giving procurement a voice - steve malone at pfh live 2015
TRANSCRIPT
What is the opportunity?
Recent research by Accenture identified that organisations with high performing procurement functions achieve procurement savings that are 30% higher than low performers yet cost about half as much to run. They identified that a relationship exists between procurement ‘excellence’ and superior financial performance. The disappointment though is that most organisations fall short of ‘excellence’ for strategic and process reasons.
£millions Decreasing external spend by 10%
Increasing revenues by 10%
Decreasing labour by 10%
Revenues £14,860 £14,860 £16,346 £14,860
Non addressable costs £3,994 £3,994 £4,397 £3,682
External costs £7,017 £6,315 £7,683 £7,017
Operating surplus £3,850 £4,551 £4,266 £4,161
Change in net surplus (£) £701 £416 £311
Change in net surplus (%) 18.2% 10% 8%
MarketChallenges
Revenue pressure – welfare reform etc
EU regulatory changes
Funding & borrowing challenges
End of decent homes
Skills & materials shortages
Projected construction inflation – C.18%
FunctionalChallenges
40%Sourcing & Category Manage-
ment
30% Compliance
20%Aggregation
10%Other Efficiencies
Average Performance Range
Sector Leading Performance Range
Client
ConsultantsProfessional
Services
Main contractor
Sub-contractor
1
Sub-contractor
2
Sub-contractor
3
Sub-contractor
4
Sub-contractor
5
Sub-contractor
6
Sub-sub contractor
Materials supplier
Materials supplier
Materials supplier
NEEDS: Low cost, good quality
NEEDS: High fees, acceptable quality
NEEDS: High final price to maximise profit
NEEDS: Payment on time
Potential for conflict & additional costs at each interfaceStructure re-assembled for each project
Conflict
Conflict
Conflict
Conflict
Conflict
Inappropriate allocation of risk
Lack of information &
data
Adversarial culture
Poor management /
project management
Little investment in innovation
Low and discontinuous
demand
Inappropriate selection criteria
Frequent changes in specification
And the outcome is…..
At the point of contract award? 65% of contracts unravelling before
their full term
Costs out of sync with other sectors
i.e. new build
Significantly more re-specifying than
other sectors
Over specifications
Typical over-runs
Fluctuating satisfaction levels
Increased lifetime maintenance costs
Value Leakage
What is procurements sphere on influence?
People
Funding / legal / insurance
Development
Asset Management
Energy
Indirect
The fundamental building blocks
Savings
EfficiencyCompliance
Leading procurement organisations achieve 1.7 times the
profit growth
Leaders have 30% additional
savings compared to
lowest performers
Leaders procurement function costs
50% less compared to
lowest performers
The average additional cost
for non compliant
spend is 22%
Identify
What WhyHow
Achieve controlLeverage the organisations
potentialUnderstand where to prioritiseUnderstand where value can be
createdVisibility & forward planning
34% increase in spend under management
5 – 12% increase in savings on total spend
Spend analysisProcurement, compliance &
VfM analysisSupplier appraisal
Health checkStrategy, policy & procedure
reviewTechnology review
Capability appraisalRisk analysis
What WhyHow
Delivering short & medium term savings
Optimising the procurement process
Ability to measure performancePrioritisation – savings, risk &
complianceTransparency
Average achievement of 15%+ in savings
Reduction in supply baseDevelopment of strategic
relationships
Spend transformation, VfM statements & benchmarkingLean process transformation
Strategic sourcing & contract re-negotiationFrameworks
Contract alignmentCategory planning
Risk strategyTechnology & data efficiencies
Realise
What WhyHow
Increase savingsCost avoidance
Mitigate savings leakageLeverage strategic supplier relationships to redesign
services & productsDrive efficiencies through embedded technology & process transformation
3 – 12 x RoI22% improvement through
compliance on cost maintenance
15-40% reduced procurement operating cost through the use
of technologySpend under management
greater than 90%Cost avoidance
Supplier managementContract managementSourcing & renewals
Category managementDemand management /
innovation / process improvement
Market analysisExternal benchmarking
Risk managementTechnology implementation
Maintain