A N OPEN LE T TER
Alex Atzberger PRESIDENT, SAP ARIBA
SAP Ariba celebrates the people that are making procurement awesome. Andrew Bartolini, chief
researcher at Ardent Partners, is one of those people. His annual CPO Rising report—a unique
combination of hard facts, inspired commentary, and substantive recommendations—is one of the
most influential reports in the profession. It sparks both conversation and action, leading the way
to a vision of procurement as the most exciting, rewarding job in the company. That’s a vision we
can get behind, and we’re proud to sponsor the report.
The theme of this year’s report is “The Art and Science of Procurement.” Pulling from discussions
with 331 CPOs and other procurement executives, the report examines the capabilities of procurement organizations today in terms of both creativity and methodology, instinct and discipline.
You’ll learn how leading CPOs get the most out of their teams, see how your organization’s
performance compares to the Best-in-Class, and come away with both aspirational ideas and
actionable goals.
What does the art and science of procurement mean to SAP Ariba? As a software company, it’s
our job to get procurement down to a science, so that you can elevate it to an art. The science
of procurement is about making it simple. And the art is about making it awesome:
• The art of asking better questions—and the science of getting better answers
• The art of partnering with suppliers—and the science of supplier discovery, onboarding,
and management
• The art of collaborating with internal stakeholders – and the science of user adoption
and compliance
• The art of driving innovation—and the science of managing risk
• The art of increasing leadership and talent—and the science of empowering all levels of buyers
Enjoy the pages that follow. And please let me know how SAP Ariba can help you make
procurement awesome.
5 FAVORITE FACTS,
CHARTS AND QUOTES
from CPO Rising 2016: The Art and Science
of Procurement
1
2
3
4
5
A Portrait of the CPO as a Young Man
or Woman – Page 13
“In business and procurement, successful
leaders are able to tap into both sides of
the organization’s ‘brain’ to make decisions
that use both data AND insight, logic AND
instinct, and rigor AND creativity.” – Page 14
The 2016 Best-in-Class Procurement
Framework – Table 2, Page 28
The Best-in-Class Technology Advantage
– Figure 11, Page 30
“Composer, conductor, and curator in one,
today’s CPO must write the procurement
team’s ‘score,’ hire and rehearse the orchestra,
and then take center stage to lead it.” – Page 32
Join us for more on
the art of procurement.
Inspired by the CPO Rising report? Sign up for
more stories from SAP Ariba about the best
minds, brightest insights, and freshest ideas
in the world of sourcing and procurement.
Subscribe to The Art of Procurement newsletter
Alex
Visit our blog on The Digitalist Magazine
Ardent Partners
SUPPLY MANAGEMENT EXPERTS
The Art and Science of Procurement
Andrew Bartolini | Chief Research Officer | Ardent Partners | June 2016
underwritten by:
CPO Rising 2016: The Art and Science of Procurement
R EPO RT SPON SORS HIP
The views and opinions in this report represent those of Ardent Partners at the time of publication. Sponsoring companies have
had no measurable influence on the content and research in this report. The contents of this research report are the exclusive
property of Ardent Partners. Please direct any comments or questions regarding our research sponsorship policy to Ardent’s
Chief Research Officer, Andrew Bartolini, at [email protected] and/or 617.752.1620.
Sponsor:
SAP® Ariba® is the marketplace for digital business, creating frictionless exchanges between millions of buyers and suppliers
across the entire source-to-pay process. Our market-leading solutions enable companies to simplify collaboration with their
trading partners, make smarter business decisions and extend their collaborative business processes with an open technology
platform. More than two million companies use SAP Ariba solutions to connect and collaborate around nearly one trillion in
commerce on an annual basis. To learn more about the company’s offerings and the transformation they are driving,
visit www.ariba.com.
Contact:
Lynnette Kimmel
Director, Audience Marketing, Procurement Line of Business
SAP Ariba
+1.678.336.2773
[email protected]
2
© Ardent Partners Ltd. 2016
CPO Rising 2016: The Art and Science of Procurement
CPO Rising 2016:
The Art and Science of Procurement
Procurement, like business itself, is essentially about people and culture. At the helm, sits the Chief
Procurement Officer (“CPO”), whose primary management task is to make the procurement staff capable
of organizational performance, making their strengths operational and their weaknesses inconsequential.
The task can be simply stated, but it is far from simple to achieve, because every procurement operation is
composed of people with different skills, knowledge, experiences, and motivations. The capacity of individual
staffers to make contributions is as dependent upon the management of the procurement operation as it
is upon their underlying abilities. To achieve procurement mastery in the age of innovation, today’s CPOs
must develop and balance the creative (“art”) and quantitative (“science”) capabilities of their organizations
to deliver maximum value in support of enterprise goals and objectives.
This CPO Rising 2016 report will examine the general
competencies and capabilities of procurement organizations
today and highlight the management strategies and tactics
that leading CPOs use to get the most out of their teams. The
report also presents a comprehensive, industry-wide view into
what is happening in the world of procurement and captures
the experience, performance, perspective, and intentions
of 331 CPOs and other procurement executives. The report
includes benchmarks, analysis, and recommendations that
procurement leaders can use to better understand the state of
procurement today, gain insight into best practices, benchmark
their performance against the Best-in-Class, and ultimately
improve their operations and performance.
3
© Ardent Partners Ltd. 2016
CPO Rising 2016: The Art and Science of Procurement
Table of Contents:
1
2
The State of the CPO
Take a close look at the role of the CPO and the level of engagement
and alignment this leader has within the enterprise today as well as
the key drivers and challenges that have shaped and will shape CPOs’
priorities and plans in 2016 and beyond.
5
6
8
10
12
The CPO’s Manifest Destiny
The CPO’s Agenda in 2016: Adventure Awaits
The New Savings Tale
CPO Strategies and Strategic Alignment
The CEO’s View of Procurement: Strategies to
Engage the C-Suite
4
5
The State of Procurement
Gain a detailed view of the typical procurement operation by analyzing
the current capabilities in the areas of people, process, and technology.
See how key strategies, processes, and technologies will enable
procurement to improve its performance in the years ahead.
14
15
16
18
3
The Art and Science of Procurement
The Natural Order of Priorities
Tools of the Trade
Procurement People and Their Competencies
4
Procurement Performance
Find procurement performance and operational statistics to use
as benchmarks for your organization. Learn what defines Best-inClass procurement performance, and get insight into the strategies,
processes, and technologies that enable Best-in-Class performers to
maintain their competitive advantage.
23
25
27
Beyond Savings
The 2016 Procurement Benchmarks
Best-in-Class Performance
Strategies for Success
Discover a series of recommended strategies and approaches for
CPOs and procurement departments that want to improve their
operations and results.
32 Procurement Mastery
34 General Recommendations
38 Conclusion
Appendix
39 About the Author
40 Research Methodology
40 Report Demographics
© Ardent Partners Ltd. 2016
CPO Rising 2016: The Art and Science of Procurement
State of
1 The
the CPO
2
The State of
Procurement
3
Procurement
Performance
4
Strategies
for Success
5 Appendix
Chapter One: The State of the CPO
The fundamental task of management [is] to make people capable of joint performance through
common goals, common values, the right structure, and the training and development they need to
perform and to respond to change.”
– Peter Drucker, Consultant, Educator, Author, and the “Founder of Modern Management”
The CPO’s Manifest Destiny
they cannot simply rest on their laurels - they must “go west”
but also, east and north and south and anywhere that demands
their attention and resources in support of enterprise objectives.
As the Global CPO of a CPG company explains, “The path we
have taken isn’t the one I intended. Every time we reach a new
platform, we realize that the next journey is out there.”
Globalization, complexity, technology, and innovation both
individually and collectively have contributed to the steadily
increasing levels of speed and competition in the market
today. These factors pose significant challenges and create
opportunities for procurement departments. They also have
served to make the function fundamentally more important to
both business and executive leaders, and dramatically increased
the importance of organizational agility. That said, many of the
truly important problems that CPOs face in 2016 do not come
from these external forces directly, but are caused by the very
success of the procurement department itself. Success, after all,
breeds success, but it also breeds higher expectations and a
drive to focus on the next big thing.
It is the CPO’s destiny to expand the
influence of procurement and improve
its performance in the essential work of
supply management.
There are many roads to procurement success, but they are not
all paved or well-traveled. The CPO’s path can, and frequently
does, twist and turn in unpredictable ways; a strong sense
of direction and a steady hand are needed. It is the CPO’s
destiny to expand the influence of procurement and improve
The best CPOs are driven to take on more and are ready
to rise and meet the next challenge. As their procurement
organizations advance and mature, these leaders know that
5
© Ardent Partners Ltd. 2016
CPO Rising 2016: The Art and Science of Procurement
State of
1 The
the CPO
2
The State of
Procurement
3
4
Procurement
Performance
its performance in the essential work of supply management.
To ably lead this mission, CPOs must play many roles across
business, technical, and cultural terrains and the teams
they assemble must be equipped with the right skills, tools,
resources, and direction to keep pace.
5 Appendix
Strategies
for Success
Figure 1: The CPO’s View of 2016
2%
The SAME as 2015
14%
The CPO’s Agenda in 2016: Adventure Awaits
LESS challenging than 2015
84%
Ardent Partners’ annual exploration into the CPO mindset finds
that the business landscape is almost universally expected to be
more challenging for procurement in 2016 than it was last year.
Eighty-four percent (84%) of all CPOs expect a more challenging
business environment while only 2% expect it to be less so (see
Figure 1). But, outside of the CPOs in a few distinct industries
like Energy and Mining, where belts have been tightened
and hardship policies like travel bans are back in place, most
procurement leaders are taking a “business as usual” approach
to the year. The levels of investment in new initiatives across the
areas of people, process, technology, and supplier management
appear generally consistent with those seen over the last few
years. In fact, many CPOs in 2016 are focusing their efforts and
resources on areas that improve “costs, cash, and their people.”
MORE challenging than 2015
© Ardent Partners - 2016
Although the path forward in 2016 for most CPOs may be
steeper than last year, it does not, in and of itself, appear
very steep. It is true that most of the world’s stock markets
started rumbling at the beginning of the year; but that was
linked to a slowdown in emerging markets, caused largely by
lower commodity prices. At the country and industry level, net
importers or buyers of commodities benefit from this type of
market. At the company level, the benefits accrue to commodity
buyers and sourcing teams, assuming they are able to take
advantage of lower market pricing.
6
© Ardent Partners Ltd. 2016
CPO Rising 2016: The Art and Science of Procurement
State of
1 The
the CPO
2
The State of
Procurement
3
4
Procurement
Performance
One direct result of the commodity deflation we have
experienced in 2015 and 2016 can be seen in the form of fewer
procurement teams pressured to find more savings, as only
36% of all CPOs now rank that as a top pressure (see Figure 2).
Communicating the procurement department’s value and
performance to executives, line of business leaders, and key
budget holders is a critical part of any CPO’s duties. The need
to do this better (33%) is the pressure that has increased the
most among procurement executives since the 2015 edition of
this report when 25% of all CPOs had it on their list. In general,
pressure on procurement is down, so despite the view that 2016
will be more challenging, this may also be a year when CPOs
and procurement departments can pause to catch their breath
and, if needed, recalculate their route to better performance.
5 Appendix
Strategies
for Success
Figure 2: The Top CPO Business Pressures in 2016
36%
33%
23%
Find more
savings
Better
communicate
value and
performance
Trending up
from last year
To ably lead their missions, CPOs
must play many roles across business,
technical, and cultural terrains; the
teams they assemble must be equipped
with the right skills, tools, resources,
and direction to keep pace.
21%
Increase
Increase the
effectiveness percentage of
and
spend under
influence
management
21%
20%
Improve
staff
talent and
capabilities
Better align
procurement
activities with
business goals
and needs
Trending down
from last year
© Ardent Partners - 2016
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© Ardent Partners Ltd. 2016
CPO Rising 2016: The Art and Science of Procurement
State of
1 The
the CPO
2
The State of
Procurement
3
Procurement
Performance
CPOs must remember that they are both the literal and symbolic
“face” of the procurement operation. Strong and consistent
execution can help keep procurement teams engaged with their
stakeholders, but most teams still need executive support to
get in the door… and the CPO is the executive best equipped
to open it. After all, the C-level title should lend gravitas to
discussions with new constituents, and who better than the
CPO to communicate the team’s overall value proposition
and strategy? Given the ever-shortening job tenures of whitecollar business professionals, including CPOs, there can be
both a personal and professional benefit to this type of CPO
networking. This also means that when the CPO’s interpersonal,
communication, and political capabilities and instincts
are strong, they can be counted among the procurement
department’s most valuable assets.
4
Strategies
for Success
5 Appendix
The discussion of commodity pricing trends above helps
to explain part of the decline in pressure for savings, as
does the expanded role of the CPO, which can now include
responsibilities that extend beyond spend and savings. The
strong, collaborative working relationship with the CFO that 69%
of all CPOs now possess has helped finance and procurement
get onto the same page regarding procurement performance
measurement and has surely been a contributing factor as well.
The New Savings Tale
In 2016, the need to “find more savings,” the CPO’s perennial
top business pressure, has fallen to the lowest level ever
recorded by an Ardent Partners analyst (see Figure 3). And, while
the drop over the last year was more precipitous than in the
preceding few years, the trend line shown in Figure 3 makes it
clear that the classic procurement “story” has expanded beyond
savings in a very real way. Ardent Partners views this to be very
significant because savings, while still an important procurement
metric, fails to capture the full value that a procurement group
can deliver.
While a few individual pressures have increased over the
past year (as indicated by the blue arrows), none have grown
big enough or fast enough to fill the vacuum created by the
decrease in pressure to deliver more savings over the last year.
8
© Ardent Partners Ltd. 2016
CPO Rising 2016: The Art and Science of Procurement
State of
1 The
the CPO
2
The State of
Procurement
3
Procurement
Performance
91%
65%
51%
36%
2009
2011
2014
2015
Strategies
for Success
5 Appendix
press key stakeholders across the enterprise to realize that there
is more to procurement’s “value add” than savings alone. At
long last, it appears that the efforts of these few are now poised
to help so many working in the profession. To ensure that this
new savings tale becomes gospel, it falls to all professionals
working in procurement to evangelize a more balanced
approach to procurement performance measurement. As more
executives are converted and begin to change the way that the
procurement department’s performance is measured, CPOs will
need to reflect that change and modify, as necessary, the way
their departments are managed and organized.
Figure 3: The Decline in Pressure to Deliver More Savings
56%
4
For most CPOs, this will mean a reprioritization of goals
along with a reallocation of resources and changes to both
performance reporting and staff focus. For others, this will
take the form of a deep review of organizational competencies
and the implementation of new hiring and training strategies.
Others still may find that a wholesale change in management
style is warranted. Ardent Partners’ CPO Rising 2015: The
Agility Agenda report argued that “the procurement teams that
adeptly connect their tools, resources, and expertise to support
the evolving needs of the business will succeed above all others.
Agility will define the next wave of procurement success.” These
kinds of opportunities do not come often, so CPOs should be
prepared and ready with a plan.
2016
© Ardent Partners - 2016
Today, a majority of executives understand, at some level
anyway, the complexity and nuance in measuring procurement
performance; but that was not always the case. For the last
decade, a majority of CPOs (and their lieutenants) have actively
worked to change the procurement performance narrative and
9
© Ardent Partners Ltd. 2016
CPO Rising 2016: The Art and Science of Procurement
State of
1 The
the CPO
2
The State of
Procurement
3
Procurement
Performance
4
Strategies
for Success
5 Appendix
CPO Strategies and Strategic Alignment
If the de-emphasis of savings as a measure of procurement
performance becomes permanent, and, at this writing, it is not clear
that it will, then CPOs’ responses to this shift have the potential to
become the catalysts that are sorely needed to drive procurement
departments to become more agile and achieve the next level of
performance.
Leading organizations know that in order to remain competitive,
they must find strong business and trading partners with shared
or aligned interests and develop a coalition of willing parties
who can leverage their collective strengths for both individual
and mutual gain. For the CPO, collaboration has never been
more important as their legacy “command and control-based”
relationships continue to yield to value-based partnerships both
inside the enterprise and beyond it. Business leaders uniformly
understand that while collaboration is but one of several links
to success (technology is another one), it can be the most
accessible and cost-effective means to elevate the enterprise to
the next level of performance. As procurement groups seek to
expand their influence and impact over spend, they rely upon
internal budget holders for partnership and engagement; the
top strategy for CPOs in 2016 is to “improve collaboration with lineof-business leaders,” identified by 46% of all procurement heads.
As the drive to find more value and innovation extends to the
supply chain, procurement has had to rethink the approach it takes
to relationship management for at least the strategic/critical subset
of its supply base. Thirty-five percent (35%) of all CPOs (third
most frequent choice) have identified “improve collaboration
with suppliers” as a top 2016 strategy. Improving their use of
technology by improving current systems and/or investing in
new ones ranked as the second most popular strategy among
CPOs this year at 37%.
Commander’s Intent
CPOs searching for new management tactics should consider adopting the
“Commander’s Intent,” a military approach used by Louie Psallidas, CEO and
President at Uno’s Pizzeria & Grill, a global restaurant chain. As he described it at
the CPO Rising 2016 Summit in Boston, the Commander’s Intent represents what a
leader wants to achieve and why in such a way that becomes clear to subordinates
with minimal discussion and detail. The idea is that through communication,
objectives, and stated outcomes, the soldiers in the field understand the ultimate
goal of the mission and become empowered to make decisions in order to achieve
that goal, whatever the circumstances. CPOs can apply the Commander’s Intent to
their own management and leadership style by including more of their procurement
staff in planning and strategy meetings so that they are exposed to the “bigger
picture” and understand the CPO’s desired end state and the conditions that define
success. With training and inclusion into executive decision making, CPOs can
inspire agility, creativity, and leadership, and harness the motivation resident within
their middle management to act on their commander’s (their CPO’s) behalf, even
when the CPO is functionally or geographically separated from the process.
10
© Ardent Partners Ltd. 2016
CPO Rising 2016: The Art and Science of Procurement
State of
1 The
the CPO
2
The State of
Procurement
3
Procurement
Performance
4
Strategies
for Success
5 Appendix
It was only a decade ago that one out of every three CPOs
was running their department without a formal strategic plan
in place. In 2016, operating so blindly would be unthinkable.
Not having a plan is no longer an issue for CPOs; unfortunately,
not having the right plan is. As shown in Figure 4, two out of
three CPOs in 2016 lack tight alignment between what they
are working on and the overall objectives of the business. A
procurement department with poor alignment is a problem that
creates higher levels of resistance and organizational friction,
causing greater wear on resources and greater inefficiencies.
Over time, poor alignment can also create larger and more
serious problems. CPOs who have this alignment gap should
install a series of diagnostic tests to regularly validate that their
staff is focused and working on the right things.
Figure 4: Alignment between Procurement’s Overall Focus and Overall
Business Objectives
34%
Tightly aligned
10%
Poorly aligned
56%
Partially aligned
66%
Alignment is critical to a CPO’s success. As Heidi Landry, CPO
at Dow Corning said, “If you don’t understand your company’s
priorities and instead just focus on the functional excellence, you
may drive great cost savings, but you’re not going to be aligned
with the big picture. Stakeholders won’t see you as being ‘at the
table’ for strategic discussions.”
Need significant improvement
© Ardent Partners - 2016
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© Ardent Partners Ltd. 2016
CPO Rising 2016: The Art and Science of Procurement
State of
1 The
the CPO
2
The State of
Procurement
3
Procurement
Performance
Today’s leading CPOs must be able to
identify the best opportunities quickly
and execute them just as fast. They
must also have a clear vision, be able to
garner support for it, and then drive it.
4
Strategies
for Success
5 Appendix
Functional expertise, or “nailing the basics,” is table stakes for
the CPO; this includes things like cost management and other
functional basics. Following on from that is a focus on culture
because, as Psallidas says, “culture eats strategy for lunch.”
Psallidas emphasizes that executives can develop the most
transformative strategies possible in the boardroom, but they
will be ineffective if the company culture rejects the ideas.
CPOs also need to support innovation in the supply chain,
which can result in ideas for new products as well as data on
market trends that the company itself may not be able to gather
in other ways. “I’m just amazed at how much innovation exists in
the supplier pipeline,” says Psallidas, emphasizing the importance
of working with suppliers. He also encourages CPOs to be
proactive in managing risks in the supply chain. Such risks would
include supplier financial issues which threaten the stability of the
supply chain, commodity risks, and supplier quality issues, among
others. Engaging the CEO with these four strategies can help ensure
that the energies and resources of the procurement department in
general, and the CPO in particular, are focused on the right things.
The CEO’s View of Procurement: Strategies to
Engage the C-Suite
One of the best (and easiest) ways to ensure that what procurement
is working on is aligned with enterprise objectives is for the CPO
to clearly understand what the enterprise is focused on and where
it is headed. Engaging the CEO and other executives directly is a
great way to do this. Speaking about the topic at Ardent Partners’
CPO Rising 2016 Summit, Louie Psallidas, CEO and President of
Uno’s Pizzeria & Grill, explained that four strategies can make this
engagement possible. These are to nail the basics of functional
expertise, transform the culture of procurement, support supply
chain innovation, and proactively manage supply chain risk.
12
© Ardent Partners Ltd. 2016
CPO Rising 2016: The Art and Science of Procurement
State of
1 The
the CPO
2
The State of
Procurement
3
Procurement
Performance
4
Strategies
for Success
5 Appendix
A Portrait of the CPO as a Young Man or Woman
Broadly speaking, the professional specifications of a CPO role can be quite diverse. The path to a procurement leadership role is often enabled by technical and functional
prowess. But it is a CPO’s leadership, communication, and relationship-building skills coupled with a clear understanding of business fundamentals and an ability to offer
insight in support of the business strategy, that enables them to thrive and succeed.
The educational background of the typical CPO tends to be technical in nature--i.e., an undergraduate degree in business or engineering that is often enhanced by
a Master’s degree in business or a specific technical field like engineering. The career paths of many of today’s CPOs include an early post-undergraduate career in
procurement, manufacturing, or finance followed by some significant experience with a process-driven company or in a process-driven role. The typical new CPO has been
working in and around the field for between 15 and 20 years with at least five years in a director/VP-level position before stepping into the CPO role. Some have been able
to “earn their stripes” more quickly by working as management consultants, and/or by developing a very deep industry expertise before moving directly into a procurement
leadership role.
Employers generally value proven success in managing people and experience with similarly-structured and similarly-sized organizations more so than specific industry
experience. Also, since most companies view their procurement organizations as either in need of a transformation or in the midst of one, a successful track record in driving
change or transformation projects within procurement is seen as very valuable. Moreover, one of the latest CPO hiring trends has been the move by many enterprises to
bring in an outsider rather than hire from within their current ranks.
The CPOs interviewed for this research effort rank their strategic management and general communication skills as much more important than their functional capabilities.
That said, the majority of CPOs in the market have a strong foundation in and clear understanding of the key people, process, and technology areas that enable
procurement departments to succeed. In fact, CPOs of departments with less than 100 people are regularly required to roll up their sleeves and get directly involved in
sourcing, category, and project decisions. The need for a strategic vision and an ability to execute is required of all CPOs. Today’s leading CPOs must be able to identify the
best opportunities quicklyand execute them just as fast. They must be able to lead sourcing efforts, engage the organization, create performance reports, and then deliver
them to other executives. They must also have a clear vision, be able to garner support for it, and then drive it.
13
© Ardent Partners Ltd. 2016
CPO Rising 2016: The Art and Science of Procurement
State of
1 The
the CPO
2
The State of
Procurement
3
4
Procurement
Performance
Strategies
for Success
5 Appendix
Chapter Two: The State of Procurement
To develop a complete mind: Study the science of art; Study the art of science. Learn how to see.”
– Leonardo Da Vinci, Artist & Scientist
The Art and Science of Procurement
Today’s popular education narrative has, for some reason,
polarized the two disciplines in an unnatural way. The reality is
that, as was clear in ancient times, the two coexist across life’s
pursuits and serve each other far better when viewed and used
as complements. Music, after all, is a mathematical equation
and the DNA double helix is a work of art. That is not to say that
individuals do not possess strengths in one area versus the other
or that they should never be classified as either a scientist or
an artist. The point is simply that in business and procurement,
successful leaders are able to tap into both sides of the
organization’s “brain” to make decisions that use both data
AND insight, logic AND instinct, and rigor AND creativity. Of
course, the different capabilities and skills must exist within the
team or at least be accessible to it. This makes it an inescapable
fact that building the right team and enabling it to perform is the
CPO’s key mission.
The idea behind the theme (and subtitle) of this year’s report was
not to pose the question of whether procurement is an art or a
science. Rather it is to examine how the unique elements of each
field can and should be applied in the pursuit of procurement
mastery. Procurement is a blend of art and science, combining
business, category, and supply expertise with leading technology,
data analytics, and associated value-based decision support
capabilities. (To be fair, the survey did ask the question and
94% of CPOs agree that procurement is a blend of both art and
science.) Procurement is a science because it deals with process
and application and it studies and tests its results; quantitative
analysis and precision are valuable tools of the trade. Procurement
is also an art because it involves the knowledge and insight from
the humanities and the social and behavioral sciences; nuance
and negotiation are critical to the craft.
14
© Ardent Partners Ltd. 2016
CPO Rising 2016: The Art and Science of Procurement
State of
1 The
the CPO
2
The State of
Procurement
3
4
Procurement
Performance
Strategies
for Success
5 Appendix
Procurement is a blend of art
and science, combining business,
category, and supply expertise with
leading technology, data analytics,
and associated value-based decision
support capabilities.
The Natural Order of Priorities
Whether CPOs view themselves as the conductor of an orchestra
or the head of a research lab, the teams they have assembled will
be focused on a few major areas over the next three years (see
Figure 5). Even as the pressure to deliver more savings continues
to recede, more CPOs (40%) are still focused on delivering it
over the next three years than anything else. In recent years,
improving and enforcing compliance levels and increasing the
number and impact of procurement-led innovation initiatives
have established themselves as top CPO priorities. But in 2016,
it is technology which has climbed back onto the list after a few
years away. Last year, 19% of CPOs had prioritized increasing or
improving process automation levels within their department; in
2016, that number is 30%, an increase of more than 50%. While
this year’s technology adoption numbers remain consistent with
earlier years, albeit slightly improved (see Figure 6), the scope
of technology projects and the number of business processes
considered as targets for process automation continue to grow.
“I am pushing heavily for technology changes in 2016. The need
to take paper out of our environment as well as the need for
automated, auditable workflow remains my #1 priority. I have
contracts and POs and am now pushing for ePayables, vendor
on-boarding, and supplier management forms,” said Julia Gosnell,
Director, Procurement & Corporate Services, Arch Mortgage
Insurance Company.
Figure 5: The CPO’s Top Priorities (2016-2019)
40%
34%
Savings
Processes
32%
30%
People
Technology
29%
28%
Compliance
Innovation
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Tools of the Trade
4
5 Appendix
Strategies
for Success
Figure 6: Technology Adoption and Plans
There is no profession where a true master tradesman
intentionally lays aside the core tools and equipment of his or
her craft – skill, creativity, and dedication cannot replace them.
While budget and resource constraints as well as perceived
complexity often hinder investment in supply management
technology, it has been clear for some time that some CPOs
simply do not consider these solutions to be essential to what
they are trying to accomplish. These CPOs are predominantly
from the baby boomer generation and, while mistaken, come
to their views honestly with careers that began well before
the solutions first launched 20 years ago (studies have shown
that technology adoption is less likely when it is introduced to
someone after they turn 30). The department that employed
these older artists was formerly known as purchasing and
it epitomized the back-office view of an antiquated and
highly tactical operation. The lingering question is if enough
competitive and professional pressure can eventually either drive
this cohort to actively pursue process automation or drive them
out of their procurement leadership positions entirely. Until then,
many of these “old masters” will continue to act and perform
like apprentices.
Currently Use
66%
ePayments
Supplier Performance Mgmt
Plan to Use
33%
52%
eProcurement
56%
Contract Repository
46%
ePayments (AP Automation)
Supplier Information Mgmt
Business Networks
Automated Spend Analysis
29%
35%
44%
34%
58%
eSourcing
Contract Authority
26%
29%
19%
26%
31%
19%
38%
46%
39%
31%
© Ardent Partners - 2016
The most mature of these solutions, eSourcing and
eProcurement, are now in place at a majority of enterprises
and interest in these solutions remains solid. But, change in the
procurement industry can be slow, sometimes painstakingly so.
Nonetheless, change in the procurement industry is happening.
For example, 55% of all procurement departments report that
they have an active cloud-based solution deployed, when less
than a decade ago, using the “cloud” was a largely unknown
strategy among procurement teams. There continue to be many
more forces driving CPOs towards automation, like the need
to scale operations and best practices more efficiently and
effectively and the opportunity to leverage value from big data.
Supply Management Solutions
The adoption of the different supply management solutions
(see Figure 6) continues slowly, despite the visibility, knowledge
capture, and efficiency benefits that successful users report.
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4
Strategies
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5 Appendix
Visibility: The Mother of Invention
Antonie van Leeuwenhoek1 (1632 – 1723) was a Dutch tradesman
and civil servant who began a new career as a scientist at a very
late age. Despite his late start, van Leeuwenhoek, in a relatively
short span of time, made many extraordinary discoveries,
including bacteria, blood cells, single-cell organisms, and
many other objects too small for the naked eye. The obvious
key to his success was driven by his first discovery – the
“modern microscope.” It helped to differentiate his research
methodology and to distinguish his research results from those
of his peers; he was able to literally see things that they could not.
By marrying unparalleled visibility with strong analytical capabilities
and process expertise, van Leeuwenhoek changed the course of
scientific history2 with discoveries so radical for his time that many
widely accepted beliefs were changed overnight. His work was so
historic and so prolific that he is commonly regarded as the “Father
of Microbiology.” Van Leeuwenhoek’s formula for success can be
defined as Visibility + Analysis + Process = Success.
When CPOs were asked to rate the impact that a long list of
external factors will have on the procurement profession over
the next five years, “supply management solutions” were
rated as the one most likely (83%) to have either a significant
or very significant impact. Innovation (82%) and supply risk
(77%) were the next highest-ranked factors. Additionally, 68%
of all procurement leaders believe that predictive analytics and
other “smart” technologies will have a similar impact on the
profession. Finally, Ardent Partners research now shows that
those that have adopted and successfully deployed a supply
management solution are nearly three times as likely to deploy
another complementary solution. Seeing is believing…
“Our 2016 plan is to implement both a
Sourcing suite and a supplier management
facility which will help us start contracting
online, better manage our risk profile, and
enable us to gain visibility into spend and
buying activity across a global business.”
This formula has direct applicability to today’s procurement
operations. Deliberate processes powered by rich insight
that is drawn from clear context seems much more likely to
succeed than other methods. As shown in Figure 7, enterpriselevel visibility into savings, spend, and performance is not
universally held today. The simple fact is that it is more difficult
to manage projects and allocate resources when faced with poor
– Nicola Dunne, Group Procurement
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related to pricing, compliance, risk, and supplier performance,
and it is the sound knowledge of supply markets, pricing trends,
and business requirements that help sourcing teams use spend
visibility to build and optimize sourcing pipelines for the greatest
potential value. By linking spend visibility directly to different
procurement processes, enterprises can ensure that important
decisions are made using the best available information. As
exciting new concepts like predictive analytics begin to enter the
procurement realm, the ability to mine big data with powerful
reporting and analytical capabilities will only become more
important. CPOs and other procurement leaders who attempt
to manage their operations blindly and without spend analysis
are guilty of procurement malpractice.
visibility into final results and uncertainty as to overall enterprise
objectives. Beyond that, the difference between identified savings
(75%) and both booked savings (58%) and implemented savings
(48%) has the potential to create a gap between procurement’s
perception of its impact and reality. In the past, these breaks
have undermined procurement’s credibility, most notably with
the CFO. These findings highlight a tremendous need for many
procurement organizations to improve their visibility into spend,
savings, and other key metrics. Fortunately, this necessity requires
no invention: spend analysis and supply management solutions
have been available in the market for more than a decade.
It is the ability to understand and analyze historical spend
information that helps organizations identify critical issues
Procurement People and Their Competencies
To achieve procurement mastery in the age of innovation,
today’s CPOs must develop and balance the creative (“art”)
and quantitative (“science”) capabilities of their organizations
to deliver maximum value in support of enterprise goals and
objectives. To do this, the CPO’s primary management task
is to make the procurement staff capable of organizational
performance and in doing so make sure that their strengths
are operational and their weaknesses are insignificant. This
can be challenging since every procurement operation is
composed of people with different skills, experiences, and
motivations. However, the capacity of individual staffers to make
contributions is as dependent upon the management of the
procurement operation as it is upon the underlying abilities of
the individuals.
Figure 7: Visibility into Savings, Spend, and Impact
Booked
savings
58%
Spend
under
management
54%
Visibility into
enterprise
objectives
Identified
savings
63%
75%
Total
spend
Implemented
savings
48%
49%
Financial
impact on
the business
49%
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Procurement
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“We need to hire good, smart people
with the right traits and values, and
then we must coach and train them
until complacency is recognized by all
as a sin, and the pursuit of perfection
— or at least excellence — becomes
the standard. After we do that, then
‘processes’ will improve as a cascading
and natural consequence.”
4
Strategies
for Success
5 Appendix
organizations over the last five years have significantly improved
in the area of internal collaboration, with two-thirds of groups
reporting strong collaboration with finance and the CFO in
2016. Conversely, these same organizations have room for
improvement when it comes to supplier collaboration with only
one in four reporting a strong level.
This year, Ardent Partners performed a more detailed analysis of
the specific staff skills in place at the average enterprise to get
to a deeper view into the underlying drivers of organizational
performance. The Ardent Partners’ Procurement Competency
Matrix (see Figure 8) looks at a list of many of the higher-level
competencies that a procurement staff or department should
have in place in order to execute well, including specific
procurement areas such as category management and
managing supply risk as well as more general skills like financial
analysis and presentations. The scores on the matrix represent
the average of all the scores provided by the participants in this
research effort. Respondents used a 1-to-4 scale (1 is poor; 4 is
excellent) to rate the competencies of their overall staff.
– CPO, Public Sector, United States
Procurement Competency Matrix
To help CPOs assess the makeup and capabilities of their
staff, this annual CPO Rising report has historically captured
the organizational capabilities around key areas such as
people, operations, and systems. For example, procurement
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3
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Procurement
Performance
Figure 8: Ardent Partners’ Procurement Competency Matrix
Satisfactory
Good
Excellent
1.0
2.0
3.0
4.0
SCIENCE
3.02
Sourcing
process
2.94
Transactional
procurement
2.59
Data analysis
2.32
Financial
analysis
Leveraging technology
to drive business value
Strategies
for Success
5 Appendix
One of the things that makes procurement such a fascinating
profession is that when a procurement team is fully engaged, it
touches nearly everything inside the enterprise. It also regularly
interfaces with suppliers and prospective suppliers. Procurement
responsibilities thus can range from the highly strategic and
complex to the highly tactical and straightforward. With almost
unlimited access to the enterprise, there are so many unique
opportunities to create value. To capitalize on the opportunities,
the team will need to draw upon a wide range of creative
and technical skills and experience. Roles and projects within
procurement can require broad skills while others benefit from
specialization or repetition.
Procurement Staff Capability
Poor
4
2.24
2.23
Cash management
Consider the broad and very different skills a sourcing lead
needs to use when working with the product team. The
collaboration might start with early stage prototyping and
continue through the launch of a highly technical product using
global suppliers and some contract manufacturing. Compare
those to the skills needed for someone in procurement
partnering with HR in the development of a 360-degree
contingent workforce management program. This collaboration
might involve reshaping how the current temporary workers —
including independent contractors, freelancers, and professional
services teams —
­ are engaged, sourced, and ultimately
managed. These two projects require very different skills from
each other and from someone doing PO processing, running
low-value, single-price auctions, or tracking contract compliance.
ART
2.63
Contract
management
2.62
Supply market
knowledge
2.59
Category
management
2.53
General project
management skills
2.51
Presentation skills
2.38
Business
consulting skills
2.34
Managing supplier
performance
Managing
supplier risk
2.22
© Ardent Partners - 2016
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“We still have a lot of opportunities
associated with improving the efficiency
of how we run our business – whether
that’d be next generation tools, to
considering what I call ‘right role, right
person, right location,’ which includes
potentially outsourcing or other
organizational models, to potentially
considering leveraging our third-party
providers for very specialized things”
4
Strategies
for Success
5 Appendix
highlight that procurement needs to draw on a very broad set of
skills and that the opportunities for improvement abound for the
average department.
Segmenting the competencies into those that may be classified
as more “technical” or “science-oriented” (the top six in
Figure 8), and those that are more “creative” or “artistic,” tells
essentially the same story. Neither are very strong and across
both disciplines the skills found in the average procurement
department could be greatly improved. Significant effort is
needed in many areas.
The details behind the Competency Matrix reveal that most
CPOs are dealing with teams that have opportunities to improve
across the board. They also show that many CPOs have teams
with sizable deficiencies. Fundamentally improving the team may
not be easy; but, it must be done. The procurement train has left
the station, with 2016 plans and teams in place. It now falls to the
CPO to decide on what to do and how to prioritize investments
as well as to identify the skills that will have the greatest impact
on near-term and future outcomes that will fundamentally
advance the organization. The state of procurement in 2016 is
strong, but with the right executive leadership and focus on
improving procurement competencies, it can be stronger next year.
– CPO, Fortune 100 Company
The scores shown in the Competency Matrix are neither
exceptional nor unsatisfactory and present a picture of a very
“lukewarm” set of skills residing within the typical procurement
department. Of the fourteen competencies measured, only
“sourcing process” received a Good rating. And while it is true
that none of the competencies scored less than Satisfactory,
three laggards — cash management, the ability to leverage
technology to drive value, and supply risk management —
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From Outputs to Outcomes: The Growth of a Global CPO
Ramsay Chu is the CPO at Rio Tinto, one of the few companies that he
considers “Global – with a capital G.” Today, Chu is mostly focused on
evolving procurement operations at Rio Tinto from the “Procurement 1.0”
model of optimizing cost, quality, and availability of goods and services
purchased (i.e., “outputs”), to creating value and efficiency (i.e., “outcomes”).
One by-product of this shift is a move away from transaction-oriented people
and processes that are focused on very singular results, like reduction of unit
cost and negotiating better contracts, to transformative, enterprise-wide
improvements. With this new mindset, freeing up working capital, improving
the balance sheet, and speeding up R&D to bring innovative ideas to market
are all top considerations. “It’s about impacting the value chain within the
company as well as the efficiency of the network of suppliers and partners that
The Astonomer
Johannes Vermeer3
you tie into,” said Chu.
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Chapter Three: Procurement Performance
It’s amazing what we have been able to achieve through competition and our new strategy.
Right now we’re working on deep space travel programs that would not be possible without tight
supplier collaboration.”
– Bill McNally, Deputy Chief Acquisition Officer (“CPO”), NASA
take years to achieve. It also makes a financial impact. Ardent
Partners research has found that for every new dollar that is placed
under management of the procurement department, the average
enterprise realizes a benefit of between 6% and 12% during the
first contract cycle. But, beyond any one metric, Ardent Partners
research has also shown that the pursuit of procurement
excellence can pay extraordinary dividends and is a wholly
worthwhile endeavor. This can be seen in the consistently
sizable advantage that Best-in-Class departments possess
across a number of key metrics.
This chapter is designed to enable the reader to do the following:
•
•
•
Benchmark their performance against industry averages and
understand how they are performing relative to the average
procurement department in the marketplace.
Understand the operational and performance metrics that define
Best-in-Class performance levels for procurement departments in 2016.
Understand the people, process, technology, knowledge
management, and agility levers that Best-in-Class procurement
departments use to outperform their peers.
Beyond Savings
For more than a decade, analysts at Ardent Partners have
challenged the use of savings as the sole or primary measure
of a procurement department’s (or CPO’s) performance
because doing so can diminish or constrain the total value of
what procurement contributes to an enterprise. In periods of
deflation, savings can appear to be a convenient procurement
The development of a Best-in-Class procurement operation is
an achievement that can have a tremendous impact on overall
operations and results. The ability to place roughly 90% of
spend under management and manage that spend very well is
no small feat. It is a laudable accomplishment and one that can
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3
The State of
Procurement
Procurement
Performance
metric, but there are simply too many factors beyond the control
of a procurement team that ultimately determine final savings
numbers for it to dominate the performance discussion. The
good news is that in 2016, only 7% of procurement departments
use savings as the sole measure of their performance. The list
of other metrics used by the other 93% of enterprises is quite
lengthy and the level of usage of each indicates that no real
consensus yet exists as to what the other top metrics should
be. But, that is fine because this industry works on a continuum.
It has taken years for the industry to move to a more balanced
approach to procurement performance; so, it may take a few
more before the methodology is standardized.
Impact on
cash
Internal
stakeholder
feedback
23%
Efficiency
Spend
(at or below
under
department management
budget)
© Ardent Partners - 2016
5 Appendix
“It does no good to be great at
unimportant things.”
33%
25%
Strategies
for Success
After savings, there are many top metrics that are used to
measure the procurement department’s overall performance
(see Figure 9). While there is no clear leader as to the second
most important metric, procurement’s impact on cash (35%)
and internal stakeholder feedback (33%) top this list. In 2012,
Ardent Partners developed the CPO Scorecard™ to be used as
a mechanism for CPOs to expand the performance discussion
beyond savings and institute an industry-standard framework to
better capture the nuances and complexities of procurementdriven value and results. Whether a CPO uses Ardent’s scorecard
or some other approach, the metrics that are ultimately tracked
should be linked to procurement activities that support the
larger executive agenda and overall business objectives. If
it does not matter to the leadership, it should not be a top
priority for the CPO. What does matter is that the metrics are
unambiguous, measurable, tied to a specific time-frame, and
have clear accountability.
Figure 9: Top Metrics (Besides Savings) to Measure Procurement
Performance
35%
4
– Heidi Landry, CPO, Dow Corning
23%
Contract
compliance
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The 2016 Procurement Benchmarks
4
Strategies
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5 Appendix
to get resources, budget, and what you need in order to go
do it.” Whether a CPO is ready to place that bet or not, more
spend will not simply fall under the team’s influence without a
deliberate plan to get it.
The 2016 Procurement Benchmarks (see Table 1) represent the
performance and operational results of the average procurement
department in the market today. The average procurement
department manages 64% of total enterprise spend, a number
that has increased only slightly over the past few years-remaining relatively flat. Only one in five CPOs feels pressured
to place more spend under management in 2016. And, roughly
that same small percentage of CPOs have prioritized increasing
the percentage over the next three years. Technology gaps,
budget constraints, and talent challenges may have some
CPOs questioning how aggressive they can and should get in
attempting to influence more spend. Nonetheless, many CPOs
like Thomas Linton, Chief Procurement and Supply Chain Officer
at Flextronics, International, believe in the power of betting on
yourself and your team to elevate your company to the next
level of performance. Linton has on a number of occasions put
himself on the line by promising internal stakeholders that he
and his team can deliver specific results if they provide him
with a defined set of resources. As he says, “You have to walk
in and say, ‘Look, I have enough confidence in the professional
capabilities of my people, and of what professional procurement
is, to know that we’re going to take X percent out of this in the
next 12 months or next 24 months’ and then use that as a lever
The bear market (lower or falling prices) in commodities helped
procurement departments save 7.1% in 2015, a number that is
18% more than the 2014 number4. The 7.1% savings figure also
exceeded the industry’s 2015 target of 6.6% by almost 8%5. It
appears that, in recognition of the soft pricing in most major
commodities, the expectation is for sourcing teams to capture
higher savings in 2016. This year’s savings target for procurement
averages 7.4%, a move up from the multi-year lows that were
seen last year.
The other 2016 Procurement Benchmarks closely resemble their
2015 predecessors. Sourcing programs, on average, continue to
show consistent activity, with 51% of addressable spend sourced
last year. One of the bets that CPOs may want to consider placing
in 2016 is the decision to ‘go long’ and negotiate longer term
contracts for commodities that are at or close to their multi-year
lows. Only a few years ago, sourcing was consistently a top
strategic priority for CPOs; but with sourcing pipelines generally
flush and teams engaged and executing consistently, CPOs have
turned their focus to other areas.
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In 2015, Best-in-Class procurement
organizations contributed an extra
3.12% in total savings on every dollar of
enterprise spend. This means that for
every billion dollars in total enterprise
spend, the Best-in-Class, on average,
contributed an additional $31.2 million
dollars in savings, a simply remarkable
finding and a compelling business
advantage.
5 Appendix
Strategies
for Success
catalog-based orders. Finally, a metric that should gain in
significance for procurement teams as they continue to scale
operations and try to operate within tight budgets, is enabled
suppliers. In an age of global commerce, connectivity between
buyers and suppliers that is enabled by technology will be a
critical piece of the global business networks and supply chains
that unify the world’s enterprises. In the short-term, the reason
to enable suppliers is as simple as significantly lower transaction
processing costs.
Table 1: The 2016 Procurement Benchmarks
Metrics
Compliance levels remain low, but this is no longer a surprise.
It should, however, be a cause for concern with only 57% of all
spend and only 62% of all transactions compliant with contracts.
As this report notes every year, Ardent’s research on contract
compliance has shown that every non-compliant dollar of spend
costs the enterprise an extra 12% to 18%. The hard cost of noncompliance adds up fast. From an operational perspective,
catalog-based spend and PO-based spend give procurement
departments certain assurances about the supplier source
and the decision-making process involved in the purchase.
Enterprises, on average, have 63% of their total spend linked
to a purchase order, but only 20% of their spend is linked to
Market Average
Spend Under Management
64%
Savings 2015 (Actual)
7.1%
Savings 2016 (Planned)
7.4%
Addressable spend that is sourced
51%
Spend that is contract compliant
57%
Transactions that are contract compliant
62%
Contracts stored in a central, searchable repository
62%
Catalog-based spend
20%
PO-based spend
63%
Enabled suppliers
34%
© Ardent Partners - 2016
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Best-in-Class Performance
4
Strategies
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5 Appendix
Figure 10: Spend Under Management – Best-in-Class vs. All Others
Ardent’s analysis in this report determined Best-in-Class
procurement performance by identifying the top 20% of
performers in the “spend under management” metric. These
leaders all manage more than 85% of spend. As a group, they
have placed, on average, 91% of spend under the management
of the procurement organization, a full 59% more than their
peers. Ardent uses spend under management as a starting
point in the development of its Best-in-Class Framework and to
drive additional discussion and deeper analysis of strategies,
capabilities, and results.
91%
Best-In-Class
The Best-in-Class Advantage
The Best-in-Class procurement advantage (see Figure 10)
derives from the ability of these market leaders to manage,
on average, 91% of total enterprise spend. As the Director of
Supply Chain (and CPO) in the Oil Services Industry said in his
interview for this report, “Of course we focus on savings – that’s
always important. But, one thing that we talk a lot about is spend
under management – how much spend do we influence. We’ve
made some real significant progress over the years and we are
now a little over 90%.”
57%
All Others
© Ardent Partners - 2016
The Best-in-Class are accustomed to higher standards and
achieved a savings rate in 2015 that was, on average, 13% higher
than the All Others segment.
It is important to note that the Best-in-Class, not only save more,
they also do it on a much larger spend portfolio. This means
that the financial impact or advantage driven by Best-in-Class
performance can be extraordinary. Recall that in 2015, Best-inClass procurement organizations contributed an extra 3.12%
in total savings on every dollar of enterprise spend. For every
billion dollars in total enterprise spend, the Best-in-Class, on
average, would contribute an additional $31.2 million dollars, a
simply remarkable finding and a compelling business advantage.
Best-in-Class CPOs are no longer pressured to manage more
spend (in fact, no CPO in this maturity class selected it as a
pressure), but they do feel significant pressure to manage it
better. This can be seen in the higher savings targets (17%
higher, on average) that this leading group has for 2016.
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Part of the higher savings is driven by the very high sourcing
volumes that the leading procurement teams report – 67% of
addressable spend. Another contributing factor to that savings
advantage is captured via the higher compliance rates of the
Best-in-Class, which are 27% higher. The Best-in-Class also hold
slim advantages over their competitors with PO-based (8% higher)
and catalog-based spend (12% higher). Finally, they have
enabled 23% more suppliers, on average, which helps drive
greater efficiencies.
Best-in-Class Levers for Success
Best-in-Class enterprises have shown that investments in
improving internal systems, processes, and staff, and enhancing
external relationships with key partners are proven paths to
better performance. The Best-in-Class have differentiated
themselves with superior performance across the primary
procurement performance metrics above (see Table 2) and have
utilized the specific capabilities and technologies noted below
to a greater degree and impact to gain their advantage in the
marketplace.
Table 2: The 2016 Best-in-Class Procurement Framework
Best-in-Class People Levers – The Competency Matrix
(see Figure 8) looked at 14 distinct skillsets of the procurement
department. The Best-in-Class had higher ratings for every
competency on the list than the other survey responders.
Notably “managing supply risk” and “category management”
both scored 29% higher. Additionally, the Best-in-Class had five
competencies that rated between “good” (3.0) and “excellent”
with “sourcing process” (3.5 out of 4) scoring the highest of
all areas. The competitive class, “All Others,” had only two
areas rated as high as 2.9, but no other above 2.55. From a
collaboration standpoint, Best-in-Class CPOs were 93% more
likely to rate the level of collaboration with line-of-business
leaders as strong (94% vs. 49%) and 39% more likely to have
a tighter partnership with other business functions. Best-inClass CPOs were also 80% more likely to state that “supplier
performance has improved over the last three years because
of work done by procurement” (77% vs. 43%).
Metrics
Best-in-Class
All Others
Spend Under Management
91%
57%
Savings 2015 (Actual)
7.7%
6.9%
Savings 2016 (Planned)
8.4%
7.2%
Addressable spend that is sourced
67%
47%
Spend that is contract compliant
69%
54%
Transactions that are contract compliant
76%
60%
Contracts stored in a central, searchable repository
76%
58%
Catalog-based spend
22%
19%
PO-based spend
67%
62%
Enabled suppliers
37%
30%
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Best-in-Class Process Levers – Given the breadth of their
spend coverage, it is not a surprise to see that Best-in-Class
organizations’ processes are more standardized (particularly
strategic sourcing) and more automated across the entire
procurement operation. The Best-in-Class approach their
processes in a more holistic manner and are more than twice
as likely to have their source-to-settle process entirely linked
(53% vs. 24%). In 2016, the Best-in-Class are 83% more likely
to have a supplier performance program (56% vs. 30%) and
essentially three times more likely to have a risk management
program (67% vs. 23%). But, for the Best-in-Class, having
a program or process in place is simply the start. These
groups gain tangible value from their investments in process
improvement, training, and technology. For example, their
supplier programs are 43% more likely to have had an impact
on overall business performance over the last three years.
4
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5 Appendix
used proficiently, offers a multiplier effect on a procurement
team’s efforts on both operations and results. How else can you
explain a sourcing team that competitively sources 67% of its
addressable spend? The Best-in-Class, on average, source at this
level; 82% of them use an eSourcing tool to help them achieve
this impressive sourcing volume. And, as noted above, they save
more, in aggregate, which can translate into millions more in
savings.
The Best-in-Class also report average savings on their eSourcing
projects that are 7% higher than the results of their competitors
(9.8% average savings on eSourcing projects vs. 9.1%). In fact,
their usage of the different technologies can help to explain
many of the advantages that they hold over their peers:
• Automated Spend Analysis: The Best-in-Class are 1.4 times
more likely to utilize this solution than All Others and can
point to significantly better visibility into enterprise spend
and into the impact of their performance as a result.
Best-in-Class Technology Levers – When it comes to technology,
these leaders do more than simply drive value from their
investments. In the case of technology, they actually use their
supply management solutions as a centerpiece to their strategy
and as an overall backbone of their operations. Across the
source-to-settle process, the Best-in-Class use automation
more frequently and more effectively (see Figure 11). In each
primary application or business sub-process area, the frequency
of Best-in-Class usage exceeds 26% and averages 74% across
the full spectrum. Technology, when it is well-deployed and
• eSourcing: The Best-in-Class are 56% more likely to utilize
this solution. As noted above, the Best-in-Class saved
more last year than their peers and expect to repeat that
performance in 2016. Among many things, these solutions
help sourcing teams scale their programs, develop and
share best practices, and retain category and supply market
knowledge. They can also be very effective in helping to
drive price discovery and efficiency.
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Procurement
Performance
59%
25%
eSourcing
59%
Contract Repository
43%
Automated Contract Authoring
26%
52%
Supplier Performance Management
Business Networks
41%
71%
eProcurement
Supplier Information Management
82%
53%
25%
16%
65%
29%
28%
22%
Strategies
for Success
5 Appendix
suppliers, can have a direct impact on products and services,
and therefore sales, more enterprises want to proactively,
but efficiently, manage these relationships to improve
performance. For most procurement organizations, supplier
management is an area that remains on the radar screen but
just out of the near-term scope. This is newer territory for the
Best-in-Class too. But the leaders, nonetheless, are farther
along in the development of their programs, exceeding
their peers in scope, maturity, and impact. The Best-in-Class
adoption rates of these solutions (83% higher for Supplier
Information Management and 156% higher for Supplier
Performance Management) have helped them achieve their
head start.
Figure 11: The Best-in-Class Technology Advantage
Automated Spend Analysis
4
Best-in-Class Usage
All Others Usage
• eProcurement: At the metrics level, the Best-in-Class
advantage in PO- and catalog-based spend may not appear
overwhelming; but, do not miss the forest for the trees.
eProcurement, adopted 36% more frequently by the Bestin-Class, is a workhorse solution that automates and guides
the internal requisition process towards contracted suppliers
and supplies. The systems allow procurement organizations
to better capture the spend they identified from sourcing,
monitor and improve compliance, and improve their visibility
into spend. These and other factors contribute to the much
higher percentage of spend under management.
© Ardent Partners - 2016
• Contract Repositories and Authoring: These tools help
users improve compliance and manage suppliers, and risk.
The Best-in-Class use these solutions to a greater degree
(36% and 58% more, respectively), report significantly lower
maverick spend figures, and are more than twice as likely to
run compliance audits to stem savings leakage.
• Supplier Management: Increasingly, enterprises are realizing
that the competitive landscape requires strong partners and
allies to succeed. Since some suppliers, particularly strategic
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• Business Networks: These web-based platforms that enable
interconnected buyers and sellers to trade, communicate, and
collaborate with each other are adopted by the Best-in-Class
26% more frequently. While not universally adopted, those
that do use these solutions see transaction benefits across the
procure-to-pay process for POs, invoices, and payments.
Seventy-seven percent (77%) of Best-in-Class users of business
networks state that their supplier communication has improved;
69% of this same group state that their supplier collaboration
has improved.
4
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collaborative, while technology usage is significantly higher, with
an emphasis on cloud-based solutions; reporting and analytics
were more developed and useful too. Performance management
was also considerably more balanced. The research does not
indicate that the Best-in-Class have achieved broad-based agility;
it does, however, indicate that they are building towards it.
“Moneyball” for Sourcing: Using Big Data to Drive Results
In professional baseball, “Moneyball” refers to the practice of using actual
performance numbers to build winning teams. Today the term is shorthand for
Best-in-Class Agility Levers – The 2015 edition of this annual
report6 made the case that “agility will define the next wave of
procurement success” and that CPOs should invest resources
to expand the level of agility that exists across the critical areas
that drive procurement operations and performance. This 2016
research study surveyed respondents to assess their agility across
the critical areas of the procurement operation: organization,
processes, strategies, technology, and performance. Many of the
agile characteristics are described in the “Levers for Success”
sections above, but, across each of the primary areas, the Bestin-Class were found to be more agile and generally betterequipped to adapt to change. Their organizations are more
tightly aligned to enterprise objectives while their allocation
of resources is more fluid. They have developed processes
that are effective at accomplishing desired tasks, and do so
more efficiently. Strategy development is more proactive and
using data analytics to uncover hidden value. At the CPO Rising 2016 Summit in
March, Jacob Gorm Larsen, Head of Digital Procurement at AP Moller-Maersk
Group, outlined how his company’s “Moneyball for Sourcing” initiative analyzes
the data from the thousands of eSourcing events they conduct each year to
create models that help identify important inputs to the sourcing strategy for
new opportunities. The team at Maersk performs sophisticated data analysis and
attempts to answer questions like “what day is the best day of the week to run an
eAuction?” (Answer: Tuesday) and “is there a specific number of invited suppliers
that drive the best results?” (Answer: eight).
Maersk is using its own data to take its already highly advanced sourcing
strategies to the next level. Larsen also said he sees much greater potential in
data-driven decision making in the future and that Maersk is only now “getting
its feet wet” with the findings from their data analysis. Maersk plans to invest
time and resources in the continued development of this program and is teaming
up with partners to run Moneyball analysis on larger data sets. Play ball!
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Chapter Four: Strategies for Success
One can have no smaller or greater mastery than mastery of oneself.”
– Leonardo da Vinci
Procurement Mastery
According to Wikipedia, a museum is “an institution that cares
for (conserves) a collection of artifacts and other objects of
artistic, cultural, historical, or scientific importance.” The NEA.
gov site says, “They can provide memorable, immersive learning
experiences, provoke imagination, and introduce unknown
worlds and subject matter.” Museums serve many purposes,
cover many domains, and present their collections in many
different ways. No matter their differences, most museums seek
to bring people together for enjoyment, learning, and discovery.
In a way, this annual CPO Rising Report and its associated
website and events were designed to function as a living,
frequently digital, museum for the procurement profession.
By mining procurement’s past, chronicling its present, and
highlighting its advances through deep collaboration and
conversation with its participants, it is hoped that we can
collectively prescribe its future. CPO Rising is a tradition and
Ardent Partners hopes it will be viewed as unlike any other.
The walls of the elite art museums around the world are covered
with the works of the leading artists of their periods, literal
masterpieces by artistic masters. Today’s Best-in-Class CPOs
should be truly proud of their body of work. It stands out from
the crowd and deserves recognition. This recognition has
been earned through inspiration, perspiration, and dedication.
While many of today’s procurement virtuosos can be viewed as
true masters of their craft, with perhaps a few exceptions, the
organizations that they manage are not works of art, but rather
works in progress, with enormous capacity for improvement.
Composer, conductor, and curator in one, today’s CPO must
write the procurement team’s “score,” hire and rehearse the
orchestra, and then take center stage to lead it.
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In procurement, organizational
mastery remains an ideal for
most. When asked to describe
the keys to departmental
mastery (see Figure 12), CPOs
listed agility (45%) as the most
important element. As business
and innovation accelerate, the
ability to adapt to changing
requirements and market
dynamics will only become
more important. Agility will
define tomorrow’s procurement
Vitruvian Man (1490)
leaders. Next, CPOs believe
Leonardo da Vinci
that understanding the value
of collaboration (41%) will drive procurement mastery. The unique
nature of the procurement function provides its workers with unique
access and broad exposure to different business and functional
stakeholders. To excel, collaboration must be king. Procurement
mastery also demands strong, visionary leadership that includes
4
5 Appendix
Strategies
for Success
CPOs but also their lieutenants. Procurement leadership teams,
particularly those with globally dispersed operations, can function as
direct extensions of the CPO and provide the field leadership that
helps win the small battles and prepares the team for larger conflicts.
The right CPO, leadership team, and staff together can “paint a
perfect picture and bring to life a vision” (in one’s mind).
Figure 12: The Elements of Procurement Mastery
Agility
45%
7
Business and
communication skills
41%
Collaboration
skills
39%
24%
26%
Strong
leadership
Hire the
right talent
© Ardent Partners - 2016
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General Recommendations
4
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5 Appendix
• Weave agility into the organization’s fabric. Continue the
procurement department’s momentum by developing a
forward-looking Agility Agenda that embeds the organization
with agile and innovative characteristics while also
maintaining discipline and efficiency. This must be done if
the department is going to keep pace with the fast-changing
needs of their enterprises and what will certainly be more
volatile market conditions in the future.
Best-in-Class procurement departments, on average, manage
91% of enterprise spend and they do it more efficiently and
more effectively than their competitors. They think about their
processes more holistically and utilize technology to drive
superior visibility, collaboration, and performance. They also
hold a sizable agility advantage. Ardent recommends that
CPOs and procurement departments seeking to improve their
performance utilize the aforementioned “Levers for Success”
plus the following strategies and approaches:
• Develop a near-term and long-term big data strategy.
Companies like Maersk with its “Moneyball for Sourcing”
program (see page 31) that mines its system data to find
new ideas and value are at the leading edge of procurement
today. Soon, a majority of procurement teams will have
similar big data programs in place. Do not fall behind.
• Stay focused and vigilant throughout 2016. Success
breeds success, but success also breeds complacency.
Complacency kills innovation and the adventurous spirit; it is
the companion of mediocrity. Reduced pressure on results,
savings or otherwise, should not lull procurement leaders and
their teams into a false sense of security. Whether it is preparing
for the next threat or simply driving towards Best-in-Class
performance, much work remains to be done... start today.
• Ensure that department objectives are mapped to the
primary goals and objectives of the enterprise. It seems
almost too simple to say that ‘if the executives in the
enterprise are not focused on something, it is probably not
important.’ Unfortunately, it still needs to be said. A large
number of procurement organizations struggle to both see
and understand the current and future objectives of the
business. CPOs must work to bridge the organizational
gaps that marginalize their efforts.
• Demand greater investment in people and technology.
As Ardent’s research showed in Chapter 3, attaining a
Best-in-Class performance level can drive tens of millions of
dollars in extra, quantifiable value. The findings more than
justify a sizable investment in procurement staff and supply
management solutions in 2016 and 2017.
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• Map staff bonus and work objectives to specific department
objectives. Design variable bonus programs that allow
executive management’s objectives to cascade down to
procurement teams and individuals by linking activities
and drivers to specific outcomes. Literally connect the dots
between procurement’s key processes and activities and the
enterprise’s strategic goals. Then, do the same thing for staff
activities and department outcomes.
4
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the organization by exposing managers to the CPO’s decisionmaking process and empowering the staff to lead from the field.
• Regularly assess the strengths and weaknesses of the
organization’s capabilities. Perform regular diagnostic
reviews of the organization from top to bottom. Then,
prioritize energies and investment to improve those areas
that offer the greatest leverage or upside.
• Develop and foster the skills that enable staff to accomplish
the things that support primary business objectives. For
example, after savings, procurement’s top performance
metric is measuring its impact on cash. And yet, Ardent’s
Procurement Competency Matrix (see Figure 8) highlighted
“cash management” as one of the lowest-rated skills in the
profession.
• Expand and automate the sourcing program. Best-in-Class
sourcing levels and higher savings rates are supported by the
fact that 82% of these groups have an eSourcing solution in
place. If an eSourcing solution is not in place, change that. If
one is in place, start driving and/or mandating its usage.
• Establish role-based competency matrices for your
organization. A competency matrix helps professionals
and their managers understand and communicate what the
required capabilities are for a specific job role and thereby
help identify, develop, and deploy the people with the
right skills into the most suitable positions. It also helps
organizations and individuals understand where current
gaps exist between the needs of a position and the person
in its place. Use the matrices to help assess and develop
individual and collective skills while presenting clearer career
paths for your staff. Leverage Ardent Partners’ Procurement
Competency Matrix (see Figure 8).
• Establish specific goals and objectives for all major projects.
Projects are like teenagers; when left to their own devices,
they can easily stray. Set proper boundaries that are both
clear and reasonable so that the project can grow and
blossom into something everyone can be proud of.
• Where possible, use the “Commander’s Intent.” Objectives
are useful tools that should point the direction; but objectives
that constrict do harm. Build the leadership capabilities in
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• No “network-free” lunches. President Eisenhower said that
“Confidence, is gained, above all through the development
of friendships.” CPOs of large organizations should never
eat lunch alone. Whether it is used to develop stronger
connections with staff or to build executive trust, lunch can
be a valuable time to forge bonds and agendas.
• “Check your alignment.” If the CEO does not practice
Commander’s Intent with the CPO, it can be difficult for
procurement to understand the strategic direction of the
business. The CPO should make it a habit to regularly
interact with key executives and constituents to understand
how the business is changing and what the organization
needs to do to be ready for that change.
• Develop and maintain a spend under management
“pipeline.” Ardent Partners believes that procurement
organizations, at any maturity level, should focus on this
metric and have a strategic plan to increase it each year.
• Manage the department holistically. Procurement
management has to encompass the entire process. From
source to settlement, it has to be operational and it should
be viewed and managed holistically. People, like water,
flow down the path of least resistance, so executives must
constantly challenge themselves to embrace the entire
process (not just their areas of personal interest or passion)
and focus on the results across the entire value chain.
• Cross-pollinate skills and staff. Rhythm depends on math,
harmony draws on creativity. When combined correctly,
the two can make great music. Since every procurement
organization is composed of people with different skills,
knowledge, experiences, and motivations, CPOs and all
procurement managers must work to hire, develop, and
blend the art and science skills that it needs to thrive and
successfully support the business.
• Use any changes in how the procurement department’s
performance is measured to proactively change the way in
which the department is managed. As the CPO Scorecard™
takes hold and businesses move away from using savings
as the sole measure of procurement performance, many
CPOs have or may soon have the opportunity to proactively
redefine and formalize how their departments are measured.
They should also use the new framework to determine how it
should be managed going forward.
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economist, Spencer applied this concept to the business world,
surmising that only the companies that were most adept at
competing for and garnering the limited resources in a given
environment would survive. In this context, it is incumbent
upon CPOs to pull all the levers that drive productivity and
results. They must build agile organizations that are nimble and
responsive to the changing needs of the business and shifts in
supply markets.
Since the Great Recession began in 2008, 165 companies have
been removed from the S&P 500, a U.S. stock market index
based upon 500 large companies. Some of the companies were
acquired for huge premiums, but many others simply failed or
were surpassed. In a span of eight years, exactly 33% of the
index has turned over. This makes Charles Darwin’s most famous
work, The Origin of the Species, as relevant today as when it
was published in 1859. In this book, he introduced his theory of
natural selection, perhaps the foundational principle of all life
sciences today.
But, whether it is the opportunities that lie in organizational
change and skills development or the necessity to succeed that
drives the basest survival instincts, those CPOs who not only rise
to meet today’s challenges but use these challenges as a driving
force to empower their teams and impact their enterprise will be
better positioned for long-term survival…. and long-term success.
It was, however, a contemporary of Darwin’s, the British
economist, Herbert Spencer, who first coined the phrase ‘survival
of the fittest’ to summarize Darwin’s revolutionary thesis. As an
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Appendix
About the Author
Prior to becoming an industry analyst, Andrew developed,
packaged, deployed, and used supply management solutions on
behalf of enterprises in the Global 2000 while working for Ariba
and Commerce One. Additionally, his experience in strategic
sourcing (where he managed sourcing projects totaling more
than $500 million in aggregate client spend), business process
transformation, and software implementation provides a “realworld” context for his research and writing.
Andrew Bartolini is a globally recognized
expert in sourcing, procurement,
supply management, and accounts
payable. For the last 17 years, Andrew
has focused his research and efforts
on helping enterprises develop and
execute strategies to achieve operational
excellence within their procurement and
finance departments. Andrew is also
Andrew Bartolini,
the publisher of CPO Rising, the news
Chief Research Officer, Ardent Partners
and research site for Chief Procurement
Officers and other procurement leaders (www.cporising.com).
Andrew has been named a “Pro to Know” by Supply and
Demand Chain Executive multiple times and holds a B.A. in
Economics from The College of the Holy Cross and an M.B.A in
Finance from Indiana University. He welcomes your comments at
[email protected] or 617.752.1620.
Advisor to corporate executives and leading solution providers
alike, Andrew is a sought-after presenter, having lectured and
presented more than 250 times in eight different countries.
Over the past decade, Andrew has benchmarked thousands
of enterprises across all facets of their supply management
operations and his research has been used as part of the Supply
Chain/Management curriculum at several US universities. He
actively covers the technology marketplace as well as trends
in sourcing, procurement, supply management, and accounts
payable and has been published or quoted in leading business
publications including The Wall Street Journal, Business Week,
Investor’s Business Daily, Forbes, and Fortune, as well as the
major trade publications focused on procurement and finance.
About Ardent Partners
Ardent Partners is a Boston-based research and advisory firm
focused on defining and advancing the supply management
strategies, processes, and technologies that drive business
value and accelerate organizational transformation within
the enterprise. Ardent also publishes the CPO Rising and
Payables Place websites. Register for exclusive access to (and
discounts on) Ardent Partners research at ardentpartners.com/
newsletter-registration/ and join its LinkedIn Group.
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Research Methodology
4
Strategies
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5 Appendix
Report Demographics
Ardent Partners follows a rigorous research process developed
over years spent researching the supply management market.
The research in this report represents the web-based survey
responses of 331 CPOs and other procurement and business
leaders captured in January through March, 2016 as well as
direct interviews with 30 CPOs and procurement leaders (19
of whom took the survey). These 331 participants shared their
strategies and intentions, as well as their operational and
performance results to help us define Best-in-Class procurement
performance and understand what levers the leading groups pull
to obtain their advantage. Nearly 140 of the total participants
shared some personal insight and commentary to help provide
greater context to the results. This primary research effort was
also informed by the experience and analysis of the report
author and the entire Ardent Partners research team. Complete
respondent demographics are included below.
The research in this report is drawn from respondents
representing the following demographics:
Job Function: 89% procurement; 4% finance; 2% supply chain;
5% other
Job Role: 48% VP-level or higher; 24% director-level; 23%
manager-level; 5% staff-level
Company Revenue: 77% Large (revenue > $1 billion); 12% Midmarket (revenue between $250 million and $1 billion); 11% Small
(revenue < $250 million)
Region: 64% North America; 30% EMEA; 6% Asia-Pacific
Industry: More than 25 distinct industries are represented.
Manufacturing, Oil and Energy, Pharma, CPG, and Financial
Services are the largest industries in the survey pool; no industry
represents more than 13% of the overall survey respondents.
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CPO Rising Hall of Fame – Class of 2016
Established in 2016, The CPO Rising Hall of Fame inducts each new class during the annual CPO Rising Summit. Inductees are procurement leaders who have differentiated
themselves and their organizations by a blend in leadership in innovation, executive stewardship, process excellence, and dedication to their craft. Up to five members may
be inducted each year and Ardent Partners analysts, select industry luminaries, and current Hall of Fame members are eligible to vote on nominees.
To be considered for the Hall of Fame, candidates must have over 20 years of work experience in procurement. They must possess a proven track record of success across
a variety of performance determinants and be a supporter of innovation in the field of procurement. Above all else, they should be viewed as thought leaders that have
consistently pushed the industry forward for a number of years.
Ardent Partners is pleased to announce the CPO Rising Hall of Fame Class of 2016:
•
Gregg Brandyberry, Pharma CPO and Fearless Technology Innovator and Adopter
•
Tim Cook, Former CPO/COO and Current CEO, Apple
•
Harold “Hal” Good, Public Sector CPO and Procurement Activist
Ardent Partners congratulates each of these prolific leaders on their achievements and looks forward to beginning the nomination process for the “Class of 2017” (awarded
at The 2017 CPO Rising Summit in Boston - Fall, 2017).
Visit events.cporising.com and ardentpartners.com or contact the report author for more information.
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Industry Standard “Fine Print:” The information contained herein has been obtained from
sources believed to be reliable. Ardent Partners, Ltd. disclaims all warranties as to the accuracy,
completeness, or adequacy of such information. Ardent Partners, Ltd. shall have no liability for
errors, omissions, or inadequacies in the information contained herein or for interpretations
thereof. The contents expressed herein represent Ardent Partners’ best analysis at the time and
are subject to change without notice.
© 2016 Ardent Partners, Ltd. All rights reserved. Reproduction and distribution of this publication
in any form without prior written permission is forbidden. Solution providers and consultancies
should take special note that Ardent Partners reserves the right to seek legal remedies including
injunctions, impoundment, destruction, damages, and fees for any copyright infringement
(which includes but is not limited to usage of any Ardent Partners content in company collateral,
presentations, and websites) in accordance with the laws of the Commonwealth of Massachusetts
and the United States.
Sources:
1, 2.
Antonie van Leeuwenhoek and Johannes Vermeer were born in the same town in the Netherlands in 1632 and lived in homes only a few hundred
feet apart. They were both prominent participants in a revolutionary period of artistic and scientific discovery. Their lives, apparent friendship
(van Leeuwenhoek is thought to be the model in The Astronomer), and their works represent a great intersection of art and science.
3, 7.
The Astronomer and The Vitruvian Man as published in this report are both faithful photographic reproductions of a two-dimensional, public
domain work of art. Each work is in the public domain in its country of origin and other countries and areas where the copyright term is the
author’s life plus 100 years or less. These photographic reproductions are therefore also considered to be in the public domain in the United States.
4.
CPO Rising 2015: The Agility Agenda; Ardent Partners, March, 2015
5.ibid
6.ibid
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