural ROSMA Performance Check report findings were developed through the survey responses of hundreds of companies. 

  • Top-quartile performers are reporting hard financial results in excess of seven times their costs and investment base in procurement, providing a strong basis for reinvestment and recognition. These leading procurement functions generate about $1.6 million in financial benefits per procurement employee each year.
  • Middle-tier performers are accretive, typically generating four to five times the investment and cost of their supply management assets, including people and technology, but they have not improved their productivity since tracking began in 2011. Bottom quartile teams are dilutive, with financial benefits that do not cover the cost of and investment in their organizations.
  • Most organizations do not have the reporting and tracking capabilities to provide ongoing, accurate visibility of procurement’s value-creating activities. They simply do not have a grasp of – and therefore cannot manage – their resources to optimize them with the same level of precision as is typically done in other functions.
  • As noted earlier, the independent research that was conducted with CFOs as part of the overall study showed that only 10 percent of procurement functions have captured the respect, understanding, and mindset of their financial colleagues regarding the value they contribute. Almost 15 percent are “out of mind” or “inconsequential players” to the CFO community and 75 percent have mixed and yet-to-be developed “brands.”

Tom Derry, ISM Chief Executive Officer noted, “With ROSMA Performance Check, we now know what world-class performance looks like. Our challenge as a profession is to make sure we are not a drag on performance, but rather a driver.”

To read the full ROSMA Performance Check Report, please go to www.atkearney.com/rosma.

Source: A.T. Kearney

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