KPMG has developed its own model to determine the level of maturity of procurement.
KPMG, a global network of professional firms providing Audit, Tax and Advisory services, has published the results of a survey on the level of procurement maturity in Russia, and also showcases a model for assessing the maturity of the procurement process developed by KPMG consultants in Russia.
The survey results demonstrated that the share of the cost of procured inventories and services in the revenues of different companies fluctuates from 25% to 65% depending on the company profile (from the highest cost level in metallurgical and chemicals industries – 65% and 61% respectively – to 26% in the petrochemicals industry). Consequently the establishment and maintenance of an effective procurement function is a key goal as part of engagements geared to raising operational efficiency.
KPMG has developed a model to assess levels of procurement maturity, which reflects all the aspects involved in the establishment of the procurement process at Russian enterprises and also makes it possible to analyze the current state of procurements, identify strategic development areas for this function at the enterprise and draw up a transformation plan at aimed at improving procurement effectiveness.
The showcased model of maturity levels is characterized by the customized nature of the approach and ease of perception. The model also maintains a balance in the development of different areas of the procurement function. In particular this model is required by company management to identify imbalances in the development of the procurement function, determine a plan of action and take a decision on changes at the enterprise.
According to Howard Polinski, KPMG Partner and Head of Performance and Technology, the showcased model for assessing the level of procurement maturity facilitates the identification of areas for further improvements in business processes and the design of a clear-cut procurement process management system, which will have a perceptible impact in improving the operational efficiency of companies and their competitiveness.
In addition to procurement maturity levels, the published survey benchmarks the procurement profiles of the Russian companies that participated in a survey conducted by KPMG in November 2010-January 2011 and Western companies that participated in the international research Beyond Purchasing (KPMG International). Companies representing the energy sector, machine-building and metallurgical industries and also the banking and financial sectors participated in the Russian survey.
Based on the data obtained from questionnaires, we compiled profiles of procurement maturity levels for these sectors. The report presents the general and specific attributes of the state of procurement functions at Russian companies, and also further development trends.
In general, the results of the analysis show that the price of procured goods and services comes first when Russian companies select suppliers. In addition it is often the case that the procurement process is centralized. At the same time, as a rule the procurement function is not recognized as strategically important. In most cases the transition to a more professional development level for procurements is prevented by the lack of strategy or the immaturity of current processes.
By contrast Western companies have already attained a level of development, where it is possible to effect the transition from the centralization of the organizational procurement structure to decentralization. Western companies not only implement strategically important information technologies (IT) - they also take steps to integrate systems with suppliers.
The observed gap in procurement maturity levels at Russian companies represents opportunities for cost reductions of 10–15%, and this is a significant saving. It should be noted that in a number of cases the cost saving may be even higher. For example, for a company with a current margin of 5%, where the share of purchase costs is measured at approximately 50%, reducing procurement expenses by 10% would enable the company to double profits levels.
In general based on the results of the analysis of procurement areas at Russian companies, the following key attributes may be highlighted:
1. In terms of the maturity level of procurement strategies, most Russian companies are ranked at the first or second level out of a possible six levels. Moreover development prospects are significant.
2. Only a few companies demonstrated the third level of maturity in one and in rare instances two out of five analyzed areas.
3. In procurement management there is a focus on centralizing procurement procedures and minimizing the price of the procured inventories/services. At the same time, however, insufficient attention is paid to productivity and risk management in the procurement process.
4. The level of information support for procurement fluctuates significantly, depending on the line of business of the company.
Howard Polinski noted: “The benchmarking of the maturity of the procurement process at Russian companies compared to average industry levels and that of Western companies provides Russian companies with an opportunity to assess objectively and select development areas for procurement.”