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Putting Procurement on the forefront -- a look at Best-In-Class (BIC) Index

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by Praveen Dahiya
7 May 2016

Procurement function is increasingly becoming key to an organization’s success. Many companies around the world have begun to invest in enhancing their procurement function – be it deploying seamless P2P system framework, investing in spend analytics or partnering with external Market Intelligence service provider.

In fact, investing in enablers does pay – because companies that do better than their peers on the procurement front also tend to generate superior returns for their shareholders. This can be demonstrated through Beroe’s Best-in-Class (BIC) Index.

Constituents of our BIC are companies whose Cost of Goods Sold (COGS) as percentage of sales is lower than their peer group; have a better inventory and have competitive payables ratio compared to the peers.

Based on these criteria we selected companies from eight industries: Chemicals, Food, Beverage & Tobacco, Medical Devices, Household Durables, Metals & Mining, Oil & Gas Equipment Services, Personal Products and Pharmaceuticals.

Next we compared performance of these companies with 3 global benchmarks such as DAX, FTSE and S&P 500. The below graph shows collective outperformance of shortlisted best-in-class companies through BIC Index.

So, what is it that differentiates the best from the rest? The non-best-in-class procurement organizations spend too much time gathering and analyzing data, leaving relatively less time for strategic planning. This usually induces procurement organizations to look for quick wins – avenues that may fast dry up.

If procurement managers were better enabled to perform strategic activities in order to gain competitive advantage, then they would be able to allot more time for strategic sourcing. This marks the high point of procurement maturity.

And invariably those companies tend to generate more shareholder value than their peers.

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