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8/3/2019 236Accenture Sourcing and Procurement Untapped Potential
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Business Process Outsourcing
Sourcing and ProcurementsUntapped PotentialLeveraging Category Managementto Achieve High Performance
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The economic fallout that manifested in2008 led global business to a dramaticbehavioral shift. Every industry felt theimpact and has applied lessons from
the past to the strategies they arebuilding for the future. To achieve highperformance in this new environment,companies will have to address theseemingly constant pressure to reducecosts while keeping their sights set onthe long-term vision.
Procurement is frequently at
the center of this conversation.
Though not always recognized
as a difference-maker inthe mainstream boardroom,
progressive companies
understand that to support
their goals, procurement
must function as a tightly-
structured, forward-thinking
and knowledgeable operation.
That means aggressively
managing costs while delivering
sustainable value to enable longterm growth.
And by applying the principles
of category management,
procurement can align its
activities with overarchingbusiness goals and priorities to
deliver both near term and long
term benefits without disrupting
business operations and supplier
relationships.
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It is category management that
allows companies to make the most
of their procurement operations.
In fact, the Accenture research
Outsourcing and Procurement Mastery
identifies high performance in
category management as one of the
key characteristics of procurement
masters.1 All companies classified as
procurement masters in this study
have implemented a centrally guided
category management structure
across organizational entities.
A recent survey2 by the Accenture
CPO Circle further validated the
emphasis for a more holistic approach
to delivering procurement value.
While the CPOs acknowledge their
performance is currently assessed
on savings and budgetary issues,
69 percent of the executives
surveyed believe that their success
should be based on the total cost
of ownership, way ahead of purely
price savings at 36 percent.
To drive performance, the procurement
executives need advanced category
management to elevate relationships
and manage their companies entire
portfolio, not just individual price
cuts. Most category managers
cover multiple categories of goods
and services, including contract
labor, facilities, travel services
and information technology. In an
outsourcing environment, the category
managers concentration on just one
or two categories gives them the
depth of knowledge necessary to
capture a great deal of insight: they
are the true experts in the buying
trends, vendor portfolio management
and pricing and quality standards.
Tapping into such valuable expertise
and experience not only empowers
companies with greater negotiating
leverage but also enables better
decision making in what to buy,
how to buy and from whom to buy.
That can open the door to long-term
planning as more beneficial contracts
and relationships allow leaders to
better align supplier and sourcing
opportunities with the needs of the
business. And by helping companies
manage their spend and supplier
portfolio with an integrated approach,
category management goes beyond
cost savings to further reduce risk,
tighten procurement control and add
strategic value.
Figure 1. Sourcing and category management is a collaborative process by working with business and function owners to
strategically maximize and sustain the delivery of category benefits.
Business
and
Functions
SuppliersCategory management Spend analysis
Opportunity assessment
Supplier performance
management
Ad hoc projects
Client Organization
Sourcing Strategic sourcing plan
Sourcing projects
Client Organization
Category directors
Category strategies
Sourcing support Auction services
Market analysis
RFx support
Technology
enablementContracts
Spend
analytics
RFx,
Auction
Contracts
1. As part of this research, Accenture sought to create and quantify a new termprocurement masteryas a way of categorizing the traits exhibited by theroughly 10 percent of companies that consistently outperform their peers or, in other words, that consistently attain the level of high performance.
2. Source: Portrait of a CPO, Accenture, 2009
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Figure 2. Identifying different approaches to managing marketing services
Understanding thebusiness requirements
The starting point for integrated
category management is the
understanding of business
requirements, including the specific
need of the purchase, the enterprise-
wide impact, and the channelsfollowed to complete the transaction.
While on some levels this is
recognized as a fundamental building
block, this step is often passed over
in favor of a transactional mindset
instead of a strategic approach.
Acquiring materials without a detailed
understanding of how purchases
are used or needed by the business,
however, is a recipe for long term
complications and inefficiencies.
Clear identification of business needs
is the thread that makes high levels of
savings possible and opens the door
to other contributions, such as better
service, access to innovation and
improved quality.
In fact, when given proper strategic
importance and shared across the
procurement function, insights
about business needs serve as the
connection between procurement
and category management processes.
If, for example, the business has
an immediate and dire need for an
upgrade in manufacturing equipment,
other imperatives such as cost and
supplier location may be de-prioritized
for a finite wave of transactions. If
this information is not communicated,
the consequences could be immediate
and significant. Only by understanding
what purchase-related demands are
business critical requirements, what
are nice to have requests and what
are essential but not core demands,
can organizations apply the most
appropriate sourcing strategy.
The positive effects of category
management also transcend
transactional needs by supplying
the company with deep knowledge
about less tangible business needs.
Delivering optimal benefits from
marketing programs, for example,
require a collaborative effort from
category managers and business
stakeholders on multiple levels. Once
the business needs are understood and
prioritized, they form a thread that
runs through all category management
and sourcing initiatives, including
establishing service or product
criteria, short listing and selecting
agencies, negotiating payment terms
to contract reviews and more.
As shown in Figure 2, the procurement
of marketing services can often be
plotted from high to low in terms of
their value (the Y axis, where value is
cost of goods and services as well as
the strategic value of the contribution)
and commoditization (the X axis).
Web hosting and print services tend
to be low in value and the product is
somewhat commoditized. As a result,
this type of procurement can be
approached with a strategy focused
predominantly on total landed cost.
Strategies that: Reduce waste
from poor processes Reduce cost of
doing business
Strategies that: Reduce waste
from poor processes Drive high performanceValue
POS
Mediabuying
Media planning
Agency creative
BTL creative
Web hosting
PR
Advertisingproduction
High
Low
Emphasis ServiceCommodity/product
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Compare these to agency creative or
media planning, both of which are
high-value contributing, customized
services that are innately relationship
and expertise based, and where
the impact on higher spend areas
(e.g. advertising production of
media buying) is highly significant.
Accordingly, a high-performance
business will employ one category
management approach for procuring
web hosting or business cards, and
another for securing agency creative
and media planning services. Low cost
drives the former while collaboration,
expertise and partnership define
the latter. Its all about informed
segmentation of needs and priorities.
Another common sticking point for
multinational budgets is funding
travel services, especially in a volatile
economy. Company mandates may call
for specific processes to be followed
that limit travel significantly, but
a high-performance business will
consider the numerous subcategories
under travel spend such as lodging,
transportation, meetings and
events. While the strategies for
some subcategories may focus on
negotiating price (i.e. accommodation
cost), others may be more concernedwith reducing overall internal demand
(i.e. restricted travel).
In order to develop a tailored,
segmented approach for different
categories or subcategories, the
category managers have to actively
work with both the stakeholders and
suppliers. They have to understand
and translate the business needs
of varied functions to a set
selection criteria and facilitate
intelligence-based procurement.
By way of example, an established
multi-national company with nearly
$US 100 million in annual air travel
spend employed a multi-pronged
policy change to better control
expenses. Working with category
managers seasoned in the travel arena,
the company segmented its business
needs and tackled each area in a
coordinated plan of attack, addressing:
Priority cross-border travel:
by raising the acceptable use of
premium class of service from six
hours to 10 hours of continuous
flight time, travelers were
disincentivized from taking long
trips unless absolutely necessary.
The move resulted in $6 million in
annual savings.
Travel avoidance: encouragingalternative means of
communications through web
meetings, video conference and
other technology-based services,
the company stressed avoiding
travel when possible and saved an
additional $21 million annually.
Preferred vendors and cost
allowances: working with category
management and purchasing, the
company increased the percentageof 14 days (or more) advance
purchases and drove travelers to
more cost friendly vendors, saving
another $8.2 million annually
through these two efforts.
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Optimizing supplierrelationshipsAs with many business elements,
category management is at its most
successful when it considers the full
picture of the business environment
externally as well as internally.
This speaks to one of the major
advantages of outsourcing suchfunctions, as companies can benefit
from the vast reservoirs of knowledge
collected by category managers
that are well-connected into their
industry and operating model, but
not overly focused on one specific
companys needs. Outsourced category
managers have immediate insight into
challenges that suppliers struggle with
and how contracts can be managed
to address their needs as well as the
needs of purchasers, thereby creating
a mutually beneficial foundation for
long term relationships.
This is most apparent during difficult
economic times, and Accentures
November 2008 CPO Circle survey3
yielded some interesting insight on the
subject. The majority of respondents
felt that economic conditions had
affected their supplier relationships
and that supplier risk had increased.
Almost 20 percent of respondentsreported that their suppliers had
not been able to meet their supplier
level or needs. Almost 15 percent
of respondents reported that their
suppliers have been put out of
business or forced to merge with
another company. And not surprisingly,
50 percent of respondents reported
that their suppliers had increased or
attempted to increase their prices
due to the strain in the
financial market.
When the supply base is under
such clear strain, the spotlight
falls on category management.
One of its most valuable goals is
to ensure that business needs are
not only laid out at the beginning
of a supplier relationship, but
are continuously refreshed in the
context of global markets and
evolving industry conditions.
Accentures procurement research also
indicated that there is a tangible ROI
for supplier relationship management
leaderscompanies that have a formal
program for managing their supply
base and seeking genuine win-win
opportunities. The report revealed
that procurement masters achieve 5
percent savings from both sourcing
and post-contract activities against
total procurement operating spend,
compared to 3 percent savings by
survey respondents who have not
achieved master status. Masters also
realize a threefold increase in benefits.
This kind of impact was enjoyed by a
leading retailer whose construction
costs were climbing due to its use
of numerous small vendors to meet
short-term changes in retail store
development. The company faced
three central challenges: too many
purchasing requests, too many
vendors, and too much paperwork
to facilitate the transactions in
a timely manner. These issues
caused significant bottlenecks
at a critical time, but internal
processes were so entrenched
that the management team was
unable to see the best solution.
By outsourcing the procurement
function, the company had enlisted
a partner that would help them
respond to the imperative need
for new processes as they battled
uncertain market conditions. Through
the outsourced solution, the retailer
adopted an electronic tendering
process that enabled it to reduce
administrative costs by up to 35
percent among a core group of key
vendors. The category expertise
from the outsourcing environment
enabled the company to build solid
relationships with these strategic
vendors and successfully embed
new savings in subsequent store
development tenders.
3. Source: Understanding the effects on procurement in a volatile market, Accenture, 2008
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Leveraging industryexpertiseMost leaders will agree that even
while cost management remains
one of the top business priorities,
simply slashing costs or prices with
suppliers will not produce long-term
success stories. Understanding the
business requirement and having aholistic approach to managing the
procurement portfolio will allow the
companies to focus on critical growth
strategies and investment, and at the
same time cultivating sustainable
relationships with vendors.
In the Accenture research Outsourcing
and Procurement Mastery, a
strong link is established between
outsourcing and procurement mastery
both of which contribute to thisgoal. Among the 600 procurement
executives surveyed, the procurement
masters have the tendency to
outsource and utilize third party
expertise more than the others.
And they achieve 39 percent higher
savings than low performances
despite running their procurement
organizations that cost half as much
to operate.
Procurement masters recognize
that these savings and efficiencies
do not materialize without a
smooth and fully formed categorymanagement function. This function
is a key component to achieving
high performance, supported by the
required industry expertise, vendor
relationships and economies of
scale for purchasing power. From an
outsourcing perspective, category
management therefore serves as a
pivotal solution for an organization to
gain the full benefits of outsourcing
procurement: optimal speed and
efficacy, access to technology and
infrastructure, short-term cost savings,
and long-term strategic direction.
Figure 3. Driving sustainable value through an integrated source-to-pay approach
Time
Benefit
Traditional strategic
sourcing
Typical current state
Ongoing category
managementRequired
future state
25 precent - 50 precent
more savings to the
bottom line than
stragetic sourcing alone
Savings will erode without an
integrated procurement strategy,
stakeholder management and
control and compliance.
Transformational source-to-pay approach
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ACC09-0384
Copyright 2009 AccentureAll rights reserved.
Accenture, its logo, and
High Performance Deliveredare trademarks of Accenture.
About Accenture Procurement
BPO Services
A leader in procurement BPO services,
Accenture helps clients across a widerange of industries on their journey
to high performance in procurement.
By supplementing their procurement
capabilities with our full suite of
source-to-pay BPO servicessupported
by leading practices, innovative tools
and our Global Delivery Network
organizations can increase their
control, generate savings, lower risk
and improve their speed to value.
About Accenture
Accenture is a global management
consulting, technology services
and outsourcing company.Combining unparalleled experience,
comprehensive capabilities across all
industries and business functions,
and extensive research on the worlds
most successful companies, Accenture
collaborates with clients to help them
become high-performance businesses
and governments. With more than
181,000 people serving clients in over
120 countries, the company generated
net revenues of US$23.39 billion for
the fiscal year ended Aug. 31, 2008.Its home page is www.accenture.com.
Reference
1. High Performance through
Procurement: Accenture research
and insights into procurement
performance mastery, 2008
2. CPO Circle is an Accenture
sponsored peer-to-peer community
that brings together senior
executives responsible for sourcing
and procurement strategy and
execution
3. The survey findings are based on
input from members of Accenture
CPO Circle. The results provide
directional information on the views
of procurement executives.
4. The Accenture research initiative
included survey results from
more than 600 procurementexecutives from Europe, Asia and
North America, as well as detailed
analysis of more than 200 of those
responses.
ACC09-0384
Copyright 2009 AccentureAll rights reserved.
Accenture, its logo, and
High Performance Deliveredare trademarks of Accenture.
About Accenture Procurement
BPO Services
A leader in procurement BPO services,
Accenture helps clients across a widerange of industries on their journey
to high performance in procurement.
By supplementing their procurement
capabilities with our full suite of
source-to-pay BPO servicessupported
by leading practices, innovative tools
and our Global Delivery Network
organizations can increase their
control, generate savings, lower risk
and improve their speed to value.
About Accenture
Accenture is a global management
consulting, technology services
and outsourcing company.Combining unparalleled experience,
comprehensive capabilities across all
industries and business functions,
and extensive research on the worlds
most successful companies, Accenture
collaborates with clients to help them
become high-performance businesses
and governments. With more than
181,000 people serving clients in over
120 countries, the company generated
net revenues of US$23.39 billion for
the fiscal year ended Aug. 31, 2008.Its home page is www.accenture.com.
Reference
1. High Performance through
Procurement: Accenture research
and insights into procurement
performance mastery, 2008
2. CPO Circle is an Accenture
sponsored peer-to-peer community
that brings together senior
executives responsible for sourcing
and procurement strategy and
execution
3. The survey findings are based on
input from members of Accenture
CPO Circle. The results provide
directional information on the views
of procurement executives.
4. The Accenture research initiative
included survey results from
more than 600 procurementexecutives from Europe, Asia and
North America, as well as detailed
analysis of more than 200 of those
responses.
11-0901
Copyright 2011 AccentureAll rights reserved.
Accenture, its logo, and
High Performance Deliveredare trademarks of Accenture.
About Accenture
Accenture is a global management
consulting, technology services
and outsourcing company, withmore than 215,000 people serving
clients in more than 120 countries.
Combining unparalleled experience,
comprehensive capabilities across all
industries and business functions,
and extensive research on the worlds
most successful companies, Accenture
collaborates with clients to help
them become high-performance
businesses and governments. The
company generated net revenues
of US$21.6 billion for the fiscalyear ended Aug. 31, 2010. Its home
page is www.accenture.com.
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