World-class companies use procurement as a source of competitive advantage but many organizations still under-manage this treasure chest because they lack a predefined, systematic playbook for reducing costs and identifying and implementing necessary improvements.
Why Procurement Matters
Bain partners Klaus Neuhaus, Tobias Umbeck and Alexander Schmitz and manager Rainer Gerhard discuss the value of efficient procurement organizations, how companies can reach full potential and how they can make the savings stick year after year.
By taking a more comprehensive approach to what they buy and how they buy it, companies can reduce cost and free up cash. Full potential savings programs can average 8 to 12 percent of total procurement costs and as much as 40 percent for some categories. Typically, these are sustainable cost savings that can be followed by a further two to three percent cost reduction annually. Furthermore, strategic procurement efforts often result in shorter cycle times and supplier-led product innovations.
Despite the increasing recognition of procurement's importance, a recent Bain survey found a growing gap between what corporate leaders expect and what their supply management teams are able to deliver:
- Fifty percent of supply management executives interviewed considered their procurement organizations ineffective;
- Sixty-five percent admitted they don't measure procurement's performance in creating economic value and are unable to link procurement savings directly to their P&L.
Bain's procurement consultants have worked on hundreds of engagements globally across all major industries, helping clients create world-class procurement organizations that can reduce their cost base, strengthen their supplier base and make the results stick.