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Procurement Study: 80 Percent of Companies Vulnerable to Major Supply Disruption

The headlines of the past year have highlighted one supply chain disruption after another, but a majority of companies are not systematically managing risk to avoid disruptions to increasingly global supply chains, according to global management consulting firm A.T. Kearney's latest Assessment of Excellence in Procurement (AEP).

In contrast, the study showed that leading companies excel at managing risk by using risk-impact analysis, financial risk management (such as hedging) and disaster planning to protect against unforeseen threats.

John Blascovich, A.T. Kearney partner and leader of the study, said, "A key finding from the 2011 AEP Study is that supply management organizations that once were focused on cost reduction and adversarial relationships with suppliers are now developing long-term category management strategies where collaboration with suppliers on joint process improvement, innovation and new products is delivering top-line value to corporations."

As part of the study analysis, 13 leading companies, that consistently demonstrate high levels of procurement performance, were identified. There were seven leading practices that all 13 companies shared.

--  Leading companies align procurement strategy with the overall goals of the company. These companies also engage more fully with other business functions to address a larger percentage (94 percent) of external spending. As a result leaders were better prepared to react to the 2008 financial crisis, delivering greater benefits faster.

--  Leading companies consistently outperform other companies in contributions to top - and - bottom-line strategies. By working closely with their suppliers these companies improve their new product development performance, reduce time-to-market for new products, and create new business opportunities - all top-line benefits for their companies.

--  Leading procurement organizations excel at risk management by anticipating, tracking and planning mitigation strategies covering a wide range of threats.

--  Leading companies use supplier relationship management (SRM) processes more consistently than followers. A structured process drives strategic value through improvements in innovation and growth, better managed risk and vastly improved supply chains.

--  Another area that distinguishes leaders from other companies is their use of more advanced approaches to tailor their category strategies to each situation.

--  Leading companies are far more advanced in their adoption of technology. They have more control over what they spend because they have technology that allows for more visibility into spending. Most leading companies are fully automated with real-time access to data and are ahead in the adoption of technology to support contract
management and compliance.

--  The leading companies are more forward-looking and bold in their approaches to recruiting and retaining top talent, including establishing relationships with universities and using a systematic approach to managing a more diverse and dispersed workforce.

Taken together, these practices helped the 13 leading companies deliver nearly 60 percent higher returns on their companies' investments in procurement assets.

Source: A.T. Kearney

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