Download - Beyond Procurement Survey Results
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Executive summary
1 Source: Beyond Procurement online survey
• Procurement is under constant and increasing pressure to deliver more, however the development of new solutions has evolved at a slower pace than the growing expectations.
• The contribution of the function could be significant to yield higher levels of firm-wide productivity, yet is often confined within current mandate to drive compliance and cost savings
• The survey aimed to identify “what‘s next” for the function, moving from securing supply to globally and holistically managing company spend, and specifically to validate the hypothesis that the biggest impact would come from the following options: a) Better leverage the supply base to spark greater innovation b) Apply and combine proven productivity approaches across the entire cost base
• 119 participants: Experienced professionals in mid- or high-level managerial positions (incl. CPOs, COOs, CFOs) from various functions (e.g. procurement, finance, business) and industries (e.g. Engineering/Manufacturing, FMCG, Pharma) to get an exhaustive rather than single dimensional overview on the topic
• Geographic focus on Europe, North America, and Asia
Purpose of the survey
Reach and relevance
Results and findings
• “Innovation Sourcing” and “Total Cost-Base Management” come out as the two most promising options in terms of performance and feasibility, which validates the survey hypothesis
• “Global Business Services” expected to continue delivering high returns, although the approach appears to be already implemented in many organizations
• Looking forward, participants plan greater external involvement via “Extended SRM” (e.g. helping build LSS capabilities at suppliers) to deliver additional value. However the function may lack the required capabilities to drive further
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TCBM2
Extended SRM3
Sourcing Innovation
From a long list of productivity options, the survey distilled four concrete approaches to deliver high results
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1 Based on implementation priority and return performance; 2 Total Cost Base Management; 3 Extend SRM building up lean/6-sigma capabilities at suppliers
Source: Beyond Procurement online survey
TCBM2
Global Business Services
Sourcing Innovation
Importance1 today
Importance1 in the future
Top 3 options for procurement voted1 Four main productivity options to pursue
THE CHAMPIONS Both options Sourcing Innovation and TCBM2 rank amongst the highest in terms of implementation priority as well as actual / expected return (ranging from 4 – 5 %); today as well as in the future
THE NEWCOMER Extended SRM3 shows the highest increase in importance. An average return of ~5% ist expected from this option
THE VETERAN Continuing to deliver high returns of ~5%, participants still highly value GBS, but do not expect further implementation efforts
Focus of the next pages
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Deep dive discussion of top option: Innovation Sourcing
Source: Beyond Procurement online survey
• Better leverage the supply base’s potential to drive product and process innovations by defining a well-managed and replicable process
• Recognize and incentivize for “innovation sparks” at suppliers through a burning platform that considers elements of close relationship as well as extraordinary pressure
• Preserve disruptive innovations from getting rejected in their early development phase through internal skepticism and biased review process
Description of productivity option
Survey results1
Implementation priority
today future Comment
Actual / expected return
Organizational readiness
Capability proficiency
Very high
Very high
Respectively ranking #2 (today) and #1 (future) – out of 10
About 5% annual productivity increase expected
Average to high
One of 3 top options that are supported / required by the org.
n/a Currently only some professionals show the required capabilities
1 Detailed results and scores - please refer to backup
Very high
Very high
Average
n/a
Survey item
Average level,
Upcoming research on…
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…how to leverage potential:
§ How can procurement ensure to “trigger and spot innovation sparks”?
§ What is the right supplier management / relationship / governance to improve suppliers‘ innovativeness?
§ How can the function overcome allergies to disruptive change internally?
…how to increase procurement‘s capabilities:
§ Which profile of a procurement professional required for innovation sourcing?
§ What are appropriate performance measures for sourced innovations?
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Deep dive discussion of top option: TCBM
Source: Beyond Procurement online survey
Description of productivity option
Survey results1
today future Comment
Organizational readiness
Capability proficiency
Very high High Respectively ranking #3 (today)
and #5 (future) – out of 10
Expected return increases from ~4% to ~5%
Average Amongst top 60% of options that are supp. / required by the org.
n/a Average proficiency level of procurement professionals
1 Detailed results and scores - please refer to backup
High Very high
Average
n/a
Survey item
Average level,
Upcoming research to…
… better understand:
• What industries and areas (F&A, Commercial, Production,…) are best suited for TCBM?
• Key drivers and initiators behind adopting approach?
• Which processes / functions other than Procurement, LSS, and O&O are typically included in TCBM?
• Major organizational barriers and how they were overcome?
… validate:
• Actual % savings returns generated by TCBM
• What other KPIs/metrics are used to demonstrate versatility of new combined organization
• Increase in Sr. Execs in organizations who’s career included TCBM
Implementation priority
Actual / expected return
• Comprehensive method of managing all costs, both internal and external.
• Combines existing functions like Procurement, Offshoring & Outsourcing (O&O), and Lean / Six Sigma (LSS) into a single organization, with robust project management approach
• Offers end-to-end cost management team which help organizations diagnose, drive, and deliver optimization projects
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BACKUP
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Overview of survey results – Performance measures
6 SOURCE: Beyond Procurement online survey
Top line contributor
Sourcing innovation
TCBM1
GBS2
Risk protect. / mgmt.
Take over operations
Next level collab. buying
Int. consultant
Extended SRM
Embed func. Into bus
Option
Implementation priority Positive answers in percent
Today / status quo
Estimated return In percent
Total performance score In percent
Future outlook
52
43
67
26
56
77
62
68
70
60
3,7
3,3
3,2
4,4
2,5
2,3
4,8
4,2
2,9
4,0
19
13
44
0
15
8
58
57
87
50
55
65
70
59
44
74
55
62
74
56
3,7
4,8
4,5
5,3
2,6
3,6
5,0
5,2
2,9
4,8
27
58
34
18
0
0
38
48
88
40
Implementation priority Positive answers in percent
Estimated return In percent
Total performance score In percent
Top 3 options per item
Number of “yes” answers compared to total answers of whether option is (currently being) implemented
Actual / estimated return per option as implemented / planned at the moment
Importance score of current situation of options combining indices of the prior two questions
Expected return per option for the future
Importance score of current situation of options combining indices of the prior two questions
Number of “yes” answers compared to total answers of whether to implement option in the future
1 Total cost base management 2 Global business services
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Overview of survey results – Feasibility measures
7 SOURCE: Beyond Procurement online survey
Top performing options in terms of implementation priority and expected returns (see previous page)
2
3
4
2 3 4
Organizational readiness Grades: 1 (low) to 5 (high)
Embed function in bus.
Extended SRM
Int. consultant
Next level coll. buying
Take over operational act.
Risk protect.
GBS TCBM
Sourcing Innovation Top line contr.
Capability proficiency Grades: 1 (low) to 5 (high)
Willingness of the respondents’ company to implement
Skills / ability of the procurement function to successfully drive the respective option forward
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Identified “Top Ten Options” for Procurement to drive company-wide productivity (1/2)
Leverage the process, transferable skills, and internal capabilities to impact sales growth. Examples of this include training the sales team on negotiations, applying mastery of contracts in the areas of business development or licensing, or creating a new offering all together which can then be offered to external customers.
Top-line contributor
Comprehensive risk management
Global business services
Total cost base management
Innovation Better leverage the supply base’s potential to drive product and process innovations by recognizing (and even creating) “innovation sparks” and developing them through a well-managed and replicable process. Since innovation is best triggered not by adding money but rather when facing financial constraints, the pressure to realize savings can represent a useful burning platform.
Beyond the specific role of ensuring compliance when committing funds to 3rd-parties, this area seeks a more comprehensive and proactive approach to mitigating risks for the company. For example moving from the usual approach of having key categories supported by back-up suppliers to a full supply risk management and business continuity plan.
Combining proven approaches and processes such as Demand Management , LEAN/Six-Sigma, and Offshoring & Outsourcing, offering a broader range of solutions to internal stakeholders. This also allows Procurement’s scope to expand beyond 3rd-party spend.
An approach adopted by many leading global organizations, which streamlines non-customer facing activities and aggregates them into an internal unit that services the rest of the business.
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2
3
4
5
SOURCE: Beyond Procurement online survey
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Often as a result of category projects Procurement can be left holding the operational responsibilities when the function which previously owned it is reduced or in some cases outsourced (e.g. Travel, Fleet, Facility Management,...).
Take over operational activities
Embed function into business
Extended SRM (building lean / 6 sigma capabilities at suppliers)
Internal consulting / Project management
“Next level” collaborative buying
In contrast to the various current forms of consortium buying, this approach recognizes the risks of collaborative sourcing and capitalizes on Procurement’s ability to scan joint buying opportunities but de-risk the benefit stream through the creation of individual joined ventures focused at narrow categories of spend.
Take a critical look at Procurement’s scope and identify which categories of spend are better managed centrally (typically general/corporate spend etc...), as well as infrastructure related activities (Guidelines, Training, Talent Development,...), and consider embedding the Procurement resources for more customer –focused categories directly in the line-functions.
Since most category initiatives are usually complex initiatives which require cross-functional leadership skills and strong stakeholder engagement, Procurement could take these skills to the next level and turn into an internal capability which offers an alternative to external consultants.
A variation of some others above, this applies the LSS process early in the production cycle by ensuring a clear and relentless focus on the Voice of Customer, removing all activities considered non-value added and which bring unnecessary costs. There have been many good examples of this in the Direct areas, but not as many in the Indirects categories.
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8
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SOURCE: Beyond Procurement online survey
Identified “Top Ten Options” for Procurement to drive company-wide productivity (2/2)
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Questions from online survey
Source: Beyond Procurement online survey
Future expectations
LOOKING AHEAD - In the next two years: • Please indicate which of the listed Top-10 options' are planned to be rolled-out
(i.e. implementation importance) • If so, what return is expected for each option • What function will be responsible for driving the implementation / taking the
option over
Organizational readiness
• Please answer for each option what is TODAY the level of Organizational Readiness (i.e. the willingness of your company to implement it). Answer using range of 1 (very low) to 5 (very high).
Capability proficiency
• Please answer for each option what is TODAY the Capability Proficiency (i.e. skill / ability of the Procurement function to successfully drive). Answer using range of 1 (very low) to 5 (very high).
Status quo LOOKING BACK - In the past two years: • Please indicate which of the listed Top-10 options have been implemented (i.e.
implementation importance) • If so, what return was achieved for each option • What function was responsible for driving the implementation / taking the option
over
PERFORMANCE
FEASIBILITY
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Survey statistics of participants and their companies
Total number of participants: 119
26
1810
18
28> 26
11 - 25 6 - 10
1 - 5
< 1 21
16
24
24
15> 100
1 - 10
10 - 50
50 - 100
< 1
Employees [1000 FTE] Revenue [EUR bio]
24
6677 10
40
Utilities Biz Services
FMCG Eng./Manuf.
Pharma
Telecom
Other 10
23
65
Other 2
Asia
NA
EU
810
10
72
Finance Biz Stakeholder
COO/CEO
Procurement
Function Geography Industry
Source: Beyond Procurement online survey 11
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Prof. Dr. Michael Henke Head of Institute Phone +49 611 7102 2100 [email protected] www.ebs.edu/iscm
Dr. Daniel Hollos Project Manager for Industrial Research Projects Phone +49 611 7102 2138 [email protected] www.ebs.edu/iscm
Additional contacts - Authors and contributors to the survey:
Dipl.-Ing. Matthias Kaesser External Doctoral Candidate (on educational leave at McKinsey & Company) Phone +49 89 5594 8586 [email protected] www.ebs.edu/iscm
Sammy Rashed, MBA Global Head of Productivity Strategy & PMO, Novartis Pharma AG Executive Partner for Corporate Research, Institute for Supply Chain Management Phone +41 79 593 9121 [email protected]
Giles Breault, MBA, C.P.M., MCIPS Former CPO, Roche & Aventis, Head of Global Productivity and Business Services, Novartis Pharma AG Chairman of Advisory Board – Procurement Leader Network Phone +41 79 820 3706 [email protected]
Aut
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Practitioners Academia EBS Business School, Institute for Supply Chain
Management – Procurement and Logistics
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