Procurement Benchmarking Survey 2012 Main Report The Power Of Procurement

The Power of
Procurement
A global survey of
Procurement functions

kpmg.com

© 2012 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member ﬁrms of the
KPMG network are afﬁliated. All rights reserved.

foreword

Ask any business And as the world continues to wade through its financial
morass, the Procurement function will also find itself
leader what their top challenge is today and
under increasing pressure in areas currently considered
to be low priority. Supply Chain sustainability will
– more than likely – the answer will be cost. Indeed,
once again become a key challenge for business, and
KPMG’s 2011 European Business Leader Survey
more focus will be placed on leveraging systems and
demonstrated that realising cost efficiencies is now
technology to drive greater value, innovation and market
the top priority for business leaders across all industry
differentiation from suppliers.
sectors1. Ever since the first rumblings of the global
financial crisis, businesses have been feverishly We believe that this report provides an unprecedented
stripping out costs; headcount reductions have been insight into the key challenges currently facing
the most typical immediate reaction to cost reductions, Procurement functions. What is more, the research
but organisations have also become acutely aware of represents the state of the function from the
the potential sustainable cost savings to be had across perspective of Chief Procurement Officers and Supply
the supply chain. Chain Directors themselves, and should therefore
more accurately reflect the actual challenges and
Clearly, it is time for Procurement functions to shine.
opportunities facing the function today.
However the reality is that most Procurement functions
And while the findings may not paint the most
have not moved as quickly to address supply chain
positive picture of the maturity of Procurement
efficiency as some organisations have demanded.
functions overall, the accompanying analysis and
In fact, according to our research, many Procurement
insight offers a clear roadmap by which Procurement
functions have struggled to raise their game beyond
can raise its game to meet – and even exceed – the
simple tactical activity and (re)negotiating low cost
expectations of the business.
contracts, to a broader and more strategic role within
the wider business. This report is the first of an annual series that
will continue to compile data from Procurement
The expectations of Procurement are shifting.
organisations around the world and across sectors
Not so long ago, Procurement was considered to
to provide an ongoing and consistent benchmark for
be an add-on service; it was the business that decided
Procurement functions to measure their progress
which suppliers were core to the organisation and little
against that of their peers.
more was expected of Procurement than to battle some
cost out of the contract and then hand the relationship I encourage you to contact any of the authors of this
back to the business to manage. report – or your local KPMG member firm – to explore
the implications of these findings for your business or
Today however, many executives are increasingly
to participate in this ongoing research study.
looking to Procurement to engage the business in
strategic conversations about how the supply chain Richard Nixon
can be optimised to deliver the greatest returns. Partner, KPMG in the UK
But, overwhelmingly, Procurement has been
slow to evolve. Our research shows that – across
the board – there is not enough focus on ongoing
supplier relationship management, precious little
involvement in demand management, even less
participation in the ‘make versus buy’ decision process
and an often dangerous lack of preparation, mitigation
and action around supply chain risk.

1
Business Leaders’ Survey, KPMG, June 2011


contents

02
Executive

summary

Deconstructing the
1. Key functional
01
survey framework
04
ﬁndings
1.1 A place at the table? 05
1.2 Stretching beyond savings 11
1.3 Centring on Value 15
1.4 Running the Risk 20
1.5 Taking Advantage
of Technology 25


29
2. Regional
comparators 54 Conclusion

2.1 The View from Asia Pacific 30 Our five key recommendations 56
2.2 The View from North America 34 10 Questions to ask yourself to
assess your Procurement maturity 57

3. Key findings
36
by sector 58 Appendices
3.1 Financial Services 37 How to
participate in
3.2 Transportation the survey 58
and Logistics 39
Glossary
3.3 Public Sector, Health of Terms 59
and Not-for-Profit 41
3.4 Retail 44
3.5 Manufacturing and
Consumer Packaged
Goods (CPG) 46
3.6 Energy & Natural
Resources, Chemicals
& Pharmaceuticals and
Infrastructure 48
3.7 Technology, Media,
Telecommunications
and Business Services 51


1 | The Power of Procurement

deconstructing the

survey framework

In 2011
Key elements of the framework
KPMG, in association with CPO Agenda,
VALUE AND STRATEGY conducted an online global survey of 585 Procurement
PERFORMANCE AND BUSINESS leaders from across all industry groups and sectors.
PLANNING
The survey was designed in two parts, each intended to
deliver a dynamic yet realistic view of the level of maturity
and influence of Procurement functions within businesses
around the world. The methodology itself is based on
KPMG member firms’ work with a broad range of leading
organisations over many years, and has been designed to
accurately reflect the Procurement maturity journey.
OPERATIONAL OPERATING Respondents were initially asked to provide a series
EXCELLENCE MODEL
of data points related to their direct and indirect spend
across a series of key measures: Value and Performance,
Purchase to Pay, Supply Base Management, Category
Management and Operating Model.
From this data, a robust set of ratios and measures were
calculated to provide an objective comparison between
organisations on core Procurement disciplines.
Four-level maturity model
Participants were then asked to map their behaviours and
attributes in four key elements of Procurement: Strategy
EXCELLENCE 4 and Business Planning, Operating Models, Operational
Excellence, and Value and Performance.
To facilitate this, respondents were presented with
a series of attributes from which they selected the
3 LEADING
statements that best reflected the current state within
their organisation. From these responses, KPMG and
CPO Agenda determined where the function sat on a
four-level maturity model.
2 ESTABLISHED Those reporting low levels of maturity in these elements
were ranked in the ‘foundation’ category, those indicating
strong progress were termed as ‘established’, functions
reporting more mature attributes were ranked as
‘leading’, and organisations with the highest level of
maturity were designated in the ‘excellence’ category.
1 FOUNDATION
It should be noted that these levels are cumulative,
meaning that those ranked higher on the maturity
framework were expected to demonstrate all of the
attributes of the lower ranks, while also indicating an
adherence to some of the more mature attributes
and behaviours.


The Power of Procurement | 2

executive

summary

Around the world • Partnering with the organisation: For Procurement
to achieve a place at the table, more work should be
and across all sectors ,
done to align to key stakeholders and understand the
business operations to become a true strategic partner.
organisations are experiencing an unprecedented pace of
This means moving up the value chain to ensure that
change. As a result, businesses are rapidly re-evaluating
the function is involved much earlier in the decision-
their operating models and market strategies not just to
making processes and clearly demonstrating how
withstand these market forces, but capitalise on them.
active involvement adds tangible value to both the
Clearly, Procurement has a significant role to play in bottom and the top lines.
helping their organisations achieve their objectives
• Moving beyond cost savings: Driving costs from
and prepare for the uncertainty ahead. In part, this will
supply contracts will always be a central tenet of
require Procurement to focus on driving costs out of the
Procurement, but many organisations seem to be
business. But the opportunity also exists for the function
struggling to extend their activities proactively into
to add value in a much more strategic way.
core capabilities such as category management,
And as we engage with Procurement functions around and beyond into demand management, Supplier
the world, KPMG firms’ professionals have witnessed a Relationship Management (SRM) and risk
number of highly mature Procurement organisations that management. With relatively low levels of spend
have stepped-up their game, fundamentally changing under contract and under management in many
the way they work with the business and – as a result – sectors, there remains a significant opportunity for
are increasingly taking a leadership role in helping drive Procurement to stretch beyond cost savings to deliver
growth and reduce costs across the organisation. more strategic value to the organisation.
But what exactly does a ‘mature’ Procurement function
• Achieving the optimal operating model: Whilst the
look like? How are they adding value beyond traditional
majority of Procurement organisations have already
cost-cutting measures? And what can less mature
adopted a more centralised operating model, many
organisations learn from their more evolved peers?
still face challenges in translating this into strategic
In order to better quantify the maturity of Procurement value for their businesses. CPOs and Supply Chain
functions around the world KPMG, in association with Directors will increasingly find themselves reassessing
CPO Agenda, surveyed 585 Procurement leaders across their operating models to squeeze greater value from
the world. What we found was that – overall – there is a their activities around the world, while providing a
significant gap between where Procurement is now and robust centralised framework that delivers efficiencies
where they could be. across the business at a reduced operating cost for the
function as a whole.
In particular, our research identified five key areas
where Procurement could be elevating its game to add
significant value to its organisation:



An opportunity exists for Procurement
professionals to drive real value for their organisations
and – as a result – tangible competitive advantage

• Prioritising supply chain risk: Given the events of • The Public Sector and Health sectors also reported
the past five years – financial crisis, natural disasters a mixed level of maturity, with a small number of
and massive supplier failures, to name just a few – the exemplars who have achieved ‘excellence’ in category
research demonstrates a worrying lack of leadership management and strategic sourcing disciplines.
in the area of supplier risk. Procurement will need This was balanced by the majority who were still
aggressively to push the inclusion of supply chain risk performing at ‘established’ levels and managing less
on the broader business agenda in order to protect than 60 percent of spend, showing that the wider
the business from the uncertainty and turbulence that Public Sector still has considerable opportunity
almost certainly lies ahead. to improve.
• Leveraging systems and technology: Whilst supply • The Not-for-Profit sector showed a comparatively low
chain technology and business systems have evolved level of maturity.
rapidly, many Procurement functions seem unable –
• Retailers reported some of the highest levels of
possibly unwilling – to leverage these new capabilities
maturity, particularly in their Goods For Resale (GFR)
in order to bring greater automation to the business.
spend, but indicated some room for improvement in
In many cases, the situation is even more alarming:
the Goods Not For Resale (GNFR) arena.
having made the investments, they have yet to realise
the value. In particular, the business will increasingly • Manufacturing and Consumer Packaged Goods
be looking to Procurement to maximise their existing respondents returned impressive results in SRM and
systems and technology to provide greater clarity Contract Management, but reported weak capabilities
into the Management Information and Business in Risk Management.
Intelligence processes.
• Good progress has been made by organisations within
Not surprisingly, our research also uncovered a number the Energy & Natural Resources, Chemicals &
of differences across the various business sectors. Pharmaceuticals and Infrastructure sectors with
Some – such as Manufacturing, Consumer Packaged firmly established maturity in Risk Management and
Goods and Retail – boast fairly mature Procurement the use of Systems and Technology.
capabilities reflecting the importance of suppliers within
• Technology, Media, Telecommunications and
the core business. Others, however, still have some way
Business Services organisations generally performed
to go. In brief:
well in areas such SRM, Contract Management and
• Financial Services organisations performed well in a Risk Management, there are significant opportunities
number of key capabilities such as risk management, for Procurement to bring more spend under
bringing spend under contract and formalising management and rationalise the supplier base.
Procurement policy. However, the sector will likely
Based on these findings, our global team of Procurement
face significant challenges as a result of new and
professionals has developed five key recommendations
proposed regulation.
for CPOs and Supply Chain Directors seeking to raise
• Transportation and Logistics organisations reported the maturity of their function and ten questions that
mixed maturity with some organisations performing should be answered to provide a realistic and practical
very well, with others noticeably lagging behind their assessment of your Procurement maturity.
peers, particularly in demand management and use of
One thing is clear, however: An opportunity exists for
systems and technology.
Procurement professionals to drive real value for their
organisations and – as a result – tangible competitive
advantage. Now it’s up to CPOs and Supply Chain
Directors to make the most of this opportunity.



key
functional
ﬁndings
ONE



1.1 A PLACE AT THE TABLE?

What will it take to elevate Procurement into a strategic role, worthy of a seat at the boardroom table?

For years, Procurement Managers have sought to Indeed, respondents seem to indicate that Procurement
ascend to the boardroom table to take a place alongside is continuing to struggle to make a strategic impact on
other enterprise services such as Marketing, Operations the organisation. For example, our survey shows that
and Finance. – on average – Procurement influences less than 60
percent of spend across both direct and indirect categories,
But, according to our survey, many Procurement functions
which puts them in the ‘foundation’ segment of maturity
still do not operate at a strategic level within the context
(figure 1). What’s more, as illustrated in figure 2, most
of their wider organisations and – as a result – are neither
companies outside of the Retail sector indicate that less
recognised nor delivering as a true partner to the business.
than three-quarters of their direct spend is currently
under contract.
Figure 1a: Percentage of direct spend under management
100

90

80 Financial Services
70 Health
Percentage in sector

60 Manufacturing & CPG

50 Public Sector Organisations

40 Retail

30 TMT & Business Services

20 Transport & Logistics

10 ENR, Chems, Pharma & Infrastructure

0 Not-for-Profit

Foundation (<60%) Established (60-89%) Leading (90-99%) Excellence (100%)

Maturity level

Figure 1b: Percentage of indirect spend under management
100

90

70 Health



40 Retail




0 Not-for-Profit
Foundation (<60%) Established (60-75%) Leading (75-89%) Excellence (>90%)
Maturity level



With the exception of Retail, less
than 75% of third-party spend is
under an active contract

Figure 2a: Percentage of spend under contract (of total direct spend)
100

90

70 Health



40 Retail




0 Not-for-Profit
Foundation (0-40%) Established (40-75%) Leading (75-95%) Excellence (>95%)
Maturity level

Figure 2b: Percentage of spend under contract (of total indirect spend)
100

90

70 Health



40 Retail




0 Not-for-Profit
Foundation (0-19%) Established (20-59%) Leading (60-84%) Excellence (>85%)
Maturity level

By increasing the level of spend under contract, tends to result in better supplier segmentation allowing
Procurement can achieve signiﬁcant strategic beneﬁts businesses to identify and track their top suppliers and
for the organisation such as increased leverage of – as a result – better manage risk (an area of particular
spend, improved pricing, higher discounts, reduced importance given the high volatility experienced by most
risk of supply failure or contractual disputes. businesses in recent years).
Moreover, effective contract management also



Procurement generally inﬂuences
less than 60% of spend across both
direct and indirect categories

Interestingly, as we see in ﬁgure 3, only a small number be spread thinly across multiple categories and vendors,
of organisations claim to have 80 percent of their spend thereby missing opportunities for improved SRM and
concentrated within 20 percent of their supplier base, supplier performance management, and driving up the
indicating that many Procurement functions continue to cost of the Procurement function as a whole.

Figure 3a: Percentage of suppliers accounting for 80% of spend (for direct spend)
100

90

70 Health



40 Retail




0 Not-for-Profit
Foundation (>20%) Established (10-20%) Leading (5-10%) Excellence (<5%)
Maturity level

Figure 3b: Percentage of suppliers accounting for 80% of spend (for indirect spend)
100

90

70 Health



40 Retail




0 Not-for-Profit
Foundation (>20%) Established (10-20%) Leading (5-10%) Excellence (<5%)
Maturity level



Figure 4: Level of involvement in ‘Make versus Buy’ decisions
100
6%
90 18% 24%
24%
32% 33%
80 41%
45%
70 55%
27%
60
Percentage

70%
50
61% 46% 45%
40 64%
53%
30 55% 55%
36% Don't Participate
20
24% 23% 22% Participate
10
15% 12%
9% 6% Lead
0
Financial Health Manufacturing Public Retail TMT & Transport ENR, Chems, Not-for
Services & CPG Sector Business & Logistics Pharma & Profit
Organisations Services Infrastructure

Sector

Respondents also indicated a rather low level of on behalf of the business, this is the point at which a large
participation in their organisation’s ‘make versus buy’ portion of the cost of the good or service is determined.
decision-making process (ﬁgure 4). Only 17 percent said Procurement departments have a critical role to play in
that they currently lead the process and almost a third driving value for money and managing the risk associated
(31 percent) admitted that they do not participate in the with these decisions. Those that take a leading role in this
process at all. While the Procurement function is not process tend to enjoy an enhanced strategic proﬁle within
strictly responsible for taking ‘make versus buy’ decisions the broader company.

31% admitted they do not participate in
‘make versus buy’ decisions



The ability not only to create Procurement policy for the in collaboration with the organisation, they are not fully
wider enterprise, but also to report and manage non- embedded in the Purchase to Pay process nor is non
compliance is key to achieving a more strategic role for compliance generally reported or managed. As a result,
Procurement. However, as ﬁgure 5 clearly demonstrates, many Procurement organisations ﬁnd themselves tied-
an overwhelming majority of respondents across sectors up managing issues related to too many suppliers, off-
seemed to indicate an ‘established’ level of maturity contract purchases or varying price points, and missing
here, meaning that while policies are evident and created the opportunity to improve their standing with Finance.

Figure 5a: Degree of maturity relating to Procurement Policy (for direct spend)

Financial Services 17% 50% 33%

Health 12.5% 50% 37.5%

Manufacturing & CPG 12.5% 62.5% 12.5% 12.5%

Public Sector Organisations 12% 59% 29%

Retail 100%

TMT & Business Services 22% 55.5% 18.5% 4%

Transport & Logistics 67% 33%

ENR, Chems, Pharma 81% 13% 6%
& Infrastructure
Not-for-Profit 100%
0 20 40 60 80 100

Level 1 – Foundation 0-30 Level 2 – Established 31-60 Level 3 – Leading 61-80 Level 4 – Excellence 81-100

Figure 5b: Degree of maturity relating to Procurement Policy (for indirect spend)

Financial Services 8.3% 58.3% 33.3%

Health 12.5% 50% 37.5%

Manufacturing & CPG 25% 45% 20% 10%

Public Sector Organisations 8% 83% 8%

Retail 100%

TMT & Business Services 19% 69% 8% 4%

Transport & Logistics 67% 33%

ENR, Chems, Pharma 89% 5.5% 5.5%
& Infrastructure
Not-for-Profit 50% 50%

0 20 40 60 80 100


Level 1 – Foundation 0 -30 Level 2 – Established 31-60 Level 3 – Leading 61-80 Level 4 – Excellence 81-100
• Procurement policies exist, • Policies are evident across most • Policies are embedded in • Policy is used as a mechanism
but are not consistent, widely categories of spend, processes, Purchase to Pay systems for driving behavioural change
communicated, or adhered to and systems • Non-compliance is reported and throughout the organisation
• Policies are created in actively managed • Non-compliance is exceptional
collaboration with the
organisation and publicised



KPMG VIEWPOINT

The evidence indicates
that the majority of Procurement functions still don’t have a
strategic role and are generally not considered (nor optimally
delivering) as a true business partner to the organisation.
In many cases, this is a direct outcome of ineffective governance,
policies and procedures or a lack of appropriate Procurement
engagement during the early stages of the procurement process.
As a result, those organisations are failing to make effective
purchasing decisions, not fully leveraging their spend and
economies of scale, and leaving themselves open to significant
business and commercial risk.
So whilst early Procurement involvement has been proven to
deliver higher savings, the reality is that Procurement is usually
brought into the process to either close a deal or advise on the
contract terms, when it is often far too late to add significant
value – or often only when the commercial process has already
broken down.
The results also show that Procurement is not placing
sufficient focus on monitoring and tracking compliance across
the organisation and – with no real repercussions for non
compliance – is facing real challenges in maintaining control
over both direct and indirect spend, and in supporting demand
management activities.
Across the board, CPOs will need to place more focus on
becoming effective change leaders and in engaging internal
customers to better communicate the value of Procurement.
According to one respondent “We use a lot of buzzwords like
SRM and category management, but it doesn’t mean much to
the business. We must start to communicate in a language that
the business understands.”
Of course, this will also require Procurement to refocus their
efforts to include other value-added services to the business
besides simply reducing purchasing costs. However, this usually
requires a culture-shift, taking Procurement away from the
tactical, category-focused culture that seems to dominate most
functions, to one that is fully aligned with the organisational goals
and active in the strategic decision-making processes of the
business. For example, by helping the organisation to develop a
‘cost conscious culture’, the function can drive greater strategic
value and fill the role of change leader rather than order taker.



1.2 STRETCHING BEYOND SAVINGS

How will Procurement elevate their game beyond savings to deliver real value to the organisation?

Whilst most Procurement functions have made great Figure 6: Correlation between SRM maturity and
% cost reduction savings (direct spend)
progress in terms of creating value for their organisations,
our research indicates that momentum has somewhat 100
4.2% 5.6% 11.1%
stagnated recently. In large part, this is because much

Supplier relationship management maturity (%)
90 8.3%
of the ‘low hanging fruit’ has already been harvested in
80
terms of cost savings, leverage and price. As a result,
33.3%
Procurement functions will need to stretch to identify 70
and capitalise on opportunities to add value, while also 60
securing appropriate organisational investment to enable 70.8% 83.3% 90%
50
Procurement to develop into this more strategic role.
40
Our research indicates a direct link between an ability to 33.3%
achieve greater cost savings and an overall maturity in 30
category management, strategic sourcing and SRM (see 20
figure 6). Indeed, those organisations that reported either 22.2%
10
‘excellence’ or ‘leading’ maturity in these areas tended to 16.7% 11.1% 10%
deliver a higher percentage of savings than their slightly 0
<1-2% 2-5% 5-8% >8%
less mature peers. Direct cost reduction savings as a percentage of direct spend

For example, in ‘mature’ Procurement functions, SRM
Foundation 0-30 Established 31-60
is seen to provide a structured approach to contract
Leading 61-80 Excellence 81-100
or service performance management that offers
Procurement an opportunity to leverage the relationship
and drive continuous incremental value to both the top
Figure 7: Correlation between maturity in Category Management
and bottom line. However, outside of the Manufacturing and Strategic Sourcing, and % cost reduction savings (direct spend)
and Consumer Packaged Goods industries, our research 100
indicates that only around half of all Procurement 3.8% 5.3% 10.0%
Supplier relationship management maturity (%)

90 11.5% 5.3%
functions currently lead the SRM process within 22.2%
their organisation. 80

As illustrated in figure 7, focus must also be placed 70
22.2%
on category management and strategic sourcing. 60
Only four percent of Procurement functions claim to 61.5%
50 80.0%
have achieved ‘excellence’ for direct spend – defined 84.2%
as having a strategic place within the organisation as 40
33.4%
a generator of value beyond merely savings through
30
competitive negotiations. Rather, the vast majority
(64 percent) fell into the ‘established’ category, where 20
category management and strategic sourcing processes 10 23.1% 22.2%
have been created, but were not fully recognised within 5.3%
10.0%
0
the organisation as potential sources of value. <1-2% 2-5% 5-8% >8%
Direct cost reduction savings as a percentage of direct spend

Foundation 0-30 Established 31-60
Leading 61-80 Excellence 81-100



Our research indicates a direct link between
cost savings and maturity in category
management, strategic sourcing and SRM

Demand management is another key lever of value imply a larger focus on negotiating commercial terms
creation available to Procurement functions. But, as we rather than achieving specific functional requirements,
see in figure 8, only 17 percent of respondents said that it is likely a result of Procurement either being brought
they lead their organisation’s demand management into the process late in the business cycle, or not
activities and more than a quarter admitted that they do being sufficiently engaged within the business in
not participate in this activity at all. And whilst this may the first place.

Figure 8: Level of involvement in Operational Demand Management activities
100

90 18% 18%
23% 24% 27%
80 36% 36% 36% 41%

70

60
Percentage

50 64% 69% 52% 54%
40 66%
46% 46%
64% 47%
30
Don't Participate
20
25% Participate
10 18% 18% 18% 22%
13% 12%
7% Lead
0
Financial Health Manufacturing Public Retail TMT & Transport ENR, Chems, Not-for-
Services & CPG Sector Business & Logistics Pharma & Profit
Organisations Services Infrastructure

Sector

17% of Procurement functions lead
demand management activities and 29%
do not participate in this activity at all

© 2012 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member
firms of the KPMG network are affiliated. All rights reserved.


Only 4% of respondents claimed to have
achieved ‘excellence’ in strategic sourcing and
category management for direct spend

The other discipline critical to helping Procurement three-quarters of respondents suggested that they had
functions add value is supply base management (see achieved a risk-based segmentation of suppliers and
figure 9), where savings can often be achieved through realised a contract management database (or equivalent)
approaches such as supply chain simplification, product that covered at least three-quarters of their direct and
and service consolidation, or joint supplier / customer indirect spend, suggesting strong progress in this area
innovation. On the more positive side, more than for many organisations.

Figure 9: Degree of maturity in Supply Base Management (direct spend)

Financial Services 50% 50%

Health 25% 75%

Manufacturing & CPG 15% 69% 8% 8%

Public Sector Organisations 6% 94%

Retail 67% 33%

TMT & Business Services 8% 73% 15% 4%

Transport & Logistics 100%
ENR, Chems, Pharma
& Infrastructure 12.5% 87.5%

Not-for-Profit 100%

0 20 40 60 80 100


Level 1 – Foundation 0 - 30 Level 2 – Established 31- 60 Level 3 – Leading 61- 80 Level 4 – Excellence 81-100
• Suppliers are qualified using a • Supplier performance • Contractual obligations are • Significant contracts and/or
balanced set of criteria management is established tracked throughout the whole suppliers have active executive
• Supplier performance and includes customer contract management life cycle level involvement
measurement is limited to generated data • Supplier development • Collaboration with suppliers
supplier generated data • Contract and/or supplier is an integral part of the occurs regularly and drives
• Contract and supplier specific reviews are held periodically organisation’s supply base tangible additional value from
interventions are reactive against a defined agenda management strategy the relationship
• Supplier management • The supply base management
activities lack formal processes strategy is defined
for delivery • Supplier performance
• Significant contracts and/or management includes a
suppliers are identified using a commercial element and is
risk-based evaluation linked to the award of future
contracts; poor performance
is escalated in a controlled
manner to executive level and
leads to exit over time



KPMG VIEWPOINT

Clearly, Procurement recognition and investment in the role of strategic
Procurement is essential in enabling the function to
functions will need to place renewed
deliver a greater contribution to the business.
That said, the data also demonstrates that many
focus on building capacity in a number of key
disciplines if they hope to deliver greater value to organisations are progressing along a value creation
their organisations. Across category management, journey. So whilst some organisations that achieved
strategic sourcing, SRM, demand and supply base ‘excellence’ or ‘leading’ rankings in key areas reported
management, our research suggests that significant a lower percentage of cost reduction savings, this
opportunities still remain to drive sustainable bottom is more likely indicative of organisations that are
line and top line value. well progressed along this journey rather than an
unsophisticated Procurement function. This is also
Some of the ‘heavy lifting’ in this regard will fall on the
the case for certain sectors (such as Retail) where the
shoulders of Procurement, who will need to stretch
supply market is largely inflationary.
beyond savings to become a centre of value creation
throughout the organisation. Executives will also need Similarly, a number of respondents to our survey
to play a part. Poor results in category management, reported achieving relatively high cost savings
for example, often reflects a lack of understanding on while at a ‘foundation’ or ‘established’ level of maturity
the part of the executives who – without an immediate in the core processes, indicating the reaping of low
need to drive out costs – may not see the full value in hanging fruit.
category management. Indeed, a wider organisational

The Evolution of Supply Chain Finance access to rebates, but the fees charged by card
providers can make it an expensive option for
As capital becomes increasingly dear, many the supplier.
Procurement organisations are starting to explore
innovative Supply Chain Finance models aimed at In buyer-driven receivables models, a company that
freeing up working capital and ensuring productive has a good credit standing sets up an arrangement
relationships with key suppliers. with a bank to provide funding to the company’s
suppliers. The programme allows suppliers to sell or
There are various structures of Supply Chain Finance discount their receivables from their sales invoices
programmes: and get immediate cash payments. The discount rate
• Supplier-driven programmes (or Receivables depends on the credit rating of the buyer rather than
Financing); the supplier. The buyer has the benefit of an enhanced
relationship with its suppliers and, through helping the
• Inventory Finance; supplier gain funding, is reducing risk within its own
• Purchasing Cards, and supply chain. Appropriate IT systems and effective
communication between parties is critical to enable
• Buyer-driven programmes. this type of programme.
In supplier-driven programmes, suppliers ‘sell’ their More recently, buyer-driven payables programmes
receivables to a bank in exchange for a fee (typically have emerged whereby the buyer pays early in return
in the range of 2-4 percent). In return, the supplier for early payment discounts from suppliers. In some
is immediately advanced 80 percent of their invoice cases, buyers arrange a preferred rate with a bank
value, thereby providing instant access to working which is used to settle invoices within a shortened
capital. However, the model is often considered to be timeframe. However, buyers with strong balance sheets
expensive for suppliers and costs are generally added may consider funding the mechanism themselves,
into the price offered to buyers. essentially allowing the buyer to turn cash into
With inventory financing, suppliers own stock held additional revenue. The model is considered to be a
on the buyer organisation’s site until the buyer uses fairly straightforward but innovative option that provides
it. While this means that less of the buyer’s cash a win-win situation for both buyers and sellers.
is tied up in stock, it can lead to increased cost of Selecting the appropriate model will depend on the
goods. Purchasing cards can be an excellent tool for specific drivers and circumstances of an organisation,
consolidating low spend transactions and can provide as well as the internal capability to deliver.

KPMG formed part of the Supply Chain Finance working group, chaired by The Association of Corporate Treasurers, which reviewed the supply chain
finance market in 2010. The report of this working group can be found at www.treasurers.org/scf



1.3 CENTRING ON VALUE
Does a centralised Procurement operating model provide better value and performance to the organisation?

As the global business landscape becomes increasingly Our research demonstrates that the majority of
competitive and complex, many organisations are organisations around the world now subscribe to a more
adjusting their Procurement operating models to achieve centralised operating model (ﬁgure 10), enabling businesses
greater value creation and operational performance. to leverage their buying power across the globe, gain greater
However, over the long-term, few organisations regularly control of their spend and build core standard business
review their operating models or make the necessary processes to drive greater consistency and value from
adjustments to continuously ensure that Procurement Procurement. It is not surprising, therefore, that centralised
is integrated into the business and delivering increasing organisations tended to report the greatest value from a cost
levels of value. savings perspective (as shown in ﬁgure 11).

Figure 10a: Percentage of spend managed by various operating models (direct spend)
100

90

70 Health



40 Retail




0 Not-for-Profit
Level 1 – foundation Level 2 – established Level 3 – leading Level 4 – excellence
(90%-100% decentralised) (50%-89% decentralised) (1%-49% decentralised) (centralised)

Maturity level

Figure 10b: Percentage of spend managed by various operating models (indirect spend)
100

90

70 Health



40 Retail




0 Not-for-Profit
Level 1 – foundation Level 2 – established Level 3 – leading Level 4 – excellence
(90%-100% decentralised) (50%-89% decentralised) (1%-49% decentralised) (centralised)

Maturity level


Half of all respondents indicated that
they had adopted either a centralised
or centre-led operating model

Figure 11a: Average cost reduction savings for various Figure 11b: Average cost reduction savings for various
operating models (direct spend) operating models (indirect spend)
10 10

9 9

8 8

7 7

6 6
% cost saving

% cost saving

5 5 9.5%

4 4

3 3 6.3% 5.9%

2 4.3% 4.4% 2
3.7%
3.2% 3.5%
1 1

0 0
Direct – Direct – Direct – Direct – Indirect – Indirect – Indirect – Indirect –
Centre-led Decentralised Centralised Hybrid Centre-led Decentralised Centralised Hybrid

Centralised and centre-led functions
report the highest levels of cost reduction
and spend under management

© 2012 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member
ﬁrms of the KPMG network are afﬁliated. All rights reserved.


The centralisation of Procurement also seems to help Interestingly our research indicates a clear correlation
organisations deliver greater value beyond cost savings. between operating models and the maturity of
For example, as figure 12 illustrates, centralised models Procurement’s indirect category management and
tend to achieve greater strategic focus and demonstrate strategic sourcing capabilities (figure 13). For example,
a higher degree of influence over spend, which not only those with decentralised operating models tended to
cuts costs and results in better category management, report ‘foundation’ maturity in this area, characterised
but also results in a higher profile for Procurement across by poor compliance and a lack of integration within the
the organisation. organisation leading to sporadic utilisation.
In comparison, organisations operating under more At the same time, those with more centralised or centre-
decentralised models typically report an impact on led operating models tended to exhibit more ‘excellence’
their ability to maximise value through activities such in category management, largely the result of achieving
as supply base consolidation, increasing spend under a high level of consistency by having all Procurement
management, or capturing efficiencies and savings. operations managed from a single location. In these
So while a decentralised model may be preferable cases, respondents report having processes that are
for organisations facing unique local requirements, mandated and which are widely viewed as a generator of
organisational considerations or close supplier value throughout the organisation.
relationships, this research clearly demonstrates
that it is much less conducive to driving value in the
long-term than more centralised models.

Figure 12a: Average spend under management for various Figure 12b: Average spend under management for various
operating models (direct spend) operating models (indirect spend)
80 80

70 70

60 60
% spend under management

% spend under management

50 50

40 40
74% 74% 71% 69%

30 30
53% 51% 50% 52%
20 20

10 10

0 0
Centre-led Decentralised Centralised Hybrid Centre-led Decentralised Centralised Hybrid


Procurement Benchmarking Survey 2012 Main Report The Power Of Procurement

Procurement Benchmarking Survey 2012 Main Report The Power Of Procurement

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