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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

Print

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




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



and outsourcing company.Combining unparalleled experience,





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




About Accenture



and outsourcing company, withmore than 215,000 people serving

clients in more than 120 countries.

Combining unparalleled experience,





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.