Post on 21-Jan-2017
How to Move from Good to Great:10 Steps to Unlock the Power of Procurement
Mickey North RizzaBravoSolution, Vice President of Strategic Services
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What You Will Learn
My promise to you:
Present you with a wealth of information to help you Unlock the Power of Procurement
Make sure you understand:
- Conventional procurement is dead- The top challenges driving the need for strategic procurement- Your suppliers must be at the center of your procurement process- Going from good to great strategic procurement by leveraging technology
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The Next Generation of Procurement
Conventional
Procurement
Optimized
Procurement
Comprehensive
Procurement
Unlocked
Procurement
The Next Generation of Procurement
Unlock Procurement
Valu
e C
aptu
red
Procurement Maturity
As procurement organizations mature and basic goals are achieved with conventional procurement initiatives,
evolving organizations realize there are greater opportunities to deliver organizational value.
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Become Unlocked!
Unlock the Power of ProcurementUse the Right Keys and Move from Conventional Procurement
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1. Moving from ‘e’fficient to ‘e’ffective and Value Driven
Efficiency Metrics Effectiveness and Value Metrics
Cost Savings/Cost Avoidance
• realized savings as a % of identified savings
• refunds, credits and rebates from suppliers
• value of improved warranties
• value of negotiated additional benefits
Supplier & Industry Development
• potential local suppliers identified
• # of new sources of particular goods and services
• # of suppliers in supplier development programs
Supplier Performance
• on-time delivery
• quality
• negotiation
• cost targets
Efficiency of Internal Procurement Systems & Processes
• % of electronic procurement spend
• % of Pcard spend
• % of spend under contract
• requisition to order cycle time
• source to contract execution cycle time
• order to delivery cycle time
• procurement operation costs as a % of managed spend
• reduction in transactions & inventory management costs
TVM: Highest Value to Cost Ratio (evaluates & minimizes risk)
Value Creation: Economics and Societal Benefits Relative to Costs
Profitability Increase
Time to Value
Returns to Shareholders
# and Types of Ideas/Patents Generated & Implemented
per Supplier
# and Types of Ideas/Projects in the Innovation Pipeline with
Projected Value
Net Present Value of New Product Portfolio
ROI on Innovation Projects
Revenue Increase
Improvements of EVA, ROIC, ROA
Source: ISM, CIPS, Spend
Matters
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Strategic Procurement Ensures Efficiency and Effectiveness
Conventional procurement operates in information and process silos
Strategic procurement drives value through an integrated lifecycle process and supplier lifetime value
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Operating Principles
2. Moving from Reactive to Proactive
Reactive
• Procurement is a cost center
• Procurement receives a specification
• Procurement rejects defective materials
• Procurement reports to Finance or Operations
• Procurement responds to market conditions
• Problems are the supplier’s responsibility
• Price is the main variable for decision
• Emphasis is on yesterday and today
• Technology systems are independent of suppliers
• Negotiation is win/lose
• Plenty of suppliers = security
• Plenty of stock = security
• Suppliers’ communication is one way—”do as I say”
• Process, cycle time and efficiency are metric-focused
• Technology-enabled; low adoption
• Procurement receives information and acts upon it
• Procurement’s main target is cost savings
• Information is power
Proactive
• Procurement can add substantial value
• Procurement & suppliers contribute to the specification
• Procurement avoids defective suppliers
• Procurement is strategic, reporting to CEO
• Procurement influences the market
• Problems are a shared responsibility with the supplier
• Total cost and value are the major decision factors
• Emphasis is on strategy and business plans
• Technology systems may be integrated with suppliers’ systems
• Negotiation is win-win or better
• Plenty of suppliers = lost opportunities
• Plenty of stock = waste
• Suppliers’ and Buyers’ communication at all levels of the organization
• Efficiency and effectiveness are the baseline; metrics are valued
• Technology-enabled, optimized business processes
• Procurement actively pursues outcomes with the business & suppliers
• Procurement can impact revenue, profitability, ROIC and ROA
• Information is valuable if shared
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Procurement Service & Delivery
3. Scattered vs. Optimized Procurement Service & Delivery
• Lack of focus (e.g., business unit requirement)
• Communication barrier (e.g., with internal stakeholders)
• Common supplier’s different behavior in terms of geographic or market segments
DisAdvantages
Centralized
Advantages
• Reduced purchasing cost (bulk purchase)
• Consolidated supplier database
• Strategic focus and improved planning
• Better communication with internal stakeholders
• Swift response
• Easily managed cultural, geographical, political, taxation, etc., issues
• Loss of better supply opportunity
• Lack of standardization• Operational against strategic
focus
Center-Led
Advantages
Decentralizeda
DisAdvantages
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Market Analysis
Spend Management Supply Market
Addressable Spend
Procurement Control
Under Contract
5. Extreme Spend Focus vs. Supply Market Focused
Internal Facing External Facing
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6. IT Investment with Little Adoption vs. IT Investment with Maximized ROI
Low Adoption Maximize ROI
• NIH - Not Invented Here
• Cool tool but doesn’t solve the business problem
• Set the expectations and then they are not met
• Do not plan for the business process to be different
• Stick vs. carrot
• Make the business case
- Efficiency
- Asset utilization
- Customer response
• Set expectations
• Find a Partner not a vendor
• Plan beyond go-live
• Measure the impact & change
• Show the ROI
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7. Missing Knowledge and Talent vs. Talent and Knowledge Orrganized for Success
Waverly labs
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8. Little Organization Alignment vs. 360° Business Alignment
AlignmentUncover What is Holding You Back
65% of organizations have an agreed-upon strategy
14% of employees understand the organization’s strategy
< 10% of all organizations successfully execute the strategy
Source: Larry Myler & Rosariolongo
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30% of Misalignment isdue to the data
65% of Misalignment isdue to different definitions
5% of Misalignment isdue to different drivers
8. Little Organization Alignment vs. 360° Business Alignment
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9. Reward Focused vs. Risk Eliminator
Reward vs. Eliminator
Types of Supplier Relationship Management
Supplier collaborationcreates new value
beyond the contract
Supplier performancemanagement moderately
improves value...
Basic management allows value to escape..
Value
Time
ContractSigned
Currently 60% of Procurement‘ssupplier focused time
Adapted from CEB
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10. Low Supplier Focus vs. Supplier & Partner Focus
Equity Supplier
Partners
Shared ServicesVested
Supplier
Relationship
Performance-Based
Relationship
Preferred Supplier
Approved
SupplierSimple
Transaction
Supplier
LOW HIGH
LOW
HIG
H
Source: ©2015 Vested®
Potential to Create Value
Dep
ende
ncy
/ Ris
k
Rela
tiona
lIn
vest
men
t
Tran
sact
iona
l
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10 Steps to Unlock the Power of Procurement
Start the Movement and Unlock the Power of Procurement
Conventional Procurement Unlocked Procurementto
1. ‘e’fficient, learning how to be ‘e’ffective
2. Reactive
3. Scattered Procurement Service & Delivery
4. Conciliatory
5. Extreme Spend-Focus
6. IT Investments with Low Adoption
7. Missing Knowledge & Talent
8. Little Organizational Alignment
9. Reward-Focused
10. Low Supplier Focus
1. e’fficient, e’ffective, & Value-Driven
2. Proactive
3. Optimized Procurement Service Delivery
4. Opportunistic
5. Supply Market-Focused
6. IT Investments = Maximized ROI
7. Knowledge & Talent Organized for Success
8. 360° Business Alignment
9. Risk Eliminator
10. Supplier & Partner Facilitator
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Met the Objectives
Presented a wealth of information & examples to help you Unlock the Power of
Procurement
- Conventional procurement is dead- The top challenges driving the need for strategic procurement- Your suppliers must be at the center of your procurement process- Going from good to great strategic procurement by leveraging technology
Stay tuned for future ‘in-depth webinars’ to assist you on your journey going from good to great.
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Contact Information
Mickey North RizzaBravoSolution, VP, Strategic Services
m.northrizza@bravosolution.comTwitter: @MNorthRizza
Visit us at BravoSolution.com