bip follow the procurement leaders seven ways to lasting results

12
Follow the Procurement Leaders: Seven Ways to Lasting Results A.T. Kearney’s 2011 Assessment of Excellence in Procurement Study

Upload: tahat22

Post on 19-Aug-2015

219 views

Category:

Documents


1 download

DESCRIPTION

b

TRANSCRIPT

Follow the Procurement Leaders: Seven Ways to Lasting Results A.T. Kearneys 2011 Assessment of Excellence in Procurement StudyAuthorsJohn Blascovich, partner, New York [email protected] Ferrer, director, San [email protected] Markham, associated consultant, [email protected] more information about the AEP ndings, please contact:EUROPEStephen Easton, [email protected] Jules Goffre, [email protected] Schuh, [email protected] Steck, [email protected] Fokke van den Bosch, Amsterdamjan.fokke.van.den.bosch@atkearney.comASIA-PACIFICJessica Mahre, [email protected] Prasad, [email protected] Rizzon, Australia and New [email protected] THE PROCUREMENT LEADERS|A.T. Kearney 1Value chains are bending so rapidly that procurement professionals are more important to business strategies than ever before. Its not onlyvolatilityincommoditiesbutalsodramaticallynewwaysof working that are creating challenges. Thats what 185 leading companies toldusinthisyearsAssessmentofExcellenceinProcurement(AEP) study. But if there is one place we all know we can drive real money to the bottom line, and value to the top line, its through procurement and theAEPresultsshowsevenwaystheleadersproduceresults.Itsnot justbusinessasusual,itsbusinessasunbelievable.Thereisanother wave of new thinking on the way. A.T. Kearneys 2011 Assessment of Excellence in Procurement(AEP)studyndscorporatepro-curement functions becoming a more vital, strate-giccorporateplayer.Inthepastthreeyears,90 percent of study participants procurement and supply chain executives from more than 185 lead-ingcompaniesacross32differentindustries haveincreasedprocurementsroleindeveloping andexecutingbusinessstrategies.Atthesame time,procurementleadersareextractingmore benetsandusingbettergovernancetoimprove performance both internally and externally. Thendingsareclear:Procurementhas greater stature, more inuence and a wider reach than ever before.Greater Inuence, Wider ReachWhentheAEPstudybeganbackin1992,pro-curementwasprimarilyaback-ofcefunctiondealingwithrequisitions,bidding,orderplace- ment,receivingandpayment.Steadilyoverthe years,procurementhasshiftedresourcestoward activitiesthataddvaluetothecompany,with nearly three-quarters of staff members now devoted to strategic activities. Procurement has also moved up the organizational ladder with nearly two-thirds ofprocurementfunctionsreportingtoaC-level executive today. (The study parameters are discussed in the About the Study sidebar on page 2.)Letslookathowprocurementhaschanged, reected in the 2011 AEP ndings:Strategicdirection.Procurementhasa broader,morestrategicmandate.Itsinuence and reach are at an all-time high and its responsi-bilities are accepted by the broader organization.1 Ninety percent of study participants say procure-ment has a larger role in developing and executing thecompanysbusinessstrategy,andwhilestill being held accountable for bottom-line efciencies, leadingprocurementorganizationsarebecoming more strategic, playing an active role in develop-ing and executing top-line strategies for growth.1 The word influence within the context of procurement means 1) procurement sourced or assisted in the sourcing process, 2) procurement is involved in the contracting process, or 3) purchases go through a full procurement-designed and -supported system.FOLLOW THE PROCUREMENT LEADERS|A.T. Kearney 2 Value-addingprocesses.Morecompanies havesourcingmethodologiesandprocessesin place, and are generally adept at using competitive supplierselectionexercisestotakeadvantageof theirpowerinthesupplybase. Technologycon-tinues to play a key role in that process, with the top13companiesinourstudy(allidentiedas procurementleaders),andtwo-thirdsofthe remainingcompanies,almostuniversallyusing technological solutions. About the Study A.T. Kearneys 2011 Assessment of Excellence in Procurement study is the seventh in the series since 1992. The objective of this latest study is threefold:Evaluate how procurement has progressed since 2008Determine how ready procure-ment is for the futureIdentify lessons learned from leading procurement organizations The study includes input from procurement and supply chain exec-utives from more than 185 leading companies across 32 different indus-tries in the manufacturing, process industries and services sectors, with average annual revenues of approx- imately $12 billion. Participants are from all regions of the world: 51 percent from Europe, the Middle East and Africa, 27 percent from the Americas, and 22 percent from Asia-Pacic.Participants completed a com-prehensive online survey with more than 1,000 elements spanning eight dimensions of purchasing and supply management covered by our House of Purchasing and SupplySM (see gure). The 13 study leaders all met three criteria:Top overall scoresStrong, world-class performance in at least three dimensionsAbove average overall perfor-mance in all dimensionsThe survey included questions to address our ROSMA frame-work, discussed in detail on page 6.Companies that participate in AEP receive a copy of the nal paper, a comprehensive individual feedback report comparing their performance to industry, geographic and revenue peers and to the study leaders, and detailed recommenda-tions for improvement.Participants also receive a sepa-rate ROSMA feedback report that compares their performance to others in the study and outlines specic actions to drive higher performance.As in past AEP studies, the database will remain open and the study ndings will be periodically refreshed. If your company has not yet participated, we invite you to do so. Please contact [email protected] for more information.Figure: A.T. Kearneys House of Purchasing and SupplySM forms the basis for the AEP studySource: A.T. Kearney analysis Source: A.T. Kearney analysisSupplymanagement strategyPerformance managementInformation and knowledge managementHuman resources managementOrganizational alignmentSupplierrelationshipmanagementOperatingprocessmanagementSourcingand categorymanagementFOLLOW THE PROCUREMENT LEADERS|A.T. Kearney 3The next frontier is in developing long-term category management strategies where collabo-rationwithkeysuppliersisameanstocreate value.Thisrequiresrstunderstandingwhich suppliersarecoretomeetingtodaysbusiness needsandachievingtomorrowsbusinessstrate-gies, and then engaging them to help you. Measurement,informationandHR.Three areas performancemanagement,knowledge andinformation,andhumanresourcesarekey to a successful procurement organization. This is where it pays to invest in new approaches to mea-sure performance, more sophisticated technology toembedbestpracticesandbroadenedprofes-sionalsskills. WetalklateraboutA.T.Kearneys ROSMA,anewapproachthatbringsmuch-needed clarity and accountability to the procure-mentfunction(seesidebar:ROSMA:Measuring Procurements Impact on page 6).Follow the Leaders As part of our study, we identied 13 companies thatdemonstrateconsistentlyhighlevelsofpro-curement performance, and are strategic contrib-utors to their businesses. How do they stand out? Whatmakesaprocurementleader?Wefound seven characteristics that all 13 companies share: 1.Alignwiththebusiness.All13ofour leaders understand that the procurement strategy must align with overall business goals. They have 85 percent alignment on average, compared to 37 percentfortherestinourstudy.2Theyengage morewithotherbusinessfunctionsandtake advantageofsupplymarketopportunities goingbeyondthemoretraditionalareas(trans-portation,IT,engineering)toalsoengagewith R&D, marketing, nance, customer support and legal, having an impact on more than 94 percent of external spend, compared with 71 percent for the rest. As a result, the leaders were considerably moreagileandbetterpreparedtoreacttothe 2008 nancial crisis, which allowed them to save 50 percent more than the rest of our study partic-ipants in 2009.2.Contributetothetopandbottomlines. The top companies consistently outperform other studyparticipantsincontributionstotop-and bottom-linestrategies.Roughlythree-quartersof procurement leaders say they contribute to inno-vation,integratesuppliersintothenewproduct developmentprocess,reducetime-to-marketfor new products, and create new business opportuni-ties with suppliers. Only one-quarter of followers perform in this way. And the leaders are twice as likelytoaffectthebottomlinebyincreasing total value of purchased goods, building synergies acrossdivisionsandbusinessunits,collaborating withotherbusinessunitsandkeysuppliers,and improving working capital. 3. Manage risk systematically. The headlines of the past year have highlighted one supply chain disruptionafteranother.Oursurveyndsthat procurementleadersexcelatmanagingrisk. The majorityuserisk-impactanalysis,nancialrisk management (such as hedging) and disaster plan-ning as ways to protect against unforeseen threats. Bycontrast,justoneinvefollowersusesuch riskmanagementactivitiesinprocurement which means about 80 percent of companies are anaturaldisasterawayfromamajordisruption (see gure 1 on page 4).4.Usesupplierrelationshipmanagement, consistently.Leadersusesupplierrelationship management(SRM)processesmoreconsistently thanfollowers.Andtheybackuptheirclaims thatastructuredprocessdrivesstrategic valueby pointing to improvements in innova-tionandgrowth,bettermanagedriskandvastly 2 In determining alignment we compared 14 business goals with 30 elements of procurement strategy.FOLLOW THE PROCUREMENT LEADERS|A.T. Kearney 4improvedsupplychains.Theyregularlyserveas leadorco-leadinveareas:managingstrategic suppliers,expandingthesupplybaseintonew markets,monitoringcomplianceandriskman-agement,performingjointinitiatives,anddevel-opingsupplierscapabilities(seegure2).The leaders also tend to be forward-thinking, identify-ing opportunities with suppliers, detailing imple-mentation plans and creating incentives. 5.Tailorcategorystrategies.Leadingpro-curementorganizationsusemoreadvancedtool-kits systematicallyemployingmorethantwice as many methods as the followers to tailor their approachestoeachsituation.A.T.Kearneys PurchasingChessboardoutlines64methods procurementorganizationscanuseindealing withsuppliers.3Still,therearemoremountains toclimb as morecomplex categories willrequire closercollaborationoreventhepursuitofjoint advantage with suppliers.6.Adopttechnology. Theleadershavemore controloverwhattheyspendbecausetheyhave technologythatallowsformorevisibilityinto spending.Theyalsohavestandardizeddata, with75percentofleadershavingstandardized itemcodesfordirectproductsandservices, comparedwith45percentoffollowers.And 85percentofleadersareabletotrackand reportspendingbysupplierandcategoryfor virtuallyallareas,comparedwithjustone-third offollowers.Inaddition,mostleadersarefully automatedwithreal-timeaccesstodataand aremilesaheadinadoptingthekindsoftech- nologyneededtosupportcontractmanagement and compliance.7. Win the war for talent. All 13 rms are threetofourtimesmoreforward-lookingand bold in their approaches to recruiting and retain-ingtoptalent(seegure3).Mosthavesophisti-catedrecruitingstrategies,includingestablishing Figure 1More than 80 percent of followers are a natural disaster away from a major business disruptionLeaders LeFollowers Fo FoRisk impact analysisScenario planningDisaster planning andsecondary supply sourcesFinancial risk management(such as hedging)Continuous risk monitoringRespondents (%) whose companies use these approaches systematically for all relevant categories Source: A.T. Kearneys 2011 Assessment of Excellence in Procurement study75%69%22%46%11%17%54%18%69%18%3 For more information, please visit www.purchasingchessboard.com.FOLLOW THE PROCUREMENT LEADERS|A.T. Kearney 5Figure 2Procurement leaders play a more active role in managing supplier relationshipsLeaders LeFollowers Fo FoManage life cycle ofstrategic suppliersExpand the supply baseinto new marketsDevelop supplierscapabilitiesPerform jointoperational initiativesEnsure compliance andrisk managementRespondents (%) selecting lead or co-lead when asked about procurements level of involvement in SRM*Source: A.T. Kearneys 2011 Assessment of Excellence in Procurement study *SRM is supplier relationship management62%85%57%77%42%47%69%32%77%34%Figure 3Leaders are taking more aggressive steps to recruit and retain top talent% participants selecting mostlyor fully appliesLeaders LeFollowers Fo FoMaintain relationship withuniversities that have leadingsupply chain programsEmploy summerinternship programsRequire a rotational tourin procurement forqualified candidatesRecruit and attractexperienced,skilled individualsSeek new talentfrom universitiesSource: A.T. Kearneys 2011 Assessment of Excellence in Procurement study83%75%13%67%19%21%66%13%37%50%Use many communicationchannels (such as blogsand Twitter)Reward analyticalspecialistsEstablished practicesEmerging practices33%8%33%13%52%39%46%10%52%45%64%22%23%18%6%27%28%30%Followers selecting does not apply2011 2014FOLLOW THE PROCUREMENT LEADERS|A.T. Kearney 6relationshipswithuniversitiesthatofferleading supply chain programs and using summer intern-shipprograms.Andtheyaremoresystematicin managingamorediverseanddispersedwork-forceusingonlinecollaborationtechnologies and offering part-time work and exible hours. What Will Procurement Look Like in 2015? Weveseenmonumentalchangeintheprocure-ment function over the past two decades, and we expectthattocontinue. Whatcanweanticipate in the next ve years? Emergingmarketswillreign.Sourcinghas skyrocketedinemergingcountriesinthepast threeyears.TheBRICnations Brazil,Russia, IndiaandChinahaveexperiencedthemost growth,withfarmorecompaniessourcing10 percentormoreoftheirspendfromtheseloca-tions.Amongourstudyparticipants,morethan halfsaytheyexpecttoincreasetheirspendin China, India and other Asian countries.SRM will be mandatory. No successful com-panywillbewithoutanSRMstrategy.Overthe next three years, SRM is expected to drive 40 per-ROSMA: Measuring Procurements Impact The question for procurement pro-fessionals is how to improve perfor-mance. Thats where A.T. Kearneys Return on Supply Management Assets (ROSMA) framework comes in. As business leaders need more visibility, better governance and key performance indicators (KPIs) from their supply manage-ment organizations, we built a framework that brings new clarity, rigor and convention to the pro-curement function.ROSMA is a new nancial tool that translates the value created by procurement and the related invest-ments into a metric that captures the CFOs attention and allows supply managers to compare and improve their performance. ROSMAs main attributes: Provides a sustainable framework to manage performance Offers insight into supply man-agement value drivers, enabling CPOs to set their agendas and optimize performanceAffords a platform for discussions with stakeholders Uses language that resonates with CFOs, including metrics accepted by the nancial communityBenchmarks performance on a peer-to-peer basis or among industries We measure return on supply management assets by dividing nancial results delivered by the required investments in supply man-agement assets. Financial results are calculated by combining spend cov-erage, spend velocity, category yields, compliance and additional benets. Invested supply management assets combine period costs with struc-tural investments (see gure). When applied to the AEP 2011 participants data, our ROSMA analysis reveals signicant differ-ences between leaders and followers in nancial performance, and dem-onstrates that pursuing excellence in procurement pays big dividends. For example, the leaders average economic performance of procure-ment (EPP) score is 7.3 compared to 4.6 for followers. This means that for each dollar invested in procure-ment assets, leading companies deliver nearly 60 percent more nancial benets.ROSMA lets one delve into the details. We used it to nd out exactly why AEP leaders do so much better than followers, and discovered that the leaders do the following:Inuence more spending. Procurement inuences about 94 percent of leaders spend compared to 71 percent for followers, mean-ing much more is professionally managed. Leaders are also more aggressive in pursuing market opportunities and conduct about 2.5 times more sourcing events. FOLLOW THE PROCUREMENT LEADERS|A.T. Kearney 7cent of procurements value-add. We are not talk-ingonlyabouttodaysSRMactivities those focused on reducing total cost of ownershipwe also mean the bigger and broader activities such as increasingresourceutilizationandmaintaining exibility in the supply base. Supply management organizationsandtheirstrategicsupplierswill have to be at the forefront of innovation.Peoplewillhavetoberazorsharp.Aspro-curementbecomesmorecross-functional,pro-curement professionals will have to have business smarts. Technical skills in specic disciplines will be the price of admission, so success will depend on expertise in change management, project man-agement and stakeholder engagement.ProcurementwilllookforBlackBelts. Procurement will take a page from manufacturers playbookstogainvisibilityintospendingand processes. Why not use the principles of Six Sigma to actively manage the sourcing pipeline, validate sourcingresultsanddeneaccountability?Why not RASIC?4 Individual key performance indica-tors? Transparent reporting on planning and per-formance? All will be in play in 2015.Get more from sourcing. The leaders generate higher yields from sourcing efforts: 8.2 percent versus 6.4 percent, due in part to the array of methods used. Once contracts are in place, leaders achieve a 90 per-cent compliance rate compared to followers 79 percent, and generate twice the additional benets from areas such as working capital, sup-plier innovation, and joint process improvement.Are more productive. The cost of procurement as a percent of the spend it inuences is 0.8 percent for leaders, versus 1.1 percent for follow-ers. Spend inuenced per procure-ment employee is nearly 20 percent higher for leaders.An upcoming white paper will provide additional details on ROSMA.Figure: ROSMA establishes a link between procurement performance and financial impactSource: A.T. Kearney analysisWhat is procurements influence over total third-party spend (considering visibility and governance)?How fast does procurement address its spend?What does procurement deliver in terms of savings and other financial benefits?How well are negotiated agreementsand policies followed and enforced?What other financial benefits does procurement deliver?Calculate periodic costs, including people and externalsupportCalculate investments inprocurement infrastructure and capabilitiesReturn on supply management assetsFinancial resultsdeliveredSpendcoverageVelocityCategoryyieldsComplianceAdditionalbenefitsPeriodcostsStructuralinvestmentsInvestments in supplymanagement assets 4 RASIC is a management tool for defining roles and responsibilities on a project or for a business activity. The initials define whether a person is responsible, approving, supporting, informed or consulted.FOLLOW THE PROCUREMENT LEADERS|A.T. Kearney 8Performance, Performance, PerformanceThe years ahead will be challenging. There will be morepressurefromnear-termeconomicuncer-tainty, long-term macroeconomic trends and more wildcardeventstocausemajordisruptions. Managing supply and suppliers will be crucial. Whatcanwelearnfromtheleaders?Align procurementstrategywithbusinessneeds.Make suresuppliersareaboardandreadytosupport your strategic direction and help eliminate unnec-essary costs. Speed innovation by nding external sources of ideas and capabilities. Understand and manage the full range of supply risks before they happen. Justify investments, focus resources, and push for sky-high results. And three more:Get collaborative: Break down internal silos and bring suppliers into the companys processes Get creative: Attract, motivate, retain and capital-ize fully on the skills of the changing workforceGetconnected:Focusontechnology,thekind thatwillfundamentallychangeprocesses,not just automate them. The mantra now is performance, performance, performance. Those that put these three words at the forefront of their supply management vocabu-laries can sit back and watch the results roll in.A.T.Kearneyisaglobalmanagementconsultingrmthatusesstrategic insight, tailored solutions and a collaborative working style to help clients achieve sustainable results. Since 1926, we have been trusted advisors on CEO-agendaissuestotheworldsleadingcorporationsacrossallmajor industries.A.T.Kearneysofcesarelocatedinmajorbusinesscenters in 38 countries.AMERICASAtlanta|Boston|Chicago|Dallas|Detroit|Mexico CityNew York|San Francisco|So Paulo|TorontoWashington, D.C. EUROPEAmsterdam|Berlin|Brussels|Bucharest|CopenhagenDsseldorf|Frankfurt|Helsinki|Istanbul|Kiev|Lisbon Ljubljana|London|Madrid|Milan|Moscow|MunichOslo|Paris|Prague|Rome|Stockholm|StuttgartVienna|Warsaw|ZurichASIA PACIFICBangkok|Beijing|Hong Kong|Jakarta|Kuala LumpurMelbourne|Mumbai|New Delhi|Seoul|ShanghaiSingapore|Sydney|TokyoMIDDLE EASTAbu Dhabi|Dubai|Johannesburg|Manama|Riyadh& AFRICAFor information on obtaining additional copies, permission to reprint or translate this work, and all other correspondence, please contact:A.T. Kearney, Inc.Marketing & Communications222 West Adams StreetChicago, Illinois 60606U.S.A.1 312 648 0111email: [email protected] 2011, A.T. Kearney, Inc. All rights reserved.A.T. Kearney Korea LLC is a separate and independent legal entity operating under the A.T. Kearney name in Korea.ATK.0911.190