The Procurement Impact Report

Overall market takeaways:

Where Procurement has the greatest potential for business impact:

• There is a clear correlation between procurement maturity and the ability to innovate. Companies with the most advanced procurement processes are seizing competitive advantage by being 32% more able to implement new initiatives and 29% faster in bringing new products and services to market.
• Procurement’s impact on maintaining IT security and compliance is flat through the early maturity stages, until a steep uptick when companies start holding suppliers to their own SLAs and integrate internal policies and external regulatory requirements to the intake process - all of which creates a 20% improvement in compliance.
• More advanced procurement functions are able to maintain tight control and consistent clarity over their cash flow and budgeting. This not only helps prevent maverick spending, but also helps guard the business against unstable or unpredictable macro-economic conditions that can stunt business growth.
• The knock-on effect of all this is the internal reputation and perception of the procurement team skyrockets - becoming a trusted partner throughout the organization and also included in business strategy.

But despite the significant benefits that procurement maturity brings, many leaders are actively prevented from building such high-performing procurement functions.

Worryingly, 37% of respondents say that procurement is not seen as a strategic priority and 35% say their organization is not willing to invest in the skills to tackle the issue.

The results revealed an under appreciated link between advanced procurement processes and a company’s ability to innovate faster, ship new products sooner, maintain compliance easier, and control budgets better.

Impact on innovation, efficiency and agility

The top performing companies in terms of efficiency, speed to market and innovation all had one thing in common - a highly mature procurement setup that took advantage of the latest technology and modern thinking. 

The introduction of centralized procurement processes, more formal routing and better stakeholder engagement triggers an average 20% improvement in performance in all three of these areas. Adding auto-compliance checks, intelligent rejection handling and auto-qualification increases performance by a further average 10%.

However, the data shows that the picture is not as rosy for those in the midst of their journeys to these levels. Making the small incremental step from very early maturity to mid-maturity - introducing more formal and centralized processes, evaluating supplier performance, and including more compliance reviews but still working in manual, disparate formats and with basic data benchmarking - actually creates obstacles. The incomplete and often manual nature of these improvements turns procurement into a blocker to progress.

Nick Riley, Head of Purchasing at Vertice, explains that procurement needs to develop as quickly as the business grows - both in output and internal operations:

Impact on IT and security compliance 

Contributing to effective risk management is one of the key metrics of success for the modern procurement leader - it’s also one of the most challenging things to get right. 

Over one-third (36%) of procurement leaders surveyed feel unable to manage supplier risks and ensure compliance with legal and regulatory requirements. Perhaps unsurprisingly then, the research found a clear link between a company’s procurement maturity and its ability to maintain IT and security compliance.

Internal compliance and approvals tend to rarely be formalized in the lower to mid levels of maturity. Compliance processes here are based on internal policies rather than external regulations, are managed through email and are reliant on suppliers’ SLAs rather than being based on a SLA that reflects the company’s own expectations and needs. 

At this point, any improvements from level to level do not deliver much tangible value, and so the ease of compliance is stagnant throughout. 

But when automation is introduced to a procurement process, ease of compliance skyrockets. At Level 4, the two core differences are beginning to impose a company’s own SLAs on suppliers and greater rigor over external regulations.

And when these and other requirements are incorporated into automated pre-approvals at the point of intake (Level 5), suddenly these checks are being implemented without adding effort.

The overall uptick in performance for the latter maturity levels versus levels 1-3 is 20%. But almost half of this comes from automation alone - such as recognising when to pre-approve or reject requests at the point of intake based on internal SLAs, regional regulations and ESG standards, and then route the request to suitable IT and compliance stakeholders.

Impact on cash flow and budgeting 

Perhaps unsurprisingly, as procurement maturity increases so does a company’s ability to control cash flow and budgets.

Lower levels of procurement maturity are characterized by being decentralized, ad-hoc and manual, while higher levels introduce greater visibility and company-wide buy-in for policies and involving procurement - all of which minimizes maverick spending and gives a company greater control of budget and cash flow.

But there’s more to it than greater maturity meaning greater control.

Companies with less advanced procurement maturity struggle the most to deal with unsteady macro-economic conditions. The research revealed that businesses ranked this as their second-highest procurement challenge (44%).

Less advanced procurement process lead to employees who are less cost-aware, resulting in less control over cash flow and budgeting. These make it difficult to ride fluctuating, especially negative, marco-economic conditions. Businesses can’t react quickly enough with new / updated products, and their cash runway is limited thanks to maverick spending and little control and visibility over their overall spend.

Impact on internal perception of procurement  

More advanced and capable procurement processes leads to procurement enabling rather than obstructing innovative projects, driving efficiency, preventing unwise purchases that undermine compliance, and supporting cash control. 

It’s therefore little wonder that the internal perception of procurement also consistently increases as procurement maturity grows. 

This is linked to the consistent introduction of new capabilities and priorities, such as impacting budget planning, enabling easy audit of approval communications, and dedicated compliance reviews. The wider business sees these as positive steps and engages with procurement more, which in turn helps drive increasing positivity around its perceived performance.

But why is the improvement from mid-range to highest maturity levels so steep? What causes such a sudden 24% improvement from Level 3 to Level 5? 

This uptick coincides with a greater focus on being more ‘user-friendly’. At Levels 4 and 5, procurement begins to support more departments’ priorities more easily - such as automating IT compliance requirements into intake requests. Procurement also makes the assessment of vendors’ contracts easier by holding them to well-documented internal policies and SLAs, and supports requesters by helping navigate approvals through the various stakeholders quickly. 

The initial objective is to make the procurement function more efficient, but the important knock-on effect is far greater internal appreciation.

US companies risk being left behind by UK businesses 

There is a noticeable disparity between UK and US businesses and their perceived procurement maturity. Half of US businesses are stuck with basic procurement processes, whereas over two-thirds (67%) of UK businesses are in the more advanced stages of procurement maturity.

US companies therefore risk being left behind, with their current procurement processes holding them back from the faster, safer innovation that UK procurement teams appear to be enabling.

The case for advanced procurement maturity is clear.

But there are obstacles in the way.

This mindset is like trying to accelerate with the brakes still on. Procurement can be a powerful strategic partner, enabling dramatic and sustainable business growth. But despite this potential - and now proven - impact, it is too often not given the strategic credibility or resources ift deserves.

Procurement’s ultimate goal is to have merited a seat at the company strategy table. After all, this research has proven that procurement can help yield significant business performance benefits, as we have seen from the correlation between high-maturity procurement functions and high-performing business metrics.

Stepping from lower and mid maturity to the upper levels is undeniably worth the effort and investment, whether that’s measured by day-to-day efficiency, impact on the business as a whole or even simply by the career-enhancing internal perception of the procurement function. 

But how do you know where you currently sit? 

We have built a self-assessment, based on the very same questions used in this research report, to help you quickly identify your own procurement maturity score - and therefore also the impact you are likely already having on your business.

Importantly, we have also included quick actionable advice on how to get from one level to the next, and deliver even more impact. 

In a maximum of 3 minutes and 5 questions, we can tell you where you rank alongside your peers and what you need to do to outpace them.