Book summary - Procurement 20/20 (Supply Entrepreneurship in a Changing World) by Peter Spiller, Nicolas Reinecke, Drew Ungerman and Henrique Teixeira, John Wiley & Sons, Inc. © 2013, 192 pages

1. Procurement 20/20
Supply Entrepreneurship in a Changing World
Peter Spiller, Nicolas Reinecke, Drew Ungerman and
Henrique Teixeira
John Wiley & Sons, Inc. © 2013
192 pages
Tap the Baton: Procurement as Orchestra Director
In today’s volatile business environment, the procurement function, headed by the chief
procurement officer (CPO), plays a vital and increasingly responsible role inside the modern
corporation. Procurement must employ up-to-date and dynamic sourcing, quickly exploit
emerging market opportunities, and cut value-chain costs by optimizing supply chains.
Procurement must manage a network – often global – of vendors and suppliers that can
quickly become inoperative due to rapid shifts in business.
Procurement also must deal with a growing body of regulations concerning safety,
environmental rules and other standards, as well as the demands of consumers and external
stakeholders. Procurement must be dynamic and ready to realign its operations and
activities with little notice.
This department often serves as an orchestra director, coordinating and optimizing all of a
company’s external footprints so they work together efficiently. The way procurement
handles spending with external suppliers can result in a competitive advantage for the
corporation. Intelligent procurement reduces costs, which means making more funding
available for other initiatives. CEOs absolutely have to insist on best practices and top
results from their CPOs.
When it comes to procurement, 50% to 90% of companies recognize that they do not
employ best practices, the right tools or the top talent, and that they lack the proper “cross-
functional linkages” to achieve optimum performance. The lack of these elements leads to
problems within deficient companies – most notably, financial underperformance on
numerous fronts. Organizations with strong procurement operations demonstrate
competencies in the following areas:LoginContext[cu=
• “Capabilities and culture” – Superior procurement practices place enormous demands
on the professionals responsible for implementing them. At the top procurement firms, 40%
of procurement professionals have postgraduate degrees, in comparison with only 14% at
the lower-tier firms. Top procurement firms hire “supply entrepreneurs” who handle urchases
as if using their own funds. Procurement people are paid better at toptier firms than at lower-
performing firms.

2. • “Category management and execution” – Top procurement firms operate according to
demanding protocols, but remain flexible so they can execute at their best. They utilize the
latest e-procurement and the most advanced IT.
• “Structures and systems” – Top procurement firms have well-defined, center-led
structures that collaborate with every business unit they support and supply. They operate
with “economies of skill,” relying on the best available talent. They keep the various units of
the company informed about the best procurement practices and procedures.
• “Integration and alignment” – CPOs at the leading procurement firms report directly to
their CEOs. They align their procurement strategies with their firms’ overall business
strategy. They function proactively in alignment with that strategy, focusing on value
creation. They never succumb to operating in a defensive, cost-cutting mode.
“Megatrends”
Five megatrends will affect procurement and create competition for today’s companies:
1. “The Great Global Rebalancing”
As the primary low-cost producer, China was once the inevitable sourcing choice for
companies around the world. Today, in the face of a historic rebalancing, sourcing is global.
New markets are emerging worldwide as mature markets slow down. Multinational firms
utilize these emerging new markets for manufacturing and supply purposes.
Procurement’s suppliers across the globe can serve as “anchor points” for their firms’ other
units. Given the speed of business developments, procurement’s sourcing strategies must
become increasingly dynamic. CPOs should tie their sourcing decisions together to create
an “integrated company footprint” covering “manufacturing, sales and R&D.” Its
crossfunctional centrality puts procurement in the ideal position to orchestrate this
integration.
“For many critical elements of the value chain, specialized skills are now ubiquitous in the
external market, and commoditization” of good work is one result of that availability.
2. “The Productivity Imperative”
As competition grows increasingly intense, companies must become more efficient and
productive. Firms should work with “external functional specialists” who contribute to discrete
components of the company’s “end-to-end value chain.” For example, numerous major
pharmaceutical companies recently redefined their core activities. They now plan to license
nearly half of their “development portfolios” from biotech and other smaller pharmaceutical
firms. This shift gives procurement “a tremendous opportunity to undertake a mission of
‘supply entrepreneurship’ and add more value.”
Procurement can play a conductor’s role in risk mitigation in a company’s value chain. No
entity within a corporation is better placed to organize the necessary collaboration.
Procurement can identify outside suppliers that might outperform internal units. Once
procurement targets these external resources, it can help integrate them into the firm’s value
chain. Procurement must view the corporation’s relationships with its external providers
holistically to understand how all of the components function together.
3. “Big Data and the Global Grid”
In the modern digital age, the amount of available and useful data is exploding across the
globe. “Data and communication bandwidth” will expand and increase dramatically within the

3. years to come. The analysis of large data sets – which is called “big data” – is becoming
more and more of an essential competitive requirement, providing innovation and
productivity, among other assets.
The use of big data in combination with the high-tech global grid – comprising “complex
flows of capital, goods, information and people” – enables “new insights, collaboration at
scale and superior data-driven decision making.”
Procurement already utilizes big data to integrate and manage supplier functions, an
operation that will grow more extensive in the future. Buyers and category managers operate
at the crossroads of numerous data streams. Category managers can stay on top of “time-
series data for commodities,” as well as currency rate changes and local tariff data, among
other valuable information. Such information enables companies to make intelligent
decisions about future operations. Savvy CPOs at the apex of these information streams can
generate up-to-the-minute insights to benefit their firms.
4. “The Volatile New Normal”
In years gone by, procurement worried mostly about increasing commodity prices and the
occasional supply discontinuity. Today, major supply chain disruptions are increasingly
common. A typical example: From 2009 to 2012, Honda’s “weighted raw-material index
increased by more than 200%.” In 2011, Thai floods and the Japanese tsunami severely hurt
the carmaker, which suffered a net profit drop of 59%. As raw materials become increasingly
scarce, and commodity prices climb, the resulting sourcing volatility will affect the profitability
and even the viability of companies across the globe.
Procurement must employ hedging and other sophisticated risk-management strategies to
deal proactively with this volatile environment. On the positive side, CPOs who can handle
the attendant new risks in today’s uncertain business world can improve their companies’
competitive positions. Weak operations that cannot deal successfully with the changing and
challenging circumstances that procurement now faces will suffer. Procurement must
become and remain agile to operate successfully today and in the years to come.
5. “The New Economic Drivers”
When Shell decided to get rid of its Brent Spar oil platform, it planned to let it sink in deep
water to the bottom of the ocean. Scientists went on record that this method would not
endanger ocean life. Greenpeace demonstrated against the Shell disposal plan and the
public opposed the oil company. Scientists warned that the polluted structure would put
shallow-water ocean organisms at risk. Public opinion forced Shell to bring the platform to
shore. This action represented a substantial pollution hazard to the shallow waters through
which Shell had to tow the platform.
Increasing “environmental, social and regulatory” (“ESR”) issues and pressures make
procurement’s job much tougher. They also present special new opportunities for those
CPOs who can turn things around to their advantage. Such CPOs factor ESR into all their
sourcing planning and decision-making activities. They also must be ready to anticipate and
successfully deal with numerous related consumer and environmental activist challenges.
The days of worrying only about supply-price issues are in the past.
“Steps for Starting the Journey Toward Procurement 20/20”
For many CPOs – and their sponsoring CEOs – transforming their firms’ procurement
operations in house to meet these five megatrends will demand major change initiatives.
However, most substantial change programs at corporations fail. In such cases, employees

4. suffer from “change fatigue.” They view their firm’s change initiatives as only the most recent
management iteration and thus something to ignore or even obstruct. For a change initiative
to succeed, it must focus on business performance and organizational stability.
Successful procurement initiatives follow these five essential steps:
1. “Aspire to a clear procurement vision” – Make your vision specific to your organization
and industry. Allow three to five years – the “medium term” – to institute your new
procurement program comprehensively. Develop difficult but attainable “stretch goals” that
your employees find practical as well as understandable. Target “three to five metrics” that
will make the most impact for your procurement unit and the organization as a whole.
2. “Assess your current performance” – Ask yourself where you want your procurement
operations to be, and find out where they are today. Invest in the most relevant, pivotal
strategic skills. To illustrate, if your plan is to assume the role of value-chain orchestrator,
you need professionals who are adept in “supply market analysis, makeversus-buy
determinants, benchmarking and supplier performance management.” First, align your
procurement operations with your primary stakeholders’ priorities. Then, develop a “people
cube” that details both the strengths and the educational needs of all procurement
employees.
3. “Architect the change program” – This phase represents the toughest part of your
procurement change program. Success requires the enthusiastic support of your CEO, who
must assume an “ownership stake” in your change efforts. A worthwhile part of your change
effort could be to develop “global supplier audits” that ensure your suppliers do not violate
local “laws and social norms.” Develop value for all stakeholders inside and outside of the
company. Get stakeholders fully on board for all of your change efforts. Involve them as
sponsors of your various initiatives. Create and communicate a compelling change story for
all your initiative affects.
4. “Act to deliver the program” – Roll out your change effort. Exercise major oversight
during the initial 100 days. Start with pilot programs that take advantage of the best
opportunities to achieve quick success. To gain employee support, take steps to make sure
your program motivates them, for instance launch a “viral marketing program.”
This can include videos that explain and promote your change efforts to everyone they
affect. Employ the right metrics. You need “highly granular current data,” the application of
which enables your organization to adapt to newly developing opportunities.
5. “Advance the changes” – As your change program kicks off, go one step further:
Develop a capacity for regular improvement within your company. Create and implement
systems to share best practices, information and knowledge. Once you begin adapting,
maintain this transformation on a regular basis. “Never stop adapting.” Expect course
corrections as you learn what works best and what doesn’t.