Technology may be changing conventional wisdom surrounding the way that organisational scale relates to procurement. Traditionally, larger functions working for larger organisations, buying larger amounts of goods and services with bigger budgets, had an easier time of it.
That’s not to say that size doesn’t matter. However, new data from McKinsey highlights a developing trend. McKinsey found that smaller organisations are leveraging smart procurement strategies and new technology to keep up with, and in some cases outperform, organisations with economies of scale on their side.
Better procurement means better business outcomes
According to McKinsey’s procurement benchmarking survey, the last two decades of data draw a clear line between greater procurement maturity and better business performance. Procurement has always been good for the bottom line. “That link still holds today,” write the report authors.
Despite a climate of intensified disruption, McKinsey’s latest dataset indicates that “companies with top-quartile procurement maturity have EBITDA margins at least five percentage points higher than their less mature peers.”
Continuing, the reports authors note that smaller organisations with higher levels of procurement maturity — strongly linked to higher levels of digitalisation — are outperforming their larger rivals.
Does size still matter?
The report notes that, because sectors like car manufacturing and consumer products have been focused on procurement reform for longer, they have a higher percentage of companies with strategic, mature procurement functions that have spent years leveraging sourcing as a source of competitive advantage. “Over the years, however, we have found high-performing procurement organisations in almost every industry,” they add.
They admit that while, across multiple sectors, “the highest-performing companies in our benchmarks tend to be large organisations, where the volume of purchases makes it easier to justify investments in advanced digital infrastructure and specialised capabilities,” recent “changes in the technology landscape are eroding the advantages traditionally enjoyed by larger organisations.”
They identify the fact that “sophisticated analytics tools and data platforms” have become cheaper and more accessible through cloud based or modular deployments. “This makes it faster, cheaper, and easier for organisations of all sizes to access the digital capabilities they need,” they add. “For the small businesses in our data set, this shift could be transformative. Improving their data analytics engine would reduce the number of procurement laggards in this group by 8%.”
