Procurement - on ‘steroids’ or: improving margins - for real
Strategic sourcing stopped being purely a procurement topic a long time ago. The days when it meant negotiating hard on unit price and managing a supplier scorecard are long gone in companies that are actually competitive. Today, procurement sits at the intersection of cost, resilience, sustainability, and innovation - and in most companies, that intersection is badly managed.
The reason is not a lack of capable people. It is a structural problem: how procurement is positioned, resourced, and connected to the rest of the business.
Three types of procurement organisations
In my experience across five industries, procurement organisations fall into roughly three categories, and the distribution is not flattering.
About 30% of companies have procurement professionals who do the analytical work well. They map demand and supply markets, build category strategies, and identify optimisation opportunities. The problem is that these strategies live in presentations and shared drives. Without internal alignment and cross-functional support, they never get implemented. Good analysis, poor execution.
Over 50% of companies have no formal category strategies. Sourcing decisions are driven by past practice and internal customer requests. The function is reactive rather than strategic. In many of these cases, outsourcing procurement to experienced firms would produce better outcomes than the current setup, which is a damning statement about the level of internal ambition.
The remaining 20% - and I am being generous with that figure - have procurement efforts that are genuinely aligned with leadership, supported by peers across the business, and recognised as a value driver. These companies tend to be market leaders in their industries. That correlation is not coincidental.
The diagnostic: ten questions worth answering honestly
The following questions work as a quick assessment of where your organisation sits. Honest answers matter more than comfortable ones.
Does procurement present to the board at least quarterly, and is there at least one board member with sufficient background to meaningfully challenge the team?
Do you conduct 80% or more of procurement transactions via automated e-sourcing events - real competitive events, not just catalogue buying?
Is your compliance rate with approved suppliers above 90% for direct materials and 70% for indirect materials and services?
Do your procurement professionals hold a recognised internal and external certification - a genuine licence to buy?
Do you run an annual supply chain innovation review with board sponsorship to assess which new technologies and sourcing models are available?
Are your buyers using structured tools - Porter's Five Forces, global supply market analysis, total cost of ownership, linear performance pricing - as standard practice?
Do you receive monthly performance reporting on your supply chain across cost, quality, delivery, ESG, and innovation?
Is 70% or more of your direct material volume sourced from partners electronically linked to your ERP or sourcing systems?
Are your procurement professionals considered high-value talent sought after across the broader business?
Have you successfully outsourced certain production steps to your supply base, and are those partners consistently meeting expectations?
If most of those are a clear yes, your strategic sourcing is in reasonable shape. If most are a no or an uncertain shrug, the gap between where you are and where you could be is significant - and so is the financial opportunity.
The size of the prize
When the gap is real, so is the prize. The most straightforward way to frame it is in terms of the cost-reduction trajectory. Establish your current annual savings rate over the last three to five years, then set a target two percentage points higher for the next two years. That delta is your near-term gross margin improvement opportunity, and it drops directly to EBIT.
For a company with CHF 1 billion of external spend, closing that gap typically generates CHF 20-30 million of additional EBIT annually in the short term. The long-term gross margin improvement opportunity, once strategic sourcing is genuinely embedded, reaches CHF 50 million or more per year. For context: how many headcount reductions would it take to generate a comparable perpetuity effect? And at what organisational cost?
Beyond the direct financial case, strategic sourcing done well strengthens resilience - reducing exposure to single-source dependencies and supply disruptions - and underpins sustainability performance in ways that ESG reporting frameworks increasingly reward. The triple-bottom-line case for procurement excellence is not rhetorical. It is measurable.
Setting up procurement on steroids
The programme runs over 24 months, is owned by the COO or CFO, and is led by the Head of Procurement. The first priority is establishing measurable targets and an honest baseline - ideally supported by external benchmarking to avoid the comfortable distortions that internal assessments tend to produce.
A dedicated cross-functional task force meets weekly. Monthly progress reporting to the COO and CFO tracks the metrics that matter: the number and spend volume of qualified suppliers, the percentage of spend covered by approved category strategies, cost reductions achieved, sustainability incidents open and closed, and the sourcing compliance rate. The 80/20 rule applies to supplier concentration as well - tracking which suppliers account for 80% of spend, and whether that concentration is intentional or just inherited, is a revealing exercise.
The potential for digitalisation and automation in this area is high, and the risk is low. Strategic sourcing, by definition, reduces operational risk. The cost of the programme depends on the starting point - companies with mature IT systems and existing procurement infrastructure will spend less than those building from scratch.
Watch out for
The most common failure mode is lip-service compliance: functions and business units nodding along in governance forums while continuing to source outside the agreed process. The Head of Procurement needs the authority and board backing to enforce compliance, not just to report on it. Long-term suppliers that get de-sourced through a more disciplined process will push back - sometimes loudly. That pressure needs to be anticipated and managed, not avoided.
Stay safe. Be bold.
Daniel
The views expressed in this post are my personal professional opinions, based on research and publicly available information. They reflect analysis of industry trends and practices, not assertions of fact about specific companies or individuals. Nothing in this post constitutes legal, financial, or investment advice.
