Download - The future role of procurement
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CPO Strategy 2013
&
The Future Role of Procurement
Tom Seal
Head of Research,
Procurement Leaders Network
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A Shared Direction
Build Skills &
Knowledge
Minimise
headline
prices
Minimise delivered cost
from third-party suppliers
Work with the internal
organisation to
develop optimum
supply specifications
Minimise the Total Cost
of Ownership across
the supply network and
product/service life.
Maximise the
value recognized by
the end customer.
Engage critical third-party
suppliers to develop competitive
supply and usage solutions
Integrate the end-to-end
supply network to define
and deliver customer needs
Price Cost Total Cost of Ownership Value
Co
mp
ete
nc
e
Co
op
era
tio
n
Co
llab
ora
tio
n
Co
he
ren
ce
Org
an
iza
tio
na
l M
atu
rity
Business Maturity
We all share a similar development path
Sourc
e: D
r Ian G
eorg
e
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A Century of Change
Firs
t Wo
rld W
ar
Se
co
nd W
orld
Wa
r
0
2
4
6
8
10
12
14
16
18
20
1890 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010
Deg
ree
of
Inte
gra
tio
n
Year
Ve
rtical C
on
so
lidatio
n:
Ma
ss P
roductio
n
Horiz
on
tal C
on
so
lida
tion:
Th
e C
on
glo
mera
te
Horiz
on
tal C
on
so
lida
tion
Horiz
on
tal C
on
so
lida
tion:
Th
e H
ostile
Ta
ke
ove
r
Horiz
on
tal C
on
so
lida
tion:
Th
e M
eg
a-D
ea
l
Horizontal Integration = Internal Complexity
Outsourcing = External Complexity
Horizontal
Integration
Vertical
Integration
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Procurement’s Progress
0
10
20
30
40
50
60
70
80
90
100
0 10 20 30 40 50 60 70 80 90 100% o
f S
pen
d w
ith
a C
ate
go
ry P
lan
% Spend Under Management
65%
52%
72%
56%
Spend underManagement
Spend under ExecutedCategory Strategies
2010
2011
Maturity Indicators
We gain control of
additional spending far
more readily than we can
execute category plans
It will take a decade to
complete what we have
started
Relationship Between
Category Strategies and Spend
Under Management
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2
3
4
< 33% Spend UnderManagement
34% - 65% SpendUnder Management
> 66% Spend UnderManagement
A Broader Role
High
Priority
Priority
Not a
Priority
Priorities Evolve with Functional Maturity
We only ever take on more responsibilities
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Investment
€ 0
€ 5.000.000
€ 10.000.000
€ 15.000.000
€ 20.000.000
€ 25.000.000
51-60% 61-70% 71-80% 81-90% 91-100%
% Spend Under Management
Sp
en
d p
er
Bu
ye
r
Spend per Buyer
We must grow our teams to fulfill our new
responsibilities
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0,00%
10,00%
20,00%
30,00%
40,00%
50,00%
60,00%
Technology Investment
Strategic sourcing tops the list
On which technologies are you most focused?
(ranking question, chart shows ranks 1 – 3)
Ranked 1
Ranked 2
Ranked 3
Source: SAP, 2011
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Changing Focus
-5 -4 -3 -2 -1 1 2 3 4 5
Stakeholder management
Supplier performance management
Sourcing activities
Cost management
Staff development
Supplier risk management
SRM
Innovation
We must grow our teams to fulfill our new
responsibilities
Change in resource prioritization from 2012 to 2017
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Innovation
How do you encourage
innovation in your supply
chain?
Procurement can't
significantly influence
innovation (3%)
We rely on
suppliers &
potential
suppliers to
bring us
innovation
(25%)
Innovation is
something we can
deliver through
processes (40%)
We rely on
entrepreneurial
behaviour to
deliver
innovation
(32%)
No consensus yet on
the best approach to
supply innovation
• Innovation is seen as being the
most powerful way of
delivering “value”
• Those who can deliver it are
seen as rare and talented
• It is notoriously difficult to
encourage innovation
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2020 Mega Trends
Global Mega Trend What it Means Phase
Socially Responsible
Corporations
Consumers and investors will associate themselves with
organisations that support their ethical ideals.
Early
The Rise of Asia The transition from low cost markets to key customers. Mid
Persistent Insecurity Individuals and corporations will perceive a constant risk
of cyber attack and terrorism.
Mid
Scarcity of Natural
Resources
We will move beyond straight forward inflation, the supply
of critical resources will no longer be a question of money.
Early
Diversification of
Offering
Companies will provide ever more personal and
customised services to their customers.
Early
Leading From The
Middle
In 2020 middle managers will take over from CEOs as the
dominant force.
Early
Localisation As emerging markets become critical customers we need
to tailor products to many geographies.
Mid
We believe it is unlikely that a mega trend will be
affecting us in 2020 that we can’t observe to some
extent in 2012.
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5 Forces Driving Green Procurement
Consumers demand green
products and services.
Organisations market
their green offerings to
consumers.
Regulations force
companies to change
their practices to
protect the
environment
Buying
Organization Consumers
1
2
Government
3
Suppliers
4
5
Procurement places
environmental demands
on suppliers
Suppliers influence their
customers
We will all be influenced differently
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Four “Green” Methods
Difficulty
Re-engineer and educate Switch
Make obsolete Sponsor
• Green alternatives already available
• Significant business change required
• Competitive pressure to green
Cars
• No substitute yet available
• May require consumer education
• A problem best solved as a
community • Environmental demand management
• Communicate policies/empower
Sea
Freight
Packaging
Water
coolers
Org
an
isa
tio
n’s
En
vir
on
me
nta
l Im
pa
ct
Procurement have the skills required to lead CSR
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Organizational Design
0,00%
10,00%
20,00%
30,00%
40,00%
50,00%
60,00%
Centralized Center-Led Decentralized Matrix
2011
2013
How is your procurement organization structured
today and in two years’ time?
• Centralization remains a strong trend
• Decentralized nearly obsolete
Source: SAP, 2011
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Category Management
Supplier Supplier Supplier
Procurement Procurement Procurement
Production Production Production
Marketing Marketing Marketing
Sales Sales Sales
Business
Unit
Business
Unit
Business
Unit
Supplier Supplier
Procurement Procurement
Production Production
Marketing Marketing
Sales Sales
Tier X Tier X
Business
Unit
Business
Unit
Category Management Value Chain Management
Supplier rationalization
Category consolidation
Standardization
Leveraging scale Transparency
Profit not cost
Capitalization of position in the supply
chain
Category management will evolve
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56% 25%
16%
3%
It has made procurement more of a priority
It has made procurement more of a priority and hasreceived additional resources
It has not affected other functions' attitudetowards procurement
It has been a threat to procurement in its currentform
Procurement’s Profile
How has the recession impacted your
procurement function?
Has procurement damaged it’s reputation?
• The function raised it’s profile
over the last 3 years
• Relationships have been built,
but may have reinforced
negative procurement
stereotypes
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Actions For 2013
Innovation:
Take the next step in capitalizing on ideas from the
supplier base
CSR:
Segment & prioritize purchases and/or suppliers
Organizational Design:
Experiment with business unit specialists where
category management benefits are tailing off