2013 Procurement Key Issues: Going Deeper and Broader to Deliver Borderless Procurement Services

Transcription

1 Procurement Executive Insight January, 2013 Complimentary Research 2013 Procurement Key Issues: Going Deeper and Broader to Deliver Borderless Procurement Services By Michel Janssen, Pierre Mitchell and Lynne Schneider Executive Summary Of all the Hackett Key Issues Studies conducted in the last five years, the 2013 edition shows the greatest yearover-last change in priorities for both performance and capability-related issues. Procurement executives expect to be extremely busy in the coming year supporting the enterprise focus on profitable growth. In response, they are working to expand the quantity and quality of their organization s spend influence via sourcing, category management and increasingly, supplier relationship management. Many of their priorities in the coming year will require greater cross-functional collaboration with business units, functional partners, Global Business Services groups and third parties. While priorities may vary based on individual enterprise strategies, in 2013 the overarching goal is to deliver more value without more resources. In 2013, enterprises are trying to not just grow globally, but to balance local agility with global scale in their value chains. To do so, internal business services that support them must be equally borderless, from the geographic, organizational, technology and other standpoints. Four imperatives were identified by participants in our 2013 Enterprise Key Issues Study: Fostering the agility required to achieve profit goals when revenue falls short of expectations, and to add value to procurement services without additional headcount or budget. Continuing to move toward a more standardized and global approach to the business and to procurement operations. Maturing the concepts of process ownership beyond the basics of process standardization, and creating value by working across functional, business unit and geographic borders. Obtaining insights, intelligence and actionable strategies from data generated by procurement activities. It is likely that growth will always be the top priority for CEOs, but for the other senior executives (including procurement leaders) who participated in the study, improving operating margin actually overtook increasing revenue compared to 2012 (Fig. 1) The Hackett Group, Inc.; All Rights Reserved. CR_ Procurement Executive Insight I The Hackett Group I 1

2 FIG. 1 Summary: Enterprise key issues in 2013 Percent of companies ranking issue as important" or "extremely important" Improve operating margin 90% Accelerate revenue growth 88% Largest increase Improve customer service/satisfaction Reduce overhead cost Increase operational agility and flexibility Enhance employee/talent retention and development 88% 83% 82% 82% Improve cash flow/working capital 77% Reduce total supply chain cost 77% Manage enterprise risk 74% Grow emerging market presence 68% Achieve non-financial, social responsibility and sustainability-related objectives 49% +/- 3% CHANGE FROM 2012 Source: Enterprise Key Issues Study, The Hackett Group, 2013 The enterprise is looking under every stone for improvement opportunities. This of course helps set the agenda for procurement organizations to support. On the revenue and growth enablement front alone, procurement organizations have a broad spectrum of supplier engagement options planned to support enterprise strategies in 2013 (Fig. 2). FIG. 2 Procurement initiatives planned for next months in support of the enterprise strategy Enterprise growth strategies Supplier-related activity Developing/improving traditional products and services 39% 82% Early supplier involvement in design Improving sales & marketing effectiveness in existing channels 36% 79% Joint promotions; demand pull tactics Pursuing game-changing innovation/technology 65% Open innovation Penetrating international markets 28% 62% Supply base localization Finding new target industries, channels and channel partners 22% 55% Supplier market intelligence Related initiatives A strategic/business planning process effectively supporting growth and related initiatives 46% 71% Supplier business reviews; supplier eventst Improving brand perception (e.g., sustainability, diversity, etc.) 68% Supplier diversity; supplier sustainability Ensuring value chain partners' ability to scale for growth 36% 32% 68% Supplier capability/ capacity development Mergers & acquisitions 48% Supplier acquisitions Joint ventures/strategic partnerships 21% Strategic supplier partnering (e.g., JVs, joint IP licensing) HIGH MODERATE Source: Revenue/Growth Enablement Study, The Hackett Group, The Hackett Group, Inc.; All Rights Reserved. CR_ Procurement Executive Insight I The Hackett Group I 2

3 The challenge will be finding a way to fund these strategic pursuits when staffing and budgets remain tight. Although revenue is expected to grow during , albeit slowing relative to , procurement budgets will be flat going into 2013, with operating budgets expected to drop by 0.40% and FTE levels by 0.50% (Fig. 3). FIG. 3 Projected changes in revenue, procurement budgets and headcount Overall revenue growth 7.9% 6.5% Procurement operating budget Number of staff (FTEs) in the procurement function 1.16% % -0.50% 2012 COMPARED TO COMPARED TO 2012 Source: Key Issues Study, The Hackett Group, 2013 Since procurement, like other functions, is being required to do more with less, it will need to do things differently. Based on the Key Issues Study findings, there is plenty of change on the horizon: Globalizing value chains means globalizing direct as well as indirect procurement resources that are increasingly part of a broader business services delivery group, such as a Global Business Services organization. 1 Companies have average of 12% of their FTEs already located in low-cost regions, a number that is expected to reach 21% in within two years. Roughly one-third to one-half of companies have created a global design for policy/ strategy standards, process designs, technology platforms, KPIs and master data management (MDM) with plans to increase those levels to 50-60% within three years. KPIs, MDM and near-real-time analytics are key to enabling closed-loop performance management processes for the enterprise (i.e., enterprise performance management, or EPM) or for procurement/supply chain (which Hackett calls supply performance management ). 2 Timely analytics are not always easy to come by in large, global enterprises. In our recent globalization study, we found that 80% of top-quartile performers offer visibility in near real-time or within one day, compared to only 28% of the peer group. Since a one-size-fits-all procurement Service Delivery Model (SDM) is insufficient for the complex needs of large organizations, the ability to mass-customize procurement processes as services by category, stakeholder, contract type, buy-pay channel, geography, etc., is paramount. Using a procurement SDM to design tailored services for end-to-end processes is a key principle behind enterprise process ownership (sometimes known as global process ownership ) and Global Business Services strategies. In the study, we found that 21% of procurement organizations are scoping their enterprise process ownership to cross-functional, end-to-end processes (e.g., purchase-topay or source-to-settle). Building these new capabilities is not easy, and procurement, perhaps more than any other function, realizes the importance of tailoring its approach to influence stakeholders and help them gain better performance outcomes. This means helping to maximize the 1 In 2012, The Hackett Group conducted a globalization research study and created an associated Globalization Index to measure the extent of globalization of the enterprise operating model; globalization of business services delivery (including procurement); and finally, the degree of alignment between the two The Hackett Group, Inc.; All Rights Reserved. CR_ Procurement Executive Insight I The Hackett Group I 3

4 value of third-party relationships. As with last year s Key Issues Study, the 2013 edition validated that procurement is generally doing a good job helping stakeholders capture this value, especially relative to how well other functions perform. Only 10-20% of nonprocurement study respondents believe that uncaptured value is a major issue for 2013 (Fig. 4). FIG. 4 Only a small minority of non-procurement executives feel that untapped supplier value and procurement value are major issues for 2013 Percent of procurement stakeholders indicating they have difficulty getting enough value from supplier relationships 59% 5% 40% 55% 20% 45% 3% 13% 29% Percent of procurement stakeholders indicating they have difficulty getting enough value from the procurement function to maximize supplier relationships 5% 47% 20% 11% 27% 24% Finance IT HR Finance IT HR MOST IMPORTANT INTERNAL SUPPORT ISSUE WE FACE IMPORTANT ISSUE TO ADDRESS IN 2013 AN ONGOING ISSUE Source: Key Issues Study, The Hackett Group, 2013 There is still opportunity to improve, however. Plus, procurement s stakeholders who have a notoriously short memory when it comes to its historical successes are ratcheting up their expectations for procurement to develop ever-deeper capabilities and deliver more impactfully across a much broader set of KPIs in Procurement Key Issues It Will Be a Busy 2013 Of all the Hackett Key Issues Studies conducted in the last five years, in 2013 we see the greatest change over the previous year in priorities for both performance and capability-related issues. Reducing purchased costs remains at the top of performancerelated concerns, but the increase to 90% of companies clearly shows that, for better or worse, cost reduction is king (Fig. 5). However, innovation has shot up in the rankings and is now tied with spend influence as the number-two priority. Interestingly, although innovation is primarily a revenue-generation strategy, only of organizations consider supporting growth enablement beyond innovation to be a major or critical priority. Another interesting finding is that 50% of procurement organizations are placing a major emphasis on reducing the cost of procurement operating expense in the coming year, compared to in The focus here is not only to support top-down cost-reduction mandates from finance or elsewhere, but also to free up funds and resources for highervalue activities. 2 See the two-part Hackett series on supply analytics and information management referenced in the Related Hackett Research section at the end of this document The Hackett Group, Inc.; All Rights Reserved. CR_ Procurement Executive Insight I The Hackett Group I 4

5 FIG. 5 Key procurement performance-related issues in 2013 Percent of organizations citing issue as major or critical Reduce/avoid purchased costs 72% 90% Expand purchasing s scope/influence 53% 76% Increase innovation and product/service support 44% 76% Deepen influence on complex indirect spend categories 51% 69% Reduce supply risk 42% 56% Drive more value from purchase-to-pay process 39% Free up cash 40% Reduce procurement operating cost 50% Enable growth beyond innovation 32% Environmental sustainability or supplier diversity 20% 26% Source: The Hackett Group 2013 Key Issues Study Managing supply risk has also increased in priority as a means of profit protection. Supplier compliance is receiving particular attention, with an emphasis on efficient management of cross-functional workflows relating to regulatory requirements and supplier compliance with performance expectations. These processes create headaches for suppliers and buyers alike, and can detract from strategic value creation when participants are bogged down in processing paper and spreadsheets. Building such capabilities is a combination of process change (e.g., using supplier stratification to tailor workflows and information), master data management, analytics, measurement systems and more, and leads naturally to the topic of improving procurement capabilities in 2013 (Fig. 6) The Hackett Group, Inc.; All Rights Reserved. CR_ Procurement Executive Insight I The Hackett Group I 5

6 FIG. 6 Strategic priority of capability-related issues in 2013 Percent of organizations citing issue as major or critical Strategic sourcing 71% 88% Category management 58% 81% Supplier relationship management (SRM) 53% 64% Value contribution visibility 64% Upgrade of talent/skills 57% Supply market intelligence 56% Continuous imprvovement 38% 50% Upgrading technology tools 32% 45% Procurement shared services/coes/ BPO/globalization 26% Upgrading information capabilities 19% Process sourcing/placement 17% Knowledge management 23% Source: Key Issues Study, The Hackett Group, 2013 As episodic sourcing activity is broadening to a life cycle-based category management approach, new capabilities must be built, including broader supplier relationship management (SRM), deeper supplier/market intelligence (and associated analytics), and the way in which these knowledge-based processes can be delivered as services in a scalable way. The idea is to set up a one-to-many approach through a Center of Excellence (CoE) serving both procurement and its stakeholders. A good example is supply market intelligence (SMI), in which a CoE supports multiple value objectives including reducing risk, speeding up sourcing, improving negotiations, supporting newmarket entry and competitive intelligence scenarios. It might be provided to category managers who then use it to serve their stakeholders; alternatively, it might serve enterprise strategic planning staff or others. Building such a major capability requires a major effort involving implementation of many lower-level capabilities (Fig. 7) The Hackett Group, Inc.; All Rights Reserved. CR_ Procurement Executive Insight I The Hackett Group I 6

7 FIG. 7 Supply market intelligence (SMI) capability-building priorities Supplier-specific financial/risk intelligence 62% SMI types Third-party category knowledge/intelligence reports Category/industry trends and events Monitoring supply markets for innovation/growth possibilities 23% 32% 23% 24% 58% 57% 56% Category-specific pricing indices 24% 55% Improving how intelligence is tied to processes and job roles 16% 51% Integrating analytic applications to external intelligence 39% 11% 50% Building custom internal intelligence/km platform 42% 8% 50% Using third-party content more cost-effectively 40% 8% 48% SMI strategies Communicating of SMI internally within procurement Communicating of SMI externally to interested stakeholders Ensuring the company minimizes its footprint in intelligence posted externally 37% 16% 47% 11% 46% 8% 45% Mining social media and other external sites for specific intelligence 40% 5% 45% Increasing executive awareness, buy-in and funding 13% 44% Tying SMI to broader corporate competitive/mi efforts 8% 42% Other 2% SOME FOCUS IN 2013 MAJOR FOCUS IN 2013 Source: Key Issues Study, The Hackett Group, 2013 Of course, SMI is only one type of capability that is being established in CoEs (Fig. 8). Sourcing workflow support (including tactical sourcing and buying desks ), analytics, knowledge management, benchmarking, training and other areas are similarly popular. CoEs can be run in the procurement organization, corporate headquarters, the Global Business Services organization or even in business units (the latter via a virtual model, in which resources report through the CoE but remain at their normal work location) The Hackett Group, Inc.; All Rights Reserved. CR_ Procurement Executive Insight I The Hackett Group I 7

8 FIG. 8 Competencies and services offered in procurement Centers of Excellence (percent of companies) Specialized sourcing support 59% 22% 4% 16% Analytics 58% 29% 4% 8% Supply market intelligence (SMI) 54% 4% 18% Regulatory compliance (if different from supply risk) 12% 7% 28% Knowledge management 47% 6% 11% Technology support 47% 19% 9% Benchmarking, KPIs, value measurement/tracking 45% 7% 12% Continuous improvement support (e.g., Lean/Six Sigma) 24% 6% 27% Program/project management 42% 19% 7% 32% Contract/commercial excellence 39% 26% 9% 27% Finance-specific (e.g., costing, auditing, working capital) 11% 4% 50% Talent management 7% Specialized domains (e.g., logistics, asset disposition) 29% 5% Supplier support/help-desk 28% 15% 7% 50% IN PLACE, WORKING WELL A FOCUS IN 2013 A FOCUS IN 2013 (TO INTEGRATE WITH CORPORATE CoE/GBS) NOT A FOCUS AREA Source: The Hackett Group, 2012 Strategic Implications It is clear from the 2013 Key Issues Study that procurement is going to be very busy in the coming year, not only just to stay in step with the business, but also to build capabilities for the longer term. The three areas of capability-building receiving the most attention are category management, supplier relationship management (SRM) and improving the source-to-settle operating model. Most procurement organizations have a weaker formal mandate than they would like in these areas, but the smartest among them have learned to be opportunistic, using external events and internal business initiatives to provide the impetus for building new capabilities. They are also more deliberate in systematizing newly built capabilities in order to extend them to additional areas of spend and stakeholder engagement. Unquestionably, this continual process of broadening procurement s value objectives, scorecard and capabilities is arduous. More than brute strength, flexibility will help the procurement organization go global in step with the business The Hackett Group, Inc.; All Rights Reserved. CR_ Procurement Executive Insight I The Hackett Group I 8

9 Related Research Unlimited Options to Realize Borderless Business Services: Distilling the Key Issues of 2013, January 2013 Procurement Centers of Excellence, December 2012 The Case for Enterprise Process Ownership: Spotlight on the Purchase-to-Pay Process, November 2012 World-Class Supply Analytics and Information Management, Part 1: Analytics, May 2012 World-Class Supply Analytics and Information Management, Part 2: Supply Information Management, May 2012 About the Advisors Michel Janssen Principal and Chief Research Officer Mr. Janssen is responsible for developing The Hackett Group s core intellectual property, including thought leadership. He works with the company s Executive Advisory Council to understand the strategic impact of new and emerging trends on the business functions. He also heads Hackett s team of researchers and analysts in the US, Europe and India in the design and implementation of research studies; analysis of results; and production of resulting findings. Previously Mr. Janssen was president of Supplier Solutions for Everest Group and co-founded the Everest Research Institute. In addition, he provided strategic oversight for Everest s Outsourcing Center, the world s largest outsourcing community and vehicle for identifying early industry trends. He was also a senior director in Gartner Group s Strategic Sourcing practice and held numerous management positions with EDS. Pierre Mitchell Senior Director, Procurement Research Mr. Mitchell is responsible for leading the development of research and other intellectual property within Hackett s Procurement Executive Advisory Program, where he also serves as an adjunct business advisor. He has over 20 years of industry and consulting experience in procurement, supply chain and information technology. Mr. Mitchell is quoted widely in the press and speaks at numerous industry events on supply management trends and technologies. Previously he was vice president of supply management research at AMR Research and a manager at Arthur D. Little, where he led numerous supply chain and procurement transformations at Fortune 500 companies. Other industry positions include manufacturing project manager at The Timberland Company, materials manager at Krupp Companies and engineer at EG&G Torque Systems The Hackett Group, Inc.; All Rights Reserved. CR_ Procurement Executive Insight I The Hackett Group I 9

10 Lynne Schneider Senior Research Director Ms. Schneider is responsible for leading the development of research and other intellectual property for multiple programs. She has worked in consulting and related research for over 20 years. Her previous positions included Director of Research for Kennedy Consulting Research and Advisory, as well as a variety of internal and external consulting positions with international companies. As Director of Business Process Improvement at American Greetings, Ms. Schneider managed a portfolio of strategic and operations projects, including both staff and line functions. She was also a senior consultant in Towers Watson s Organization Effectiveness practice and a consultant in the Change Management practice at Accenture. For more papers, perspectives and research, please visit: Or to learn more about The Hackett Group and how we can help your company sharply reduce costs while improving business effectiveness, please contact us at (U.S.) or (U.K.). The Hackett Group, a global strategic advisory firm, is a leader in best practice implementation, advisory, benchmarking, and transformation consulting services, including shared services, offshoring and outsourcing advice. Utilizing best practices and implementation insights from more than 7,500 benchmarking engagements, executives use The Hackett Group s empirically based approach to quickly define and prioritize initiatives to enable world-class performance. Through its REL brand, it offers working capital solutions focused on delivering significant cash flow improvements. The Hackett Group offers business application consulting services that helps maximize returns on IT investments. It has worked with 2,700 major corporations and government agencies, including 97% of the Dow Jones Industrials, 84% of the Fortune 100, 80% of the DAX 30 and 49% of the FTSE 100. Founded in 1991, The Hackett Group was acquired by Answerthink, which was renamed The Hackett Group in The Hackett Group has global offices in the United States, Europe, Australia and India and is publicly traded on the NASDAQ as HCKT. info@thehackettgroup.com Atlanta London Amsterdam I Budapest Atlanta I Chicago I Frankfurt I Hyderabad I London I Melbourne I New York I Paris I Philadelphia I San Francisco I Sydney This publication has been prepared for general guidance on the matters addressed herein. It does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice The Hackett 2013 The Group, Hackett Inc.; Group, All Rights Inc.; Reserved. All Rights Reserved. CR_ CR_ Procurement Executive Insight I The Hackett Group I 10