The future role of procurement


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The future role of procurement

Tom Seal, Procurement Leaders

Presented at the SAP Procurement & Logistics Day 2012.

Published in: Technology, Business

The future role of procurement

  1. 1. CPO Strategy 2013 & The Future Role of Procurement Tom Seal Head of Research, Procurement Leaders Network1 File name
  2. 2. A Shared Direction Coherence Integrate the end-to-end supply network to define and deliver customer needs Collaboration Organizational Maturity Engage critical third-party suppliers to develop competitive supply and usage solutions Maximise the value recognized by Cooperation Work with the internal the end customer. organisation to develop optimum Minimise the Total Cost supply specifications of Ownership across Source: Dr Ian George the supply network and product/service life. Competence Build Skills & Minimise delivered cost Knowledge from third-party suppliers Minimise headline prices Price Cost Total Cost of Ownership Value Business Maturity We all share a similar development path2 File name
  3. 3. A Century of Change 20 Horizontal Consolidation First World War Mass Production Vertical Consolidation: Second World War The Conglomerate Horizontal Consolidation: The Hostile Takeover Horizontal Consolidation: The Mega-Deal Horizontal Consolidation: 18 16 14 Degree of Integration 12 10 Horizontal Integration 8 6 Vertical 4 Integration 2 0 1890 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 Year Horizontal Integration = Internal Complexity Outsourcing = External Complexity3 File name
  4. 4. Procurement’s Progress Relationship Between Maturity Indicators Category Strategies and Spend Under Management 72% 100 65% 90 % of Spend with a Category Plan 56% 52% 80 70 2010 60 2011 50 40 30 20 Spend under Spend under Executed 10 Management Category Strategies 0 0 10 20 30 40 50 60 70 80 90 100 % Spend Under Management It will take a decade to We gain control of complete what we have additional spending far started more readily than we can execute category plans4 File name
  5. 5. A Broader Role Priorities Evolve with Functional Maturity High 4 Priority < 33% Spend Under Management Priority3 34% - 65% Spend Under Management Not a > 66% Spend Under Priority2 Management We only ever take on more responsibilities5 File name
  6. 6. Investment Spend per Buyer € 25.000.000 € 20.000.000 Spend per Buyer € 15.000.000 € 10.000.000 € 5.000.000 €0 51-60% 61-70% 71-80% 81-90% 91-100% % Spend Under Management We must grow our teams to fulfill our new responsibilities6 File name
  7. 7. Technology Investment On which technologies are you most focused? (ranking question, chart shows ranks 1 – 3) 60,00% 50,00% 40,00% 30,00% 20,00% Ranked 3 10,00% Ranked 2 0,00% Ranked 1 Source: SAP, 2011 Strategic sourcing tops the list7 File name
  8. 8. Changing Focus Change in resource prioritization from 2012 to 2017 Innovation SRM Supplier risk management Staff development Cost management Sourcing activities Supplier performance management Stakeholder management -5 -4 -3 -2 -1 1 2 3 4 5 We must grow our teams to fulfill our new responsibilities8 File name
  9. 9. Innovation Procurement cant significantly influence • Innovation is seen as being the innovation (3%) most powerful way of delivering “value” • Those who can deliver it are seen as rare and talented How do you encourage innovation in your supply • It is notoriously difficult to chain? We rely on encourage innovation suppliers & potential suppliers to bring us No consensus yet on innovation the best approach to (25%) supply innovation We rely on entrepreneurial behaviour to Innovation is deliver something we can innovation deliver through (32%) processes (40%)9 File name
  10. 10. 2020 Mega Trends Global Mega Trend What it Means Phase Socially Responsible Consumers and investors will associate themselves with Early Corporations organisations that support their ethical ideals. The Rise of Asia The transition from low cost markets to key customers. Mid Persistent Insecurity Individuals and corporations will perceive a constant risk Mid of cyber attack and terrorism. Scarcity of Natural We will move beyond straight forward inflation, the supply Early Resources of critical resources will no longer be a question of money. Diversification of Companies will provide ever more personal and Early Offering customised services to their customers. Leading From The In 2020 middle managers will take over from CEOs as the Early Middle dominant force. Localisation As emerging markets become critical customers we need Mid to tailor products to many geographies. We believe it is unlikely that a mega trend will be affecting us in 2020 that we can’t observe to some extent in 2012.10 File name
  11. 11. 5 Forces Driving Green Procurement Regulations force Procurement places companies to change environmental demands Government their practices to on suppliers protect the environment Organisations market 3 their green offerings to consumers. 4 2 Buying Suppliers Consumers Organization 5 1 Suppliers influence their Consumers demand green customers products and services. We will all be influenced differently11 File name
  12. 12. Four “Green” Methods Switch Re-engineer and educate • Green alternatives already available • No substitute yet available Organisation’s Environmental Impact • Significant business change required • May require consumer education • Competitive pressure to green Packaging Cars Make obsolete Sponsor • Environmental demand management • A problem best solved as a • Communicate policies/empower community Water Sea coolers Freight Difficulty Procurement have the skills required to lead CSR12 File name
  13. 13. Organizational Design How is your procurement organization structured today and in two years’ time? 60,00% 50,00% 40,00% 30,00% 2011 2013 20,00% 10,00% 0,00% Centralized Center-Led Decentralized Matrix Source: SAP, 2011 • Centralization remains a strong trend • Decentralized nearly obsolete13 File name
  14. 14. Category Management Category Management Value Chain Management Business Business Business Business Business Unit Unit Unit Unit Unit Sales Sales Sales Sales Sales Marketing Marketing Marketing Marketing Marketing Production Production Production Production Production Procurement Procurement Procurement Procurement Procurement Supplier Supplier Supplier Supplier Supplier  Supplier rationalization Tier X Tier X  Category consolidation  Standardization  Leveraging scale  Transparency  Profit not cost  Capitalization of position in the supply chain Category management will evolve14 File name
  15. 15. Procurement’s Profile How has the recession impacted your • The function raised it’s profile procurement function? over the last 3 years 3% • Relationships have been built, but may have reinforced 16% negative procurement stereotypes 25% 56% It has made procurement more of a priority It has made procurement more of a priority and has received additional resources It has not affected other functions attitude towards procurement It has been a threat to procurement in its current form Has procurement damaged it’s reputation?15 File name
  16. 16. Actions For 2013 Innovation: Take the next step in capitalizing on ideas from the supplier base CSR: Segment & prioritize purchases and/or suppliers Organizational Design: Experiment with business unit specialists where category management benefits are tailing off16 File name