In a Viewpoint article titled Improving procurement: what CPOs can learn from private equity, Efficio says that contrary to widespread perception, private equity is not just about taking on troubled firms but about improving their performance.
Industry figures show private equity (PE) investments in large European companies have improved their productivity by 7 per cent annually.
The Viewpoints author, Declan Feeney, Director, Private Equity at Efficio, says procurement is one of the key levers to adding value when PE investors take over a firm. It can account for up to 60 per cent of revenues in a typical manufacturing company. Paying attention to procurement spend can result in a 33 per cent improvement in profits.
Feeney says Efficios experience with PE firms suggest there are some very clear pointers to success. These include that management must be given a strong mandate and targeted to deliver real results, and interests must be effectively aligned across the various business units and/or functions impacted by procurement.
It is imperative that this alignment is reflected at top management level clear decision-making authority and all stakeholders – finance, the CPO and cross-functional sourcing teams must be quickly mobilised and engaged in the improvement process.
The company must be willing to upgrade or supplement the procurement team by bringing in new or additional people or consulting support, and measurement tools must be introduced to ensure savings are delivered and maintained.
The Viewpoint concludes: The techniques employed by private equity are not unique to the sector. They are available to all those endeavouring to improve procurement efficiency and effectiveness in their own organisations.
Procurement professionals can learn from the approaches employed by PE houses. The lessons for CPOs across all industry sectors are clear: if private equity can do it, so can you!