CFOs question performance and benefits delivered by procurement teams

In a combined initiative designed to bring common value management visibility and practices to the procurement profession, three organisations – The Chartered Institute of Purchasing and Supply, A.T.Kearney and the Institute for Supply Management – have issued the results of the inaugural ROSMA Performance Check Report.

The Return on Supply Management Assets (ROSMA) Performance Check Report was developed to establish a uniform measurement of procurement’s value delivery to a given organisation. Entitled ‘Building the Brand of Procurement and Supply’, the report finds that leading procurement teams are indeed delivering significant value to their organisations.

However, without a credible standard allowing companies to consistently track and score procurement activities, many CFOs are now beginning to question the performance of – and the benefits delivered by – their procurement teams.

In what is an independent survey of CFOs and financial function leaders, the extensive study highlights that only 10% of procurement functions have established recognition with their CFOs regarding how procurement contributes value to the host business and that the benefits are both real and measurable.

The report is distilled from more than 400 completed, qualified and accepted cumulative benchmarks along with over 170 submissions focused on 2013 results.

Contributors participated in the benchmarking through ROSMA Performance Check gateways located within the CIPS and ISM websites as well as via A.T.Kearney’s 2014 study entitled: ‘Assessment of Excellence in Procurement’.

A.T.Kearney also contracted independent research to address the CFO community’s view of procurement.

The ROSMA Performance Check Report was developed to establish a uniform measurement of procurement’s value delivery to host organisations

The ROSMA Performance Check Report was developed to establish a uniform measurement of procurement’s value delivery to host organisations

Joe Raudabaugh, A.T.Kearney partner and co-author of the ROSMA Performance Check Report, stated: “There are many opportunities to change the brand of procurement across the profession and within our enterprises, and to attract, develop and sustain best athlete-calibre talent. Adopting value management practices is necessary for the future.”

David Noble, Group CEO at CIPS, noted: “There’s no doubt that the profession has to be seen as supporting the strategic aims of the enterprise and to have relevance to its goals and successes. We must be able to demonstrate value in a quantitative way.”

Focus on the main study findings

The inaugural ROSMA Performance Check report findings were developed through the survey responses of hundreds of companies. ROSMA is a revolutionary performance measurement standard that’s helping companies around the world to understand and measure how procurement contributes financially to the business.

Key findings of the new study are as follows:

• Top-quartile performers are reporting hard financial results in excess of seven times their costs and investment base in procurement, providing a strong basis for reinvestment and recognition. These leading procurement functions generate nearly £1 million in financial benefits per procurement employee each year

• Middle-tier performers are accretive, typically generating four-to-five times the investment and cost of their supply management assets, including people and technology, but they have not improved their productivity since tracking began in 2011. Bottom quartile teams are dilutive with financial benefits that do not cover the cost of and investment in their organisations

• Most organisations don’t have the reporting and tracking capabilities to provide ongoing and accurate visibility of procurement’s value-creating activities. They simply do not have a grasp of – and therefore cannot manage – their resources to optimise them with the same level of precision as is typically the case in other functions

• As noted earlier, the independent research that was conducted with CFOs as part of the overall study showed that only 10% of procurement functions have captured the respect, understanding and mindset of their financial colleagues regarding the value they contribute. Almost 15% are ‘out of mind’ or ‘inconsequential players’ to the CFO community while 75% have mixed and yet-to-be developed ‘brands’.

Tom Derry, CEO at the Institute for Supply Management, said: “With ROSMA Performance Check, we now know what world class performance looks like. Our challenge as a profession is to make sure that we are not a drag on performance, but rather a driver.”

To read the full ROSMA Performance Check Report visit: http://www.cips.org/rosma

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