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ESTABLISH PROCUREMENT’S PLACE: INCREASE SPEND UNDER MANAGEMENT
ISM DallasMay 8, 2014
AGENDA
Where We Are, and How We Got There1
Appealing to Leadership2
Increasing Spend Under Management3
Continuous Improvement4
Summary5
Q&A6
- 2 -
THE CURRENT STATE OF PROCUREMENT
- 3 -
PROCUREMENT’S PRESSING ISSUE
- 4 -
A recent Everest Group study* states that $190 billion in goods and services are being procured by outsourcers on behalf of their clients. This includes a record number of engagements in the last two years.
* “Top Ten Best Practices in Procurement Outsourcing,”
Hackett Group Study
THE RESULT
- 6 -
• Failure by procurement to successfully engage with spend owners• Traditional sourcing methods did not have the necessary impact
during the most recent downturn• Procurement departments are not seen as strategic contributors• Many procurement departments have become transactional • Sourcing fatigue results in functions reasserting control over
spend• Perceived gaps between what sourcing claims to achieve and
what CFOs report
A MISSED OPPORTUNITY
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Spend control is trending back to the functions and away from procurement. Continued involvement means having to clearly define the skills and value proposition supply chain professionals bring to the table…beyond buying.
When everyone’s a savvy buyer, how will you differentiate yourself?
BE RELEVANT
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Ongoing relevance is keyed by your ability to define your contribution, and its value to your stakeholders.
Leadership Suppliers Finance
Human Resources Marketing IT
Procurement
Continuous Improvement
Budget and Planning Support
Budget OptimizationIncumbent
NegotiationsCost Avoidance
Strategies
Risk Management
BE RELEVANT
- 9 -
APPEALING TO LEADERSHIP
- 10 -
Return on Investment
Risk Mitigation
Revenue Generation Cost Savings
HOW THE C-SUITE THINKS
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ALIGN YOUR GOALS…AND YOUR REPORTS
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• Attend your company’s sales meeting, understand the revenue generation methods and overall goals.
• Report direct savings in terms of margin enhancement, report indirect savings in terms of earnings per share.
The c-suite is focused on revenue generation and
verifiable bottom line improvements.
Describe what you do in their terms.
Your CFO is waiting. What are you doing to get noticed? Generate interest by generating revenue.
A Deloitte survey of top
finance executives
found that nearly 60%
of CFOs are focused on
business intelligence,
influencing strategy,
and supporting major
initiatives, while fewer
than 15% are primarily
focused on managing
costs.
INNOVATION
- 12 -
Money markets, along with short-term securities and treasury notes currently offer less than a 30 bp return.
1 2 3 4 5 6 7 8 9 10 11 12
Payment Cycle
By offering early payment in exchange for even a 2% discount, buyers can improve their rate of return 6-8X.
PROCUREMENT AS A PROFIT CENTER
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Implementation Risk - Resulting from a lack of stakeholder contribution & buy-in
Performance Risk - Failure to understand supplier capability
Market Risk - Caused by a lack of definition around service requirements & acceptable contract terms
Price Risk - Due to a lack of tools & strategies used to identify true market value
Third Party Consultant
Internal ProcurementGroup
Internal Human Resources Group
Project
Third Party Consultant
PARTNERSHIP VALUE
- 16 -
Corporate Procurement
Human Resources
Market
Implementation
Performance
Price
PARTNERSHIP VALUE
- 17 -
16
INCREASING SPEND UNDER MANAGEMENT
- 18 -
17
2013 Procurian study
EXPONENTIAL IMPROVEMENTS
- 19 -
In the new era, procurement needs to look beyond the RFP to be relevant to their partners in the functions.
Facilities Operations Travel & Fleet Logistics Staffing Print
Engineering IT / Telecom Benefits MarCom Finance Legal
THE FUNCTIONS
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The functions are our customers, and like any consumer they will do business with the person that best understands their needs.
Define
Market
Deliver
• Clarify the scope of procurement’s value
• Communicate the outcomes they can expect
• Promote your value to key stakeholders
• Take a long view of relationships, and campaign
• Provide the insights and analytics they need to win
• Stay with the project, and the supplier when sourcing is over
A B2C APPROACH
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Every procurement department has cost savings as an objectives, but how you do it is your vision.
• Negotiations• Contracting• Supplier management• Risk Mitigation• Leverage tools• Create efficiencies• Apply analytics• Develop category
knowledge
Procurement does a lot of things well, but it’s up to you to quantify those activities to show how they add value to your peers’ efforts.
20
DEFINE
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MARKETOnce you’ve defined a value proposition, you have to communicate it effectively.
• Assign liaisons to work with key functions
• Work closely to understand the goals, and sensitivities of
stakeholders
• Actively communicate the ongoing successes of the procurement
department
• Clearly demonstrate how the skills you bring to bear will address
the needs of the spend owner
- 23 -
Establishing a relationship means creating credibility and trust, keeping requires a demonstration of capability and accountability.
Opportunity Identification
Supplier Identification / Qualification
Specification Development Negotiation Award /
Contract
After the strategic sourcing process ends…you disappear.
DELIVER
- 24 -
The strategic sourcing process takes too long.
CONTINUOUS IMPROVEMENT
- 26 -
WHERE DO SAVINGS COME FROM?
1. Growth Through Creativity
2. Growth Through Direction
3. Growth Through Delegation
4. Growth Through Coordination
5. Growth Through Collaboration
Organizational Size
Large
Small
Organizational Age Young Mature
Evolution Stages
Revolution Stages
STAGES OF ORGANIZATIONAL DEVELOPMENT
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PROCUREMENT’S SHIFTING FOCUS
SUPPLIER VALUE SCENARIOS
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Optimizing spend under management hinges on procurement’s ability to leverage suppliers’ expertise to drive improvements.
• Manage inventory levels• Forecast and manage demand• Adjust delivery size and frequency• Update ordering methods• Review authorizations
• Implement cutting edge methods• Educate to enable the
organization• Define and aim for best in class• Create win-win scenarios• Invest in strategic relationships
Tactical Strategic
Whatever the method, bringing it home is the key; Identify, Quantify, Implement.
REAL COLLABORATION
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Generic Utilization
Specialty Management
Network Access
PDL Management
Wellness / Clinical
• Recommendation 1• Recommendation 2• Recommendation 3• Recommendation 4• Recommendation 5
• Recommendation 1• Recommendation 2• Recommendation 3• Recommendation 4• Recommendation 5
• Recommendation 1• Recommendation 2• Recommendation 3• Recommendation 4• Recommendation 5
• Recommendation 1• Recommendation 2• Recommendation 3• Recommendation 4• Recommendation 5
• Recommendation 1• Recommendation 2• Recommendation 3• Recommendation 4• Recommendation 5
Current Position
Supplier Best-in-Class
Current Position
Supplier Best-in-Class
Current Position
Supplier Best-in-Class
Current Position
Supplier Best-in-Class
Current Position
Supplier Best-in-Class
1. Cost Driver or Program
Improvement
2. Define existing and desired state
3. Make suggestions on how to
move to best in class
Solution
Impact
Disruption / Cost
Solution
Impact
Disruption / Cost
Solution
Impact
Disruption / Cost
Solution
Impact
Disruption / Cost
Solution
Impact
Disruption / Cost
4. For each suggestion, present the solution, the
relative price /
efficiency impact, and the “pain” in achieving the
result
- 33 -
SUMMARY
- 34 -
• Change management is not a “one and done” activity
• Partnerships require an organization commitment from both parties
• Drive value beyond the sourcing cycle
• Increase analytical capabilities to quantify impact
• Sell to leaders in the context of their objectives
• Increase commercial capabilities
• Educate yourself on your customers’ business
• Be anonymous, not invisible
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Human Resources Adoption Continuum
Primary Responsibility: To develop and maintain internal customer service and attract and retain talent.
Key Issue / Sensitivity: Spend categories have an impact on entire employee base, so reducing disruption is a key message.
Effective Solution: Buyer amnesty – quell the fears of spend owners by creating an environment of mutual success.
HUMAN RESOURCESPersonnel Services Benefits
Temporary Labor Bkgd. Investigations
Drug Testing Recruiting
Outplacement Labor Mgmt.
Relocation Globalization
HHG Mgmt. Consulting
Training Call Center
Dental Administration
Vision Pharmacy
Medical EAP
- 38 -
Marketing and Communications Adoption Continuum
Primary Responsibility: To develop and maintain brand image and competitive edge.
Key Issue / Sensitivity: Spend categories have an impact on departmental budgets, efforts should be to increase buying power, not shrink capacity. Marketing has the added sensitivity of savings being equivalent to budget reductions.
Effective Solution: Add buying power – sharing savings with your partners in marketing to allow for more flexibility can buy participation.
MARKETING & COMMUNICATIONSCollateral Services Advertising
Brochures Displays
Mailers Promotional Items
Premiums Service Awards
Tradeshows Direct Mail
Fulfillment Agencies
Call Centers Design
Outdoor Internet
Radio Print
Cable Broadcast
- 39 -
Site Maintenance Services
Industrial Cleaning ISO Registrars
Painting Insulation
Lighting Laundry
Equipment Calibration
Tool Cleaning Elevator
HVAC Mechanical
Waste Mgmt. Real Estate
Janitorial Services Security Guard
Energy Food Service
Facilities and Maintenance Adoption Continuum
Primary Responsibility: To create a safe, functional work environment.
Key Issue / Sensitivity: Unlike other indirect spends, the majority of these markets have been competitively sourced in the past, so compression of cost is likely to be less significant. Facilities-related projects have the added challenge of dealing with many locations as well as numerous site and item-specific service requirements.
Effective Solution: Provide perspective – understand the massive scope of this group.
FACILITIES & MAINTENANCE
- 40 -
IT and Telecommunications Adoption Continuum
Primary Responsibility: To ensure functionality and create efficiencies.
Key Issue / Sensitivity: The majority of these markets trend downward, and the increased transparency provided by a strategic sourcing process helps to capitalize on those conditions. IT has the added challenge of dealing with small supply bases for equipment, and large (global) ones for services.
Effective Solution: Rely on their expertise – IT has a specific knowledge set, allow them a maximum level of participation in the process.
IT & TELECOMMUNICATIONSHardware Labor Services
Laptops Switches
Desktops Routers
Peripherals Servers
Programmers Analysts
Developers App. Support
Consultants Implementation
Wireless IP / VPN
Helpdesk Local / LD
Data Maintenance
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Finance, Legal, and Consulting Adoption Continuum
Primary Responsibility: To create and maintain strategic relationships while ensuring stability and corporate compliance.
Key Issue / Sensitivity: Highly strategic responsibilities have afforded these groups the power to resist procurement efforts. Despite this fact, there are a significant number of opportunities for creating cost efficiencies while mitigating risk in the CFO’s arena. While highly complex, the historic absence of transparency in these categories has resulted in strategic sourcing projects identifying unprecedented savings.
Effective Solution: Be patient – it’s harder to penetrate here than elsewhere.
FINANCE & LEGALFinance Legal Consulting
Corporate Cards Audit Services
Tax Prep Check Writing
Contingent Staff Debt Recovery
Immigration Tax
Patent Liability
Labor Contract
Finance Human Resources
Management Public Relations
Organizational IT
- 42 -
Q&A
- 36 -
