SOURCE: Emptoris, Inc.

Emptoris, Inc.

September 15, 2010 13:03 ET

CFO Research Survey Quantifies Bottom-Line Impact of Strategic Supplier Management Programs

Have Profit Rebounds at Fortune 1000 Companies Been Driven by Strategic Supply Management Programs and Technologies?

BURLINGTON, MA and LONDON--(Marketwire - September 15, 2010) -  Emptoris, Inc., a leading provider of strategic supply and enterprise contract management software, announced today the results of Supplier-Side Economics, a benchmark survey of CFOs and senior financial executives at Fortune 1000 companies conducted by CFO Research Services. The results quantify major inroads in strategic supplier management efficiency that experts say may be contributing to the recent rebound in the growth of earnings reported by the world's largest global companies.

"Companies employing strategic supply management programs fared better than their competitors during the recent economic downturn in delivering value to the bottom-line and shareholders. We believe these survey points clearly demonstrate the impact the growing adoption of strategic supply management technologies has on companies," said Patrick Quirk, President and Chief Executive Officer of Emptoris. "Such strides and the continued savings they yield may help explain how global corporations have so effectively advanced their profit margins amid a global economic downturn."

Procurement Technology and Centralization Yield Significant Savings

The CFO research study found that a strong majority of companies that have adopted new technologies for supply management -- 56% of survey respondents -- reported savings of 5% or greater in their spending on materials and services. About one in five companies leveraging supply and contract management technologies reported savings of 7% or greater.

Similar, but slightly less impactful, results were associated with efforts to increase centralization of procurement functions; 41% of respondents who completed a centralization campaign reported savings of 5% or more in spending on materials and services.

Growing Emphasis on Total Cost of Ownership

The survey also indicates growing recognition of the importance of supplier relationships that extend beyond baseline prices for materials, products, and services. A majority of senior financial executives identified the following elements of supplier performance as the ones having the greatest impact on their companies' overall business performance: the ability to meet commitments (58%), the quality of materials and services (54%) and price (51%).

"These results indicate a shift from fixation solely on price to a more holistic focus on total cost, reflecting a realization that numerous points, such as availability, timeliness, and quality, affect the strategic soundness of working with a supplier," said Quirk. "This is counterintuitive to the assumption that companies solely focus on cost factors during uncertain economic times. Other data points also affirm that finance executives recognize the value of collaborative supplier relationships."

Exemplifying the benefits of tighter supplier relationships, respondents report that it is currently feasible to extend net terms payable to suppliers by ten days. Seventy percent of respondents say this would have a material effect on their working capital requirements.

Supplier Management and the Procurement/Finance Relationship Show Room for Improvement

The survey also revealed room for improvement in supplier management. While the majority of respondents (70%) say they conduct a regular, documented review of suppliers, a closer look reveals that they rely on ad-hoc rather than structured procedures. According to Quirk, while companies are no doubt benefitting from more advanced supply management programs, failure to standardize supplier evaluation procedures can severely hamper their ability to derive maximum savings from procurement operations.

Similarly, a strong majority of respondents say their executive teams participate in strategic supplier decisions and companywide supplier strategy (frequently including projections of cost, performance risks, and alternative sources of supply in business planning). However, they are less likely to do so at the individual vendor level, and measurement of procurement costs and risks to profitability is poor or adequate among a majority of respondents.

"Finance executives have begun taking a much greater interest in supplier management in recent years -- in part due to the economic downturn," said Sam Knox, VP and director of research at CFO Research Services, which conducted the study. "They are paying closer attention to supplier relationships in an effort to manage working capital more closely, to avoid financial and operating risk, and to manage the volatility in both supply for inputs and demand for outputs. This study suggests that procurement technology and sound relationships between finance, procurement, and suppliers are likely to remain top-of-mind among many finance executives," said Knox.

The survey also showed positive, albeit mixed results when it comes to the strategic relationship between finance and procurement departments -- a critical determinant of overall success, according to Quirk. While two-thirds of respondents say their finance and procurement groups usually work together effectively, only four out of ten finance executives say their companies are excellent at measuring the performance of the procurement function or the risk posed by suppliers. Improvements in this area, says Quirk, will enable finance groups to more fully integrate critical supplier information into business planning, reducing spending and contributing to risk management.

For a complimentary whitepaper, Straight to the Bottom-Line, which details how world class supply management can directly drive improvements in a company's return on invested capital (ROIC) and earnings per share (EPS), visit www.emptoris.com/cfotoolkit.

For a copy of the CFO Research report Supplier-Side Economics, please visit www.cfo.com/research.

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