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Procurement: Strategies | Best Practices


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a quick summary and roadmap for transforming procurement organizations from transactional to strategic.

Published in: Business, Technology

Procurement: Strategies | Best Practices

  1. 1. ProcurementEvolution Strategy | Best PracticesAlex MesanzaSupply Chain Management & Procurement Executive
  3. 3. Increasing support and alignment with Understanding business and and analyzing functional supply market strategies Increasing dynamics responsibilities and higher value contributions “I need a PO for this.”Darwinizing Procurement 2…gone are the days of “I need a PO for this.”
  4. 4. A.T. Kearneys recent Assessment of Excellence in Procurement (AEP) study determined that among the companies identified as leaders, 73 percent of their procurement activities were strategic in nature, the remainder tactical. In the "follower" organizations only 49 percent of their procurement activities were described as strategic. •  Customer demands on procurement and the supply chain overall are increasingly more diverse and complex. Procurement must be positioned to anticipate changes in business requirements, adapt to these changes, and accelerate change implementation to capture opportunities ahead of the competition. The capability to align customer segments with the right products/services and to develop adaptive supply chains are core elements of the value-added contributions that procurement is increasingly expected to deliver. •  Todays responsive procurement organizations must break the constraints of transaction processing workloads. Tactical buying, P.O. processing, and vendor invoice discrepancy resolution must be reduced, rationalized and automated. If it takes procurement professionals more than a few mouse clicks to determine the historical amount spent by category, vendor or business unit, they are constrained in raising their strategic performance levels. The Evolution of Procurement 3 Increasing responsibilities and higher value contributions.Source: Supply Chain Management Review, Procurement’s Chance to Shine
  5. 5. Leading companies identified in the AEP study use collaborative partnerships with suppliers to improve time-to-market and innovation and as well as reducing exposure to supply disruption risks. •  As procurement organizations have aggregated spend and rationalized suppliers, there has been a corresponding increase in the importance placed on becoming a "preferred" customer for key suppliers. This trend increases the emphasis that procurement organizations must place on proactively managing key supplier relationships. •  Sourcing techniques are becoming more analytical and complex. Leading procurement organizations employ advanced techniques such as product teardowns, design for sourcing, should-cost modeling, value chain reconfiguration and total cost of ownership. The Evolution of Procurement 4 Understanding and analyzing supply market dynamics.Source: Supply Chain Management Review, Procurement’s Chance to Shine
  6. 6. In the AEP study, 83 percent of leaders procurement organizations have medium to high involvement in company strategic planning, compared to only 50 percent of the followers. •  Procurement professionals are expected to be fully engaged in helping to shape business strategy and then to ensure that the supply management strategy is fully aligned. •  Procurements involvement in the development of corporate and business unit strategies includes activities such as proactively discussing business plan inputs and contributing to formulation of business unit strategies. The Evolution of Procurement Increasing support and alignment with business and functional strategies. 5Source: Supply Chain Management Review, Procurement’s Chance to Shine
  7. 7. Strategic Procurement’s Value Contribution Curve Improving Procurement Capability delivers increased Value to the Business •  Procurement Value contribute at C- level •  Performance •  Systems integration & based supply base efficiency •  Influencing •  Total Cost market/supply •  High Order •  High quality data •  Mature Supplier base efficiency & •  Revenue driven •  Price focused controls Relationships •  PO admin focused decisions •  Bidding & •  Stakeholder •  Order expediting •  Supplier Negotiating partnerships •  Compliance involvement in •  Delivery & Quality improvements Transactional Commercial Proactive Strategic Class-Leading Procurement Capability Continuum The Procurement Capability Continuum 6Source: Procurement Transformation. Clearview Procurement Business Services Ltd T/A The Clearview Group
  8. 8. In general… •  Individual professionals should leverage their backgrounds, experiences, training opportunities and business unit relationships to maximize their personal value propositions. Individuals should strive to ensure that multi-year skill development plans are incorporated into their evaluations. Specific actions based on role… •  Procurement Leaders: Develop a deep understanding of procurements value proposition across the enterprise; procurement processes and capabilities; and procurements alignment with business unit strategies. Encourage job rotations across procurement and business unit operations to cross-train and deepen collaborative working relationships •  Category/Sourcing Managers: Push yourself to become a source of specific category supply-market expertise and demonstrate your ability to proactively impact business operations. •  Supplier Relationship Managers: Leverage your understanding of supply market industry dynamics to work more collaboratively with suppliers on step-change and joint process improvements. •  Supply Chain Specialists: Build a deep skill set in one or more functional areas that bring sustainable value to your organization. Potential areas of expertise include supply market analytics, risk management, contract negotiation, joint process improvement, and demand management. •  Tactical Buyers: Build a deep understanding of your available systems, processes, and tools to effectively execute your activities. Develop your analytical capabilities to help monitor compliance and identify new strategic sourcing opportunities The “Now What?” Action Plan 7Source: Supply Chain Management Review, Procurement’s Chance to Shine
  9. 9. 1 Develop. Invest in developingTransform. By the requisite skills andtransforming from a 3 capabilities necessary tofocus on transactional understand their key supplytasks to strategic, markets.value-creatingactivities, procurementcan elevate itscontribution to theorganizations success Align. Alignment with business unit 2 peers helps drive a supply chain that meets the companys long-term, strategic needs. Putting it all together… 8
  10. 10. BEST PRACTICES 9
  11. 11. •  Creating a pre-qualified supplier pool in which all suppliers are uniformly and objectively evaluated. This allows the buyer to hand pick suppliers and limit the pool to just those with which it has done business. Of course, others can be added, but the key is knowing the suppliers in the pool as a first level of quality control. You only want suppliers bidding on your projects that have proven that they can deliver quality work, on time. •  Creating thorough bid specifications with full details before an invitation for bids is sent to the suppliers in the supplier pool. Being complete so changes are avoided later allows suppliers to price accurately and best determine when there will be an opening for doing the job. •  Creating a fair bidding environment in which the system matches buyer project specifications only with suppliers capable of doing the work. With detailed project and supplier data, the system will automatically match each project up for bid with only those suppliers with matching capabilities. This levels the playing field. •  Creating efficiencies to save time and money. Since critical data already is in the system, the buyer does not have to "reinvent the wheel" each time it wants to put a project out for bid. •  Creating mutual acceptance of the process whereby every supplier in the pool knows that it can bid low on any project. Bidding low with traditional procurement methods can handicap a supplier because the buyer more than likely will expect that same low price going forward. Not with the latest methodology. With the newest approach, all know that success is based upon bidding low to fill production downtime. The suppliers with open production time to fill will vary from project to project. Procurement Best Practices 10Source: Supply Chain Management Review, Procurement Best Practices – A Smart Way to Save Money
  12. 12. •  Calling for and awarding bids in a timely manner so the winning supplier will hold a slot for the project, schedule staff, prepare equipment, order materials and make other preparations required to do the work. Suppliers learn that performance is required to receive opportunities, while price is the criteria to win projects. •  Establishing full transparency by sending bid results to all suppliers that submitted a bid. This not only creates greater credibility for the buyer/sourcing consultant among suppliers, it also promotes improved competition. •  Monitoring every step of the workflow process to ensure clear communications, attention to every detail and a deliverable end product. This must begin with the conceptualization of the project and continue through edits, changes, reporting, production, packaging and delivery. The project manager will determine who has access to the system and when so input is transparent and thoroughly documented. •  Ensuring that work is performed per specifications and on time. By establishing full accountability, the buyer is protecting itself against delays that could cause artificial pricing hedges in future bids from the winning supplier. •  Completing the project with accurate invoicing. By making sure the invoice is complete, correct, agreed upon and reconciled, both the supplier and the buyer successfully end the project. Procurement Best Practices (cont’d) 11Source: Supply Chain Management Review, Procurement Best Practices – A Smart Way to Save Money
  13. 13. STILL HAVE QUESTIONS?Contact Alex Mesanza via…Email: Mesanza.LinkedIn@gmail.comTwitter: alexmesanzaLinkedIN Profile: 12