@Revolution:Global Business News

New Economy, Leadership, Entrepreneurship, Management, Global Business

Rsearch & Thinking

Posted by iBlog on February 6, 2008

Executives know that talent matters in procurement. But how much does it matter? A McKinsey global survey of purchasing executives at more than 200 companies finds that those setting the pace in purchasing best practices differ from ordinary companies along three talent dimensions. Together, these dimensions are associated with nearly 60 percent of the difference between the financial performance1 of these two classes of companies. The top-performing ones hire better people in sourcing, set clearer performance aspirations for them, and create strong sourcing cultures that encourage purchasers to align their activities with corporate strategy. The payoff? Leading companies enjoy annual cost savings from their overall sourcing efforts that are nearly six times greater than the annual savings of low performers. Moreover, the winners are positioning themselves for broader strategic gains as the pressures of globalization intensify.

The survey,2 conducted together with the Supply Management Institute of the European Business School, assessed the performance of the respondents’ companies against recognized best practices in purchasing and supply management by analyzing responses along four dimensions: the capabilities and cultures of purchasing professionals and their organizations, respectively; the corporate structure and systems that support purchasing; the management techniques and business processes supporting it; and the contribution of purchasers to their companies and the extent of the alignment between purchasing and corporate strategy. Two interviewers independently assessed the executives’ responses using a scale of one to five (five being the highest score). Subsequent regression and cluster analysis of the scores isolated 35 low-, 106 moderate-, and 61 high-performing organizations distributed across all of the industries and geographies studied.3

When we compared the scores of these executives with the financial results of their companies’ purchasing efforts, we found a striking correlation (Exhibit 1). Top companies realized purchasing savings of more than 3 percent a year—two percentage points higher than the annual savings of the low performers.4 High performers also had EBITDA5 margins that were fully five percentage points higher than those of low performers.

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