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. 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.