Supply management misses the bottom line

Fewer than 25 per cent of companies use supply management to meet revenue-based objectives, according to an international study, in which respondents cited a lack of integration as the main reason.

Integration issues with existing procurement systems was the most commonly cited reason for companies failing to meet their objectives with supply chain management and e-procurement management efforts, according to consulting firm AT Kearney's study.

Other reasons cited included the inability of the new system to provide useful analytical information and implementation taking longer than planned.

The survey, which questioned 147 companies from 22 different industry sectors, found half of the companies adopting Internet-based procurement technology have failed to achieve their cost reduction goals.

A mere 8 per cent rated as "leaders", because they had met their objectives and reaped savings by applying e-procurement initiatives across parts of their business.

However, according to the consulting firm, even those companies that successfully leveraged procurement have only tapped into a fraction of supply management's potential to create value.

Companies often underestimate the change management challenges the adoption of e-procurement, or supply management tools, indepth interviews by AT Kearney revealed.

While companies experience early success with e-procurement pilot programs, they commonly had difficulty implementing broad-based adoption of tools.

Almost all the companies surveyed used some Internet technology for procurement and supply chain management, but only 11 per cent of the cost base was supported.

Also, AT Kearney Australia's vice president Eugene Cora. said those that hold the title of chief procurement officer will face "significant pressure" to deliver a clear competitive advantage or "risk becoming functionally extinct".

"Procurement organisations can be likened to IT organisations around 1985 -- they can develop into a strategic force, become an internal utility or be left behind," he said.

The firm also claims companies that use supply management technologies could stand to realise savings 13 times greater than their investment.

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