Subscribe to our free, weekly email newsletter!


Pearson on Excellence: Hallmarks of procurement mastery

Procurement is one of many areas vying for a supply chain executive’s time and attention. But when you consider the variety and depth of benefits that high performance in procurement can deliver, perhaps a little extra time and attention are warranted.
By Mark Pearson
July 01, 2011

Procurement is one of many areas vying for a supply chain executive’s time and attention. But when you consider the variety and depth of benefits that high performance in procurement can deliver, perhaps a little extra time and attention are warranted. That conclusion is one of several suggested by Accenture’s recent research into the nature and tenets of procurement mastery.

Similar to the study performed in 2007, Accenture researchers wanted to learn more about what it means to excel in procurement—what “procurement masters” do differently and the extent to which they are rewarded for their efforts.

Toward this end, researchers analyzed responses from 432 procurement organizations in a range of industries, and combined that feedback with Accenture’s library of leading practices. Masters (less than 20 percent of the survey population) were identified based on the high level of cost savings they secure for their companies and the exceptional innovation they apply to procurement. Here are some of the things procurement masters do right, accompanied by real-world examples.

Revere strategy
Findings revealed 77 percent of masters have developed formal procurement strategies that integrate fully with overall corporate strategy, as well as with the strategies of relevant business functions such as finance, operations, and engineering.

Example: A European vehicle manufacturer redefined the role of its procurement organization by aligning procurement more closely with the company’s business strategy, mapping procurement activities and capabilities against product lifecycle stages, and charting relevant capabilities, processes, and technologies. Significant savings resulted from the enhanced ability to involve procurement earlier in the product development process.

Build better relationships
Masters understand the importance of collaborating with suppliers and holding them to consistently high standards. Consider that 67 percent of masters collaborate with more than just first-tier suppliers, compared to 11 percent of “contenders” (non masters). Masters were also found to be four times more likely to actively monitor supplier performance.

Example: A supplier-development initiative at an apparel company helped boost production efficiency at suppliers’ plants by up to 30 percent. The program emphasized four things: measuring supplier performance, building social responsibility, increasing production efficiency, and raising quality. Establishment of key performance indicators and a tailored data collection approach were also key.

Excel at sourcing & category management
Procurement masters are better able to leverage spend within and outside their companies. They naturally seek the best deals by capturing volume discounts, but they also strive to improve their organizations’ demand-management capabilities and to refine long-term category strategies that drive ongoing cost improvements and ensure contract controls and compliance.

Example: In recent years, the procurement group at a manufacturer of industrial communications materials has excelled at analyzing supply markets, managing suppliers, and negotiating effectively. With this solid foundation, the procurement organization was able to move to the next level: helping the company reduce product complexity by spurring tighter relationships among product development, R&D, and sourcing. These collaborations cut SKUs by more than 50 percent and underlying components by almost 40 percent.

Manage spend more effectively
Masters work extra hard to ensure that spend is tightly monitored throughout the requisition-to-pay process. This implies use of a controlled, managed process supported by clear buying channel strategies and maximum data visibility. Eighty one percent of masters (versus 34 percent of contenders) use leading-edge tools to integrate the end-to-end source-to-pay process.

Example: By leveraging vendor-managed replenishment technology, a telecommunications services company reduced inventory costs, freed up working capital, and slashed obsolescence expenses. The resulting $30 million savings could not have happened without the company’s rigorous focus on seamless requisition-to-pay processes within procurement and across the supply chain.

Do more with human capital
Even masters have a way to go in this area. However, it’s clear that leading practices (accomplished far more by masters than by contenders) include launching management-by-objective initiatives, developing formal talent-attraction and career-opportunity programs, and fielding teams focused solely on supplier and procurement innovation.
Example: A decentralized resources-extraction corporation recognized the need to become a more integrated business. Procurement was one group selected to spearhead this change, which included organization design, competency management, recruiting, training, and skills assessment. Numerous company factions have successfully followed procurement’s lead.

Looking ahead

Procurement masters have numerous advantages that other companies’ procurement organizations cannot currently match. The latter group can work to close the gap by focusing on the five areas discussed in this article.

But those actions may not be enough to overtake the leaders because masters are also seeking new ways to add value and increase their competitive advantage in areas such as risk management and advanced analytics. Still, procurement improvements are always possible and, more often than not, evident on the bottom line.

About the Author

Mark Pearson

Mark Pearson is the managing director of the Accenture’s Supply Chain Management practice. He has worked in supply chain for more than 20 years and has extensive international experience, particularly in Europe, Asia and Russia. Based in Munich, Mark can be reached at .(JavaScript must be enabled to view this email address).


Subscribe to Logistics Management magazine

Subscribe today. It's FREE!
Get timely insider information that you can use to better manage your
entire logistics operation.
Start your FREE subscription today!

Recent Entries

Working with research partner, The Economist Intelligence Unit, the IBM Institute for Business Value surveyed 1,023 global procurement executives from 41 countries in North America, Europe and Asia.

U.S. Carloads were down 7.8 percent annually at 259,544, and intermodal volume was off 15.7 percent for the week ending February 21 at 213,617 containers and trailers.

The Department of Transportation’s Bureau of Transportation Logistics (BTS) reported this week that U.S. trade with its North America Free Trade Agreement partners Canada and Mexico in December 2014 was up 5.4 percent annually at $95.8 billion. This marks the 11th straight month of annual increases, according to BTS officials.

While the volume decline was steep, there was numerous reasons behind it, including terminal congestion, protracted contract negotiations between the Pacific Maritime Association and the International Longshore and Warehouse Union, and other supply chain-related issues, according to POLA officials.

Truckload rates for the month of January, which measures truckload linehaul rates paid during the month, saw a 7.9 percent annual hike, and intermodal rates dropped 0.3 percent compared to January 2014, which the report pointed out marks the first annual intermodal pricing decline since December 2013.

Comments

Post a comment
Commenting is not available in this channel entry.


© Copyright 2015 Peerless Media LLC, a division of EH Publishing, Inc • 111 Speen Street, Ste 200, Framingham, MA 01701 USA