Game Changing in
Procurement
How the global best make procurement
as a strategic value driver
Johannesburg, 12 August 2014
Johan Smith
Dinesh Kumar
Sven Linden
1© 2014 KPMG South Africa, a subsidiary of KPMG International and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity.
All rights reserved.
Procurement is a corporate function that C-level is increasingly recognising
as a value driver and essential to improve competitive position
■ Shortage of qualified employees in developed markets
■ Continuous development existing staff
■ Global war for young talents
Era of
Sustainability
Increasing
Volatility
Digital
Connectivity
New World
Order
Urbanization
Demographic
Change
■ Decrease of remaining lifetime of conventional resources
■ Compliance to stronger security and environment protection
requirements
■ Continuous cost pressure due to tightened environment
■ Outsourcing 2.0 and prof. mgmt of non-core competencies
■ Extension of cost reduction levers beyond
procurement function & corporate boundaries
■ Industrialisation and digitalisation of the supply chain
■ Better implementing technology to improve procurement
efficiency and supply agility
(e.g. Crowd Sourcing)
■ Shift of global demand and procurement focus
■ Global procurement with multi-national supplier networks
■ Continuous market monitoring & real time transparency
■ Shift from supply chain management to contract and risk
management
MEGATRENDS CHALLENGES FOR PROCUREMENT
PEOPLE
GLOBAL INTEGRATION
EFFICIENCY
TRANSPARENCY
COMPLIANCE
COST
people will live on the earth in 2030. The
average age will increase by 5.1 years.
8,300,000,000
“We are clearly in a state of economic uncertainty.”
--- David Rosenberg*
Global power provided by renewable
energy by 2030 will account for 13%
of global GDP in 2030 will be
generated from the BRIC countries.
36%
of worldwide population
will live in urban areas.
~60%
Within last 4 years, average
time spent online per day by
US adults has increased of 66%
Global Megatrends and the Impact on Procurement
2© 2014 KPMG South Africa, a subsidiary of KPMG International and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity.
All rights reserved.
KPMG study has shown a huge gap towards future excellence by most
companies despite of recognizing the strategic importance of supply chain
and procurement.
Sources: KPMG Power of Procurement study 2014; CAPS Research
Key facts of current Supply Chain & Procurement
Do not just report on Value.
Provide meaningful evidence.
Do not just focus on the cost of Talent.
Think about the ROI.
Do not just be aware of Risk.
Mitigate with a comprehensive approach.
Do not just settle for the status quo.
Use Technology to expand your capabilities.
3rd party spend normally
Accounts for 40-80%of annual revenue. but…
40% of surveyed
companies do not report benefits other than savings.
but…
>55% of surveyed
companies believe they are facing possible organizational risks
60% of do not have
a systematic procurement-related risk breakdown.
Utilizing innovative technology
typically brings 5-15%of savings achievement.
but…
Less than 30% of spendis covered by e-procurement tools in ~70% of surveyed companies.
but…
~80% of global organizations
have experienced talent shortage in supply and procurement function
Almost 80% of them don’t
benchmark procurement training needs against other function
3© 2014 KPMG South Africa, a subsidiary of KPMG International and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity.
All rights reserved.
Top-CPO’s Agenda
Industry leaders are striving to manage the “next S-Curve” with a strong
focus on achieving the execution excellence in six areas.
IMPACT ON CORPORATE
FINANCIAL PERFORMANCE
COMPETITIVE LEADERSHIP THROUGH
TOTAL PROCUREMENT TRANSPARENCY
Real-Time
Spend Monitoring
Data
Transparency
Smart
BPO
S2P-
Process Model
Demand
Management
Budget
Effectiveness
Category
Management
Procurement
Alliances
Central
Procurement
Tax Efficient
Procurement
Network
Global ProcurementAcademies
Training
Top CPO’s Agenda
Procurement is a corporate function that C-level recognises more and more
as value driver and essential to improve competitive position
4© 2014 KPMG South Africa, a subsidiary of KPMG International and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity.
All rights reserved.
From “part transparency” to “global real-time-spend-monitoring” – that’s
the journey global forerunners have to make
ApproachGood Practice Example
Conceptual
design
Data
extraction
and analysis
System and
process
architecture
Monitoring
and reporting
Visualisation
ManualNotification
Degree of Automation
Data
Se
cu
rity
Tracking
Evolving to the next level of data management
can significantly improve data security and the
degree of automationKey challenges
Consolidation of spend data
from various systems
Ensuring uniform specifications
in standardized form
Timeliness and quality of data
Securing compliance across
sourcing process
Results
Electronic
Componets
Company
33% increase of
spend under mgmt.
Sector: Engineering
Revenue: 78.3 Bn.€
Employee: 405,000
Real-Time Spend Monitoring
5© 2014 KPMG South Africa, a subsidiary of KPMG International and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity.
All rights reserved.
Limited capabilities and a strong focus on value creation lead to “smart
BPO” by specifically addressing the internal and future requirements
ApproachGood Practice Example
Internal
demand
analysis
Criteria setting
and vendor
selection
Supply
market
analysis
Roll-out
of BPO
Best-fit instead of
Best-practice –
Choosing the BPO
model that can best
meet your internal
requirement!
eProcurement Requirement
Process
Requisition / Release
Order Creation
Order Confirmation
/ Tracking
Receipt / Performance
…
Workflow Management
Reporting
Category Demand
Category A Category B Category C Category D …
European
Top Airline
Key challenges
Focusing on core business
under cost pressure
Identifying best-fit vendors to
deliver maximum value
Achieve cost cutting while main-
taining customer satisfaction
Preventing information leakage
and ensuring data security
Results
Forecasted savings
of up to ~150 Mn.€
Sector: Airlines
Revenue: >30.0 Bn.€
Employee: >118,000
Smart BPO
European
Top Airline
6© 2014 KPMG South Africa, a subsidiary of KPMG International and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity.
All rights reserved.
To bridge the gap between Procurement and Finance, a holistic
procurement performance management must include financial as well as
non-financial KPIs
ApproachGood Practice Example
Understand
budgeting
process
Implement IT-
supported
reporting
Define savings
measurement
methodology
Measure
savings and
adapt budget
Leading
Logistics
company
From reported savings to
P&L visible savings.
Pe
rfo
rma
nc
e M
on
ito
rin
g
BU 1
BU 2
…
BU n
Spend Transparency
Procure-ment
FinanceBusiness
UnitsBudget / Financial
KPIs
Non-Financial
KPIs
Cost Reduction
Cost Avoidance
Tied Capital
Category 1
Category 2
Category n
Revenue Ratio
…
Frame Contract Ratio
eProcurement Ratio
Maverick Buying
…
Category 1
Category 2
Category n
Planning
MeasuringReporting
Key challenges
Clear understanding of interface
functions for procurement
Early integration of procurement
as demand challenger
Cross-functional cooperation
Impact modeling of purchasing
decisions
Results
36 Mn.€ of savings
with P&L effect
Sector: Engineering
Revenue: 1.0 Bn.€
Employee: 4,000
Budget Effectiveness
7© 2014 KPMG South Africa, a subsidiary of KPMG International and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity.
All rights reserved.
When critical mass of categories cannot be reached independently,
Procurement Alliances are the way to achieve best-in-class prices
ApproachGood Practice Example
Define
category
scope
Feasibility
study
Define
cooperation
model
Alliance
execution
Become an A-client by
bundling spend volume
with other leading
companies.
Approach has been proved
in telecom industry and
are being discussed also in
FS and utility sectors.Critical Mass to Ensure Price Benefits
Ad
de
d V
alu
e t
o t
he
Co
mp
an
y
Procurement
Alliance
Outsourcing
Global
Demand
Mgmt.
Key challenges
Increasing pressures on profit
margin and costs
Consolidation of supplier
markets weakens bargaining
power of telecom firms
Forced to increase critical
market volume
Results
1.3 Bn.€ savings
within 3 years
Sector: Telecommunications
Spend under management:
~13.0 Bn.€
Procurement Alliances
8© 2014 KPMG South Africa, a subsidiary of KPMG International and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity.
All rights reserved.
Connecting global sourcing teams and bundling external spend within a
procurement company in a low tax regime delivers both cost efficiency
and risk optimisation
ApproachGood Practice Example
Centralize
procurement
Localize
procurement
entity & define
transfer pricing
Define supply
market
strategy
Execute
sourcing
process
Top 3 Agri-
machinery OEM
Key challenges
Transparency on global flow of
both materials and cash
Customer and demand shift to
emerging markets
Mitigation of supply and
currency risk in global network
Maximum leverage of Procure-
ment added value
Results
Centralized hub in
Switzerland with
millions tax benefits
Sector: Off-highway OEM
Revenue: >10.7 Bn.US$
Employee: >17,300
Bundling of procurement and market know-how
within Procurement Company
Local Unit
Supplier
Local Unit
Supplier
Procurement
CompanyTax rate
17.9%
Tax rate
40%
Local Unit
Supplier
Local Unit
Supplier
Tax rate
25%
Tax Efficient Procurement Network
9© 2014 KPMG South Africa, a subsidiary of KPMG International and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity.
All rights reserved.
Client-specific qualification programs based on structured analysis and
developed on a customized training catalogue guarantees sustainable
Return on Education
ApproachGood Practice Example
A vast education repository
set the basis for designing
client-specific and
relevant content, methods
and tools
Role profilingTraining
curriculum
Skill
assessment
Training
roll out
Leading Airline
Manaufacting
Company
Key challenges
Changing market demand on
procurement qualifications
Transparency on knowledge
gap
Global standard with local
specification being considered
Measurable returns on training
investment
Results
~1,200 participant
days per year
Sector: Aerospace
Revenue: 33.0 Bn.€
Employee: 63,000
Procurement Academies
10© 2014 KPMG South Africa, a subsidiary of KPMG International and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity.
All rights reserved.
To develop a leading practice Procurement organisation and to bring it to
life, five key success factors have to be considered
KEY SUCCESS FACTORS
Alignment with corporate and
functional strategies to ensure
stakeholder commitment
Achieving group-wide in-depth
transparency to guarantee real-
time performance monitoring
Leveraging potential of today’s
technology to deliver maximum
process efficiency
Implementing best-fit structure
to exploring organisation as a
global value driver
Proactive change management
and people enablement to
match future skills demand
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Key Lessons Learned
11© 2014 KPMG South Africa, a subsidiary of KPMG International and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity.
All rights reserved.
KPMG has the best-fit skill set to support companies to secure sustainable
competitive leadership by implementing the future of procurement.
5 Reasons for KPMG – Added value for Airbus
Global Footprint
Over 450 procurement consultants
globally.
Number of SS&P consultants
5+ 80+60+40+20+10+
North America
KPMG 85 +
UK & Ireland
KPMG 75+
Mainland Europe
KPMG 170+
South America
KPMG 45+
India
KPMG 20+
China
KPMG 10+
Australia
KPMG 32+
South Africa
KPMG 5+
Nordics
KPMG 10+
KPMG has a track record of more than 3.000 procurement
projects.
>100 of
In-depth
Procurement
Expertise
Strong Focus on
Execution
Linking local team with global best
practices to drive consistent and
accelerated execution.
Specialist for
People
Development
Specialist in skill management and
corporate procurement academies.
Leading Expertise
within Industry
Our sound expertise is trusted by many big players
within all relevant industries, cross
the world.
Sven LindenPartner
Head Center of Excellence – Procurement Advisory
SQUAIRE / Am Flughafen Phone +49 (0) 175 9395023D-60549 [email protected]
KPMG Aktiengesellschaft Wirtschaftsprüfungsgesellschaft - Member of KPMG International
© 2014 KPMG South Africa, a subsidiary of KPMG International and a
member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative ("KPMG International"),
a Swiss entity.
All rights reserved.
Dinesh KumarAssociate DirectorSupply Chain & Procurement (Management Consulting)
1 Albany Road, Parktown Phone +27 (0) 827 178725South Africa [email protected]
KPMG Services (Proprietary) Limited- Member of KPMG International
Johan SmithPartnerManagement Consulting (Strategy & Operations)
1 Albany Road, Parktown Phone +27 (0) 825 521186South Africa [email protected]
KPMG Services (Proprietary) Limited- Member of KPMG International