The Director’s Report: DRIVING BUSINESS VALUE THROUGH

PROCUREMENT By Marissa Alvord, Program Director, ProcureCon Canada

This report was prepared using data gained from 6 weeks of intensive research and interviews with industry leaders.

CANADA

CANADA

While the effects of the economic downturn of 2008 were felt in every corner of the globe, its impact on the Canadian economy was not as pronounced as it was on the economies of the United States and Western Europe. In the United States, companies responded to the downturn by rethinking corporate structures and developing new ways to improve their bottom lines. One of the primary innovations American businesses developed was the transformation of procurement into a strategic, centralized function. Over time, US companies shifted away from procurement models focused solely on cost-savings and vendor management in favor of procurement departments responsible for driving revenue and creating real business value. It has become increasingly clear that the procurement department can deliver great value to the bottom line very rapidly.

Because this innovation was born of necessity, Canadian companies did not experience the same sense of urgency to adopt this new paradigm. Canadian companies have traditionally lacked centralized procurement departments, leaving many departments and business owners to handle their own purchasing. This paradigm is changing, however, and we are seeing a shift in Canada to a more centralized procurement structure in which all purchasing comes through the procurement department. Like all organizational shifts, this has led to some resistance to change. As a result, procurement teams are now tasked with developing more precise purchasing knowledge while conveying to business leaders the value procurement can bring to business as a whole.

Creating a centralized and efficient procurement department requires lots of capabilities including ERP systems to cut POs and manage orders, spend analytics tools to get a clear picture of spend, market intelligence to make informed decisions, vendor management tools to ensure relationships with suppliers are well managed, risk management software to assess and manage the risks associated with sourcing in a global market place, eProcurement solutions, Pcards for staff purchasing within a certain threshold, reverse auctions to get a competitive price in an RFP, and Procure to Pay software to integrate purchasing with the accounts payables department.

One of the biggest shifts we’re seeing is a move from transactional vendor relationships to true supplier partnerships. On both sides of the supplier relationship, parties are looking to establish true partnerships that will deliver supplier innovation. True supplier innovation means partnering with a supplier to reduce cost and add value, such as reducing product packaging to achieve cost savings and become more sustainable.

With procurement teams tasked with delivering maximum business value, simple cost cutting is no longer an adequate strategy. Instead, procurement departments must begin thinking more innovatively about creating additional revenue streams.

From a talent perspective, as procurement teams expand, junior buyers are entering the ranks, many of whom lack some of the soft skills and market knowledge necessary to do the job. Companies in the US and Canada are experiencing a talent shortage. Additional training is needed to bolster skillsets and succession planning is becoming a priority as seasoned procurement professionals prepare to retire.

The ever-changing global marketplace requires procurement to keep up-to-date with global markets, commodities, news, and risk. Economic fluctuations contribute to the foreign exchange rate, which has huge implications for a company’s decisions about offshoring or re-shoring. Developing a presence in Asia presents additional challenges for risk mitigation and quality assurance. Finally, supply chains are susceptible to a variety of risks at any moment, from natural disasters to geo-political tension to conflict. Procurement teams must have contingency plans in place to ensure the supply chain is not disrupted.

With a variety of important new challenges and opportunities facing Canadian procurement departments, it is more important than ever for procurement professionals to exchange best practices and learn how best in class procurement teams are performing. ProcureCon Canada is the only forum for those professionals to make the connections and develop the knowledge necessary to transform their procurement departments into centralized profit centers.

The Director’s Report: Driving Business Value Through Procurement

Canadian Procurement Teams Evolving Into Strategic Centralized Sourcing Centers

CANADA

CANADA

“I think the bleeding is over. We still have competitive pressures, but what I’m saying is that the industry is in position to take advantage of the stronger U.S. economy and the fact that the dollar has depreciated by 10 per cent is also significant.”

– Benjamin Tal, Deputy Chief Economist, CIBC, April 2014

Now more than ever, procurement departments have to effectively manage internal stakeholder relationships and overcome resistance to change.

As procurement has become a centralized function, procurement departments have worked to align with other business units in order to deliver maximum value. This has meant the consolidation of purchasing responsibilities under the centralized procurement division, which has had to develop a deep knowledge of each individual business unit. The challenge for these centralized procurement divisions will be to effectively align critical business goals with procurement goals in order to generate comprehensive business value.

Cost cutting is no longer enough; procurement divisions must deliver value and drive revenue through innovation.

In the shift from transaction-driven to business-driven, procurement departments must seek out new ways to drive revenue and deliver greater value to the business. In order to create greater business value, procurement divisions are focusing on a variety of competencies and capabilities, including process automation, integrated solutions, data analytics, spend analytics, and risk management. The relationship between procurement departments and suppliers has evolved into a partnership, rather than a transactional vendor management approach. This in turn has helped to drive supplier innovation.

The globalized nature of modern procurement presents an array of unique challenges and opportunities. Shifts in foreign exchange rates can have huge impacts on a company’s ability to buy offshore. Rising labor and

energy costs in Asia can affect material pricing and availability. And changes in government policies like customs procedures, tariffs, and trade regulations can sway purchasing decisions. Procurement teams operating in the global marketplace must keep up-to-date with a myriad of issues in order to make sound decisions. Global sourcing also presents a huge range of risk, including natural disasters, inclement weather, and geo-political crises, among others. Procurement professionals must ensure a harmonized global procurement structure to maintain quality and ensure a compliant and efficient supply chain.

Staffing and succession planning continue to be a challenge.

As procurement departments expand, many are experiencing staffing challenges. Many teams are seeing a gap in experience, with junior buyers entering businesses without some of the skills necessary for success. At the same time, many seasoned procurement professionals are beginning to look toward retirement, creating a need for sound succession plans. Procurement teams are now looking to align with other business units to understand their needs and map capabilities to ensure robust staffing that can support a changing environment. Finally, training must be reexamined to consider what is necessary to aid career progression and improve staff retention.

Solving Procurement’s Top Challenges

Today’s procurement professionals have been tasked with creating real business value for their companies, particularly by driving revenue. The focus on revenue generation has increased the demand for automated tools to analyze spend and examine market intelligence.

The C-suite is looking for procurement to align with business units to deliver increased value across the business. This requires procurement professionals to build relationships with internal stakeholders and overcome resistance to change.

Staffing is a perennial challenge for procurement departments. Unfortunately, we are beginning to see a gap as junior buyers begin their careers and seasoned procurement professionals look to retirement. The time is ripe for sound succession planning and strategies to retain staff.

The industry is experiencing a shift away from vendor management to supplier relationship management. In this model, procurement departments must treat suppliers as true partners to optimize value and drive innovation, which requires a more robust approach to supplier relationship management.

As companies become more global in scope and in supply chain, procurement must keep up with a constantly changing market environment. This includes global supply chain risk management and offshoring and reshoring strategies.

The Procurement Industry’s Top Drivers

1 4

52

3

CANADA

CANADA

The Director’s Report: Driving Business Value Through Procurement

Why You Should Attend Procurecon Canada

ProcureCon Canada brings together Canada’s top procurement experts · You will network and learn from 45+ procurement executives from a variety of

industries who will share best practices and case studies in a practitioner-driven format.

Highly interactive format · Targeted presentations, roundtable discussions, panels, and structured networking

functions to ensure meaningful engagement, a variety of learning formats, and deeper networking.

Fresh content · Staffing and succession planning, supplier innovation, sourcing in Asia, and

analytics and sustainable intelligence are just some of the new themes we will cover this year.

Access the leaders you want to meet and develop meaningful relationships · With 200 senior-level attendees, ProcureCon Canada is large enough to meet

a diverse range of new contacts, yet intimate enough to cultivate in-depth discussions.

Vendor attendance and participation is limited · Experience true peer-to-peer learning and networking, instead of a series of sales

pitches.

1

2

3

4

5

Want to hear more from Canada’s premier procurement leaders? See what they will be discussing at ProcureCon Canada 2015.

Download the ProcureCon Canada AgendaClick Here For More Info

CANADA

CANADA

“Canada’s manufacturers kicked off the second half of 2014 on stronger footing, clearly benefiting from improving global economic activity – it’s encouraging to see the momentum. And with the U.S. economy pushing ahead, we expect this trend to continue.”

– Paul Ferley, Assistant Chief Economist, RBC

The Director’s Report: Driving Business Value Through Procurement

CANADA

CANADA