THE BUSINESS REVIEW FOR PROCUREMENT LEADERS
The globalisation of financial markets in recent years has increased the power of fund managers and institutional investors and put tremendous pressure on senior executives to deliver short-term results. This, in turn, has influenced the way publicly quoted companies are managed.
Sustainable shareholder value (SSV) reflects the capacity of such companies to regularly increase their stock-market value and outperform market indices. SSV powerhouses such as the household goods maker Reckitt Benckiser generate above-average growth and free cash flow – both key elements in the quest for competitive advantage. However, procurement’s impact on these key measures is unclear in most companies today.
To make procurement’s value contribution more transparent – and to improve the function’s “attractiveness” internally – CPOs need to be able to illustrate the financial effect of their activities on metrics such as gross margin, earnings before interest and tax (ebit), and free cash flow. The authors include a practical worked example of how this can be done in the latter case.
Measuring the function’s impact on SSV will become more important as
outsourcing increases and more truly global suppliers are created.
