May 17, 2020

Exclusive: Weak returns on procurement spend could make firms M&A target

mike hales
at kearney supply chain
supply chain spending
procurement spending
James Henderson
2 min
Companies with poor returns on procurement spending could be a target for M&A
Companies that are not achieving meaningful returns on their procurement spending could find themselves on “the wrong end” of merger and acquisition...

Companies that are not achieving meaningful returns on their procurement spending could find themselves on “the wrong end” of merger and acquisition (M&A) activity, according to an industry expert.  

A recent study by AT Kearney ‘Mobilising for Supply Chain Excellence’ found that less than 10% of companies can be considered to "demonstrate excellent supply chain capabilities", delivering around $13 for every $1 spent on supply chain management assets.

At the other end of the scale, more than a quarter (27%) of firms are barely covering their costs, returning $1 or less for every $1 spent on supply chain management assets.

Those companies struggling to provide return on their supply chain spend could become targets for acquisitionally-minded competitors or private equity firms, said Mike Hales, partner in A.T. Kearney's Operations Practice, and co-author of the report.

“There is a lot of private equity activity and mergers and acquisition (M&A) going on; companies that don’t improve that ratio are likely to be on the wrong end of some of those deals,” he told Supply Chain Digital.  

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“We see the role of procurement soaring in the M&A area because it’s a unique opportunity to combine strands of companies and take them to market in a shortened period of time.

“Part of the playbook of private equity firms is invest in strategic sourcing as soon as they’ve bought a company. It’s a really quick win for them.”

The best way for CPOs in companies with under-performing procurement operations to drive change is to attempt to prove the returns that can be achieved to their CEOs and CFOs, Hales added.

“Companies in that lower quartile are not intentionally hurting themselves, it’s just that the leadership is not prioritising procurement enough,” he said

“The path for them [CPOs] is to find a way carry out a focused strategic sourcing programme to really demonstrate that they can return more than $1 for every $1 spent. Once that is proven, they can begin to implement a real step-change.” 

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May 13, 2021

5 Minutes With: Jim Bureau, CEO Jaggaer

SupplyChain
Procurement
riskmanagement
JAGGAER
3 min
Jaggaer CEO Jim Bureau talks data, the power of procurement analytics, and supply chain risk management

What is data analytics, and why is it important for organisations to utilise?

Data analytics is the process of collecting, cleansing, transforming and analysing an organisation’s information to identify trends and extract meaningful insights to solve problems. 

The main benefit for procurement teams that adopt analytics is that they’re equipped to make faster, more proactive and effective decisions. Spend analysis and other advanced statistical analyses eliminate the guesswork and reactivity common with spreadsheets and other manual approaches and drive greater efficiency and value. 

As procurement continues to play a central role in organisational success, adopting analytics is critical for improving operations, meeting and achieving key performance indicators, reducing staff burnout, gaining valuable market intelligence and protecting the bottom line. 

How can organisations use procurement analytics to benefit their operations? 

Teams can leverage data analytics to tangibly improve performance across all procurement activities - identifying new savings opportunities, getting a consolidated view of spend, understanding the right time for contract re-negotiations, and which suppliers to tap when prioritising and segmenting suppliers, assessing and addressing supply chain risk and more. 

Procurement can ultimately create a more comprehensive sourcing process that invites more suppliers to the table and gets even more granular about cost drivers and other criteria. 

"The main benefit for procurement teams that adopt analytics is that they’re equipped to make faster, more proactive and effective decisions"


Procurement analytics can provide critical insight for spend management, category management, supplier contracts and negotiations, strategic sourcing, spend forecasting and more. Unilever, for example, used actionable insight from spend analysis to optimise spending, sourcing, and contract negotiations for an especially unpredictable industry such as transport and logistics. 

Whether a team needs to figure out ways to retain cash, further diversify its supply base, or deliver value on sustainability, innovation or diversity initiatives, analytics can help procurement deliver on organisational needs.

How is data analytics used in supply chain and procurement? 

Data analytics encompasses descriptive, diagnostic, predictive and prescriptive data. 

Descriptive shows what’s happened in the past, while diagnostic analytics surface answers to ‘why’ those previous events happened. 

This clear view into procurement operations and trends lays the groundwork for predictive analytics, which forecasts future events, and prescriptive analytics, which recommends the best actions for teams to take based on those predictions. 

Teams can leverage all four types of analytics to gain visibility across the supply chain and identify optimisation and value generating opportunities.

Take on-time delivery (OTD) as an example. Predictive analytics are identifying the probability of whether an order will be delivered on time even before its placed, based on previous events. Combined with recommendation engines that suggest improvement actions, the analytics enable teams to proactively mitigate risk of late deliveries, such as through spreading an order over a second or third source of supply. 

Advanced analytics is a research and development focus for JAGGAER, and we expect procurement’s ability to leverage AI to become even stronger and more impactful.

 

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