Beyond Procurement Options for procurement to drive company-wide productivity Survey rePOrt
Matthias Kaesser
Sammy Rashed
With contribution of:
Giles Breault
Michael Henke
Daniel Hollos
Beyond ProcurementOptions for procurement to drive company-wide productivitySurvey report
Giles BreaultMichael HenkeDaniel HollosMatthias KaesserSammy Rashed
Imprint
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
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 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
hors
C
ontr
ibut
ors
Practitioners Academia EBS Business School, Institute for Supply Chain
Management – Procurement and Logistics
0
© Supply Chain Management Institute (SMI), Wiesbaden, 2012
Breault, Giles; Henke, Michael; Hollos, Daniel; Kaesser, Matthias; Rashed, Sammy
Beyond Procurement, Options for procurement to drive company-wide productivity, Survey report
Publisher: EBS Universität für Wirtschaft und Recht
EBS Business School
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4 Beyond Procurement
Over the last three decades the procurement function has been
one of the most progressive organizations within large companies,
moving from a transactional “back office” activity to a vital element
for ensuring smooth supply, risk reduction and profitability growth.
Gains in these areas however eventually reach a point of dimin-
ishing return, which contrasts with the ever-growing pressure on
the function to contribute more and play a greater role in driving
productivity. Likewise, progressive practitioners in the Supply Chain
and Procurement arena have become increasingly frustrated by the
inability to “move the needle” with respect to their own contribu-
tion; while believing that they can deliver much more, they often
feel “boxed in” by restrictive internal mandates and organizational
barriers.
Industry practitioners reached out to the academic community to
assess the importance of this trend, and to evaluate which direc-
tions were considered by different companies as the best way to
Preface
steer their procurement resources to drive a new value proposi-
tion. In the course of this investigation seeking to establish a clear
future direction, it was found that very little could be gained from
the literature and that while certain trends could be gleaned from
anecdotal interviews, no real body of thought had emerged as to
how and where should a modern, globally distributed procurement
function be directing its future efforts, and to what degree those
efforts would be seen by their employers as providing a boost in
real value.
This survey and related research projects intend to bridge that gap
in the literature, and most importantly to provide practitioners with
a menu of possibilities on where to apply resources and further
guide them towards what is seen by companies as most impor-
tant – an endeavor likely to redefine the nature of the function, its
direction and overall contribution.
Contents
1 Management Summary .............................................................................................................................................................6
2 evolution of procurement .........................................................................................................................................................7
3 Survey method and sample ......................................................................................................................................................7
4 Future options to drive company-wide productivity ..................................................................................................................9
4.1 the “top ten options” .....................................................................................................................................................9
4.2 Survey results ................................................................................................................................................................10
4.2.1 Overall results...................................................................................................................................................10
4.2.2 Performance measures .....................................................................................................................................10
4.2.3 Feasibility measures .........................................................................................................................................12
4.3 Deep dive on the “Innovation Sourcing” option ............................................................................................................13
4.4 Deep dive on the “total Cost-Base Management” option...............................................................................................14
5 Outlook ...................................................................................................................................................................................15
6 Literature ................................................................................................................................................................................15
5Beyond Procurement
1 Management Summary
Where is procurement heading? Which con-
tribution could the function make beyond its
traditional territory? Which roles and respon-
sibilities could it pursue in the future?
In the course of the Beyond Procurement
survey introduced here we asked CXOs
and managers from procurement, finance
and other business functions to share their
opinion about ten short-listed options for
procurement to drive firm-wide productiv-
ity. Furthermore we were interested in the
professionals’ opinions about where the func-
tion should evolve to in the near future and
which major obstacles it would face along the
way. Overall we based our findings on 119
respondents working for companies of vari-
ous industries selected mainly across Europe,
North America and Asia. Our findings can be
summarized as follows:
Procurement is under constant and increas-
ing 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 compli-
ance and cost savings.
≈ The survey aimed to identify “what‘s
next” for the function, moving from secur-
ing supply to globally and holistically man-
aging 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
≈ In workshops, focus groups and discus-
sions with professionals on CPO confer-
ences throughout 2011 and 2012, the
following 10 options were identified as the
most promising for procurement to drive
company-wide productivity:
≈ “Top-line Contributor”
≈ “Innovation Sourcing”
≈ “Total Cost-Base Management”
≈ “Global Business Services”
≈ “Comprehensive Risk Management”
≈ “Take Over Operational Activities”
≈ “Next Level Collaborative Buying”
≈ “Internal Consulting / Project Manage-
ment”
≈ “Extended SRM”
≈ “Embed Function Into The Business”
From the received responses, four options for
growth stood-out:
≈ “Innovation Sourcing” and “Total Cost-
Base Management” come out as the two
most promising options in terms of perfor-
mance and feasibility, which validates the
survey hypothesis.
≈ “Global Business Services” is expected to
continue delivering high returns, although
the approach appears to be already imple-
mented in many organizations.
≈ Looking forward, participants plan greater
external involvement via “Extended SRM”
(e.g. helping build lean management / six-
sigma capabilities at suppliers) to deliver
additional value. However the function
may lack the required capabilities to drive
such developments further at the mo-
ment.
6 Beyond Procurement
2 evolution of procurement
Professionals from the supply chain and
procurement area repeatedly point out the
paradigm shift that purchasing has gone
through in recent decades: The function
evolved from a rather administrative and
operational “order-executor” to an or-
ganization with more strategic importance
for their companies1. Many procurement
organizations turned around completely
when going through this progression by
installing cross-functional or cross-business
coordination, or even building up separate
and centralized procurement organiza-
tions. These changes were mainly driven by
increasing globalization that lead to a more
fierce competition and a focus on produc-
tivity and costs, as well as higher levels of
outsourcing – adding more weight to the
function as the share of purchasing volume
on the total cost base increased – and the
rise of E-Commerce2. As a consequence
of this increased focus on the function,
procurement organizations became more
professional and managed to achieve
higher returns then before, allowing Pro-
curement to receive significant attention
from top management; especially in these
times of financial crises and high economic
volatility.
As much as this development is a reason
for procurement professionals to celebrate,
it cannot be seen as a guarantee for endur-
ing prosperity of the function. For example,
purchasing departments are not immune
to the increasing levels of outsourcing
themselves. The most operational activities
are especially bound to be outsourced to a
shared services center or even externally,
and the current trend to spin out separate
procurement companies could just as well
be an interim step in that direction. As a
consequence there is an ongoing lively
debate on the future of Procurement3. This
leaves us with the question on where the
function is heading and whether there
are realistic options for procurement to
enhance the overall performance of their
companies – beyond driving savings from
third party spend.
3 Survey method and sample
The structure of the Beyond Procurement
survey is illustrated in figure 1. The survey
contains two main sections: The first focus-
ing on “Performance” of the respondents’
procurement organizations in regard to the
ten pre-defined options, the second one
focusing on the “Feasibility” of a respective
implementation. The first part – “Perfor-
mance” – is furthermore divided into two
different time-wise perspectives – past
performance and future expectations – each
time asking for the actual or planned im-
plementation priority as well as the actual
or expected return by option. The second
part focuses on two separate dimensions of
implementation feasibility: i) the readiness
of the whole organization in regards to the
implementation of each option, and ii) the
Future expectations – “looking ahead”
In the next two years: • Please indicate which of top ten options are planned to be rolled-out? • What return is expected for each option that will be implemented? • What function will be responsible for driving the implementation / taking the option over?
Organizational readiness
Please answer for each of the top ten options: • What is today the level of organizational readiness (i.e. the willingness of your company to
implement it)?
Capability proficiency
Please answer for each of the top ten options: • What is today the capability proficiency (i.e. skill / ability of the procurement function to
successfully drive)?
Status quo – “looking back”
In the past two years: • Please indicate which of top ten options have been implemented? • What return was achieved for each option implemented? • What function was responsible for driving the implementation / taking the option over?
PER
FOR
MAN
CE
FEAS
IBIL
ITY
Survey Questions Section
Survey structure and questions
Fig. 1 Survey structure and questions
1 Cf. Carr & Smeltzer (1997); Lamming et al. (2000); Handfield & Nichols (2002); Knudsen (2003); Paulraj, Chen & Flynn (2006); Zheng et al. (2007)2 Cf. Gadde & Hakansson (1994); Carter et al. (2000), 3 Cf. van Weele & Rozemeijer (1996); Harland, Lamming & Cousins (1999); Zheng et al. (2007)
7Beyond Procurement
capability of the procurement function itself
to successfully deliver on this offering.
Participants responded by selecting their
level of agreement regarding the imple-
mentation priority as well as the feasibility
dimensions by option on a scale from “1”
(very low) to “5” (very high) and selected
the return figure in percent on a scale from
“0%” to “9%+”. The survey was conducted
online to provide quick access and maxi-
mum convenience for participants.
In order to ensure representative results we
targeted a broad respondent base in terms
of functional expertise, seniority, industry
affiliation, company size, and geography.
The respective distributions of the 119
total participants are illustrated in figure
2. Taking all 119 respondents into account,
the survey sample features a quite even
distribution of different company sizes and
incorporates the major industries of inter-
est. The significant representation of phar-
maceutical companies can be explained
by the affiliation of a part of the group of
survey issuers whose professional networks
are respectively composed of high numbers
of contacts within this industry. The same
is true for the dominance of participants
from the procurement function, including
procurement managers and CPOs. Finally
we focused geography-wise on the major
“developed” markets – as characterized by
the level of development of large corpora-
tions –Europe, North America, and Asia. In
general we did not find significant differ-
ences between industry-related, geography-
related or functional groups. That is why
we do not expect any major respondent
bias that could negatively influence the
meaningfulness of the survey results.
Sample statistics of survey participants and their companies
26
1810
18
28< 1
1 - 5
6 - 10 11 - 25
> 26 24
66
77 10
40
Engineering/ Manufacturing
Pharma
Other
Telecom
Utilities Business Services
FMCG
10
23
65
Other 2
Asia
North America
Europe
810
10
72Procurement
Finance Business stakeholder
COO/ CEO
Company revenue [EUR bio]
Function/Seniority Geography
Industry
Fig. 2 Sample statistics of survey participants and their companies
8 Beyond Procurement
4 Future options to drive company-wide productivity
1. top-Line Contributor: Companies
could leverage Procurement’s transferable
skills, capabilities, and process expertise
to impact sales growth. Examples of this
include training the sales team on negotia-
tions, applying procurement’s mastery of
contract management in the areas of busi-
ness development or licensing, using SRM
best practices to better manager relations
with key customers, or creating a new
offering all together which can then be
offered to external parties.
2. Innovation Sourcing:
The supply base’s potential to drive
product and process innovations seems
to be under-leveraged in many firms. By
recognizing and even creating “innova-
tion sparks” as well as developing those
through a well-managed and replicable
process companies could improve overall
innovativeness. Since innovation is best
triggered not only by adding money but
also when facing financial constraints, the
pressure to realize savings can represent a
useful burning platform.
3. total Cost-Base Management:
By combining proven approaches and
processes such as demand management,
lean management / six-sigma, and offshor-
ing & outsourcing, procurement could offer
a broader range of solutions to internal
stakeholders. This also allows to expand
procurement’s scope beyond 3rd party
spend.
4. Global Business Services:
An approach adopted by many lead-
ing global organizations, to reduce costs
and free-up time and resources, allow-
ing management to focus on customers
and growing the business. It streamlines
non-customer facing activities (such as HR,
finance, IT, facilities, legal services, etc.)
and aggregates them into an internal unit
that services the rest of the business.
4.1 the “top ten options”
5. risk Protection & Management:
Beyond the specific role of ensuring compli-
ance when committing funds to 3rd parties,
this option targets a more comprehensive
and proactive approach to mitigating risks
for the company. For example, moving from
traditionally having key categories sup-
ported by back-up suppliers to a full supply
risk management and business continuity
plan – that may also involve sharing risks
from the customer side with the supply
base.
6. take Over Operational Activities:
Often as a result of category projects,
procurement can be left holding the opera-
tional responsibilities when the function
– which previously owned it – is reduced
or in some cases outsourced (e.g., travel,
fleet, facility management). This option
extends the Procurement function agent
role beyond leading the acquisition process
and adds a service-delivery responsibility
for supporting the internal users with their
operational needs.
7. “Next Level” Collaborative Buying:
In contrast to the various current forms of
consortium buying, this approach recog-
nizes 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 joint ventures focused at narrow
categories of spend.
8. Internal Consultant/Project Managers:
Since most category initiatives are usually
complex initiatives that require cross-
functional leadership skills and strong
stakeholder engagement, procurement
could take these skills to the next level and
turn them into an internal capability, which
offers an alternative to external consult-
ants.
9. extended SrM (building lean manage-
ment / six-sigma capabilities at suppliers):
Variation of some other options above, this
applies the lean / six-sigma process early
in the production cycle by ensuring a clear
and relentless focus on the ’voice of cus-
tomer’, removing all activities considered
non-value-add and which bring unneces-
sary costs. There have been many good
examples of this in the direct areas, but
not as many in the indirect categories so
far.
10. embed Function into Business:
Take a critical look at procurement’s scope
and identify which categories of spend
are better managed centrally (typically
general and corporate spend), 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.
9Beyond Procurement
4.2 Survey results
4.2.1 Overall results
Overall the survey results suggest focusing
on four options for procurement to develop
further: “Innovation Sourcing”, “Total
Cost-Base Management”, “Global Business
Services”, and “Extended SRM”. Whereas
TCBM2
Extended SRM3
Sourcing Innovation
6
1 Based on implementation priority and return performance 2 Total Cost Base Management 3 Extend SRM building up lean management / six-sigma capabilities at suppliers
TCBM2
Global Business Services
Sourcing Innovation
Importance1 today
Importance1 in the future
“Top 3” options 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
Overall findings based on survey results
the first two come through as the preferred
options today as well as the foreseeable
future, the appeal of “Global Business
Services” diminishes somewhat (perhaps
because it has already been implemented
to a large extent) while “Extended SRM”
is expected to become a more compel-
ling approach in the future (cf. figure 3).
In the next two sections we will discuss
the results by option in more depth.
Fig. 3 Overall findings based on survey results
4.2.2 Performance measures
The survey results suggest to clearly
distinguish between two major groups
regarding the performance of the options.
Figure 4 provides an overview of the
respondents’ voting regarding today’s
as well as expected future implementa-
tion priorities and return by option.
Looking at the status quo, the group of
options that currently delivers high returns
of around 4 to 5 percent – “Innovation
Sourcing”, “Global Business Services”,
“Top Line Contributor”, “Total Cost-Base
Management”, and partly also “Internal
Consultant” – also expel the highest imple-
mentation scores. In that regard companies
have apparently prioritized the implemen-
tation of options that help to deliver the
highest returns or they are executing the
implemented ones very well and do not
spend too much focus on others. The only
exception from this observed pattern is the
option of “Risk Protection & Management”
which is very well implemented in the
majority of companies that participated,
however does not seem to yield particularly
high returns. This might be the case due to
the original nature of risk mitigation where
an immediate positive return is more diffi-
cult to measure because it helps to protect
from exceptional negative effects. In our
context, however, we also see risk manage-
ment as a way to increase productivity
by sharing risks not only from the supply,
but also from the customer side with all
parties involved in the supply chain. In that
10 Beyond Procurement
regard we assume that most organizations
still approach risk management in terms of
mitigating exceptional events. In summary,
it seems that there are three top perform-
ing options already present in procurement
today – based on a combination of imple-
mentation status and returns (cf. “total
performance score” in figure 4): “Innova-
tion Sourcing”, “Total Cost-Base Manage-
ment”, and “Global Business Services”.
Regarding the participants’ future expec-
tations this “top 3” list does not change
too much interestingly: Looking forward
there is no clear picture regarding the
implementation priorities in comparison
to the status quo; the spread between the
different options is quite low compared to
the “status quo situation” (51 percentage
points spread in “status quo” situation vs.
30 percentage points spread in the “future
outlook”). However, the overall expected
In summary these results suggest that
professionals are open and may welcome
Procurement’s contribution beyond its tradi-
tional remit - the management of the entire
cost base, as well as the stark involvement
in increasing the company’s innovative-
ness being the two most popular over time
(cf. figure 4). Secondly the results also
suggest that risk management – despite its
obvious “shortfall” of not being applicable
to the measurement in percentages of
return – is and remains a core responsibil-
ity of the procurement function. On the
other side of the scale, the two options
of “Taking Over Operational Activities” as
well as “Next Level Collaborative Buying”
appear to be – in terms of implementation
as well as return – relatively less attrac-
tive options from responding companies.
8
Top-Line Contributor
Sourcing Innovation
TCBM1
GBS2
Risk Protect. /Mmgmt.
Take Over Op. Activ.
Next Level Collb. Buying
Int. Consultant
Extended SRM
Embed func. into bus
Option
Implementation priority3 Positive answers in percent
Today / status quo
Estimated return4 In percent
Total performance score5 Illustrative
Future outlook
52
43
67
26
56
77
62
68
70
60
3,2
3,3
3,7
2,3
2,9
2,5
4,4
4,0
4,8
4,2
55
65
70
59
44
74
55
62
74
56
4,5
4,8
3,7
3,6
2,9
2,6
5,3
4,8
5,0
5,2
Implementation priority3 Positive answers in percent
Estimated return4 In percent
Total performance score5 Illustrative
1 Total cost base management 2 Global business services 3 Number of “yes” answers compared to total answers of whether option is (currently being) implemented or will be implemented in the future 4 Actual or expected/estimated return per option as implemented or planned 5 Importance score (index) combining indices of the prior two questions – implementation priority and return
Detailed performance measures by option
return increases (from 3.5% to 4.3%
average return across all options) most
probably factoring in increasing levels of
expectation. Applying the same reasoning
described above, that implementation pri-
oritization should follow high-level returns,
a group of 6 options with an expected
return of 4.5% and higher emerges from the
picture of results. Amongst these, the “top
3” options of the “status quo” situation
are also expected to deliver the high-
est returns in the future; all at or above
5%. Conversely, it appears that “Global
Business Services” has been implemented
already to a large extent as its imple-
mentation priority number decreases.
This makes the option “Extended SRM” a
newcomer in the “future top 3” options
to consider – alongside with “Innovation
Sourcing” and “Total Cost-Base Manage-
ment” as in the “status quo” situation.
Fig. 4 Detailed performance measures by option
11Beyond Procurement
4.2.3 Feasibility measures
Focusing first on the “top 3” options identi-
fied above, procurement needs to continue
working on the required skills internally.
“Total Cost-Base Management” and “Inno-
vation Sourcing” seem to entail some addi-
tional capabilities that are currently not yet
present; both ranking between around the
“medium” position (voted around “3”; right
in the middle between “1” – “low capabil-
ity proficiency” and “5” – “high capabil-
ity proficiency”). The skills to perform a
global business service center, the third
top option, seem to be even less devel-
oped in procurement organizations at the
moment. Still, compared to the rest of the
options, the “top 3” performing options are
amongst those where procurement can pro-
vide a rather developed capability profile.
As important as the development of skills
and capabilities is the results also suggest
the need to continuously engage internal
stakeholders and raise their awareness &
acceptance of procurement’s contribution
clearly stood out, as most of the options
presented rank below average in regards
to the respective organizational readiness.
Taking a closer look, it becomes apparent
that the options of “Innovation Sourcing”
as well as “Risk Protection” are by the far
the most “desired” ones from the busi-
ness side. A clear coincidence with the very
high implementation importance scorings
of these two options discussed above. As
for the capability dimension, procurement
seems to have already started to either
respond to the request from the business
or promoting its future areas of responsi-
bility already; nonetheless further work is
needed to get full account and trust from
the organization as a whole (cf. figure 5).
10
2
3
4
2 3 4
GBS
Organizational readiness Grades: 1 (low) to 5 (high)
Capability proficiency Grades: 1 (low) to 5 (high)
NLCB
TCBM
IS TLC
ESRM EFIB
IC
RPM
TOA
Detailed feasibility measures by option
1 Willingness of the respondents’ company to implement 2 Skills / ability of the procurement function to successfully drive the respective option forward
TLC – Top-Line Contributor IS – Innovation Sourcing TCBM – Total Cost Base Management GBS – Global Business Services RPM – Risk Protection & Management TOA – Take Over Operational Activities NLCB – Next Level Collaborative Buying IC – Internal Consultant ESRM – Extended SRM EFIB – Embed Function into Business
Fig. 5 Detailed feasibility measures by option
12 Beyond Procurement
4.3 Deep dive on the “Innovation Sourcing” option
Innovation has always been and remains
a key area of interest for businesses as it
has been identified as a key resource for
competitive advantage. And as suppliers
now take over more responsibilities for
product as well as process innovations
– given the higher levels of outsourcing –
and do engage in closer collaboration with
their customers, this leads to innovation
alliances and “open innovation” networks,
which can nicely leverage the procurement
function’s natural interface to the sup-
ply base. However innovations come at a
price; or more precisely, implies a series
of challenges that are difficult to address:
How to trigger, how to replicate, how to
sustain and how to measure innovations?
The results of the survey clearly show
that procurement nowadays and in the
future already focuses on the sourcing of
innovations. Still not all of the required
capabilities seem to be present and devel-
oped already (cf. figure 6). Following the
conversations we had around this topic in
our focus groups and with survey partici-
pants, the identification and promotion of
innovations to bring them to success is the
achievement of tenacious individuals within
procurement, sometimes supported by a
loose structure of incentives for innovative
suppliers (e.g., yearly supplier innovation
awards) and the incorporation of an inno-
vations dimension in supplier assessments.
So far we have not yet encountered a pro-
curement organization that has rigorously
defined processes and systems that allow
for a broader screening of the supply base
for innovations and that provide a basis for
innovations to be driven through their vari-
ous stages of development against internal
resistance. This makes innovativeness
based on the suppliers great knowledge
base rather accidental than intentional.
In order to give the function enough space
to better identify where sparks happen
and ensure we are the first customer with
whom suppliers share their innovation,
it might be fruitful to allow the function
to focus on areas other than for example
process compliance and/or cost savings.
Furthermore it is essential and a prereq-
uisite to expand the procurement team’s
mindset beyond the pure cost manage-
ment focus. For example, there will be
only little motivation to buyers for bringing
innovation that drives top-line growth if
they are only measured on bottom-line
impact. Here, procurement can create a
huge opportunity and leverage its supplier
management to help grow its contribu-
tion beyond cost performance resulting
in a competitive edge for the company. In
that sense, as, procurement could be just
as important a source for innovation as
R&D - and may even get results faster.
•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 results – high level overview
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
Very high
Very high
Average
n/a
Survey item
Average level,
Upcoming research on…
12
…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?
Deep dive information on “Innovation Sourcing”
Fig. 6 Deep dive information on “Innovation Sourcing”
13Beyond Procurement
4.4 Deep dive on the “total Cost-Base Management” option
“Total Cost-Base Management” (TCBM) is a
comprehensive end-to-end way of looking
at the spend base. Its basic tenet sug-
gests that integrating all of the functions
normally associated with creating value
and driving productivity will generate
higher and compounded levels of benefits
if properly tasked, targeted and rewarded
for that effort. This approach views costs
across organisation boundaries and not just
as discrete components but also as sys-
tems that drive demand and expenditure.
By combining functions and processes such
as Procurement, Offshoring & Outsourc-
ing (O&O), and Lean / Six Sigma (LSS),
with a robust global project management
approach, an end-to-end cost management
team is created. This helps organiza-
tions diagnose, evaluate and implement
measures that focus on the sources of
costs to create more durable solutions
and deliver savings above average levels.
The basic principle on which it builds
is that any activity that leads to a cost
whether internal or external is a product
of a system of business needs. When
those needs are evaluated by traditional
structures these costs are treated sub-
optimally because they are considered
independently. By recognizing this segrega-
tion, creating a powerful systemic costs
analysis, and applying related comprehen-
sive solutions, cost management moves
out from independently managed budget
cuts to root-cause based solutions that
are consistent with business objectives.
Results from the survey indicate a sus-
tained interest in the TCBM approach,
based on past performance and future
expectations which reflect a 20% increase
in targeted savings (cf. figure 4). From
the feasibility perspective, this option is
positioned amongst the top ones in terms
of the organization appetite to receive it,
and the procurement department’s abil-
ity to deploy it (cf. figure 7). The above
average performance return expected,
combined with the limited risk to roll-
ing it out (as it is comprised of existing
functions being pulled together) explain
why TCBM is one of the top contemplated
options for driving additional value.
Interviews and outcomes of the focus
groups also indicate that Procurement
practitioners had a strong feeling that
this collaborative approach would drive
new value. Experience with LEAN / Six
Sigma and similar problem evaluation
models had given participants a strong
belief that when a more comprehensive
approach would be applied across larger
organisations, the opportunity to get at the
root cause of costs would provide much
greater insights and visibility that could
be successfully mined for new value.
Description of productivity option
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
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
Survey results – high level overview
Deep dive information on “Total Cost Base Management”
Fig. 7 Deep dive information on “Total Cost Base Management”
14 Beyond Procurement
5 Outlook
The procurement function has come a long
way since its humble beginnings. Where it
was once a necessary enabler, it has moved
beyond the transactional world to become
a function that has broad impact on busi-
ness continuity, risk, and profitability. Yet
even this broader mandate has its limits
and it is reasonable to infer that without
seeking mandate beyond its historical
boundaries and use of traditional tools,
the function has done as much as it can.
Today, procurement groups are seeking
ways to further impact the organizations
they serve, and this will require new capa-
bilities and enlightened organizations that
will allow procurement to further integrate
it more intensely into the business at large.
While that direction will need to be aligned
with the actual business needs and strat-
egy for each company and industry, the
choices that are more meaningful involve
Procurement collaborating and integrating
with organizations beyond it own doors.
The research team comprised of Academia
and industry practitioners, through this
survey gained a unique insight into the
aspirations of contemporary procure-
ment functions across a broad spectrum
of industry. Additional research will build
on the foundation created here, focusing
more narrowly on the choices that seem
to be preferred throughout industry. This
later research will evaluate and quantify
the benefits that organizations accrue when
they develop the internal capability offering
and grow the organizational readiness to
break from old mandates and expectations.
On a final note, many participants in this
survey as well as others who have become
acquainted with these results expressed
their desire to stay in contact with the
authors and participating contributors as
a way of evaluating their own company
direction and benefit. In all of the focus
groups that were conducted as a part of
the research, participants looked eagerly to
the results and many have subsequently
sought guidance in furthering their own
efforts. We recognize this need and have
established a communication & exchange
platform allowing the researcher and
respondent community to participate in
an even broader discussion on this topic.
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15Beyond Procurement
Institute for Supply Chain Management - Procurement and Logistics (ISCM)eBS university for economics and Law
Konrad-Adenauer-Ring 15 65187 WiesbadenGERMANY
Tel.: +49 (0) 611 - 7102-2100Fax: +49 (0) 611 - 7102-1990
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