To move your procurement organisation to the next level, it pays to learn from the masters…
New research conducted by Accenture Strategy shows that a small group of procurement masters – defined as the top 10% of procurement organisations in terms of performance – are delivering a 15:1 return on investment (ROI) to their organisations. This tangibly impacts the bottom line in a way that makes CEOs take note.
“Other companies can learn a lot from these masters”, says Accenture Strategy’s Kevin Doran, Managing Director: Global Procurement Practice Lead.
When it comes to creating value from the supply base – and blowing the competition out of the water – procurement is a crucial, but often overlooked, area of importance. In an environment where digital is bringing new strategies and approaches, companies need to make the most of innovation while continuing to deliver cost-effective, value-adding procurement.
For example, a global energy company recently banked $2.5-million annually by automating more than 100 procurement, finance and accounting processes – resulting in a 67% decrease in manual average handling time. Automating rote processes free employees to focus on more strategic activities, while freeing funds to reinvest in growth opportunities. So, there’s no doubt that smart procurement yields tangible, measurable results.
Another example is a European consumer goods and services company that is leveraging digital solutions, such as the Internet of Things (IoT), analytics and platform as a service (PaaS), to fundamentally change their category strategy, effectively model their ‘should costs’ and gain greater visibility into their pricing and consumption.
What can we learn from these masters?
To start, these top performers show an excellent grasp of essential capabilities – the traditional areas necessary for procurement to operate like a well-oiled machine – such as procurement strategy, sourcing management, supplier relationship management and more.
But top performance today involves much more than the traditional table stakes, particularly as procurement functions expand into areas previously off-limits, working hand-in-hand with the business. Today’s master-level performance involves:
– Co-owning budgets for third-party spend. While still a radical notion at many firms, leaders expect procurement to be equally as accountable for growth as the budget holders of individual business units. This takes embedding procurement experts across an organisation to understand demand drivers, influence specifications and ensure strategic procurement principles are followed.
– Rebasing the cost structure of the business. Understanding spend patterns at a granular level allows procurement experts to develop a forward-looking target of what organisational costs ‘should be’. Digital technologies help with this task because they can be applied to structurally change cost, consumption and/or specifications, creating radically different cost bases than in years gone by. For example, organisations can use telematics to better understand and manage mileage reimbursement – unlocking a wealth of information to enable better data-driven decision making.
– Driving margin through to the introduction of new products. Top-performing procurement executives are in lockstep with their budget holder counterparts, speaking the same language and driving toward the same global outcomes. As a result, top leaders are 50% more likely to be embedded in the product design process, rather than relegated to the sidelines.
In addition to nailing the essentials, procurement masters have moved purposefully into differentiating capabilities that transform procurement from merely a transactional function to a role that adds true strategic value, taking on tasks like insight management, risk and regulation. And, crucially, they capitalise on advanced digital technologies, such as robotic process automation, analytics and the Industrial Internet of Things (IIoT), which have all become increasingly integral when it comes to automating tactical activities, triggering automatic reordering and predicting supplier risk. Many masters have also outsourced non-core work, moving to a model that frees them up for more strategic in-house activities.
Initiatives such as these are just the beginning of what forward-thinking procurement leaders are doing. They mark just the start of the value that is possible today, even with just incremental steps toward true digital procurement.
So, how can you perfect the art of procurement within your own organisation?
CPOs should consider the following in their pursuit of procurement mastery:
– Procurement is not about processes. It is about meeting larger business goals. CPOs must win the case for relevance with their fellow chief executives. They need to expand spend under management through focusing on ‘should costs’ as well as become co-owners of total spend. They should also be wholly accountable to the board for all third-party spend.
– Outsource and automate. Procurement leaders free up resources to pursue strategic priorities. Those seeking mastery are leap-frogging peers by leveraging a partner eco-system to execute non-core activities as well as automating less strategic activities with the help of digital technologies.
– Phone a friend. As a CPO, you must foster competitive advantage through third-party relationships. No company can go it alone anymore. Crucial skills not in your wheelhouse need to come from a dynamic eco-system of partners that specialise in what you do not.
– Keep up with the pioneering masters. Pioneering procurement executives are already running tomorrow’s race. Know where you need to compete with these pioneers to safeguard your continuing position. Benchmarking is the quickest route to clearly seeing where your company ranks on the scale of fit for tomorrow.
Learning from today’s top procurement leaders could spur your company to new heights. Procurement is no longer solely made up of traditional responsibilities – tomorrow’s winners will embrace digital technologies, outsource capabilities and, most importantly, focus on marrying procurement with corporate growth goals.
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