Capgemini Global Cpo Survey 2009 Report Final

3,642 views

Published on

0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total views
3,642
On SlideShare
0
From Embeds
0
Number of Embeds
9
Actions
Shares
0
Downloads
71
Comments
0
Likes
0
Embeds 0
No embeds

No notes for slide

Capgemini Global Cpo Survey 2009 Report Final

  1. 1. the way we see it Global Chief Procurement Officer Survey 2009 Responding to the Challenges of Economic Meltdown
  2. 2. Contents Prepared by: Foreword 1 James Abery Sanjeev Itagi Ton van Dolder Participating Companies and Organizations 3 Hamish McKechnie-Sharma Contributors: Executive Summary 5 Charlotte Baratti Dan Zoltowski Impact of Global Economic Downturn on Surveyed Organizations 7 Randy Smith Dobson Schofield Stefan Becker Key Survey Findings 11 Robbert den Braber Colin Hartog eProcurement - Use and Penetration 11 Susan Stuart Procurement Organizational Development - Evolving Models 13 Date: Spend Visibility - Improving the Line of Sight 15 July 2009 Effective Supplier Management - Managing Risk in the Supply Base 17 The Talent Gap - Continued Issue of Appropriate Competence and Capability 18 Supporting Articles 20 Managing Commodity Price Fluctuations and Volatility 20 Using Procurement Intelligence to Improve Procurement’s Success 23 Procurement Master Data - The Bedrock of Success 27 Innovation-Driven Procurement - Innovation and the Role of Procurement 33 Complex Indirect Category Sourcing - A Missed Value Opportunity 38 Supplier Risk Management - How to Manage Within the Current Crisis and Learn for the Future 41
  3. 3. Capgemini Consulting the way we see it Foreword The third Global Chief Procurement Officer (CPO) Survey marks Capgemini’s continued commitment to understanding the trends and issues affecting the procurement executive. Given the seismic upheavals in the financial markets and their inevitable impact on commerce, it has never been so important to assess and understand what this means for procurement within organizations. The intent of the Global CPO Survey is to provide executives with insight into both macro issues and focus areas so they may be better informed concerning the challenges they face and the decisions they make. The Global CPO Survey is based around responses from more than 150 organizations spanning Europe, North America and Asia Pacific, mainly represented by senior procurement executives. This Survey provides a temperature check on the world of buying in 2009 and gives a comparison of findings from previous Surveys conducted in 2007 and 2008. The Survey also represents a diversity of industries ranging from Energy to Pharmaceuticals and Manufacturing to the Public Sector. What is common to all respondent organizations is the continuing theme of having to manage and drive value out of third party expenditure. As we indicated in last year’s Survey, the pressure on the procurement function continues to grow exponentially. If anything the global financial crisis has only accelerated this focus as cost reduction becomes key to sustained profitability and in many cases long-term survival. Paramount to this is reacting in the right way. Winners in the current climate will be those procurement professionals who are able to focus on the real issues and demonstrate an agile approach to adjusting rapidly to the unprecedented challenges facing them. The Survey has been conducted in the main through one-to-one interviews with senior procurement executives from around the world. Capgemini would like to take this opportunity to thank each participant for their time, contribution, openness and candor regarding their issues, areas of focus and future plans. Without their cooperation and investment, research of this nature would not be possible. James Abery Roy Lenders Capgemini Consulting Capgemini Consulting Vice President Vice President Global Procurement Practice Lead Global Supply Chain Practice Lead Capgemini Consulting is the strategy and transformation consulting brand of Capgemini Group Global Chief Procurement Officer Survey 2009 I Forward 1
  4. 4. A note of thanks Capgemini Consulting would like to extend its thanks to the senior procurement professionals who made time to be interviewed for this global survey. Besides the organizations listed here, a further 64 companies participated in the survey but requested that they remain anonymous.
  5. 5. Capgemini Consulting the way we see it Participating Companies and Organizations AEGAEGON Nederland N.V. GEA Air Treatment Service GmbH Alliander Gebr. Becker GmbH AREVA T&D Canada Goodrich Corporation Astellas US LLC Heijmans Astra Zeneca Plc Her Majesty's Revenue and Customs Atlas Copco Compressor Technique Service Hewlett-Packard Division Houghton Mifflin Harcourt Ballast Nedam HydroOne Bank Austria Inalfa Roof Systems Barilla G. e R. Fratelli Invitel Távközlési Zrt Bayer CropScience Jarden Corp BD Karl Otto Braun GmbH & Co. KG Boral Ltd Koninklijke BAM Groep nv BP Plc Landesbank Hessen-Thüringen Girozentrale BSH Bosch u. Siemens Hausgeräte GmbH Lantmäteriet BT Lekkerland CABOT Corporation Europe Libro Caltex LloydsTSB Capgemini NL MAG Powertrain Europe Carphone Warehouse Manutencoop Facilities Management Chemion Logistik GmbH Mattsson Metal Claas KG Mercury Marine / Brunswick Corp Cognis GmbH Metropolitan Police Services Consip – Government Agency for Microsoft Deutschland GmbH Purchasing in PA MTU Friedrichshafen Dell APAC and Japan MVV Energie AG Department for Children Schools and Families News Corporation Deutsche Bank North Lanarkshire Council Deutsche Post World Net NS Downer EDI Rail NSW Department of Education & Training DSM Oesterreichische Post AG Elders Rural Services Limited OMV AG Essent Optus Faurecia Autositze GmbH & Co. KG Prysmian G4S PSPI GASAG Berliner Gaswerke Raiffeisen International Bank-Holding AG Global Chief Procurement Officer Survey 2009 I Participating Companies and Organizations 3
  6. 6. Rexel Takeda Pharmaceuticals North America, Inc. Road and Traffic Authority Tata-Corus Steel Group RWE Services Tessenderlo Chemie, Business Group Chemicals SABIC Europe TETRA Technologies Saint-Gobain Deutsche Glas GmbH The Scotts Company Saipem The University of Sydney Sandoz Toyota Motor Europe Schindler Management AG TRW Automotive Schweizerische Post Valentino Fashion Group SGL Carbon Value Wales Siemens Healthcare Van Gansewinkel Groep Snam Rete Gas Vattenfall Europe Transmission Spherion Corp. Versicherungskammer Bayern s-Proserv WestLB AG Stielfelkönig Whisson Swedish Tax Authority Syngenta 4
  7. 7. Capgemini Consulting the way we see it Executive Summary As a major lever of cost control, This year’s Survey provides insight into Equally the desire to raise procurement is clearly in the the impact of the global recession on procurement’s profile can be traced spotlight procurement executives, with nearly 7 back to a need to work better with in 10 participants acknowledging that stakeholders, internal customers, the current economic recession was suppliers and end user groups to drive Top of the list of current having a significant impact on them: lower cost fit-for-purpose initiatives for procurement is the increasing targets, altering focus areas specifications. tactical re-negotiation of and shortening planning time existing contracts in an attempt horizons. For many, savings targets We would conjecture that part of this to slash spend and reflect have doubled from those that prevailed is to move procurement behaviors from reduced demand when we last conducted the Global buying what is wanted to buying what CPO Survey, and in some cases are a is needed. clear requirement for survival. Characteristics are consistent All of these characteristics are with the harsh environment in Clearly as revenue performance consistent with the harsh environment which procurement and diminishes companies are seeking to procurement and organizations alike organizations are currently reduce operating costs to support the are currently operating in. These having to operate balance sheet, and as a major lever of results are consistent regardless of cost control procurement is clearly in industry sector or geography and show the spotlight. The response to this the true nature and impact of the focus appears to comprise short-term global economy. objectives in the main: top of the list of current initiatives for procurement is When turning our attention to areas of the tactical re-negotiation of existing investment and improvement being contracts in an attempt to slash spend pursued by CPOs, we see significant and reflect reduced demand. The other consistency with the themes from last main activities being pursued target year. The key findings being enhanced supplier management and represented by: raising the profile of procurement across the organization. Even these can Organizations continuing to struggle be tracked directly to short-term goals to unlock the intrinsic value within as opposed to more strategic, longer- IT solutions. More than 60% of term objectives. respondents acknowledged that less than 20% of spend utilized One of the concerns we regularly eProcurement tools despite significant encounter from company to company investment made in technology. is that of unforeseen bankruptcies Perhaps connected to this, spend within the supply base. The fear is the visibility remains a key problem and unquantified effect this would have on for the second year running is the top downstream product and service issue facing CPOs. provision. The response around supplier management therefore is far The issue of talent continues to be a more attuned to risk mitigation as front of mind issue and, along with opposed to the more traditional aims the pressure for economic results, has of development and innovation. become more acute for procurement functions struggling to execute effective strategies. Global Chief Procurement Officer Survey 2009 I Executive Summary 5
  8. 8. Supplier management has come into market watchers see as the worst focus as organizations recognize the economic slump in living memory, the risk of vendor failures within the question of how much capacity supply chain. organizations have to affect change has to be raised. Organizational design continues to adapt to circumstance as respondents Lasting solutions seem to be evading seek to balance end user intimacy companies in the main. While this with the needs for control and continues it will serve only to denude consistency. organizations of the effective What is striking about the issues raised deployment of tools, capabilities and by senior procurement executives is operating models to address the long- the consistency with findings from term strategic agenda. For those who previous years. can break out of this detrimental cycle there is a clear opportunity to drive It seems that while the problems are competitive advantage for their now well recognized, progress with respective organizations. resolving them is occurring at a slow pace. In no small measure these businesses will help define the winners and losers One possible explanation for this is a that emerge from the current economic common failure to see the integrated cycle. nature of such problems. Rather activities are focused on solving what are seen as discrete issues leading to unsustainable solutions. In the current climate of short-term goals and targets driven by what many 6
  9. 9. Capgemini Consulting the way we see it Impact of Global Economic Downturn on Surveyed Organizations Given the significant turbulence Given the uncertainties faced, this affecting the world economy, part of would seem an understandable the Survey for 2009 was focused on reaction. However the natural better understanding how this was conclusion is to re-focus the behaviors impacting procurement activities across and mindset on more tactical activities organizations. at the expense of longer-term strategic initiatives which, by their nature, take Perhaps unsurprisingly, some 67% of time to implement and deliver. respondents rated the impact of the current economic challenges as having What was prevalent in discussions was either an acute (very high) or an overall shortening of the planning significant (high) impact on their time horizon compared with the stable current activities and focus. A mere 4% period of growth preceding the current of surveyed organizations saw no economic slowdown. impact at all. Figure 1: To what extent are the current economic conditions affecting Procurement’s goals and objectives Not at all – 4% Minor – 12% Moderate – 17% Significant – 39% Acute – 28% 25% 50% 75% 100% % of Respondents When asked how the economic To better understand what this shift in downturn was affecting the planning the time horizon meant, we asked horizon for procurement activities and organizations to highlight the activities strategy, the majority of organizations they were pursuing. highlighted it as a challenge to look beyond the short to medium term. Global Chief Procurement Officer Survey 2009 I Impact of Global Economic Downturn on Surveyed Organizations 7
  10. 10. Top of the responses was a focus on re- Finally we were interested to see negotiating existing contracts with whether these developments were vendors, which was being pursued by filtering into the savings expectations 1 in 5 of the surveyed businesses. The on procurement. In last year’s Survey second dominant activity was more than 70% of organizations improving the management of vendors highlighted a savings target of 5% or as a counter to potential supply less. This year the number of disruption caused by bankruptcies organizations targeting that figure has within the supplier community. The reduced to 47%. Those tasked with third major area of attention was fixed saving from 6-10% doubled from 19% on raising the profile of procurement to 39% of the respondent organizations across the organization and the value it between 2008 and 2009, while those could bring to fiscal performance. chasing double digit reductions also doubled from 7% of respondents to It was also interesting to note that less 14%. than 4% of the Survey respondents perceived redundancies within the Clearly many organizations are chasing procurement function as a likely short-term gains from third party response to the ‘credit crunch’ and spend to help support the balance need for cost savings. sheet. While investment seems steady, with little sign of reductions in Indeed a number of organizations resource capacity, the reducing commented that far from being planning horizons and rising targets pressured to reduce headcount they appear to be at the fore of the were actively being encouraged to procurement executive’s consciousness recruit more buyers and high caliber and may help to explain why so many personnel. see the impact of the slowdown as being significant or acute. We take this to be an encouraging sign that procurement’s position as a major lever to cost control is being recognized within organizations as revenues tighten. Figure 2: Time Horizon Long term - Business as usual Medium term - Security Short term - Survival 8
  11. 11. Capgemini Consulting the way we see it Further evidence to support this comes It is clear from the Survey that from the respondents’ perception of sentiment is reasonably gloomy for the how long the difficult times will last. next year or more in terms of revenue Almost 40% believe that the current recovery. The focus is therefore economic downturn will be with us for evidently on cost control where between one and a half and two years procurement is a major contributor. and 75% for a year or more. Only one The current downturn has clearly in four believed that we would see an placed greater expectations on upturn within the next year. procurement performance and the challenge has been set. The To counter this, however, there was a performance of the function and how similar profile for major input prices. it responds will contribute significantly Some 75% did not expect to see rising towards the continuing rise in the prices for major raw material perceived importance of procurement commodities (e.g. steel), energy or oil by organizations. over the next year and nearly one in three did not anticipate a recovery in In short, the economic slowdown has the mid term (the next one and a half presented procurement with the years). opportunity to show its worth. Global Chief Procurement Officer Survey 2009 I Impact of Global Economic Downturn on Surveyed Organizations 9
  12. 12. Capgemini Consulting the way we see it Key Survey Findings eProcurement – Use and More than 60% of organizations stated Penetration that less than 20% of their spend was Given that electronic enablers for channeled through applications of this procurement have now reached a nature. Conversely, those declaring a reasonable state of maturity, we significant use of such applications were interested to understand how (with 80% or more of their spend effectively these were being subject to them) represented a employed by organizations. mere 7%. The technologies we refer to are those Some 80% of those organizations which support source to contract surveyed put less than half of their activities such as eRFI, eRFQ and spend through such applications. What Auctioning together with transactional is interesting is that while the majority eProcurement platforms covering of organizations possessed some form catalogs and workflow approvals. of eProcurement applications, the use and application to ensure third party Given these have been about for more expenditure coverage is sub-optimal in than ten years, we expected to find a the current climate. healthy amount of use of – particularly in the large organizations ($1bn plus Only one of two conclusions can be revenues) which made up the majority drawn from the findings. Either that of respondents. What we found was the applications do not best serve the quite the opposite. needs of procurement functions or, more likely, that organizations are Figure 3: How much of your spend utilizes eProcurement technologies? Greater than 80% of spend – 7% 60% to 80% of spend – 7% 50% to 60% of spend – 4% 40% to 50% of spend – 4% 30% to 40% of spend – 7% 20% to 30% of spend – 10% Less than 20% of spend – 61% 25% 50% 75% 100% % of Respondents Global Chief Procurement Officer Survey 2009 I Key Survey Findings 11
  13. 13. struggling in terms of how best to of spend are simply not suited to this apply them. type of application and are better served through the use of other In trying to unravel this conundrum, it channels such as standard ERP is best to consider the transactional functionality or purchasing cards. A and sourcing applications simple example would be utilities independently. The issue for the where the transaction count is very low transactional applications primarily and payment tends to be made focuses on penetration. In our through call off and then cross experience once obvious areas of charging to business units. indirect spend are enabled, such as stationery, IT hardware, promotional To be effective the eProcurement goods and IT consumables, application needs to be positioned organizations start to struggle. As one appropriately as one of the channels respondent commented, “my for transactional management within eProcurement platform is no better an overall spend management solution. than a stationery ordering system.” The key to robust use of such a solution is to have it focused on the The reality is that most indirect spend high transaction non stock areas of relates to services that do not easily spend and integrate it into the wider lend themselves to a structured catalog suite of applications used to manage format. Instead these areas of spend spend. rely on form-based functionality which can be highly effective and user- While this might seem obvious it is friendly in capturing demand clear from observation that this tends requirements, but is often overlooked to be omitted by many organizations as too hard when configuring the leading to confusion of the exact remit solution in many organizations. of such eProcurement solutions. In parallel, these applications often Turning our attention to the more suffer from issues of compliance dynamic commerce applications of amongst employees. eProcurement such as eRFX and auctioning, it appears that a similar Building a solution is one challenge lack of focus prevails. One respondent but getting people to use it is another. commented that they found it difficult Too often people find ways to bypass to understand how to apply the tools the system and revert to traditional available to areas outside low value, ways of transacting; for example non strategic spend aspects. employing the phone as an easier medium. Unless a robust compliance From discussions during the Survey we strategy is in place, the amount of pinpointed several issues impacting spend directed through a system is broad scale adoption of these likely to remain low. The knock-on applications. Firstly, integrating the impact can be that the significant tools into the sourcing process and investment in these applications migrating them to a business as usual actually hinders the ability to manage, standing rather than applying them on monitor and control compliance a case by case basis. In effect changing effectively. the buyer’s mindset from one of ‘when to apply’ to one of ‘when not to’. Too Finally, a contributing factor to the low often the eProcurement applications uptake of transactional eProcurement available to the procurement systems may relate to how they ‘fit’ professional do not seem to be into the overall landscape of enterprise employed in the situations where they applications. Too often the self service would provide the most benefit, such eProcurement platforms are bought as complex types of procurement, or as and implemented with a perception a tool to gather more significant that they will provide the ‘one stop information to help enhance informed shop’ for all spend. In truth some areas decision making. 12
  14. 14. Capgemini Consulting the way we see it Last year we raised the talent challenge organizations seize the opportunity as a consistent issue facing presented by such tools to improve procurement. We found that the results and productivity. majority of procurement functions were faced with an issue of finding the Procurement Organizational right caliber of resource to help Development – Evolving Models execute strategies and sourcing Last year one of the major trends we activities. It is possible that part of the assessed was the organizational problem with applying eProcurement models that procurement employed. applications for optimal benefit is the In this year’s Survey we checked on level of procurement capability of some the associated developments in this members of the procurement space. community - and their ability to understand how and when to use The findings revealed a significant shift eProcurement. This seemed to be towards a hybrid model from more borne out by some of the comments centralized vehicles. we picked up during discussions with respondents who highlighted this as a In the 2008 Survey we found 63% of contributing factor. organizations favored a centralized model. In this year’s Survey that To overcome these twin issues we number fell by over a third to just 36% would recommend that organizations of organizations. We found that the integrate such applications into the use of hybrid models rose significantly DNA of day-to-day activities, while at from 22% in 2008 to 41% this year. the same time launching appropriate Those choosing to employ a federated classroom and on-the-job training for model remain reasonably constant at buyers to help familiarize them with 12% dropping only 3 percentage the tools at their disposal and improve points from the previous year. Further the understanding of the value-add interpretation of these findings draws that can be achieved. out some interesting trends. In an era where time-to-savings is We found last year that the drive paramount, we feel it essential that towards more centralized models was Figure 4: Organizational models in Use by respondents 100 90 2008 80 2009 70 % of Respondents 60 50 40 30 20 10 Centralised Hybrid Federated Shared Outsourced Service Global Chief Procurement Officer Survey 2009 I Key Survey Findings 13
  15. 15. being fuelled by a need to gain control By contrast outsourcing has its over direction and priorities. This is a imperative in a different direction. natural reaction to the evolution from With the ‘dash for cash’ pressure on federated models where decisions tend businesses, many are now turning to to be taken locally and therefore can service providers who offer the create challenges in coordination. opportunity to accelerate benefits through established deals and efficient However the primary shortcoming of a transactional processes. In effect, rather centralized model is the difficulty of than trying to build your own solution interfacing with end users to help the outsourced provider extends the shape requirements and control opportunity to buy into a ready-made demand. It is perhaps unsurprising solution in exchange for some of the that there has been a shift towards a potential buying benefits inherent hybrid model that helps address this within an organization. We have found issue while maintaining coordination this to be of particular appeal in non- and direction. strategic areas – particularly in indirect spend categories. Our experience of A hybrid model combines the features the market also shows momentum to of central direction with distributed apply such models in the transactional service provision for procurement. purchase-to-pay (P2P) space leveraging Given the pressures to drive benefits, offshore low cost solutions backed by the need to ensure close proximity to on-demand technology platforms. end user communities rises in importance. The issues with outsourcing, however, are how to effectively integrate the It was also interesting this year to note service into an overall procurement the emergence of new organizational strategy and organizational structure, models, notably shared services and while still creating a sizeable service outsourced operations, which package that will attract providers. accounted for 1 in 10 of surveyed organizations. The specific For those contemplating using a form organizational drivers behind each of of outsourced vehicle as part of service these models are different but we provision, the question is therefore not would conjecture that they include a ‘whether to’ but ‘what to’; in short, need to deliver economic benefit as trying to identify those areas of spend well as provide a more efficient and or process that would benefit from effective self-service options to all accelerated speed to benefit. procurement end users. Identifying ‘non-strategic’ activities that are more easily outsourced can be The shared services model is driven by subjective; the optimal approach is to the need to secure greater efficiencies build a fact-based analysis of what in procurement operations by spend areas and processes are to be removing duplication and thus driving outsourced, and why. down the overall cost of operations. It is particularly effective for the more Also, in talking to outsourced transactional elements of procurement providers we have found that the activity and helps to amortize the cost attraction of an arrangement is very of operations. Where organizations are much governed by size and economy seeking to find cost efficiencies the of scale. Taking on a small number of move to utilize shared service concepts categories or a discrete process often is understandable. However, it remains frustrates the ability to leverage to be seen how well this shared economies of scale and holds little services model will fare in integrating attraction because the difference to the into local business units as the model overall bottom line is minimal. In this unfolds. situation neither the service provider nor the customer gains real benefit. 14
  16. 16. Capgemini Consulting the way we see it Despite the challenges, we expect to This continues to cause concern given see a significant increase in market the amount of IT investment that activity with respect to the use of procurement has enjoyed. As we outsourcing over the coming cycle. As mentioned in last year’s report there is the global downturn continues to bite, no shortage of systems to manage data this growth will be fuelled by an within most businesses. Yet despite the agenda driven not only by cost cutting investment in ERP applications and but in equal measure the speed to ‘best of breed’ procurement solutions, deliver tangible benefit. poor information remains a perennial problem. The only question that Spend Visibility – Improving the should be posed therefore is ‘why?’ Line of Sight It seems from this year’s findings Poor information is invariably the that poor visibility of expenditure result of broken master data. The and performance continues to dog issues with master data management the procurement professional. (MDM) include: The top area of focus for investment by Fragmented governance to drive surveyed organizations this year is on consistent data entry with blurred improving the quality of spend accountabilities and ownership. information and its availability. This Incomplete descriptions and remains consistent from the findings of classifications. the 2008 Survey where it also ranked as the top priority. Misclassifications of spend types. Lack of consistent schemas and data It would seem that despite the hierarchies. spotlight on this over the past twelve months, the availability of quality Inconsistent taxonomy and part management information remains an numbering between locations. Achilles heel for the procurement professional. Classifications and descriptions captured at too high a level The focus is understandable. frustrating the ability to understand Procurement is expected to deliver spend at a grass roots level. significant, tangible and rapid cost Disparate procurement platforms reductions in third party spend. In employing differing data structures in order to deliver on this the a non integrated way. procurement professional must be well informed. What is spend? Who do I These problems are particularly acute spend it with? And what are the in non stock areas of spend and for fundamental starting points that many services. As one CPO mentioned struggle with? during the Survey, “I am not sure whether my indirect spend is €1bn or Having detailed reliable data is the €3bn as the reports are so bedrock of effective procurement. It inconclusive.” fuels the ability to construct innovative strategies to secure optimum value for It is difficult to see how procurement money in the market, to track can raise the agenda beyond a tactical anticipated savings to the bottom line cost saving focus when it is starved of and to provide the means to monitor information. Such information holds supplier performance. Without this the key to a range of significant benefit data these areas become too reliant on areas such as driving higher degrees of guesswork and gut feel. standardization, aggregating across business units and geographies and The all too common problem is that helping to drive cost of capital what information is available is poor, reductions through better management too high level and poorly aligned to of stock holdings. meeting these needs. Global Chief Procurement Officer Survey 2009 I Key Survey Findings 15
  17. 17. From our discussions during the around new or incremental IT Survey and our work with solutions or indeed manual organizations, it is clear that the intervention. Such an approach fails to problem of MDM is systemic across all address the underlying issues. sectors and regions. Our second hypothesis is that there is In last year’s Survey we found a distinct failure to recognize the inter- improving information a dominant related issues which cause such theme. The results this year breakdown in information. Rather than demonstrate that this focus is adopting holistic organization-wide intensifying. In 2008 67% of surveyed solutions businesses have defaulted to organizations declared improved point solutions that address only part information to be a clear area of of the problem and are not sustainable. intended action or a top 5 issue for This is neither tied into the overall them. In the most recent Survey this enterprise of procurement integration had increased to 81% - an increase of nor will it address the end game almost 42% in the surveyed through effective compliance population. monitoring and management. Figure 5: How important is information and availability - 2007 to 2009 results A top 5 issue 2007 Clear intention of 2008 planned activity 2009 Some planned activity possible Not an area of focus Clear intent for no action 25% 50% 75% 100% % of Respondents While the focus on resolving this Finally the issue of data integrity is not problem is increasing it also appears exclusive to procurement. Management that previous efforts have not yet of data, data input, systems and IT delivered successful results. platforms, bills of materials and classifications regularly sit outside of Given that this has ranked as a key procurement with other functional issue for the past three years we must areas. In effect, procurement is a ask why so little progress appears to customer of information, not an owner. have been made. If solutions are to be effective then organizations must recognize that an Our first hypothesis is that integrated pan-organizational response organizations continue to treat is required. symptoms rather than the root causes of poor MDM. In effect, responses to the inherent problems have revolved 16
  18. 18. Capgemini Consulting the way we see it Effective Supplier Management – lens things can appear quite different. Managing Risk in the Supply If they supply a critical compound, Base component or material for finished While cost reduction remains at the goods then their importance rises fore of the procurement agenda, the exponentially. While this may seem risk of supply disruption from obvious, it raises a number of financially distressed vendors is not challenges for the procurement far behind. executive. Inevitably the economic turbulence is Challenge one is getting to understand affecting buyers and suppliers in equal the relative strategic importance of measure. While procurement vendors across the supply base. While executives are chasing significant cost an obvious list of candidates will reductions in spend to help support always exist, understanding the balance sheets, there is also a growing complete picture can be somewhat recognition of the inherent risk posed more complicated. by distressed suppliers. Often intelligence on relative The effects of the credit squeeze, importance does not reside wholly in reduced order books from inventories procurement but requires close being run down and lower demand are cooperation with end user groups. all having an effect on suppliers. While Successfully affecting and influencing many will weather the economic this requires strong stakeholder storm, for others it will spell disaster. management and cross functional Business failures are on the increase working. and the impact on buying organizations in the main is poorly Once the supplier portfolio is quantified. thoroughly understood the procurement team is then faced with The Survey results showed that a focus ensuring that such vendors can be on supplier management to avoid evaluated on a regular basis. This business disruption from bankruptcies should consider a range of factors from in the supply base was the second financial to operational using robust highest area of activity for tools, techniques and methods – not organizations responding to the all of which may be in place. economic downturn. It is therefore no real surprise to see that 65% of The final area of challenge is then to respondents indicated improved work in concert with business units to supplier management as either a top 5 create contingency plans that mitigate initiative or an area of planned activity. supply disruptions. Only 12% of organizations stated that they had no intent to improve the We anticipate that these challenges will existing supplier management result in organizations segmenting their approach. supply bases to understand strategic, bottleneck, leverage and administrative Typical supply bases can run into many supply areas of spend. This will thousands of vendors. Although a provide the basis for organizations to small number of these can account for then align tools and techniques of the majority of spend – perhaps a few supplier management appropriately hundred – risk does not necessarily with the characteristics of supply and restrict itself to solely fiscal to manage spend more on a portfolio considerations. basis than is done today. If we consider a small supplier who There are also implications for the represents less than 1% of total spend, capabilities needed by procurement. A it’s true to say that on financial terms good buyer does not necessarily make the supplier would not be deemed a good supplier manager. While the critical. However, seen through another former concentrates on creating Global Chief Procurement Officer Survey 2009 I Key Survey Findings 17
  19. 19. innovative go to market strategies and The Talent Gap – Continued exploiting these, the latter depends on Issue of Appropriate good relationship and operational Competence and Capability management skills. We highlighted last year that the CPO continues to see a dearth of We have found that one of the biggest talent as a major obstacle. Despite challenges to embedding robust the focus over the past 12 months supplier management within this issue appears to have shown no procurement is differentiating these signs of easing. skill sets and having the differences recognized by the organization. Second only to improved information, capability improvement and talent We will discuss the continuing talent management rated highly as a focus problems in the next chapter but one area for the second year running. Of of the keys to successfully pursuing the surveyed organizations, some 65% effective supplier management in the of executives considered this to be a current climate will be aligning the top 5 (30%) priority or a key spotlight right relationship and analytical skills area (35%). with the tasks at hand. This demonstrated an increase in Finally, trying to understand the ‘at emphasis over last year where only risk’ suppliers within any vendor base 27% saw it as a top 5 and 30% as a goes well beyond simple financial clear area of focus. From comments analysis. It will need a 360o collated during the Survey process we assessment. Organizations need to be would surmise that the raised considering not just the relative expectations on procurement to deliver strength of vendors’ balance sheets but increased cost savings has re- their downstream exposure within the emphasized the need for talent to vendors’ own supply chains, their execute. operational competencies and defined contingency plans as well. In our analysis last year we drew attention to the shortage of top talent Upstream the procurement executive in procurement with most will need to consider effective in-house organizations searching for the same contingency plans to overcome areas of people, which was further complicated possible supply disruption. These may by the emergence of new global players include finding alternative sources of from India and China. supply (where feasible), switching costs, buy-outs for certain types of When considering that few constrained supply, changes to organizations have sought to reduce specifications and the accumulation of their procurement functions as a result strategic stocks. of the economic downturn it is perhaps no surprise that the talent All in all, the current environment pool remains constrained. demands a higher degree of scrutiny and wider consideration of factors than Indeed, as mentioned earlier we found would be typical in a more benign that a high percentage of CPOs were economic climate. In building future seeking to or continuing to augment supplier management capabilities the their functions’ skilled resources. Such organization will face the challenge of a combination would explain in part bringing on board comprehensive tools the continued focus on developing, and techniques as well as finding, retaining and recruiting talent. training and deploying the right talent to execute effectively. Our prediction in last year’s Survey that any economic slowdown would lead to an intensification of the ‘talent war’ appears to be being borne out this year. The acute need to cut costs has 18
  20. 20. Capgemini Consulting the way we see it only demonstrated to board executives However, with the pressures on the importance of procurement as a procurement executives to deliver lever of cost control. results and the difficulty to recruit appropriate talent in the market, the As a consequence the CPO is under use of interims presents a ready increasing pressure to deliver faster, solution to securing the needed larger results. To do this they will need firepower necessary to address spend the right talent to execute differing in the short term. approaches capable of satisfying this demand. What is perhaps of more interest is the developments that need to be pursued Given that growing the right talent is a in order to alleviate the long-term slow business, requiring time to train problems surrounding capability. and develop mature experience, this presents a real challenge to There appear to be six key steps: organizations. The conundrum is of course that many do not have the time 1 Review the portfolio of resources to wait given they need to be available and profile the talent delivering results now. within it based on established and potential. Faced with such a dilemma the only 2 Determine the areas of capability alternative would appear to pursue one needed to execute procurement’s of two short-term strategies: remit: sourcing, supplier management, analysis, major Recruit contracting, category management Use interims/contractors etc. The issue with recruitment is of course 3 Create the appropriate classroom the shortage of talent. It appears that training needed and the follow-up despite a shrinking jobs market, top on-the-job training alignment. procurement talent still commands an 4 Understand the gaps and create a economic premium and is universally clear strategy to address these hard to find. through recruitment and home grown talent. Those in possession of talented and experienced resources seem to be more 5 Create a clear retention strategy for focused on retention in the current key resources and top quartile climate and the uncertainty has also personnel. made professionals reconsider job 6 Evaluate the changing role of changes. So it would seem that procurement and consider future effective recruitment opportunities are skill areas needed. limited in the current market. These simple steps should form an The use of interims also poses issues integrated approach. Doing one or two for organizations. While it presents in isolation is not likely to materially ready access to qualified and change the talent problem. We experienced staff it has clear uncovered elements of these during the drawbacks. interview process but seldom in any holistic sense. Such resources are temporary and the experience they accumulate with the If we as a community are to deal with host organization is lost when this fundamental problem then it will contracts come to an end. Equally, take a fundamental and cohesive given their temporary status, it can be approach rather than simple mono difficult to integrate such resources focused initiatives. Doing what we into the business as usual have always done will simply yield environment. what we have always had. Global Chief Procurement Officer Survey 2009 I Key Survey Findings 19
  21. 21. Supporting Articles Managing Commodity Price would return to more established Fluctuations and Volatility levels, with 27% of respondents feeling this would be in excess of 2 years from Colin Hartog, Managing Consultant – now. Given these challenges, Procurement, Netherlands procurement departments are Hamish McKechnie-Sharma, Principal – questioning how best to deal with Procurement, United Kingdom price changes and revisions against It is relatively common for new contracts. procurement professionals to We are in rapidly-changing and have little visibility into real unpredictable times, in which While contract renegotiation is a core market price developments, as commodity prices are being driven to part of each procurement organization’s most procured products or extremes on a regular basis. This is the function, it is no new phenomenon. services do not allow for dawn of an increased requirement for During periods of economic expansion, effective global or local trading flexibility and agility where we have seen suppliers maintain year- exchanges that establish procurement functions large and small on-year price increases, yet in periods market prices need to confidently manage cost of economic downturn, suppliers reduction in an accelerated fashion. As typically follow general inflationary highlighted in this Survey, improving indicators. It is relatively common for the line of sight remains a critical procurement professionals to have little activity for procurement professionals, visibility into real market price yet the task at hand is heightened in developments, as most procured complexity with the current economic products or services do not allow for shifts and patterns. effective global or local trading exchanges that establish market prices. The Survey findings indicated that As a consequence negotiated price contract renegotiation is the largest agreements are likely to be validated by strategy being adopted to mitigate the facts at hand, and are wholly current economic challenges, with 20% dependent on the competence and of all responses highlighting this. capability of the professional buyer. Additionally, participants were unclear about when the stabilization of prices Figure 6: Market development versus price changes Qualitative Aspects n Finacial perspective Value n Internal perspective driver n Growth perspective analysis n Customer perspective n Assessment on Krajic Relationship n Supplier profile(s) analysis n Audit based assessment n Transparency cost drivers Supply n Supplier locations Chain n Cycle times analysis n Performance measurement Commodity profile n Transparency cost drivers Industry n Emerging markets profile n Policies n Downturn impact 20
  22. 22. Capgemini Consulting the way we see it Managing switching and quality and maturity of commodity administration costs are additional knowledge across supply and demand complications buyers often have to areas such as development of handle effectively with suppliers, production numbers and locations, where more often than not usage and availability of raw materials, organizations absorb the price supply chain lay out and application increases directly. Increasingly, areas of the products or services. In suppliers have the balance of power. addition, economic, technology and The challenge, therefore, lies in how to other external market forces will all address the bargaining power by have a part to play in the pricing increasing the buyer’s market insight in model for a supplier. order to influence the factors for both pricing and those price development Introducing Market Price Indexing rules affecting contracts due for By using a recently developed renewal. Capgemini Consulting support tool known as “Market Price Indexing Market Development Versus Price (MPI)”, we believe that procurement Changes departments will be able to benefit The difficulty for a CPO and his from further transparency in professional purchasers rests in the fact understanding costs and their that if price changes are fluctuating respective drivers as close to a real- often and erratically, how can these be time basis if needed. The outcomes of understood effectively during supplier the commodity profile are used to negotiations? How easy is it to create derive an index figure that provides an and maintain a price revision formula overall direction on the development that could support the renegotiation of of the pricing for a commodity. contracts? And what is happening in the environment in which the supplier Capgemini Consulting maintains a is operating? significant historical database that contains a comprehensive collection of An extensive commodity profile report cost drivers and economic indicators for any given product or service that ranging from the Baltic Dry Index an organization is buying should, through to the Japanese inflation rate ideally in collaboration with the cross and the Chicago Purchase Managers functional teams and the supplier, Index. There are also sufficient data identify and expose the basic cost elements. Deep analysis increases the Figure 7: Introducing market pricing indexing Quatitative Aspects Market n Production numbers Price Index Supply n Production locations factors n Number of suppliers n Application area(s) Demand n Substitute componest factors n Threats in the market n Polcies n Inflation rates Economic n Population growth factors n Economic sentiments n Cost structures Cost n Cost indexes drivers n Overal cost base Global Chief Procurement Officer Survey 2009 I Supporting Articles 21
  23. 23. Procurement intelligence can be sources publicly available for similar have an open discussion on both used to improve the information to be extracted and ensure mark-up and profitability. Ultimately procurement organization, but a fairly accurate MPI. this allows for an increased level of in order to make this a dialog between both parties in what successful tool organizations Having earlier identified the cost are turbulent times for organizations often face a number of critical drivers and indicators that will most focused on cost reduction. The MPI challenges likely influence the pricing for a suite can, as the graph here shows, question of goods or services with a supplier, both the level of a price change and its the sources for these drivers are then timing. If an indexed price for a assessed and assumptions are agreed commodity is showing a more rapid on the level of influence. Once increase than the MPI, there is a reason complete the interdependencies are for dialog. Such tools being used entered in the MPI support tool that collaboratively between buyer and then also models the historic supplier will drive a greater level of development of an indexed price: the professionalism in the discussions Market Price Index. Once in place this when revisiting price negotiations and allows for the regular monitoring of revision formulas. those goods and services that are pertinent to the procurement Displaying and maintaining the MPI organization. Displaying the cost driver database or MPI data in a web-based environment Using the MPI across an organization’s intranet After creation of the MPI – with or enables all procurement professionals without the input of a supplier – the to converse with the supply base in a data can be shared between the buyer consistent and coherent fashion. Even and supplier. When a supplier if it is not possible to arrive at a precise contradicts a cost driver or the level of definition of an MPI, but a list of influence, the MPI can be easily appropriate indices, cost drivers and amended to levels that are in line with rates can be provided, this alone will the perception of the supplier. If the provide an improved level of price development for that supplier procurement intelligence, awareness still shows a difference with the and maturity throughout the calculated index, the buyer is well organization. armed to initiate effective price negotiation discussions with the Centrally maintaining the data for the supplier. The data provided would MPI is, in our view, the most efficient allow for the buyer and supplier to way of data collection. This allows for Figure 8: Market pricing index 104 103 102 101 100 99 Indexed Purchasing Price Market Price Index 98 97 jan feb mrt apr mei jun jul aug sep okt nov dec 22

×