This paper provides lessons on how leaders can enable procurement change within their organization. It identifies seven key obstacles that tend to arise within the firm, and provides suggestions and examples on how these can be tackled.

1. How to Measure up Against
the Procurement Challenge
Abstract
Many organizations spend over 70% of their total budget on third party vendors and their success hinges on the effectiveness of
procurement performance.
In this paper, we explore the procurement challenges faced by organizations seeking optimal effectiveness from their procurement
function, strategy, and processes. It discusses the 'big procurement issues' that are of particular interest to members of the board,
and executives in an oversight role, for example, the COO, CFO, CIO, and chief procurement officer (CPO).
We focus on the reach of the modern tools available to leading procurement practitioners, and provide a checklist to review the
effectiveness of the procurement.
Understanding Procurement
Defining the best practices for procurement may seem straightforward but, it is like chasing
the wind – there is no single best practice model applicable to every organization, nor should
there be. Every organization starts from its own unique position and the challenge is to
understand the current position, determine where to focus, and to craft a route map for
improvement.
The current position can be determined, through some diagnostic work, using a comparative
maturity model. In some situations the function and process will be clerical, while in others, it
will be a strategic function that determines the organization's future. Agreeing on the
'desired position' for an organization is a challenge. Many organizations risk aiming for
something, which although right for others is not right for them.
A further challenge is developing a common understanding of what is meant by
'procurement'. For example, what's the difference between purchasing, sourcing, and
procurement? At its most basic, procurement is about the whole process, encompassing:
definition of the problem to be solved through the acquisition; the business justification; the
decision of how to get the required solution; the specifying process, including agreement on
evaluation criteria; go-to-market activities; selection of the best of the market solutions to fit
the organization's needs; the contracting process; the purchasing process; management of
contract delivery; and review of the lessons learnt. Sometimes, the process is carried out by
budget holders who work in isolation from functional procurement professionals, while at
other times technology, such as a Purchase-to-Pay (P2P) solution, is used even though it may
be 'owned' by the finance department.
Addressing Procurement Issues, Tools, and Practices
Assuming that there is a common understanding in the organization of what is meant by procurement, we can then start to
consider whether some leading-edge tools and practices are appropriate for the next stage of the organization's improvement.
An organization's procurement approach has several components, and some are more critical than others. Figure 1 highlights areas
of procurement management that require the explicit direction and attention of the organization's leadership. Neglecting these
areas of concern can compromise the organization's effectiveness and prove detrimental to its long-term interests.
A Point of View
ü Is there a single view of
what procurement means?
ü Is there a single view of
procurement maturity?
ü Is there robust procurement
governance?
All procurement activity
should be carried out within
the governance framework of
the organization's
procurement policy, strategy,
and standard operating
procedures.

2. 2
It is the responsibility of the organization's strategic leadership to provide clarity of vision for
its procurement practice. Those at the helm need to understand how procurement can be
used to achieve the goals of the organization and then choose what they want to actually
achieve. For example, an organization that wants procurement to focus on obtaining the
lowest price, will need a different approach from one that seeks to improve its FTSE4Good
ranking. The CPO should not pursue an agenda that has not been endorsed by the
leadership.
Some organizations may not have the business case justification for a CPO, but a clear
reporting line between the organization's procurement team and its board through some form of C-level procurement leadership is
necessary to drive accountability. Without leadership and accountability, top table risk management and top table performance
management might be overlooked.
In recent years, procurement risk management was in the spotlight because of the horsemeat scandal, Apple's perceived supply chain
abuses, and, in the automotive sector, vehicle recalls. All these incidents have brought undesirable media attention to the respective
organizations. For board members too, the increasing legal requirements of procurement activities represent a significant personal risk – few
seem aware that the UK Bribery Act applies to all organizations that carry out business in the country and could lead to custodial sentences
for Board members. The public 'naming and shaming' of the UK Modern Slavery Act could lead to violating organizations losing customers or
even being boycotted, and that's before considering the reduced effectiveness of actual supply chain performance. Organizations covered
by the Groceries Supply Code of Practice could find the Adjudicator requiring greater transparency and changes to P2P processes too.
A continued focus on managing procurement is necessary to maximize its potential contribution. Using performance indicators that are
tailored to the organization's specific priorities is especially beneficial.
Experienced procurement practitioners are innovative, creative, and embrace challenges. They recognize that achieving procurement
objectives, such as cost reduction, quality improvement, innovation and delivery improvement (CQID), are only one part of their potential
contribution to the organization.
It is only after clarity of what procurement is to deliver that a decision can be made on the right procurement operating structure. There are
frequent fad shifts between a decentralized structure for delivery and a centralized structure. The decision on the correct structure should
never be viewed as a 'once and for all' choice as it depends on the organization's focus. For example, an organization that has a significant
issue with bribery and corruption, and a lack of adherence to corporate policy and procedures, may opt to centralize; while an organization
that wants to maximize freedom to in-country operating units with many different local constraints may find that a decentralized model is
best. Leading organizations have reconciled that dilemma by adopting a Center Led Action Network (CLAN) model with internal consultancy.
This model provides central leadership on policy and strategy issues while reaping the benefits of decentralized expertise, to ensure that the
aggregated spend leverage is not compromised.
Figure 1: Areas of Concern for the Strategic Leadership
Providing clarity helps the
organization chart its course
and turn vision into reality,
through an aligned
procurement strategy.
Risk Management Legal Compliance Performance
Management
Contribution beyond
CQID to Strategic
Goals
CLAN with Internal
Consultancy
Service
Clarity of Vision Aligned Strategy
C-level
Procurement
Leadership

3. 3
Procurement Influence and Participation
In the past, procurement practitioners complained that they were involved in decisions, such as selecting services suitable for outsourcing,
and the design and development of new products, far too late in the cycle to be able to add value. More recently, leading CPOs have been
recognized for their ability to contribute to a broader range of project teams, such as, Information Services (IS), energy strategy, and asset
management. Figure 2 introduces the reach and influence of leading CPOs in their expanded capacity.
Figure 2: The Reach of Leading Procurement Practices
Procurement practitioners often refer to influence over spend as an indicator of success; some even claim to have 100% influence over their
organization's spend. Such assertions are worth challenging, as digging deeper often uncovers that 'influence' only refers to the creation of
purchase orders, which in most organizations should be automated. The challenge is to ensure a meaningful, value-adding influence
throughout the procurement cycle. That means, for example, helping define the need and ensuring effective contract management is
taking place. Of course there is no need for 'hands-on' involvement with every single purchase, if the correct framework and S2P technology
is in place.
The product development process is an area where procurement professionals can really add value. Their contribution is considered
particularly significant in supply innovation harvesting. Creating an environment where suppliers can include their suggestions in the early
stages of the development process, will help organizations gain from their creativity and ability to provide suggestions for value engineering
new products.
One of the most important yet high-risk strategic decisions for an organization is to select services to be outsourced. In order to reap the
benefits and avoid pitfalls, a procurement team should, at the very least, be an active participant in the strategic 'make or buy' decision-
making process; some procurement leaders actually lead the whole process.
Today's organizations quite frequently deploy a project-based, 'task and finish' approach. In many cases, the CPO's potential to contribute to
non-procurement related strategic project teams is overlooked, and as a result, the team's effectiveness is compromised.
Tools and Techniques Used by Leading Procurement Practices
The ability to automate so many of the traditional purchasing activities has rendered many of
the existing tools obsolete. Purchasing teams, for example, no longer need to spend time on
administrative tasks such as inviting quotations and chasing orders. The toolbox of today's
procurement craftsmen helps cater to specific needs while deciding how the procurement
strategy will be delivered. Figure 3 showcases the range of current tools deployed in an
extremely dynamic environment.
The complexities of modern
procurement have led to the
creation of a new suite of tools
100% Influence Over Spend
Strategic Make or Buy Leadership
Participation in NPD with
Supply Innovation Harvesting
CPO Inclusion in Non-Procurement
Strategic Project Teams

4. 4
One of the areas where procurement exhibits the most variation between organizations is in the deployment of specific tools. However, it is
important to ensure that the right tools are used at the right time – it is that mix of appropriate deployment that really defines great
procurement.
Procurement and Project Management Skills: Procurement teams work to match acquisition timelines. Requisitions are usually
made for a particular purpose and need to be fulfilled by a particular date. Late delivery or poor quality compromises the satisfaction of
internal customers. Such lapses may even cause dissatisfaction among external customers. Procurement teams work on parallel projects and
are aligned to the corporate strategy: To ensure effective achievement, procurement and project management skills need to
be deployed simultaneously.
Intelligent Benchmarking: Benchmarking is a tool for comparison and improvement. Procurement leaders do not just benchmark prices
paid and requests for price increases in similar organizations, they make use of intelligent benchmarking on all aspects of procurement
across sectors; for example, comparing software license fees in automotive and banking sectors along with their own.
Integrated S2P Supply: One of the most common challenges facing organizations today is the lack of an integrated Source-to-Pay (S2P)
system. While it is easy to assume that end-to-end transfer of information between the various e-procurement tools will take place, only a
few organizations are able to do it. Most require manual intervention and fail to provide important management information, compromising
the effectiveness of procurement.
Standardized and Optimized Processes: Any discussion on the use of procurement systems cannot take place without acknowledging the
need for simplified, standardized, and optimized processes and the impact of digital technology. It is a common mistake to introduce a new
procurement tool that merely automates a weak process. Clever procurement practitioners recognize that some parts of a business case for a
new S2P system can be achieved by seizing the opportunity to create better processes. They also recognize that the introduction of a new
S2P system should provide the catalyst for a procurement transformation.
Figure 3: The Tools of Leading Procurement Practice
Right Sourcing
Right Mix
Procurement
Outsourcing
Competitor
Partnerships in
Supplier
Development
Ethical and
Responsible
Procurement
Training and Skills
Development
Procurement and
Project Management
Skills
Intelligent
Benchmarking
Integrated
S2P System
Standardized and
Optimized Process
Digital Procurement
Strategy and
Implementation
Supply Base Policy
& Strategy

5. 5
Digital Procurement Strategy and Implementation: Digital technology, particularly the emergence of cloud-based solutions, means that
S2P systems are now more affordable than ever before. However, digital procurement has much more to offer. For example, the ability to
access information and manage approvals on mobile applications, the procurement intelligence available from Big Data, and the
collaborative problem-solving capabilities of social networks. At present, many organizations seem to be happy with simply debating the
potential that digital brings to procurement, and the presence and implementation of a digital procurement strategy remains the preserve of
only a few, who seek to squeeze the last scintilla of competitive advantage.
Category management has reached a stage where most procurement professionals have reasonable knowledge of how to best shape their
go-to-market approach, even though this strategy may not be embedded in the organization. However, organizations with embedded
category management are now seeking to make use of Market Informed Sourcing technology, which enables a more open market dialogue.
Supply Base Policy and Strategy: The procurement function not only spans boundaries within the organization, but also extends beyond
the organization's structure and into the market. It is not unusual to discover that more than 70% of an organization's total spend is on the
supply market, which brings with it the need for effective market engagement. This requires a supply base policy that addresses supplier
engagement, supplier rationalization, and 'making markets'. Inconsistency in the supply market policy can prevent the organization from
achieving its goals. For example, the decision to introduce a new S2P system will require significant supplier engagement if catalogues are to
be put in place with a view to automate the purchase process. However, the organization may find that some of the vendors it wants to
prioritize are cautious of making the required investment for fear of being delisted subsequently.
Right Sourcing: Supplier engagement is linked by global, regional, or local right sourcing, and the appropriate use of buyer power. Right
sourcing recognizes that the market needs to be approached strategically yet pragmatically. For example, in some situations, it makes sense
to have one global contract, which every part of the organization would be expected to make use of, while in other situations a local contract
will be absolutely essential. Part of that right sourcing approach is linked with an understanding and application of the appropriate use of
power – understanding that the buyer may be of little attraction to some major suppliers on whom the buyer will be completely dependent,
while with others, the buyer may well be the most important customer they have and on whose business they are completely dependent.
Right Mix of Procurement Outsourcing: While we discussed the contribution the CPO can
make to an organization's make-or-buy decision-making process, it is important to realize
that many procurement operations are also suitable for outsourcing. Many organizations take
the decision to simply outsource 'tail spend'. What they fail to recognize is that 'tail spend'
may include some purchases, which although low-value, are absolutely critical to the
organization's competitive success.
Competitor Partnerships in Supplier Development: At one time, collaborating with
competitors was considered taboo. Today it is relatively common for competitors to form
collaborative purchasing consortia to leverage their collective buying power. Further, organizations need to realize that collectively working
to improve supplier performance and spreading the cost makes good business sense.
Ethical and Responsible Procurement: It is difficult for organizations to achieve their Corporate Social Responsibility (CSR) objectives
without recognizing the need for a shift in procurement and supplier engagement. However, at a tactical level, there is a range of options
that procurement teams could pursue to support CSR objectives. For example, merely choosing eco-friendly products, or moving to
completely trace and track the supply chain can make a difference. The real challenge is to fully understand the range of available options
and make the right choices to build a truly ethical and responsible procurement cycle.
Training and Skills Development: Procurement presents a significant challenge for modern organizations and executives need the right
skills to be able to tackle it effectively. There is a need to assess the training needs of an organization across its various geographies and
introduce skill development plans. Training is required not only for those engaged in procurement activities but also for leadership teams.
The question is not whether or
not procurement outsourcing
should take place, but what is
the right mix of procurement
outsourcing.

6. 6
Creating a Roadmap for Procurement Excellence
The trick to measuring and overcoming the procurement challenge is in recognizing that it may take some time. The best bet for
organizations is to adopt a strategic approach to improve their procurement function.
Figure 4 provides a checklist for organizations to assess procurement machinery and schematically chart a map to manage the challenge.
The process starts by defining which of the leading practices are appropriate for the organization, followed by developing a 'heat map' of the
organization's current position against those practices. This is the 'as-is' state. Next, a new target operating model can be defined, along with
the route map to get there. Finally, the organization needs to manage the transition.
Figure 4: The Procurement Transformation Journey
A strategic approach starts with understanding the organization's current level of procurement maturity, and ensuring legal compliance.
From there, it is possible to review the range of best practices and select a prioritized progression for the organization's milestones at specific
points in time. The route map between milestones needs to pertain to leadership, people, processes, and technology. Once you know the
route, you can develop a change management plan to overcome the procurement challenge.
About the Author
Dr Gordon Murray
Dr Gordon Murray is a strategic procurement specialist with more than 28 years of experience as an award winning procurement
practitioner and then 14 years of working in procurement advisory. He has written several peer-reviewed academic papers on strategic
procurement improvement.
Gordon holds a PhD in Strategic Procurement Improvement and an MSc with distinction in Purchasing and Supply Management. He holds a
corporate membership of the Chartered Institute of Purchasing and Supply (MCIPS).
Set Out Route
Map to Desired
Position:
Ÿ Leadership
Ÿ People
Ÿ Processes
Ÿ Technology
Define
Appropriate
'Leading
Practice'
Positioning
Agree on 'As -Is' Manage the
Transition

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