Key Issues in Procurement: What Are Procurement Leaders Focused on Achieving and What Capabilities Will Get Them There?

Transcription

1 Key Issues in Procurement: What Are Procurement Leaders Focused on Achieving and What Capabilities Will Get Them There? November 12-14, 2017 Bellagio Resort & Casino, Las Vegas

2 Statement of Confidentiality and Usage Restrictions This document contains trade secrets and other information that is company sensitive, proprietary, and confidential, the disclosure of which would provide a competitive advantage to others. As a result, the reproduction, copying, or redistribution of this document or the contents contained herein, in whole or in part, for any purpose is strictly prohibited without the prior written consent of The Hackett Group. Copyright 2017 The Hackett Group, World-Class Defined. All rights reserved.

3 Kurt Albertson Principal, Procurement Advisory Practice Kurt Albertson is a Principal with The Hackett Group with program responsibility for North American Advisory programs focusing on client relationships, business development, research and program delivery. Mr. Albertson works with over one hundred Global 1000 companies leveraging research and thought leadership to provide strategic direction and best practice business advice within Procurement and Finance. Prior to joining the Hackett Group Mr. Albertson spent six years as a management consultant in Sourcing and Procurement during which he worked with executives from dozens of large corporations on sourcing, business and technical strategies, organizational and business process design, and cultural change. Mr. Albertson also has five years of automotive experience working in manufacturing, quality, and operations. In this role he designed and implemented global manufacturing processes and supervised production operations. Mr. Albertson has been quoted in the Wall Street Journal and other major publications, has been the key note speaker at many national events, and travels globally to support client objectives. Contact Information: kalbertson@thehackettgroup.com 2016 The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. The Hackett Group Key Issues Study

4 World-Class organizations always find a way to get there Peer Group World Class Finance Cost (% of revenue) Practice or Outcome Practice Practice Practice Practice Practice Practice Practice Practice 0.60% 22% $6.0K Peer Group World Class $2.2K 23% $1.7K Peer Group World Class 0.73% 2014 Cost of Finance by Process Category (as a % of revenue) 0.39% Process Taxonomy Sourcing and Supply Base Strategy Sourcing and Supply Base Strategy Sourcing and Supply Base Strategy Sourcing and Supply Base Strategy Sourcing and Supply Base Strategy Sourcing and Supply Base Strategy Sourcing and Supply Base Strategy Sourcing and Supply Base Strategy -59% 0.16% $7.7K -46% 0.11% -23% 19% 0.59% Peer Group World Class Procurement Cost (% of spend) 0.17% Transacting Control & Risk Planning & Strategy Vision Dimension Supply Assurance Supply Assurance Supply Assurance Supply Assurance Supply Assurance Supply Assurance Purchased Cost Reduction Purchased Cost Reduction SDM Component Process Design Process Design Process Design Process Design Process Design Process Design Process Design Process Design Capability / Enabler Degree to which a sourcing strategy exists Breadth of supplier universe Degree to which supplier risk is measured and managed within the sourcing process Degree of contingency planning performed to assure supply Degree of supplier qualification in place Degree of effectiveness and efficiency of price refresh process Level of rationalization of supply base size Maturity of use of supply market intelligence Perspective on World-Class Finance Accelerating GBS Lagging 2 - Achieving 3 - Exceeding 4 - Leading Sourcing strategy is ad hoc or nonexistent. Supplier selection is based on historical or personal relationships; suppliers often selected prior to Procurement s involvement in a project. Risk not considered as part of sourcing decisions or supplier management. No supply contingency planning exists. No formal supplier qualification process. Sourcing strategies reflect and are aligned with overall business strategy and objectives, including high level risk requirements. Historical spend analyses are regularly and routinely conducted by market and across markets - i.e. by specific commodity, service, location and business. Projects are initiated to limit the total number of suppliers and bundle the spend volume. Procurement is involved in the supplier selection process. Suppliers are often considered on a regional or compartmentalized basis. Supply risk is considered as part of category-specific sourcing efforts and supplier performance management processes. Contingency plan exists in case of supply shortage; alternate suppliers and alternate locations identified. Simple processes in place to register suppliers and inspect supplier qualifications at time of registration or category review. Quoting and price refresh process Quoting and price refresh process is undefined and performed is defined and audited manually. manually and on an ad hoc basis. Large number of suppliers due to short-term, one-off relationships. Supply market knowledge is ad hoc and incomplete. Organization has identified the need to rationalize the number of suppliers in order to create leverage. Process, tools, and sources established to gather and organize data on most categories. In-house Colocation Commodity management and sourcing strategies define appropriate purchasing and payment processes and tools. Contract terms, lengths, and conditions are defined to drive optimal benefits to the enterprise; in terms of total life-cycle cost, service, and quality. Supplier universe is considered by major commodity or service area rather than in aggregate. Suppliers are considered for bundled and/or extended services that may extend to multiple areas of competency. Supply base risk is explicitly factored into broader business continuity objectives. Supplier risk is considered beyond the specific good or service being sourced. Alternative supply sources are developed in conjunction with current suppliers for key purchases. Established supplier training program on enablement strategies and buyer s technologies. Formal program exists to identify key qualification metrics with stratification based on category criticality and supply alternatives. Quoting and price refresh processes are structured to minimize enterprise financial impact to all parties. Supply base rationalization is complete. Few new suppliers are needed and an added supplier typically results in a removed supplier (equilibrium). Strong relationships developed with current suppliers focusing on JPI in critical or large dollar spend areas. Supply market intelligence / knowledge captured to identify when a supply strategy needs to be re-visited. Customer Responsibility Provider Responsibility SaaS Applications Sourcing strategy is reviewed and updated annually (or more frequently) to reflect direct linkage to the company's strategic growth plans, market changes and product innovations, production plans and business M&A/ventures. Supply universe is global and not limited to traditional commodity suppliers. Procurement works with other risk management staff, ensuring alignment between internal risk/return preferences, business objectives, and both general and specific supply market risks. Back-up suppliers are required for critical or strategic categories and items, including formalized contingency plans to ensure seamless supplier transition and application of penalties and liabilities with supplier(s) at fault. Annual review of at risk suppliers and suppliers of key categories. Quoting and price refresh processes are automated, nearly error-proof,, with appropriate controls in place.. Structured process is in place that benchmarks the marketplace and ensures continual supply base assessment. Supply market intelligence / knowledge captured, modeled, and utilized for pro-forma simulations done during strategic planning, design, sales, etc. Complete Outsourcing Current State Assessment Priority Future State Target Average Gap 2 - Achieving 2 - Medium 3 - Exceeding Lagging 2 - Medium 2 - Achieving Exceeding 3 - High 4 - Leading Exceeding 2 - Medium 3 - Exceeding Achieving 2 - Medium 2 - Achieving Achieving 2 - Medium 2 - Achieving Achieving 2 - Medium 2 - Achieving Achieving 2 - Medium 2 - Achieving 0.66 Enabling World-Class: Hackett s Solution Portfolio Benchmarking, Advisory, Business Transformation Membership Advisory & Research (Provides insights into World Class Performance) Unlimited inquiry access for members to Hackett experts for transformation steering Library of 2,500+ Best Practice Research Perspectives, Books of Numbers, and Hackett Certified Best Practices through the Best Practice Intelligence Center Peer-to-Leader Best Practices sharing, and Best Practices networking events Enterprise, functional and process-based performance studies & value accelerators Benchmarking (Defines World Class Performance) Hackett The World-Class Advantage Finance 1.12% 46% IT Cost (per end user Equivalent) HR Cost (per employee) 0.21% 0.23% Gold Standard Benchmark over 8,500 conducted, the empirical backbone for your transformation at the SG&A Enterprise, Functional, and Process level. World-Class, Peer, and Custom Peer comparative metrics and best practices Ability to provide multiyear World-Class Program view of performance over time Hackett Performance Exchange (automatic accumulation of performance data from Oracle or SAP Business Transformation (Transforms Performance into World Class) Governance & Organization Skills & Talent Enabling Technology Information Service Delivery Components Process Design Service Placement / Scope Process Sourcing / Location Strategy Finance Human Resources Information Technology Procurement Supply Chain and Operations Enterprise Performance Management Shared Services, Global Business Services & Outsourcing Merger Integration Working Capital Management Best Practice Technology Enablement (Implements Technology to enable World Class) Oracle EPM (Platinum Partner) SAP ERP (Gold Partner) Hyperion Kronos Workforce Management Application Managed Services Source to Pay Solutions Assessment Selection Implementation Change Management 2016 The Hackett Group, Inc. 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5 Objectives Review trends for priorities of procurement leaders Review trends for procurement capabilities Discuss Hackett s Digital Transformation framework 2016 The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. The Hackett Group Key Issues Study

6 Priority Trends

7 In 2017, revenue growth will continue to outstrip FTE and budget plans in procurement Revenue growth Number of staff (FTEs) Operating budget 4.0% 4.1% 3.2% Productivity Gap Efficiency Gap 1.4% 1.2% 0.7% Actual Projected The never ending drive to do more with the same Source: 2017 Key Issues Study, The Hackett Group 2016 The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. The Hackett Group Key Issues Study

8 Success starts with aligning procurement s value with enterprise objectives and building out the right sets of capabilities to perform What does the business need Procure-to-Pay to deliver and what does it do? How well is Procure-to-Pay delivering relative to WC and Peers? Procurement Performance: Recalibrate the Service Execution What is the level of performance for both efficiency and effectiveness? Procurement Procurement Value: Evolve the Service Value What do we aspire to be? which becomes What to execute? Procurement Capability: VALUE MGT DEMAND MANAGE- MENT TCO REDUCTION PURCHASE COST REDUCTION SUPPLY ASSURANCE Redevelop the Service Capability What capabilities do we have today or need to acquire to change? Governance & Organization Skills & Talent What capabilities are needed to be built? Information Service Delivery Components Service Placement Process Sourcing Enabling Technology Process Design 2016 The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. The Hackett Group Key Issues Study

9 The top priorities defining procurement s value proposition in 2017 and beyond Reduce and avoid purchase costs 39% 48% *Improve procurement s business agility Elevate the role of procurement to a trusted advisor 23% 26% 61% 55% Expand purchasing s scope / influence Deepen influence on complex indirect spend categories 13% 11% 64% 58% Influence Increase internal stakeholder satisfaction 5% 62% Obtain more value from purchase-to-pay (P2P) 19% 45% *Support enterprise digital transformation objectives 21% 42% Reduce supply risk to avoid regulatory non-compliance Reduce supply risk to ensure supply continuity 16% 12% 45% 48% Risk *Biggest movers 2016 to 2017 Critical High 2016 The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. The Hackett Group Key Issues Study

10 Cost savings (priority #1): Most procurement organizations had a savings target for 2016 and most either met or exceeded their target Did your company have a 2016 savings target for indirect spend? How well did you meet your 2016 savings target on indirect spend? No but the company had one savings target that encompasses both Direct and Indirect spending, 15% No, 9% Do not know, 1% Yes, 74% Did not have Do not know, 7% a target, 8% Exceeded, 55% Did not meet, 3% Met, 28% 2016 The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. The Hackett Group Key Issues Study

11 But as procurement organizations mature their goals begin to evolve beyond savings to also include broader strategic value objectives As your procurement organization matures and many savings opportunities are exhausted, do you see savings goals being reduced and procurement s scorecard shifting to more strategic areas? As the organization matures, we see the goals evovling to other areas like strategic value and nonprice related cost reductions (ex. process re-engineering, reduced cost of quality). 49% 16% 35% N/A there s no shortage of savings opportunities for us to take advantage of Savings goals are not going down despite being harder to find. We are expected to continue to unearth the same of greater levels of purchase cost reduction The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. The Hackett Group Key Issues Study

12 The history of Procurement s ROI ROI = Savings/Procurement Cost World Class Enable Success in Any Economy Excel in a Volatile Recovery Accelerate Global Growth Optimize Global Performance Integrate the Enterprise for Sustainable Success Accelerate Growth from Innovation Creating a World-Class Internal Customer Experience Creating Agility in a Digital Age Digital Excelleration Non-WC Peer *Non-WC has 35% more investment in operations activities Source: The Hackett Group, The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. The Hackett Group Key Issues Study

13 In 2017 a key objective continues to focus on a more agile procurement organization (priority #2) Agile enterprises are those that are capable of changing internally at the rate of external change The five forces of change Digital Service Delivery Model The Digital Imperative The Insight Imperative Customer as King Intensifying competition Disruptive innovation What s required for agility? Make and implement decisions quickly Respond rapidly to changes in business demands and priorities Flexible process and frameworks that align with stakeholder objectives Forecast and plan continuously to identify future risks and opportunities Hackett Procurement Agility Model rolled out in The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. The Hackett Group Key Issues Study

14 Hackett s Procurement Agility Model Agile procurement organization Low agility Agility enabler High agility Change averse culture, preserve status quo, focus on resource utilization Culture Embrace change, view change as an opportunity, focus on business outcomes Bureaucratic decision-making, lacks empowerment, fosters inappropriate risk taking Talent tied to specific roles, common talent management strategies for all roles, limited learning and development, life-long procurement Leadership Talent Delegated decision-making authority, change-oriented leadership, calculated risk taking Flexible talent placement, talent management tailored to needs of roles, continuous learning and development, rotation Low Agility enablement index High Excerpt from Hackett Procurement Agility Model 2016 The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. The Hackett Group Key Issues Study

15 We continue to see a drive to elevating procurement s role to that of a trusted advisor (#3 priority) Which capabilities will help the most to achieve trusted advisor status? 81% Ranked elevating the role of procurement to a trusted advisor as a critical or major objective in 2017 Consistently deliver on the basics Hire and retain high-caliber staff Increase agility Develop category management strategies Deliver high-quality market insights and research Build better awareness of procurement s services Discover and recommend innovative suppliers Prove value through small projects Improve the overall buying experience Other N/A 77% 64% 61% 57% 53% 47% 36% 35% 35% 5% 4% Source: Key Issues Study, The Hackett Group, The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. The Hackett Group Key Issues Study

16 Hackett 2016 Procurement Forum 2016 The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. The Hackett Group Key Issues Study

17 In 2017 the conversation continues to shift towards improving the quality of influence as opposed to simply quantity (#4 and #5) Procurement Spend Influence (Quantity) Savings for stage when procurement is involved (Quality) 85% 100% 77% 95% 93% 68% 5.18% 0.61% 4.57% 3.45% 0.60% 2.48% 0.56% 2.85% 1.92% Direct Materials Indirect Materials Indirect Services Design / Specification (Demand Mgmt.) Supplier Identification Negotiation & Contracting Peer Group World Class Cost Reduction Cost Avoidance Source: The Hackett Group, The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. The Hackett Group Key Issues Study

18 And we see organizations reflecting this shift with respect to their measurement models across various categories Quality of Spend Influence Opportunity Opportunity Opportunity Opportunity Spend ($10M) SRM - Innovation SRM - Risk SRM - Performance Demand Management Opportunity TCO Price Supply Assurance Category 1 Category 2 Category 3 Category 4 Category 5 Category 6 Category 7 Category 8 Category 9 Category 10 Category 11 Category 12 Quality Quantity of Spend ($M) 2016 The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. The Hackett Group Key Issues Study

19 Increasing stakeholder satisfaction (priority #6) benefits significantly from a structured approach to customer relationship management Improving the Customer Experience Identify Customers Take Action Measure Success Analyze Results Identify key stakeholder groups and individuals, their interactions and general attitude Develop measurement approaches tailored to key stakeholder groups Analyze customer feedback, plan for action by leadership to own and deliver Provide feedback to key stakeholder groups on customer satisfaction and action plans to address identified improvement needs 2016 The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. The Hackett Group Key Issues Study

20 Some critical success factors for a customer-centric approach to procurement ranked by importance and capability Low Importance High Importance 2016 The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. The Hackett Group Key Issues Study

21 54% of organizations admit procurement brand is not recognizable despite the potential increase in spend influence that it would drive Are procurement brands recognizable with stakeholders today? 54% How much do you estimate increased brand awareness would change spend influenced? 58% 42% 7% 13% 13% 7% No Yes No impact Increase by 5-10% Increase by 11- Increase by 21- Increase by 20% 30% more than 30% 2016 The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. The Hackett Group Key Issues Study

22 Risk rounds out the top ten priorities for Procurement executives 67% Percentage of companies ranking as high risk 20% 47% 58% 17% 41% 56% 51% 24% 20% 32% 31% 33% 8% 41% 17% 35% 11% 32% 10% 25% 25% 24% 22% Cyber / information security Intensified competition Disruptive innovation Access to critical talent Regional demand weakness Regulatory risk IP theft / industrial espionage Exchange rate volatility Current (2016) Projected increase in Source: 2017 Key Issues Study, The Hackett Group 2016 The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. The Hackett Group Key Issues Study

23 Capability Trends

24 Hackett has recently updated its Service Delivery Model which supports the building of capabilities to deliver on value objectives Core values/mindset definition Talent strategy Skills and competency definition Continuous learning and development Employee Performance mgmt Culture development strategy Technology SDM design decisions Business technology governance model Functional technology strategy Functional technology architecture Service partnering/sourcing strategy Service partner selection Outsourcing partner relationship model Customer experience strategy Service catalog design Service based end-to-end process design Continuous improvement capability design Org & Gov strategic alignment model Enterprise process ownership model Service placement design Organization design Governance model design Information mgmt strategy Performance mgmt framework Information deliver strategy Analytics strategy and design Integrated enterprise information architecture 2016 The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. The Hackett Group Key Issues Study

25 Let s look at how executives feel about the importance of current procurement capability gaps in driving their objectives Measure and manage procurement performance and business value Align procurement skills and talent with changing business needs Improve procurement analytical, modeling and reporting capabilities Modernize procurement application platform(s) Improve procurement responsiveness to changes in business demands Increase spend influence though strategic sourcing Obtain more value from existing categories through category management Obtain more value from existing suppliers through SRM 78% 73% 72% 70% 70% 64% 62% 56% Expand procurement work executed in GBS / SSO Invest in procurement CoE to enhance ability to provide value added services Invest in supply market intelligence capabilities Reduce procurement operating cost Refine continuous improvement programs and techniques Increase budget for procurement software tools Invest in procurement technology other than software 45% 43% 42% 33% 33% 33% 22% High/Very High 2016 The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. The Hackett Group Key Issues Study

26 Let s talk about what digital transformation means to procurement by reviewing Hackett s Procurement Digital Transformation framework The Digital Business Strategy Four pillars support procurement s digital business strategy 2 Omnichannel, personalized stakeholder experience 3 Digitally enabled procurement workforce 4 Smart orchestration of source-to-pay services 5 Ecosystem of networked solutions Data and analytics form the foundation 1 Analytics-driven insights 2017 The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. 26

27 42% say that collecting new forms of category market intelligence is the top use case for big data in procurement 1. Setting a foundation of analytics-driven insights

28 Competitive advantage The five levels of business intelligence Optimization Predictive modeling Forecasting Simulation Alerts Query/drill down Ad hoc reporting Standard reporting Reporting What happened? Analysis Why did it happen? Monitoring What s happening now? Forecast What might happen? Predict The probability of it happening? Complexity 2017 The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. 28

29 Defining Big Data Big data is high-volume, high-velocity and/or high-variety information assets that demand costeffective, innovative forms of information processing that enable enhanced insight, decision making, and process automation VOLUME Scale of data VERACITY Uncertainty of data VALUE Patterns, trends, associations VELOCITY Analysis of streaming data VARIETY Different forms of data Top three Big Data use case that have the greatest potential in procurement: 42% 39% Collect and analyze new forms of category market intelligence Conduct spend analysis leveraging unstructured sources (e.g., maverick and tail spend buying) 34% Track real-time supplier risk and performance metrics 2017 The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. Source: Big Data Case Studies in Procurement, March 8 th Webcast, The Hackett Group 29

30 Only 2% of organizations have an explicit customer management organization, formal service delivery model, and set of engagement processes 2. Building an omnichannel, personalized stakeholder experience

31 Creating an omnichannel and personalized stakeholder experience for engaging procurement services Omni-channel access to procurement process allowing ability to buy/pay for goods/services from all locations (corporate, satellite offices/locations, home, on-the-go/mobile) Real-time information and status on all procurement requests/transactions Intelligent purchasing process that know who you are, where you sit, and what role you play in the organization Social Mobile Phone support Chat support Selfservice Voice Intranet portals Newsletter Web and messaging 2016 The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. The Hackett Group Key Issues Study

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33 31% of organizations consider access to critical talent an area of high risk and they expect that risk to grow 20% in the next year. 3. Creating a digitally enabled workforce

34 There are a broad array of procurement s skills and talent concerns keeping CPOs up at night where to focus? Most pressing. Leadership Impact of growing use of outsourcing on staff development and career paths Developing leadership capability within procurement Productively integrating new generation of workers into the company Ability to offer learning & career progression opps. Training and developing the skills of procurement staff Ability to attract and retain Procurement managers people mgmt. & development capabilities Maintain adequate skill levels as older workers retire Impact of increasing use of and dependence on technology by procurement Alignment of procurement staff skills with changing requirements Dealing with varying talent mgmt. requirements of staff in different regions Communication vehicles and styles appropriate for/preferred by younger workers Attract and retain talent Learning and career progression opportunities Impact of increasing globalization/ offshoring of procurement resources Staff skills development Most serious concerns Serious concerns Moderate concerns Least serious concerns People mgmt skills 2017 The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. Source: Skills and Talent Outlook, The Hackett Group,

35 Creating a digitally enabled workforce relies on many of the transferable skills that are needed as we evolve procurement s value proposition Data Analysis and Modeling Process data and extract relevant information Knowledge of analytical tools and methodologies Translates analyses into actionable plans Business Acumen Understand key business drivers Knowledge of factors, priorities and business demands Identify problems and prioritize alternatives Strategic Mindset Develop strategic frameworks and visions Anticipates market changes Address challenges and outline future direction Relationship Management Advanced interpersonal skills Positively influence decisions Open and approachable Savings and Financial Analysis Translate savings and value improvements to P&L impact Develop tools to track, measure and forecast savings Analyze supplier financial statements for detailed insights Supply Risk Management Expertise Assess and prioritize business and category-specific risks Measure, prioritize, and address risk Develop risk mitigation plans for high-priority drivers 2017 The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. 35

36 The question of our time: Will Procurement exist in 25 years? Yes but it will look very different from today Transactional tasks may be entirely automated Sourcing activities may be executed electronically with little need for human intervention Data analysis will be embedded into our information systems However.. There will always be a need for interpersonal relationships, values based decision making, creativity, and judgement to harness the value of the supply network. As humans have in the past, we will adapt our personal value and our surroundings for success 2017 The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. 36

37 23% of P2P organizations are piloting or have partially rolled out robotic process automation 4. Orchestrating a smart portfolio of digital services

38 While P2P process cost reduction is attractive, the real payback comes from enabling broader source-to-settle and business objectives Value Drivers Strategic Business Enablement Improved/protected customer service, revenue, profit Brand protection: compliance risk; supply/supplier risk Opportunity cost of management time Service Level Excellence Maverick spending reduction Supplier non-compliance to contract Demand management (consumption reduction) Demand management (spend influence) Sourcing savings via better spend visibility from P2P Cost of capital from DPO improvement Early payment discounts Rebates from purchasing cards Reduced cost of P2P errors for direct materials Reduced supplier late payments penalties 10X process cost reduction Process Cost Reduction Transactional purchasing process cost reductions Accounts payable process cost reductions Foundational to delivering on benefits is end-to-end alignment across source-to-settle 2017 The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. 38

39 This includes spend management orchestration through flexible spend management capabilities Percentage of company spend managed using each approach Hackett s perspective: Global by design, regional as appropriate, local when required Tail Spend Mgmt 40% 25% 10% 10% 15% Global category strategy Global category BU / region / large country BU / region / large Local / small country Local / country Tactical sourcing Tactical sourcing Non-procurement managed spend Non-procurement strategy country sourcing sourcing strategy managed spend strategy? Source: Global Category Management Study, The Hackett Group, The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. 39

40 Total spend per supplier Defining tail spend: A common definition focuses on the suppliers that make up the bottom 20% of spend Getting a handle on tail spend starts with an understanding of the supply base profile 80% of spend with 20% of suppliers Tail spend: 20% of spend with 80% of suppliers 1 n Suppliers Caveat: We normally also look this by transaction volume Shorter Tail 23% 24% Percent of Suppliers Representing 80% Invoice volume Invoice spend 10% 7% 6% 3% Longer Tail Lower Quartile Median Upper Quartile Hackett P2P Study, The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. 40

41 What are the top strategic activities in a COE or similar team? Top three activities currently in place or expanding use Analytics Contract & commercial excellence Execute strategic sourcing & sourcing event management Currently In Place 40% 41% 39% Expanding Use 14% 14% 17% Top four activities currently being evaluated or piloted Supply market intelligence 31% 10% Procurement brand, marketing and communications Supply innovation Cognitive procurement, AI, RPA Planning/Evaluating 26% 22% 19% Piloting 12% 10% 10% 2017 The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. Source: 2017 Key Issues Study, The Hackett Group 41

42 32% of organization s plan to consolidate to a single source to pay platform, but only 8% have achieved that goal today 5. Unlocking value through an ecosystem of networked procurement solutions

43 32% plan to consolidate to a single source to pay platform but only 8% have achieved that goal today Which statement would you say best describes your source-to-pay technology strategy? Our goal is to consolidate all source-to-pay applications on a single platform provider but we still have disparate tools in place today 32% We use our ERP and a single source-to-pay solution for the majority of processes 31% We use our ERP provider for all source-to-pay processes with only limited exceptions 15% We have a best of breed strategy which allows us to pick and choose individual solutions based on how well they meet our requirements 14% We use a single source-to-pay software provider with limited exceptions 8% 2017 The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. Source: 2017 Key Issues Study, The Hackett Group 43

44 Many organizations are just getting started with Robotic Process Automation although it is ranked as transformational over the next decade RPA Adoption in P2P 16% 7% Trends that will have the greatest transformation impact on P2P in the next 10 years Digitalization of B2B connections and transactions Predictive analytics and forecasting tools Process ownership and link to procurement 59% 57% 75% 77% Robotic process automation Cloud computing Mobility 39% 45% 43% Global economy 27% None Piloting Partially Rolled Out Millennial workforce Prompt payment regulation Enterprise social networking 5% 23% 18% Source: 2016 P2P Key Issues Study Results 2017 The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. 44

45 The ecosystem of available solutions are all at different levels of maturity We feel procurement will be focusing more attention in next few years 2017 The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. Source: 2016 P2P Key Issues Study Results 45

46 Summary While cost savings are core to procurement s value proposition it is evolving to include other business value objective Procurement s focus is shifting to more of an influencer in order to deliver overall business value and becoming a trusted advisor is core to success Stakeholder relationship management is a critical capability that should be formally developed Procurement should be viewed as a single end-to-end global process with strong alignment and collaboration Digital transformation objectives of the enterprise are being cascaded down to supporting function like procurement and can drive step-change benefits Digital transformation is not simply about technology, talent transformation for example is a critical component of the journey 2017 The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. 46

47 Contact information KURT ALBERTSON PRINCIPAL, PROCUREMENT ADVISORY 1000 Abernathy Rd Suite 1400 Atlanta, GA Tel.: The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. 47