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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



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



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



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



Limited capabilities and a strong focus on value creation lead to “smart

BPO” by specifically addressing the internal and future requirements


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



To bridge the gap between Procurement and Finance, a holistic

procurement performance management must include financial as well as

non-financial KPIs


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



When critical mass of categories cannot be reached independently,

Procurement Alliances are the way to achieve best-in-class prices


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



Connecting global sourcing teams and bundling external spend within a

procurement company in a low tax regime delivers both cost efficiency

and risk optimisation


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



Client-specific qualification programs based on structured analysis and

developed on a customized training catalogue guarantees sustainable

Return on Education


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



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

?

??

?

??

??

Key Lessons Learned



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.


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

game changing in procurement - blog kpmg · pdf filegame changing in procurement ... best-fit...

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