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Author: A.T. Kearney Presenter: Arie Ben Shmali, Mashik
July 1, 2014
Procurement Conference
Measuring the value of Procurement to become the star
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Feel free to contact us to learn more
■ Mr. Jan Van Der Oord, Partner, A.T. Kearney, [email protected]
■ Mr. Arie Ben Shmali, Mashik, [email protected]
■ Mr. Zlatko Bazianec, Director, A.T. Kearney, [email protected]
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The 2014 Assessment of Excellence in Procurement is the eighth study in a series that started in 1992
Research Objectives
How has Procurement progressed since 2011?
How ready is Procurement for the future?
What can we learn from leading Procurement organizations?
Leader Identification
Over 800 elements benchmarked across 33 leadership practices covering 8 dimensions of Procurement
Selected and verified leaders in Americas, EMEA and Asia-Pacific across all key industries based on:
– Top overall scores
– Strong, world-class performance in at least 3 dimensions
– Above average overall performance and ROSMA score
Participants
Almost 200 companies have submitted responses
Survey remains open; tracking to 500+ participation
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• Yes, Procurement is accepted internally as important and able to deliver additional value to the company
• As Procurement is becoming more integrated and complex, the Procurement Plan becomes crucial
• Leaders measure the Value of Procurement
• Procurement’s Brand Challenge is still wide open, build it up
• Opportunity can come only after you align all the rules with your peer stakeholders
• What and How? Play the Scorekeepers Game
• The best practice is to connect all scores into ROSMA model to be transparent about overall performance of your Procurement
• We have 5 games to win to be recognized for our performance and move ahead of other benchmarks in the Procurement championship
Main messages of today
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Yes, Procurement is accepted internally as important and able to deliver additional value to the company
■ Procurement needs to be an integrated part of every company’s strategy.
■ Materials and services account for 60-80% of the total cost and supply markets are crucial to drive innovation and achieve growth ambitions.
■ Procurement is top of the spear in this continues effort for cost control and profitability.
■ Yet, having a ‘seat at the table’ is still the main battle procurement leaders have to fight.
■ How to make this now finally happen?
• We recommend Procurement to plan all opportunities, align them with internal stakeholders and make the performance transparent…in particular the benefits
Position yourselves as what you are: valuable contributor to profitability!
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Procurement Plans are becoming more and more complex
Hot topics addressed by specific programs and capability building
Source: A.T. Kearney
Procurement as integrated part of the company strategy
Expanding scope of procurement Raising the bar of the team
Top supplier management becoming a norm
Ongoing quest for response to commodity volatility
Risk management
Continuous performance management and transparency
Demand management in focus…challenging the internal business customers
Extensive use of analytics Recognition of the need for capability building
Sustainability as a new factor in procurement decisions
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Your Procurement Plan 2015 makes all planned objectives transparent for all stakeholders
PMO activity
Close urgent capability gaps
Strategic sourcing Wave 1
Strategic sourcing Wave 2
Superior IT development path
Allocate resources based on
opportunities
Continuous alignment with the
business stakeholders
Year 1
Quick wins
Year 2
Strategic sourcing Wave 3
Get more out of top suppliers
Align plan and expectations with business stakeholders
Plan your contribution in financial and strategic objectives
Provide adequate Information system support
Mobilize procurement team
Consolidate IT and enable
Global spend transparency
Quick wins out of
TOP supplier
Continuous growth program
1
2
3
4
5
Global SRM TOP
Strategic suppliers
Source: A.T. Kearney
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Leaders measure the Value of Procurement
■ Demonstrating the value of the procurement team and our athletes
■ Clarifying performance expectations...."what's measured gets done"
■ Process and resource performance tracking
■ Value and needs based justification for resource mix, levels and investments
■ Benchmarking…..”how are we doing? can we do better?”
■ ….
No need to keep procurement the company’s best kept secret…
Source: A.T. Kearney
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Procurement’s Brand Challenge is still wide open, build it up
■ The “CFO Community” at large is the ultimate scorekeeper…. they are your prime audience to convince with facts and to market your successes
■ Procurement has often not established the full understanding, support or confidence with the CFO Community that is needed to be effective and respected
■ We assessed the CFO Community’s perceptions and perspectives on a dozen key questions about the measurement and performance of procurement...”the voice of the Scorekeepers”
Procurement’s “brand positioning” with scorekeepers is not good enough
Source: A.T. Kearney
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Opportunity can come only after you align all the rules with your peer stakeholders
Rules - aligning with the Scorekeeper's scoring system is required to be in the league
Game - embracing and driving results against the Scorekeeper's scorecard creates brand value, credibility, broadens recognition and enables the ability to access, develop and retain best athletes
Bonus - extending the Scorekeeper's awareness of the value from procurement on top of success against their scorecard
Source: A.T. Kearney
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What and How? Play the Scorekeepers Game and establish Procurement Scorecard and ROSMA
Balanced Scorecard
Procurement
Scorecard
and ROSMA
Value
Management
Framework (e.g. EVA)
Source: A.T. Kearney
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Procurement Scorecard example gives many important elements to track and focus on
Financial Perspective
YOY financial results delivered (e.g. contribution to EBITDA)
Productivity or EVA of procurement resources
Business specific financial metrics (e.g. PPV, working capital, etc.)
…..
Customer of Procurement Perspective
Supplier enabled innovation
Advantaged customer service levels
Diversity spend/agenda
….
Internal Process Perspective
Effective spend coverage
Project management excellence (e.g. cycle times, results, quality)
CFO validated results and compliance
Productivity vs best practices
…
Learning & Growth Perspective
“Best place to work and learn”
Procurement as a valued rotation
Best athlete program success
Methods/capabilities mastery
……
Cascade the CPO scorecard elements down to the individual procurement athletes and connect it to ROSMA
Source: A.T. Kearney
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The best practice is to connect all scores into ROSMA model to be transparent about overall performance of your Procurement
■ Return on Supply Management AssetsSM developed by A.T. Kearney
■ Framework for steering Procurement’s performance
■ Logic offering insight into procurement value drivers
■ Productivity measure relating hard financial results to the invested assets in Procurement
■ Change management tool for establishing a “results mindset” in the organization
What is ROSMASM?
ROSMA©
Financial results delivered
Invested supply mgmt. assets
Spend cove-rage
Velo-city
Cate-gory
yields
Com-pli-
ance
Addi-tional bene-
fits
Period costs
Struc-tural
invest-ment
Various sub-drivers (e.g., spend governance, sourcing strategies, …)
> 500 best practices
…
Source: A.T. Kearney
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Spend Coverage
Velocity Category Yields
Compliance Additional Benefits
Invested Supply Management Assets
• Total external expenditures influenced by procurement
• Amount of external expenditures sourced by Procurement
• Number of sourcing events
• Yield of spend sourced by
Direct
Indirect
CAPEX
Goods for Resale
• % of addressed spend sourced by procurement that complied with the new agreements over last 2 years
• Procurement has the full mandate to explore additional value creation opp. (innovation, profit inc., etc.)
• Cost of procurement as % of influenced spend
• Spend influenced by Proc./ # of Procurement FTE
94% 85% & 2145 8.2% 90% 77% 0.8% & $32m
72% 64% & 880 6.4% 79% 38% 1.1% & $26m
+31% +28% +14% +19%
Indicators
Leaders
Followers
Average
Leaders 7.3
Followers 4.6
+104% +144% +33%
ROSMA© Benchmark
Industries:
Is your Return on Supply Management Assets (ROSMA®) on par with Leaders‘? Here are some benchmarks
Source: A.T. Kearney
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Let’s demonstrate a new level of performance to the scorekeepers
Source: A.T. Kearney
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We have 5 games to win to eliminate constrains and move ahead of other benchmarks in the Procurement championship
■ Win #1 – Joining the Championship…. enroll in the Scorekeeper’s Game…. establish a common basis for credibility “in the conversations”
■ Win #2 – Demonstrating Improvement…. chalk up some scores with the Scorekeeper’s rules and metrics
■ Win #3 – Names in Lights…. attract, develop and showcase your trending good, better and best athletes
■ Win #4 – Championship Recognition…. enjoy the lift of the improved brand positioning of procurement…. full seat at the table for the Procurement team
■ Win #5 – Final four and Championships….. benchmarked leadership, celebrated team and players…
Source: A.T. Kearney
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Let’s win the game and put procurement athletes up in lights!
Source: A.T. Kearney