CIPS East Anglia Branch AGM March 23, 2016 … Speaker...A.T. Kearney xx/00000/Unique Identifier 3...

Robyn Wright, A.T. Kearney, FCIPS

March 23, 2016

CIPS East Anglia Branch AGM

Procurement Leaders of Tomorrow

A.T. Kearney xx/00000/Unique Identifier 2

Agenda

• Assessment of Excellence (AEP) in procurement

– State of procurement

– Overview of results

• Organizational leaders

• Individual leaders


A.T. Kearney’s Assessment of Excellence in Procurement is the preeminent global benchmark in the Procurement space

Assessment of Excellence in Procurement (AEP) snapshot

• Preeminent and worldwide unique study used by Procurement organizations to identify the latest marketplace trends

• The 2014 Assessment of Excellence in Procurement study is the eighth in the series that began in 1992

• Average participant revenue of $15B

• Enriched by our experience of 1,600+ large-scale procurement transformation projects and 1,800+ procurement practitioners worldwide1

• Provides detailed results and guidance to define roadmaps to excellence

2014 Key factsFocus of the Study

1992

1996

Inaugural year

House of Purchasing and Supply

launched

1999

2002

2004

Global Coverage

Focus on e-Procurement

Value Beyond Cost

2008Procurement at a

Crossroads

2011Performance-Driven

Procurement

More than 1,500 companies have participated in AEP to date – many multiple times

2014 tracked to 350+ participants

1. Engagements since 2002

Source: A.T. Kearney Assessment of Excellence in Procurement 2014 © A.T. Kearney 2014


The AEP initial benchmarking group represented a broad mix of geographies and industries

The initial benchmarking group includes the 170 participants that completed the questionnaire between February and May 2014



Procurement stature had solidified and slightly increased

Procurement Organization Stature(% Companies Selecting “Fully Agree’’)

13%

23%

19%19%22%

32%

41%

53%

25%

32%

46%

55%

Mandate communicated and accepted

Extended mandate to explore broader value creation opportunities

Leadership for all key expenditure areas

Extended mandate to identify and recommend

new business opportunities

2008 20142011



Agenda

• Assessment of Excellence (AEP) in procurement 2014






Leaders have a formula for procurement excellence

Category Strategic Sourcing is themost powerful cost reductionlever

… and to drive durable results

High Performance Teams as the catalyst for business alignment…

Supplier Relationship Management as the new differentiator for competitive advantage

Category Strategic Sourcing as themost powerful cost reductionlever

Team Excellence

Category Excellence Supplier Excellence



What does excellence look like today?

Supplier Excellence

Category Excellence

Procurement Leadership Characteristics

To achieve highest returns, Leaders invest in people and tools and can achieve annual returns of up to 15:1

Team Excellence

1

2

3

• Visibility into >95% of annual spend at the transaction level

• Influencing >75% of total spend and actively sourcing 70% of this each year, resulting in 6% benefits on spend influenced

• Robust sourcing process using demand management and advanced techniques, eSourcing and analytics

• Defined SRM process and team accountabilities, yielding > 95% compliance

• Supplier segmentation that identifies top 1% for collaborative innovation or extraordinary risk management

• At least one third of Procurement value stems from SRM

• Seat at the executive leadership table influencing enterprise strategy and pursuing both cost and value beyond cost objectives

• Centralized/center-led team of high potential talent with procurement and domain expertise; Automated transactional activities so 75% of team focuses on strategic efforts

• Performance management vetted by CFO that informs business plans

• Balanced scorecard that measures cost reductions, value beyond cost, talent, and stakeholder satisfaction


Procurement strategy

aligns with overall

business strategy

Procurement actively

contributes to development

of individual BU & regional

strategies

Business stakeholders

proactively invite

procurement to discuss

business plans

Business stakeholders and

procurement mutually agree

on budgets and targets for

external expenditures

100% 62% 48%

62% 27% 15%

Connection between Procurement Strategy and Business Plans(% Companies selecting “Totally”)

Leading procurement organisations have stronger engagement across their enterprise, and closer strategic alignment

■ Leaders ■ Typical Companies

70%

27%

Source: AEP 2014; A.T. Kearney


• Employing the power of the Purchasing Chessboard®

• Developing long-term plans that reposition the company for key categories

Category Excellence

as the most powerful source

of cost reduction


Lo

w

Low HighDemand Power

Su

pp

ly P

ow

er

4.21.2

11.0

5.2

Although leaders use more methods, there is still significant untapped potential in the use of collaborative methods

7.6

1.9

12.0

4.3

Hig

h

The Purchasing Chessboard®(% Leaders selecting “Systematically used”)

Average # of methods “Systematically Used”


Change

Nature of

Demand

Seek Joint

Advantage

with

Suppliers

Manage

Spend

Leverage

Competition

among

Suppliers

90%

50%

10%

Key:



• 3X greater linkage with business units• Expanded use of leadership practices• Generated 2x higher ROSMA

Leaders are showing the

way forward

A.T. Kearney xx/00000/Unique Identifier 131. Value refers to the financial results delivered. Top quartile performers deliver 6% vs. 3.2% from middle-tier.Source: A.T. Kearney 2014 AEP Full Survey Data and 2013 ROSMASM Performance Check

ROSMASM Top Quartile performers drive nearly 2X greater resultsROSMASM Financial Results Delivered Comparison(as a % of total spend)

1.8%

3.2%

6.0%

Top Quartile

+88%

+78%

Bottom QuartileMiddle 50%


Leaders make far greater use of leadership practices

Strategic Direction Value-Adding Processes Key Enablers

Overall AEP

Score

Supply

Management

Strategy

Org.

Alignment

Sourcing &

Category

Management

Supplier

Relationship

Management

Operating

Process

Management

Performance

Management

Knowledge/

Information

Management

Human

Resources

Management


Most /all formally and systematically

adopted

Some aspects adopted

Little or no systematic application

AEP Scores



Leaders are far ahead in developing and communicating a robust understanding of SRM, internally and with key suppliers

SRM Process(% Companies selecting “Robust” understanding and vocabulary)

77%

40%

84%

26%

9%

27%

Within Procurement Across your Company With key suppliers

Leaders Typical Companies



Leaders focus on key suppliers for joint supplier improvement initiatives

We conduct an internal process to identify value creation

hypothesis in advance of engaging the supplier

We have a jointly-agreed implementation plan that includes

specified improvement recommendations

Joint Supplier Improvement Initiatives(% Companies selecting “Most” or “All” for strategic suppliers)

67% 75%

27% 21%




Leaders collaborate with critical suppliers to increase value by over 10% across the extended value chain

Breakthrough Collaboration – Demonstrated Possibilities

Innovation PlanningSupply /

ManufacturingDistribution Operations

Selle

rB

uyer

Ty

pic

al

Va

lue

• Improved cycle

time by ↓40-60%

• Sales growth of

↑10-15%

• Decreased forecasting errors by

↓600 – 100 basis points

• Reduced Materials cost

by ↓10 – 20%

• Lower total system inventory by

↓10 – 20%

• Benefit fromtransportation synergies and savings

↓7 – 15%

• Enhance in-stock (in-store)

by ↑50 – 100 basis points

Source: A.T. Kearney Client Examples © 2014


As a result, leading organisations are more prepared to mitigate changing market dynamics and disruptive technologies

Changes that could affect Company Procurement Strategy(% Companies selecting “Fully” prepared response plans for)

81%

70% 70%63%

41%37%

24%15% 17%

7%10% 10%

Significant shifts insupply-demand

balance within thesupply industry

Economic ordemographic trends

affecting supplyindustry capacity

New processes thatsignificantly change

the types orquantities of goods

and servicesrequired

Emergence of newtechnologies and

non-traditionalsuppliers that

increase marketcompetition

Emergingtechnologies thatcould significantly

alter the companysproducts or markets

Pace of adoption ofnew technologies by

customers


Market Dynamics Disruptive Technologies



Leaders recognize the importance of risk management

Risk Management Process(% Companies)

59%

89%84%

76%

67%

17%

55%51%

31%

40%

Systematically using riskmanagement methods to

generate value

Plan formally considers thealignment of supply risk withbusiness risk tolerance and

sustainability

Plan includes scenarioanalyses to take advantage ofopportunities that may arise

Plan includes contingencyplanning to identify/mitigate

risks

Tracked benefits/losses fromsupply continuity and supply

chain risk mitigation


Strategic

Sourcing

Category

Management

Performance

Management



Leaders have more accessible, up-to-date spend data to enable advanced spend analysis

Data Access(% Companies)


Real-time Data Fully automated access Spend data refreshed monthly

52% 68% 73%

24% 39% 46%



• Procurement benefits have slowed• Use of leadership practices has shown little

improvement• Procurement influence and reach has levelled off

But since 2011, most

Procurement organizations

have hit a wall


Procurement influence over spend is levelling off

68%

71%

73%

72%

2008 2009 2010 2013

Procurement Influence over Spend(as a % of Spend)



Procurement Benefits(as a % of Influenced Spend)

Procurement benefits are returning to the historical average

4.3%

7.2%

7.9%

3.9%

2009 2010 20132008



76%

Lack of willingness to invest time, resources, or money in developing

partnerships with suppliers

72%

Lack of systems / measures to show the respective value contribution that

can arise from supplier innovation

Lack of internal capacity to successfully

leverage suppliers

Lack of internal transparency and understanding of needs

83%84%

All 2014 Participants

Barriers to Innovation(% Companies selecting “Primary” or “Secondary”)

Most companies have not yet been able to overcome internal

barriers to engaging suppliers in innovation

Harnessing supplier innovation capabilities adds expertise and technical knowledge to complement internal resources



Attention to supply risk management has dropped off since 2011

Risk Management Process(% Companies)

27%

57%52%

64%

53%

26%

61%

43%

57%

44%

Systematically using riskmanagement methods to

generate value

Plan formally considers thealignment of supply risk withbusiness risk tolerance and

sustainability

Plan includes scenarioanalyses to take advantage ofopportunities that may arise

Plan includes contingencyplanning to identify/mitigate

risks

Tracked benefits/losses fromsupply continuity and supply

chain risk mitigation

2011 2014

Strategic

Sourcing

Category

Management

Performance

Management



Although innovation is less important than cost, half of leaders have a major open innovation effort underway

Open Innovation CapabilityImportance of Innovation vs Cost Target

77%

23%

0%

57%

11%

32%

Innovation Lowerthan Cost

Innovation Equal toor Higher than

Cost

No InnovationTarget


(% Companies) (% Companies selecting “Major Effort”)

48%

20%

Note: Open Innovation refers to “actively leveraging the capabilities and expertise of others to accelerate innovation; increasing access to solicited and non-solicited inputs so that prioritized “wants” are secured”



To effectively steer procurement innovation processes, KPIs should cover all value levers along the innovation life cycle

Innovation Life CycleInnovation Value Levers along the innovation life cycle

Source: A.T. Kearney

Leading KPIs preferred to lagging KPIs – in order to drive actions and executions, and measure activities, not just results


A combination of internal procurement KPIs and supplier survey feedback are needed, focused on early interaction and ideation

Source: A.T. Kearney Client report

The Majority of procurement innovation KPIs will focus on the early stages of the innovation process:

• There is more to be gained from effective supplier interaction and ideation in early stage Portfolio management;

• Later stage idea management (during development and launch) is owned by R&D (with the ‘classical’ KPIs, e.g. time to profit, …)

Innovation Lifecycle Stage

Internal View

(Procurement KPI)

External View

(Supplier Survey KPI)

Strategy development Quality of existing category innovation strategy

Strategy presentation to suppliers

Innovation portfolio value optimisation (ideation)

Quality and range of ideas from the external market

Quality of ideation process and feedback to ideas (supplier view)

Examples for KPIs with mirrored internal : external view


Going forward,

Procurement faces two paths

with distinct implications…


• Loss of credibility• Diminished stature• Reduced impact on

company performance

Stare at the

wall?


Vault the wall?

• Strong brand • Enhanced

capabilities• Greater business

impact


Agenda

• Assessment of Excellence (AEP) in procurement 2014






If you are going to Vault the Wall, you have a choice on whether to adapt within or shape your function


Good individual leadership in companies do three things especially well

ANTICIPATE the

market dynamic

The ability to lead from

the front, anticipating

customer and other

stakeholder needs

Move to ACTION

The ability to take the

difficult decision and

focus on what matters

ALIGN the organisation

The ability to align, inspire, and enable

teams, to create coalitions for change, to

embody the organisation’s values

The Triple A

of Leadership


Change LeadershipOperational

Leadership

Inspires a change of course Keeps the show on the

road

Captures peoples’

discretionary energy

Captures peoples’

committed energy

Motivates others by appealing

to a higher value

Motivates others by

appealing to their own self-

interest

Works to change existing

boundaries

Works within existing

boundaries

…and balance two complementary, yet distinct roles


Formally, with a

regular schedule

40%

On an ad-hoc basis

40%

Very rarely

with the entire Dept16%

Never4%

Formally, with a

regular schedule

84%

On an ad-hoc basis

16%

Most leaders regularly engage with the entire Procurement department to discuss the 3-5 year vision

Typical Company’s FrequencyLeaders’ Frequency

Department-wide Discussion of Vision / Direction(% Companies)



Procurement has a formalized

roadmap/plan to enhance

human skills and capabilities

Significant active investment in

the procurement team/people

to drive improvements

Procurement routinely reviews

mix of skills to advance the

group towards procurement

excellence

Procurement has developed

specialist career tracks beyond

category expertise

HR Practices(% Companies selecting “Fully enterprise-wide”)

71% 68% 55% 32%

20% 29% 15% 7%


To deliver on these dynamics, leading organisations are more focused on advancing the capabilities of their procurement teams



39%

28%

11%

22%

24%

12%

28%

36%

Future proofing the function Moving teams to actions Leading & role modellingBuilding the next generation

Fellows of the Future Fellows(2)

Most important responsibilities of a leader(% of respondents)

1. FoF: Fellows of the Future; 2. Fellows Source: Fellows of the Future 08-10-2014

At a Felows of the Future Event in 2014, we surveyed Junior rising stars and Fellows, with interesting results


38%

8%

31%

0%

8%8%8%

0%

12%

19%

23%

15%

19%

12%

Wider peer networkCulture of risk taking & support

Atmosphere of commitment &

collaboration with team

Skills and expertise of the team

Data & systemsUnderstanding & support of seniors

Enhanced responsibilities

Fellows of the Future Fellows

Beyond your own skills, what most helps you operate successfully as a leader(% of respondents)

1. FoF: Fellows of the Future Source: Fellows of the Future 08-10-2014

Long term or short term?


33%

0%

20%

7%

40%

Leading & role modellingBuilding the next generation

Gaining support of wider org and seniors

Moving teams to actionsFuture proofing the function

Main challenges for CPOs of the future(% of respondents)

Source: Fellows of the Future - Attending Fellows, Fellows Not signed up yet and Fellows of the Future 08-10-2014

“Winning hearts and minds at Board Level”

“Adding value in such a fast paced and demanding environment. If we aren't at the top of our game, our clients will just opt to automate and outsource us”

“We need to train people to ‘see the wood for the trees’ ”

“Re-energizing teams learn from the past”

“Speed of change and keeping a strategic focus very easy to become very short term and tactical”

“Do more with a lot less”

Future proofing and network support are key challenges for future CPOs


Networking Self-confidence

Ability to Influence

RelationshipManagement

Fellows’ (aka leaders) should share more of their own informative learnings

“That confidence is half the battle”

“Be bolder. Speak up more. Be authentic and true to your own values and beliefs.”

“To have had the confidence to push ideas forward”

“That I could of pushed the boundaries a bit more and been more confident.”

“How to exercise power without antagonizing or alienating others”

“Success doesn't have to be at the detriment of others and competition doesn't have to be underhanded”

“I wish I had used my leadership abilities more fully instead of staying within the boundaries that I set myself.”

“How to handle the politics and influence upwards.”

Select quotations “biggest mistakes & what we wished we knew earlier”

Source: Fellows of the Future - Attending Fellows, Fellows Not signed up yet? and Fellows of the Future 08-10-2014

“The importance of networking”

“More advanced techniques to engage more successfully with internal non-procurement oriented colleagues who needed persuading towards smarter procurement or commercial success”

“Don’t try to do it all yourself”

“Network, network, network”

“The importance of networking at all levels”

“Success is not about procurement and supply chain theory - its about understanding people and what makes them tick.”

“Whilst technical and professional knowledge is very important, effective leadership is equally about relationship management across the whole spectrum of internal and external activities”

“Valuing the differences and variety in people”


Thank you. Further information can be found on the links below, the Podcast including insight from Fellows of the Future event

AEP overview

Podcast discussing leadership in times of change

https://www.atkearney.com/procurement/assessment-of-excellence-in-procurement-study


http://media.blubrry.com/wave_of_the_future/www.atkearneypas.com/knowledge/podcasts/The-Role-of-CPOs-In-Times-of-Change-121914.mp3




CIPS East Anglia Branch AGM March 23, 2016 … Speaker...A.T. Kearney xx/00000/Unique Identifier 3...

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