To be top-ranked in procurement, excel at contract management

Poor Chief Procurement Officers (CPOs). They get almost none of the buzz that CIOs or even CFOs get. And even though there’s probably a procurement magazine or two out there, I doubt you’ll see one on any newsstand (at least not the front racks).

Photo Credit: aussiegall via Compfight cc
Photo Credit: aussiegall via Compfight cc

Nonetheless, for large enterprises, an efficient procurement process is the difference between profitable and unprofitable quarters or years. This makes efficiency in procurement a key ingredient to many enterprises’ success – or failure.

A recent (2013) study by IBM Global Business Services of procurement officers worldwide delved into the question of what separates top-performing procurement organizations from average or low-performing ones. IBM surveyed 1,128 CPOs from enterprises with revenues in excess of $1 billion.

What the study found was that top-ranked procurement organizations employ a trio of key qualities, which are: 1) A strong foundation in fundamentals; 2) A strong influencer within their companies; and 3) Embrace innovation and emerging technologies.

When organizations were asked which solutions and/or activities add the most value, top-performers identified three: E-sourcing solutions, supplier relationship scorecards, and “use of a centralized contract repository to increase consistency and visibility.”

It’s not that surprising when you consider that procurement organizations are often tasked with being hyper vigilant on supplier contract costs and cost fluctuations. Using contract information to either enforce vendor contract pricing or service expectations is key to controlling costs.

The study also found another surprising connection to contract management. Of all organizations survey, 42 percent responded that they were above average or excellent in their effectiveness with contract management solutions. However, a whopping 89 percent of top-performing organizations rated their effectiveness with contract management as above average or excellent.

In other words, top-performing organizations place a very high emphasis on their contract management effectiveness – far more than non-top performers.

What this all boils down to is that large enterprises that put contract management solutions front-and-center do better at procurement than others. It’s actually a lesson that applies to companies of all sizes.

[Source note: Data from the 2013 executive report “Chief Procurement Officer Study” conducted by the IBM Institute for Business Value for IBM Global Business Services]