Ninety-four multinational companies recently participated in A.T. Kearney's global survey of indirect procurement, and the results suggest that unfortunately, many firms remain resistant to updating analytics techniques.
Specifically, the data showed that even though indirect procurement categories like IT, marketing and advertising, facilities management, MRO, Logistics and professional services, have become increasingly important to Chief Procurement Officers and their organizations, most companies are adopting new practices at a much slower rate than analysts expected.
For example, A.T. Kearney found that:
Despite the fact that indirect spending accounts for 60 percent of third-party spend in non-manufacturing companies, up to 50 percent of spend in manufacturing organizations and more than 90 percent in the financial services industry, indirect procurement groups are too often analyzing data to track historical trends. They are not using advanced data analytics techniques such as predictive modeling to deliver highly useful future insights.
More than two-thirds of respondents measure such financial and internal key performance indicators such as addressable spend, identified savings and addressable categories. But less than half of the respondents track compliance management metrics such as spend integrity or accuracy and supplier commitments, scorecards and reviews.
Outsourcing of procurement has shifted focus from business process outsourcing to close collaboration with managed service providers for specific spend categories like facility management, fleet and travel.
I wasn't at all surprised to learn that the most successful indirect procurement organizational model uncovered in the survey was a central-led organization with collaboration across business units. Users of this model achieved savings greater than 10 percent over the last two years in 47 percent of categories.
"We conducted the first Indirect Procurement Study in 2007 and there were high expectations among the respondents for the adoption of advanced practices like outsourcing of indirect procurement, advanced data analytics and benefits tracking. The 2010 study shows that the adoption of these advanced techniques have taken place at a much slower rate than anticipated," says Jan Fokke van den Bosch, A.T. Kearney Procurement and Analytic Solutions vice president and study co-leader.
Other recent research has revealed that automating AP processes can result in significant cost savings while reducing errors and mitigating certain risks. Procurement is no different. The automated risk management systems now available enhance data integration and provide real-time information updates that can reduce inefficiencies, improve decision-making and help develop the business dexterity needed to compete in today's complicated global business environment.