A decade of globalization-fueled competition has opened the eyes of executives everywhere to the strategic benefits that can be achieved through the intelligent use of purchasing and supply management. These include more competitive supply chains, improved product development, and faster times to market—in addition to the significant cost advantages associated with sourcing from low-cost countries. Often, however, evolution in the way executives think about purchasing hasn’t translated into results. A dearth of talent derails the improvement efforts of many companies, while others suffer from a misalignment between purchasing and the broader company strategy or from low or misguided aspirations.

Our global survey of chief procurement officers (CPOs) suggests that the role of purchasing at many companies hasn’t evolved much beyond the function’s narrow, transactional roots as a buyer of materials, components, and services.¹ But some purchasing and supply-management organizations are attracting the attention of CEOs by taking the function to the next level. By integrating their activities more closely with those of their internal customers, some purchasing units have gained sustainable cost reductions in nontraditional areas (marketing or health benefits, for example) where previous optimization efforts have fizzled. Others go further still, using their insights to challenge and enhance...