The foundation of business planning has for many years been asking and answering four main questions: Where are we now? Where do we want to be? How will we get there? And, How will we know when we’ve arrived? Measurement, including the creation of meaningful KPIs, is key to aligning business objectives with results.
Now Ivalua, a leading provider of global spend management cloud solutions, has announced the latest findings of a worldwide study of supply chain, procurement and finance business leaders on Effective Procurement Performance Measurement. The study revealed the challenges procurement teams face when it comes to achieving business objectives and the wide and growing gap in performance between advanced and less mature teams.
The research, conducted by Forrester Consulting and commissioned by Ivalua, found that procurement teams are increasingly being measured by non-cost KPIs such as revenue opportunities being created, payment performance (e.g. on time payments) and spend visibility. However, a lack of data integration between systems (44%), lack of relevant insights (40%) and insights not being made available at the right point in the process (39%) are preventing organizations from accurately measuring progress against business objectives. This is because organizations continue to face challenges when it comes to harnessing technology in procurement, with existing systems not being fit for purpose (36%), poor data quality reducing trust in information (36%) and staff having inaccurate expectations of what technology can do (34%). The February 2020 study was conducted by Forrester Consulting on behalf of Ivalua and is based on a survey of 409 finance, procurement and supply chains decision makers throughout North America and Europe, as well as several in depth interviews.
The research went on to reveal that more digitally “advanced” procurement departments are far exceeding “beginner” procurement departments that are less digitally mature in the range of KPIs they track, how frequently they measure success and the levels of planned technology investments. Key findings include:
- 97% of advanced procurement departments say procurement strategy is well aligned with overall business strategy versus only 14% of beginners.
- 51% of advanced procurement departments measure performance weekly or biweekly, versus only 26% of beginners.
Only 16% of beginners proactively monitor suppliers’ contracts for expiration and risk, versus 94% of advanced – this is critical for helping organizations manage today’s global supply chain challenges, such as the Coranavirus outbreak.
“In order for procurement teams to achieve their growing list of objectives and become strategic enablers for their organizations it’s clear they need to overcome a number of technology challenges,” said David Khuat-Duy, Corporate CEO of Ivalua. “As we can see from more digitally advanced procurement departments, technology adoption has helped them to align with business objectives, actively measure performance and add value in areas such as risk management. Their investments and approach to leveraging technology is building a competitive advantage.”
According to the study, the amount organizations are spending on procurement technology has been rising and expected to accelerate. In the past 12 months, 46% of organizations increased spending by 5-10%. In the next 12 months, 39% plan to increase spending by 5-10%, while a further 43% plan to increasing spending by 10% or more. Procurement leaders are also looking to fully digitize procurement processes (40%), becoming the preferred customers of strategic suppliers (40%), implementing new software for sourcing/procurement (38%) and improving reporting and insights (38%) to help achieve objectives.
“It’s encouraging to see organizations investing more in technology, which will help procurement become a key strategic enabler that goes beyond cost reduction to build a competitive advantage,” added Khuat-Duy. “Increasing adoption of technology will allow procurement teams to gain complete visibility into all suppliers and spend. This will open up further opportunities for procurement to help identify revenue opportunities, track risk and improve sustainability, helping to contribute towards wider procurement and business objectives.”