Webinar Notes: Putting the ‘World’ into World Class Procurement
This week’s featured webinar was hosted by Sourcing Interests Group: ‘Putting the “World” into World Class Procurement’. Chris Sawchuk, a Principal in the Global Procurement Advisory practice at The Hackett Group, discussed how leading procurement organizations achieve world-class performance by leveraging the strength of a global network. You can access the presentation slides from the webinar here.
Having a truly global procurement operation is the third stage in The Hackett Group’s three-step maturity progression, which starts with international presence and progresses to multi-national operations before achieving true global status. In addition to a global team and fully integrated systems, a global operation also includes standardized processes and resources that are fully leveraged beyond their local region.
The organizations considered World Class by The Hackett Group are top quartile performers – both in efficiency (staffing, cycle times, process costs) and in value delivered back to the organization (cost avoidance, savings, revenue). In order to learn from these organizations, we need to reflect upon where have we been and how we need to function in the new business environment.
Excellence in procurement starts with alignment between procurement and the enterprise’s agenda and priorities. Procurement must align their value proposition and performance expectations with enterprise objectives, and then develop the right capabilities in terms of people, process and technology. The alignment must factor in the growth objectives of the enterprise as well as cost management objectives.
Savings is, and likely always will be, among the top priorities for procurement. If total savings are declining, either the procurement ROI goes down or procurement needs to find other ways to deliver value to the organization. Today, most organizations have more cash on hand than they have ever had before. The uncertainly in the marketplace is forcing organizations to be more agile. In addition, the volatility of input costs (raw materials) is causing forecasts to be inaccurate. Organizations expect this volatility to continue for the next couple of years, so learning to work with it represents an opportunity to gain a competitive advantage.
Productivity improvement is another new reality. Procurement must increase their capabilities and throughput without increasing headcount; they need to become ‘hyper-efficient’. The enterprise delivery model needs to be global, and category management capabilities (not just sourcing execution) must be aligned with the overall interests of the business. An example of category management that most organizations do not maximize is supplier relationship management (SRM) – truly tapping into the capabilities of the supply base.
World class organizations have an investment in procurement that is more focused on strategic activities (SRM and sourcing strategy) than tactical execution. They have less procurement FTEs than the average procurement group and spend less to achieve each dollar of managed spend. Offloading transactional work – often to offshore resources – is increasingly becoming the norm in procurement. The Hackett Group estimates that in two years, 25% of procurement FTEs will be based in a low cost geography. Procurement needs to focus their resources on core competencies just like the overall enterprise does.