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Welcome to the New Procurement: Scenarios and Strategies to Ride the Services Spending Wave

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Jason Busch …

Jason Busch
Spend Matters


For many companies, services procurement has become the new procurement. Companies are investing and prioritizing larger-scale services procurement programs to drive savings and compliance across broad-ranging categories, from temporary labor and finance/legal to aftermarket support. During this discussion, Spend Matters' Jason Busch will introduce the current state of services procurement from a broader buying and supply chain context, summarizing a range of topics including technology enablement fundamentals, the rise of project-based and SOW initiatives, globalization trends, supply risk and how some companies are building support for programs that require "selling up" internally. Following this introduction, Jason will share a number of insights and scenarios about where he believes the market will go next and how a range of technologies – from analytics to social networking – will play distinct and important roles in the services procurement organization of tomorrow.

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  • 1. Welcome to the New Procurement:Scenarios and Strategiesto Ride the Services Spending WaveWebinarMay, 2011Presented by: Jason BuschCopyright © 2011 Azul Partners Inc. All rights reserved. Not for distribution. | www.spendmatters.com - spendmatters.co.uk - www.agmetalminer.com 1
  • 2. Agenda• Market backdrop – setting the stage• The latest in services procurement• Scenarios and expectations for tomorrowCopyright © 2011 Azul Partners Inc. All rights reserved. Not for distribution. | www.spendmatters.com - spendmatters.co.uk - www.agmetalminer.com 2
  • 3. Who we are: Spend Matters/MetalMinerThe team…•  Former strategy and sourcing consultants•  Former traders•  Former heads of procurementThe sites…•  www.spendmatters.com – First blog in sector, now much more•  www.agmetalminer.com – <4 years old, largest metals pub. in N.A.•  spendmatters.co.uk – Raising the PM’s eyebrow…•  Coming soon: hcmatters.com (Healthcare Matters) “A surreal mix of hardcore procurement and cerebral whimsy.”Copyright © 2011 Azul Partners Inc. All rights reserved. Not for distribution. | www.spendmatters.com - spendmatters.co.uk - www.agmetalminer.com 3
  • 4. The premise…•  Even in manufacturing industries, companies are investing and prioritizing larger-scale services procurement programs to drive savings and compliance across broad-ranging categories, from temporary labor and finance/ legal to aftermarket support•  We’ll examine the current state of services procurement from a broader buying and supply chain context, summarizing a range of topics•  We’ll also share number of insights and scenarios about where the market will go next and how a range of technologies – from analytics to social networking – will play distinct and important roles in the services procurement organizations of tomorrowCopyright © 2011 Azul Partners Inc. All rights reserved. Not for distribution. | www.spendmatters.com - spendmatters.co.uk - www.agmetalminer.com 4
  • 5. What is this about riding the wave?Copyright © 2011 Azul Partners Inc. All rights reserved. Not for distribution. 5   | www.spendmatters.com - spendmatters.co.uk - www.agmetalminer.com 5
  • 6. Even when it comes to services, we can’t talk aboutprocurement today without touching on an economic outlook•  Consensus suggests the global economy will continue to grow (barring the fallout of the Japanese disaster) –  Both OECD and emerging economies to fuel growth –  U.S. to grow at a 2.5%+/- for 2011-2013•  International trade moves to the foreground•  Certain markets will remain volatile throughout 2011 but will stay on a rising price trajectory due to: –  Emerging market demand –  Rising raw material costs –  Small upticks in demand, creating disproportionate price increases•  Services become important not just as critical business enablers during volatile times, but also a means to lock-in potential savings that we’re losing in other areas and to take advantage of Wave 2 of global sourcingCopyright © 2011 Azul Partners Inc. All rights reserved. Not for distribution. | www.spendmatters.com - spendmatters.co.uk - www.agmetalminer.com 6
  • 7. Despite GDP numbers, it’s a mixed bag on the global trade and economic stage … Globalization hiccups •  Wage inflation, total cost increases •  CSR, labor, different definitions of acceptable behaviors Currency & commodity volatility •  Currency madness (Euro, Pound, etc.) •  Commodity/currency inflation Finances and Regulation •  Credit markets have not returned for everyone •  EU concerns growing and real (e.g., Greece) •  New compliance requirementsCopyright © 2011 Azul Partners Inc. All rights reserved. Not for distribution. | www.spendmatters.com - spendmatters.co.uk - www.agmetalminer.com 7
  • 8. … And many risk drivers are nefariously brewingbehind the scenes as well•  Larger procurement expectations and charter, but challenges in adding headcount to support needs•  Policy workarounds (e.g., SOW and contingent) contributing to less visibility and control, not more•  Overall supplier performance risk•  Supplier and spend compliance•  Currency risk – for contracts denominated in local currencies•  Inventory risk – both physical inventories and even “virtual” goods/services•  Banking/financial riskCopyright © 2011 Azul Partners Inc. All rights reserved. Not for distribution. | www.spendmatters.com - spendmatters.co.uk - www.agmetalminer.com 8
  • 9. Setting the services procurement stage – why now?•  Why is the interest in services procurement rising so quickly?•  Why now, why today? •  Companies aren’t hiring full-time workers and contingent workers; third-party firms are picking up the slack •  In a booming economy, many executives and shareholders did not look at managing SG&A expenses the same way as COGs – but they certainly do now •  Procurement was not necessarily ready for all of the challenges of holistically pursuing services spend until now and outside trends are forcing us get more involved •  Until recently, the great majority of companies defined services procurement in a limited way, focusing only on contingent labor A number of converging factors are driving rising interest levels in services procurement – we’re clearly in the right place at the right time, but are we ready for the challenge?Copyright © 2011 Azul Partners Inc. All rights reserved. Not for distribution. | www.spendmatters.com - spendmatters.co.uk - www.agmetalminer.com 9
  • 10. Putting services procurement in the spotlight Services procurement can have a significant impact on increasing procurement’s overall stature in the business •  Ability to generate savings in new areas at a time when cost reduction is more needed than ever before (and other categories are increasingly more difficult to get results from) •  Requires procurement to lead a collaborative effort between functions (anything but a transactional, back-office type of approach) •  Reinforces the role of procurement as a services provider in and of itself (which exists to generate value to the business in new ways) •  Provides visibility and contact with influential areas of the business (e.g., finance, legal, IT)Copyright © 2011 Azul Partners Inc. All rights reserved. Not for distribution. | www.spendmatters.com - spendmatters.co.uk - www.agmetalminer.com 10
  • 11. To truly understand services procurement, you must beempathetic to different influencers/stakeholders in the business •  Looking at services/contingent spend as a component Human of talent/human capital management Resources •  Concerned over non-price issues (e.g., co-employment) •  Want to avoid “rocking the relationship boat” Functional with existing service providers Spend Owners •  Want their business requirements understood •  A liability or key to cost reduction? Or both? CFO/Legal •  Ability to quickly react to changing business conditions •  Reducing unnecessary (and often unknown) liabilities •  Making the effort worthwhile – achieving cost reduction while improving service levels and reducing business risk Procurement •  Getting the most from centralized processes, business empathy, category/benchmark knowledge and technologyCopyright © 2011 Azul Partners Inc. All rights reserved. Not for distribution. | www.spendmatters.com - spendmatters.co.uk - www.agmetalminer.com 11
  • 12. We all know what results are possible from tackling servicesspend more aggressively (and successfully) Contingent labor Marketing / Print Legal •  10–30%+ initial savings •  10–20%+ total savings with •  10–40%+ reduction in (inclusive of fees to third- no requirement to change targeted spending areas parties to manage the creative agencies (e.g., paralegal, patent) administrative side of •  25–50% savings in without jeopardizing temporary spend) categories where existing preferred provider •  Ongoing benchmark service levels not yet relationships savings reduction of 5-20% established and/or •  Greater firm transparency (Q1/Q2 of this year) preferred suppliers not and accountability •  Improved service levels, used on a regular basis •  Increased ability to budget reduced HR costs (reduced •  Greater transparency in and plan costs (e.g., flat-fee internal administrative project (e.g., SOW), projects) headcount required) program, pass-through, •  Greater flexibility to pursue •  Higher invoice accuracy hourly and other costs different relationship and compliance levels models (volume discounts, at-risk or performance- based fees)Copyright © 2011 Azul Partners Inc. All rights reserved. Not for distribution. | www.spendmatters.com - spendmatters.co.uk - www.agmetalminer.com 12
  • 13. Agenda• Market backdrop – setting the stage• The latest in services procurement• Scenarios and expectations for tomorrowCopyright © 2011 Azul Partners Inc. All rights reserved. Not for distribution. | www.spendmatters.com - spendmatters.co.uk - www.agmetalminer.com 13
  • 14. What we’re observing…•  Technology enablement on the rise, but a bifurcation with adoption•  Increasing emphasis on data-driven approaches and models to running programs and making decisions•  Integration of sourcing and supplier/ vendor management programs•  Project-based and SOW talk (and some early action)•  Leaders improving performance (while driving savings) in complex categories•  Driving adoption—selling up (and around, down, forward and backward)Copyright © 2011 Azul Partners Inc. All rights reserved. Not for distribution. | www.spendmatters.com - spendmatters.co.uk - www.agmetalminer.com 14
  • 15. Sizing up services procurement maturity – where is yourorganization today? Analytically Informed •  Broad spend intelligence and coverage – success on all metrics (not just savings) •  Significant organizational support and enthusiasm Data-Driven Expansion •  Potential to impact business models •  Analytics begin to drive secondary •  Analytics and benchmarks key savings components to overall program •  Beyond contingent labor management •  Closer collaboration with business stakeholders Compliance and •  Sourcing and lifecycle First- Wave Savings management •  Process centralization •  Outsourcing •  Technology automationCopyright © 2011 Azul Partners Inc. All rights reserved. Not for distribution. | www.spendmatters.com - spendmatters.co.uk - www.agmetalminer.com 15
  • 16. Analytics is proving key…but it’s more than just reporting •  Analytical orientation is probably the single most important factor in overall services procurement success •  Taking ownership of your own data destiny is a prerequisite for success •  A strong VMS capability can solve part of your technical challenge… •  …but you need to know how to use it •  Analytics is more than just BI and canned reports •  Reporting and management insight •  Drilling into datasets (and combining datasets together) •  Contextual reporting and insightCopyright © 2011 Azul Partners Inc. All rights reserved. Not for distribution. | www.spendmatters.com - spendmatters.co.uk - www.agmetalminer.com 16
  • 17. The integration of service procurement with broader sourcing andsupplier management programs is also critical•  Services procurement (especially outside of contingent labor) has many touch-points with existing processes (and even technology)… •  Sourcing – integrating services procurement into a standard strategic sourcing process (e.g., reverse auction, multi-round sealed bid) •  Supplier management – measuring supplier performance, developing key suppliers and ensuring contract compliance•  …But it is also critical to remember that with services procurement, managing the entire lifecycle is essentialCopyright © 2011 Azul Partners Inc. All rights reserved. Not for distribution. | www.spendmatters.com - spendmatters.co.uk - www.agmetalminer.com 17
  • 18. Project-based and SOW approaches are gaining favor in top-performing organizations…•  “Price is what you pay, value is what you get” – cost is only one factor•  Make sure technology can support specific enablement needs… •  Automated invoicing and reconciliation, blanket orders, bulk orders, hybrid orders (i.e., with low or high order mix), SKU and non-SKU based ordering •  Non-PO-based categories, complex category-specific collaboration capabilities, not- to-exceed terms, discount terms, split line items, and receipt-defined payment, etc.•  ...As well as rich category-based functionality where required (e.g., cross-channel reporting and collaboration for marketing spend)Copyright © 2011 Azul Partners Inc. All rights reserved. Not for distribution. | www.spendmatters.com - spendmatters.co.uk - www.agmetalminer.com 18
  • 19. …Even sacred cows sometimes eat garbage – withoutknowing it! •  Many areas of services spend are tightly controlled by key business leaders who already have preferred relationships… •  …But this does not mean that entire categories are necessarily off limits •  Successfully engaging stakeholders requires: •  Doing homework and knowing the benchmark •  Using empathy as a tool to win detractors •  Understanding and segmenting all of the different elements of the “sub” categories within each area •  Getting creative with both sourcing and supplier management strategies •  Selling the “afterlife” of category engagement – no need to have the sacred cow eat garbage!Copyright © 2011 Azul Partners Inc. All rights reserved. Not for distribution. | www.spendmatters.com - spendmatters.co.uk - www.agmetalminer.com 19
  • 20. Eight tips we’ve observed from leaders in complex categoryand SOW procurement1.  Engage executives outside of procurement and invite them to help guide and set an overall non-contingent services spending strategy2.  Educate the broader organization on services procurement -- show them that it is not just about driving to the lowest possible price, but that primary objectives are to maximize value, as defined by category3.  Consider alternative specialized services procurement solutions in addition to standard VMS platforms designed specifically for contingent spending4.  Invest in analytics capabilities (beyond those offered by procurement vendors) that can take a highly granular slice of services spending data—including performance and reporting—in key categories5.  Don’t underestimate the importance of investing in internal marketing, education, and compliance; focus on adoption and usage as much as strategy, tools selection, and deployment6.  Leverage the IP (e.g., heavily customized category/process templates) and experience of technology partners to help define optimal services category-sourcing and lifecycle- management processes7.  Don’t be afraid to engage niche category specialists that offer both software and/or combined software/service solutions in services categories (e.g., print) where significant domain knowledge can be critical to savings and value potential8.  Measure and manage “customer” satisfaction by taking the pulse of spend owners and stakeholders rather than just managing expectations, savings numbers and supplier performanceCopyright © 2011 Azul Partners Inc. All rights reserved. Not for distribution. | www.spendmatters.com - spendmatters.co.uk - www.agmetalminer.com 20
  • 21. Investing in driving adoption is not easy, but it pays dividendsThree quick steps forconsideration:1.  A simple memo or phone calls is not enough to get deep, long-term buy-in •  Think like a marketing, not operations executive •  Content is king (as is executive sponsorship outside of procurement for all marketing initiatives) 2.  Out of the box thinking, creativity and a concentrated campaign are required to get lasting change and maximum result 3.  Analytics and data count, but people are multi-dimensional and need more than logic sometimesCopyright © 2011 Azul Partners Inc. All rights reserved. Not for distribution. | www.spendmatters.com - spendmatters.co.uk - www.agmetalminer.com 21
  • 22. Creating a marketing campaign for services procurement(yes, it can work!)Copyright © 2011 Azul Partners Inc. All rights reserved. Not for distribution. | www.spendmatters.com - spendmatters.co.uk - www.agmetalminer.com 22
  • 23. Agenda• Market backdrop – setting the stage• The latest in services procurement• Scenarios and expectations for tomorrowCopyright © 2011 Azul Partners Inc. All rights reserved. Not for distribution. | www.spendmatters.com - spendmatters.co.uk - www.agmetalminer.com 23
  • 24. Pulling out the Spend Matters Crystal Ball 1.  Dealing with vast sums of information – and being 5.  New interfaces and technologies drive functional able to act on it – becomes the defining characteristic interconnectivity and breakthrough collaboration and of top performing services procurement teams visibility 2.  Finance takes over procurement – literally and 6.  The successful management of complex services Figuratively categories proves transformative for top performers 3.  After the Web 2.0 comet strikes – new types of 7.  Buying and digesting companies once again becomes business and social networks quickly separate out a core competency, but this time procurement gets in on dinosaurs from mammals the act and services becomes key 4.  Politics, philosophy and economics will play an 8.  New talent enters procurement from the bottom – and unprecedented role in global procurement decisions changes things foreverCopyright © 2011 Azul Partners Inc. All rights reserved. Not for distribution. | www.spendmatters.com - spendmatters.co.uk - www.agmetalminer.com 24
  • 25. 1. Dealing with vast sums of information – and being able to act on it – becomes the defining characteristic of top- performing procurement organizations §  Services procurement as knowledge management? You bet! − Internal information (systems data, qualitative insights) − Supplier information − Third-party data §  Analytics becomes a competitive weapon – but we’re only as good as the quality and breadth of information that we have §  What’s possible? − Understanding ideal labor mix (macro) − Using analytics as a means to improve performance based on information that vendors don’t even think you have access to (e.g., churn in a project-based systems implementation or custom development initiative) − Creating forward markets (and forward strategies) for contingent labor and even project-based assignments based on index dataCopyright © 2011 Azul Partners Inc. All rights reserved. Not for distribution. | www.spendmatters.com - spendmatters.co.uk - www.agmetalminer.com 25
  • 26. 2. Finance Takes Over Procurement – Literally and Figuratively •  Managing volatility (e.g., demand, commodity, currency) is job one for CFOs and treasury •  Forecasting earnings and mid-term cash flow is more difficult today than sales (only 33% and 22% vs. 49% of companies can do so within 5% accuracy respectively) •  Credit lines are still very tight and managing banking relationships (and understanding overall supply chain banking exposure) is a top priority for executives and CFOs •  P2P strikes back – working capital strategies working their way into procurement strategies – and services procurement tactics and technologies as well •  Cost containment a critical CFO issue – margins, gross profit, EBITDA, OIBDACopyright © 2011 Azul Partners Inc. All rights reserved. Not for distribution. | www.spendmatters.com - spendmatters.co.uk - www.agmetalminer.com 26
  • 27. 3. After the Web 2.0 comet strikes – new types of business and social networks quickly separate dinosaurs from mammals §  Think Linked-In and Facebook? Think again §  New social networking tools and constructs (e.g., relationship mapping) will become an integral part of the procurement toolbox − Some will rely on new platforms and standards (e.g., Twitter) − Others will extend existing paradigms into specific business contexts §  Dinosaurs – yeah you, in the back row – will be starved out of a place on the procurement planet unless they learn to rapidly adopt to the changing landscape − If you don’t use social networks today, get familiar with them fast − Try out new things that come alongCopyright © 2011 Azul Partners Inc. All rights reserved. Not for distribution. | www.spendmatters.com - spendmatters.co.uk - www.agmetalminer.com 27
  • 28. 4. Politics, philosophy and economics will play an unprecedented role in global procurement decisions §  Growth, recovery and market volatility −  A continued “jobless” recovery? −  Austerity programs? −  Flexible workforce §  A superpower smack down −  Behind-the-scenes battle for raw materials (e.g., rare earth metals) −  Punitive measures in response to protectionism §  Blood, sweat and tears −  Traditional military conflicts (e.g., Iran) −  Non-traditional dangers (e.g., terrorism)Copyright © 2011 Azul Partners Inc. All rights reserved. Not for distribution. | www.spendmatters.com - spendmatters.co.uk - www.agmetalminer.com 28
  • 29. 5. New interfaces and technologies drive functional interconnectivity and breakthrough collaboration and visibility § Interfaces   –  iPad/iPhone  (i.e.,  touch)     –  Video  (phones,  PDAs,  Flip  cameras)   –  Voice   § Enabling  technologies   –  In  memory  DB   –  VirtualizaDon  (i.e.,  cloud)   –  MDM/CDI  (encompassing  structured     and  unstructured  data  sets)   § PotenDal  impact   –  Supplier  monitoring,  collaboraDon     and  development   –  NegoDaDon     –  Overall  presentaDon  and  internal   performance  awareness   29Copyright © 2011 Azul Partners Inc. All rights reserved. Not for distribution. | www.spendmatters.com - spendmatters.co.uk - www.agmetalminer.com 29
  • 30. 6. The successful management of complex services categories proves transformative for top performers §  Results will lead to not just reduced costs but entirely new ways of looking at the business and the role of suppliers §  Redefining what is core (and for whom) with what is not –  Marketing –  IT –  Product development/ engineering §  Shared services will help blur the gap between what is managed internally and what is externalCopyright © 2011 Azul Partners Inc. All rights reserved. Not for distribution. | www.spendmatters.com - spendmatters.co.uk - www.agmetalminer.com 30
  • 31. 7. Buying and digesting companies once again becomes a core competency, but this time procurement gets in on the act M&A is heating up §  Consensus on 2010 volume – 30~35% increase from 2009 (WSJ, PWC) §  Middle-market drives deal volume – return to its long-term trend §  Divestures make their way to the market – planned divestures that were on hold as well as regulatory mandate §  Cross-border deal activity increases – inbound activities from Asia and Europe What’s different for procurement this time? §  Management and shareholder cost savings expectations §  Enabling technology to drive rapid due diligence and opportunity assessment §  Risk management emphasisSources: WSJ, PWC, Spend Matters Group §  Weighing global options, constraints and upsideCopyright © 2011 Azul Partners Inc. All rights reserved. Not for distribution. | www.spendmatters.com - spendmatters.co.uk - www.agmetalminer.com 31
  • 32. 8. New talent enters procurement from the bottom – and changes things forever §  New blood goes beyond new functional skills (e.g., engineering, lean/Six Sigma, accounting) §  What we’re talking about here is how the entrance of … –  Highly analytical thinkers –  Top-tier MBAs –  Those with finance know-how –  Individuals with deep technology appreciation –  Highly ambitious leaders that want to run companies §  …into procurement will create a changed talent landscape –  Formation of new opportunities tangential to procurement (e.g., risk management leading to trading functions/companies) –  Greater expectations for reward and promotion (i.e., up or out tracks) –  Talent bifurcation: “Have” and “have not” environmentsCopyright © 2011 Azul Partners Inc. All rights reserved. Not for distribution. | www.spendmatters.com - spendmatters.co.uk - www.agmetalminer.com 32
  • 33. Contact detailsJason BuschManaging Director, Azul Partners, Inc.Founder and Executive Editor, www.spendmatters.comEmail: jbusch@azulpartners.comPhone: 773-525-7406Copyright © 2011 Azul Partners Inc. All rights reserved. Not for distribution. | www.spendmatters.com - spendmatters.co.uk - www.agmetalminer.com 33