Executive Briefings

Procurement Is Important, Companies Agree. But How Many Are Treating It That Way From a Strategic Standpoint?

Nearly three quarters of the companies recently surveyed by KPMG LLP believe that procurement is a "high priority" within their organizations. Yet about half address the function mostly from the standpoint of cost instead of "value creation," the consultancy says. Reporting on its latest survey of nearly 600 global procurement and top-level executives, KPMG argues that "companies are missing business improvement opportunities by ignoring key procurement issues, especially in the areas of tax and technology." More than half claim to consider direct and indirect taxes in the way they manage  their international procurement operations, although less than a third have managed to reduce their tax burdens through the restructuring of that function. The same goes for the use of IT applications such as spend analysis and electronic procurement. At least half of respondents have used those tools, but 72 percent are channeling less than 10 percent of their spend through e-procurement and e-sourcing applications. "Furthermore," says KPMG, "only 21 percent believe outsourcing has improved the performance of their procurement function." One problem appears to be the fragmentation of procurement in terms of management oversight. Of the companies in the survey, 42 percent have their procurement functions reporting to operations, and 38 percent to finance. So any real improvement in the setup requires deep structural change. "Bridging the gap between operations and finance is key to realizing long-term business effectiveness," says Samir Khushalani, principal in KPMG's Advisory Services unit. "So its position at the crossroads makes procurement an attractive place to begin when looking to improve performance." The survey also viewed companies' "green" policies, finding that efforts in that area had yet to yield dramatic progress. Only a third of respondents have begun to reduce the environmental impact of their products, while nearly another third are considering such action. Just 30 percent said environmental track record was a "very important" or "important" criterion when selecting a supplier, KPMG said.

Visit www.us.kpmg.com

Nearly three quarters of the companies recently surveyed by KPMG LLP believe that procurement is a "high priority" within their organizations. Yet about half address the function mostly from the standpoint of cost instead of "value creation," the consultancy says. Reporting on its latest survey of nearly 600 global procurement and top-level executives, KPMG argues that "companies are missing business improvement opportunities by ignoring key procurement issues, especially in the areas of tax and technology." More than half claim to consider direct and indirect taxes in the way they manage  their international procurement operations, although less than a third have managed to reduce their tax burdens through the restructuring of that function. The same goes for the use of IT applications such as spend analysis and electronic procurement. At least half of respondents have used those tools, but 72 percent are channeling less than 10 percent of their spend through e-procurement and e-sourcing applications. "Furthermore," says KPMG, "only 21 percent believe outsourcing has improved the performance of their procurement function." One problem appears to be the fragmentation of procurement in terms of management oversight. Of the companies in the survey, 42 percent have their procurement functions reporting to operations, and 38 percent to finance. So any real improvement in the setup requires deep structural change. "Bridging the gap between operations and finance is key to realizing long-term business effectiveness," says Samir Khushalani, principal in KPMG's Advisory Services unit. "So its position at the crossroads makes procurement an attractive place to begin when looking to improve performance." The survey also viewed companies' "green" policies, finding that efforts in that area had yet to yield dramatic progress. Only a third of respondents have begun to reduce the environmental impact of their products, while nearly another third are considering such action. Just 30 percent said environmental track record was a "very important" or "important" criterion when selecting a supplier, KPMG said.

Visit www.us.kpmg.com