The document discusses the significant impact of talent on procurement and purchasing performance across organizations. A study reveals that high-performing companies attribute 60% of their superior financial performance to better sourcing practices, driven by talented purchasing professionals who align with corporate strategy. It emphasizes the importance of management and fostering a sourcing culture to achieve higher savings and operational efficiency in purchasing.

1. The talent factor in
purchasing
Nicolas Reinecke, Peter Spiller,
and Drew Ungerman
Serge Bloch
Better purchasing can be beneficial in surprising ways, some far removed
from purchasing itself.
Executives know that talent matters their organizations, respectively; the
in procurement. But how much does corporate structure and systems that
it matter? A McKinsey global survey of support purchasing; the management
purchasing executives at more than techniques and business processes
200 companies finds that those setting supporting it; and the contribution of
the pace in purchasing best practices purchasers to their companies and
differ from ordinary companies along the extent of the alignment between
three talent dimensions. Together, these purchasing and corporate strategy. Two
dimensions are associated with nearly interviewers independently assessed
60 percent of the difference between the executives’ responses using a scale
the financial performance1 of these two of one to five (five being the highest
classes of companies. The top-performing score). Subsequent regression and cluster
ones hire better people in sourcing, set analysis of the scores isolated 35 low-,
clearer performance aspirations for 106 moderate-, and 61 high-performing
them, and create strong sourcing cultures organizations distributed across all of the
that encourage purchasers to align their industries and geographies studied.3
activities with corporate strategy. The
payoff? Leading companies enjoy annual When we compared the scores of these
cost savings from their overall sourcing executives with the financial results of
efforts that are nearly six times greater their companies’ purchasing efforts, we
than the annual savings of low performers. found a striking correlation (Exhibit 1).
Moreover, the winners are positioning Top companies realized purchasing savings
themselves for broader strategic gains as of more than 3 percent a year—two
the pressures of globalization intensify. percentage points higher than the annual
savings of the low performers.4 High
The survey,2 conducted together with performers also had EBITDA 5 margins that
the Supply Management Institute of were fully five percentage points higher
the European Business School, assessed than those of low performers.
the performance of the respondents’
companies against recognized best A closer look at the relationship between
practices in purchasing and supply man- a company’s purchasing score and its
agement by analyzing responses along overall financial performance revealed that
four dimensions: the capabilities and three talent dimensions accounted for
cultures of purchasing professionals and a disproportionate share of the top

2. Q1 2007
Purchasing
Exhibit 1 of 2 Research in Brief
Glance: Good purchasing management and financial performance are strongly correlated.
t
The payoff
Performance against recognized best practices in purchasing and supply management
Low performers Medium performers High performers
(n = 35) (n = 106) (n = 61)
Average performance score Companies’ financial performance,1 %
On scale of 1 to 5, where Annual savings from Annual reduction in cost Average EBITDA2 margin
5 is highest purchasing and supply of goods sold
17.7
management
15.6
12.7
3.4 3.5
2.8 2.3
1.9 1.4
0.6 0.8
–0.5
Averages over 3 most recent scal years; for companies operating in Africa, Asia, Europe, and North and South America in the
following industries: automotive and assembly, chemicals, consumer packaged goods, energy and utilities, nancial services, high tech
and telecommunications, materials and construction, pharmaceuticals, retailing, travel and logistics, transportation.
2 Earnings before interest, taxes, depreciation, and amortization.
Source: 2006 McKinsey–Supply Management Institute (European Business School) survey of purchasing executives at 200 companies
performers’ benefits. Together, these tailor the training that purchasers receive—
factors explain 5 percent of the financial for instance, through functional rota-
improvement associated with a one-point tions ensuring that purchasers get broad
hike in the purchasing score (Exhibit 2). business experience. Only 11 percent of
the low performers do so, and in our
The first talent dimension involved the experience such organizational insularity
capabilities of the purchasing units prevents purchasing executives from
themselves. High performers, for example, contributing to the product- and service-
were five times more likely than low development discussions, with suppliers
ones to employ purchasing managers and other stakeholders, that often lead
with analytical expertise and general- to bigger savings.
management backgrounds, in addition to
deep knowledge of a particular purchas- We found that the second talent dimen-
ing category (such as packaging). Likewise, sion involved the way purchasers view their
purchasing managers at the top compa- roles and the aspirations they associate
nies were six times more likely to have with those roles. Among top performers,
worked in another functional area (such as 69 percent of the purchasing executives
product development or engineering) felt that their CEOs expected more from
than were managers at low-performing them than the ability to cut costs (and
companies. Top companies also set clear 81 percent of these purchasers articulated
career paths for purchasers. Seventy- a clear vision for achieving other goals).
six percent of high-performing companies By contrast, 49 percent of the purchasers

3. Q1 2007
Purchasing
8 The McKinsey Quarterly 200 Number 1
Exhibit 2 of 2
Glance: Talent correlates with greater improvements in purchasing performance.
t
People matter most
Weight of factors associated with 1-point increase in survey score1
Best-practice factors in purchasing
and supply management Performance improvement,2 %
Talent Purchasing capabilities/talent management 25
Mind-sets and aspirations 16
Strategic influence of purchasing 16
Purchasing processes/strategies 13
Cross-functional collaboration 12
Knowledge, information management/IT 8
Performance tracking/compliance 7
Structure of purchasing organization 3
1-point improvement in overall score 100
Survey score (on scale of 1 to 5, where 5 is highest) measures performance against recognized best practices in purchasing and supply
management.
2 Overall performance calculated as average over 3 most recent scal years of standardized savings from purchasing and supply
management, reduction in costs attributable to production of goods sold (COGS), and EBITDA (earnings before interest, taxes,
depreciation, and amortization) margin.
Source: 2006 McKinsey–Supply Management Institute (European Business School) survey of purchasing executives at 200 companies
at the low performers believed that their actively engage with sales and marketing
CEOs viewed purchasing as a limited executives—for example, to explore how
support function, and nearly two-thirds saw innovations by suppliers might inform
little indication that this mind-set would new products or services. This influence
change. In our experience, such attitudes extended to MA: top companies were
discourage purchasers from exploring twice as likely as low performers to involve
new practices or ideas that might create purchasing in due diligence before a
value. Indeed, among low performers, merger and in activities to capture value
only 11 percent of the purchasers felt after one.
that their efforts contributed to a culture
of continuous improvement within the Our findings reinforce the view that while
company, compared with 62 percent of the processes and technology are impor-
purchasers at the high performers. tant, by themselves they are not enough
to improve a company’s purchasing
Finally, high performers were more likely performance. Indeed, we found the effect
than the other companies to involve of such systems and tools to be minimal
purchasing executives more broadly in in explaining the differences in the financial
business planning—a form of influence performance both in procurement and
that, in our experience, improves decision overall among the respondents’ companies.
making. Eighty percent of the top In our experience, creating a high-
companies involved purchasing executives performing procurement organization starts
during the concept phase of product with managing people, not processes.
development, for instance. In 90 percent Companies that begin by focusing on the
of the top companies, purchasers skills of purchasers and by encouraging

4. Research in Brief 9
1
collaboration between purchasing and For the purposes of this article, financial
performance comprises annual savings from
other functions often find that the benefits purchasing and supply management, annual
include not only lower costs but also reduction in cost of goods sold, and the average
higher-quality products, greater innovation, margin of earnings before interest, taxes,
depreciation, and amortization (EBITDA).
and more value from MA. Reaping such 2
We surveyed 202 companies operating in Africa,
benefits will be increasingly important Asia, Europe, and North and South America
as the pressures of globalization intensify. in automotive and assembly, chemicals, consumer
packaged goods, energy and utilities, financial
services, high tech and telecommunications,
Nicolas Reinecke is a principal in McKinsey’s materials and construction, pharmaceuticals,
Hamburg office, Peter Spiller is a principal retailing, travel and logistics, and transportation.
in the Frankfurt office, and Drew Ungerman Seventy percent of the companies had revenues
is a principal in the Dallas office. Copyright © exceeding $5 billion. Twenty-four of the
200 McKinsey Company. All rights reserved. respondents represented large, autonomous
business units organized in holding-company
arrangements under a parent company. For
the purposes of this research we treated these
organizations as discrete companies.
3
The results were valid at a 95 percent confidence
level.
4
Average savings over the three most recent fiscal
years.
5
Earnings before interest, taxes, depreciation,
and amortization.