Strategic supply management powers companies through historic crises

Covid, sharply rising geopolitical tensions, and severe commodity inflation are among the historic crises that have sent companies scrambling to secure essential raw materials, parts, and services. Yet a relative few supply management organizations triumphantly rose to the challenge—not only by substantially mitigating supply risk, but also by driving up company revenues and margins and by advancing the broader sustainability agenda.

These were among the key findings in the latest Assessment of Excellence in Procurement (AEP) benchmarking study conducted by Kearney, a global management consulting firm. The 2022 AEP report analyzes more than 600 companies worldwide, all with at least $2 billion annual revenues.

What AEP leaders do

The research shows that manufacturing companies spend 55 cents for every dollar in revenue with suppliers; for companies in the service industry this is about 30 cents on the dollar. Optimizing this third-party spend represents a significant source for competitive advantage.
However, the AEP study found that leading supply management organizations represent just 6 percent of the 2022 sample. These AEP leaders:

•Rebounded three times stronger through Covid, with some reaching all-time highs across key performance metrics

•Contributed 200 basis points more to EBITDA from their third-party spend, helping their companies deliver nearly double total shareholder return than the other companies studied

•Were twice as likely to see a high impact in supply resilience, and six times more likely to see their innovations significantly enhance growth and margins.

In an era that demands constant adaption, these leaders integrated suppliers into their enterprise innovation, risk management, and ESG efforts; they pushed digital technology to drive greater effectiveness, efficiency, and user experience; and put in place an aspirational talent strategy across the full talent life cycle.

Since Kearney conducted its first AEP study in 1992, this widely referenced cross-industry benchmark has tracked the practices that transform traditional purchasing functions into strategic supply management organizations. The AEP has emerged as the research foundation of reference to support the creation of the chief procurement officer as a new member of the C-suite; broaden and fully align procurement strategy with overall business strategy; and increase investment in digital technologies that improve supply chain agility and resilience.

“I believe our latest study is the most important yet,” says Mike Hales, a Kearney partner and an author of the 2022 AEP report. “In a world of ongoing supply shocks, our findings help C-suites understand, in terms they respect, why they need more strategically capable supply management. Even better, the business case for building such capabilities is very sound.”

For further details on the study methodology and findings, click here.

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