the role of procurement in an enterprise wide transformation … events/2018 nz conference... ·...

The Role of Procurement in an enterprise wide transformation programme,,

Fit for Growth

CIPS Procurement Conference – March 2018Peter Chambers – PwC Director, Procurement and Supply Chain

The need for transformation

3

Welcome to the new normal!In today’s globally interconnected, digitally disintermediated market, there is no safe harbour when it comes to the bottom line

Sluggish global growth

Availability of key skills

Exchange rate volatility

Cyber threats@

Over-regulation

Geopolitical uncertainty

Populism

Speed of technological change

Increasing tax burden

Terrorism

Changing consumer behaviour

Source: PwC, 21ST Annual Global CEO Survey

CEOs are optimistic about global growth prospects2018 saw the highest-ever jump to the highest-ever level of CEO optimism regarding global growth prospects over the next 12 months

4Source: PwC, 21ST Annual Global CEO Survey

Over 70% of companies are not fit for future growth“The secret to unlocking growth is to make deliberate choices not only about what to cut, but also about where to invest” - Vinay Couto, co-author of Fit for Growth

83%

81%

75%

81%

78%

66%

“Our strategy is not well understood across the organisation”

“No clear consequences for managers who fail to support the company’s strategic objectives”

“Funding for critical initiatives gets channelled in an ad hoc / informal manner”

“The way management allocates its time is not driven by strategic objectives”

“Our company does not have the capabilities required to win”

“Low-priority initiatives get too much funding”

5Source: Fit for Growth – A Guide to Strategic Cost Cutting, Restructuring, and Renewal, V.Couto, J.Plansky, D.Caglar


Invest in your strategy to be fit for future growthFit for Growth companies put their money where their strategy is which allows them to enjoy increased returns


Linking strategy to execution to be fit for future growthFit for Growth companies effectively link strategy to execution

Aligned and engaged organisation

- Make the right decisions, faster

- Align incentives with strategy

- Build aligned culture

“Smart” resource management

- Invest in areas that really matter

- Run lean in areas that matter less

- Don’t wait for red flags to take action

Clear strategy and strong capabilities

- Clearly understand how you make money in

your business

- Build world-beating capabilities to create value

Fit for Growth

https://youtu.be/gq33c93O_6Y

9

Fit for Growth in a nutshellFit for Growth: A guide to strategic cost cutting, restructuring, and renewal

https://youtu.be/gq33c93O_6Y

Company’s strategyClear articulation of the capabilities that really matter to strategy and ability to win in the market

Enable change and cultural evolutionCreate an environment and evolve the culture to embed

and sustain change in the organisation’s DNA

Focus on differentiating

capabilities

Invest in sustainable and

differentiated capabilities funded by improvements in

the cost structure

Align coststructure

Develop a clear cross-organisational cost agenda, making deliberate choices from the front line to the

back office

Reorganisefor growth

Implement an organisation model,

processes, and systems that unlock potential and

agility for growth

Release funds

Identify higher value-

added priorities for investment

Enable and sustain

1 2 3

4


Fit for Growth is a strategic approach to cost managementFit for Growth connects choices about costs, investment in capabilities and organisational and cultural evolution

What do we do?Business portfolio and capability choices

Where do we do it?

Organisationand location

How (and how well) do we do it?

Operationalexcellence

Wh

at

Wh

er

eH

ow

Value

Portfoliorationalisation

Business operating model

Processexcellence

Spans and layers

DigitisationStrategic supply

management

Outsourcing Footprintoptimisation

Zero-basing capabilities

11

What does a Fit for Growth transformation look like?Find the funds for reinvestment by questioning what you do, where you do it, and how you do it

Fit for Growth is about enabling growth, not just cutting costs

Philosophy

Benchmark-driven Strategy-back, protects good costs

Methodology

Applies cost levers broadly Tailors cost levers to cut bad costs

Organisationlinkage

Focuses on structure Applies holistic organisation design

Change management

Top-down communicationsCulture-led, focused on critical few behaviors

Sustainability

Afterthought, “crash-diet” Integral, “change lifestyle”

Cost reduction approach Fit for Growth approach


What makes the Fit for Growth approach uniqueThis is different from what companies normally do

The role of procurement

Business operating

model

Footprint optimisation

OutsourcingSpans and layers

Digitisation

Portfolio rationalisation

Cost reduction

levers

Zero-basing capabilities

Process excellence

Strategic supply

management

Extract more value from your purchasesStrategic supply management is a holistic approach that seeks to maximise value in procurement rather than just “optimising the buy.” It addresses all price, cost, demand, and value levers for non-labour spending.

9 cost reduction levers in a Fit for Growth Transformation


How does procurement fit in?The procurement function is instrumental in driving strategic supply management

Price Levers Value LeversDemand LeversCost Levers

More Advanced

• Increase spend coverage under contract

• Understand basic cost driver insights for products/services

• Conduct tenders/auctions

• Identify credible threats to incumbent supply base, e.g. “designed-in” competition

• Set multi-year savings targets

• Optimise timing of the buy for traded commodities

• Rationalise supplier base

• Switch to cost advantaged suppliers

• Reduce internal process burden to manage supply & transaction flow

• Manage drivers of total cost of ownership to reduce internal costs

• Streamline logistics at supplier interface

• Reduce consumption

• Identify functional equivalent products/services and modify specifications

• Use industry standards instead of custom designed parts/products

• Standardise according to overall product architecture

• Switch to substitute technologies with desired functionality

• Leverage supplier innovation capabilities to redesignproducts/services

• Improve quality and sustainability, leveraging supplier innovation

• Reduce supply risk

• Restructure supply base to optimise total delivered value

• Balance appropriate make/buy/outsource decisions

• Influence product mix to favour products with greater supplier base leverage

• Establish supplier development set against “should be” costand performance targets

Low

Medium High

De

pth

of

Ac

tiv

ity

Types of Levers

Less Advanced

More AdvancedLess Advanced

Low maturity Medium maturity High maturity

14

Procurement can deliver strategic value by leveraging the available “value levers”

Procurement is an enabler for innovation and should use these levers to contribute strategically to the organisation

Ideas

Market-ready

products or services

Innovations

What is innovation sourcing?

What can be achieved by innovation sourcing?

• Co-creating IP

• Influencing product or service portfolio decisions

• Disruptive cost structures

What is the role of procurement within innovation sourcing and supplier partnering?

Organisation

Procurement adds value to the business by detecting innovations in supply markets

Suppliers Customers

• Value generating functionality or capabilities

• Partnering for growth

15

Procurement can deliver added value by advising on sourcing innovation and supplier partnering

16

Strategic supply management pitfalls to avoid

Assuming that “one size fits all”: Every category faces unique challenges. Tailor your sourcing approach to the specific economics and supply market dynamics

STOP

Honouring sacred cows: Every category should be in play, and all expenditures can be addressed over the appropriate time horizon

STOP

Seeking control: Procurement should offer support and collaboration (rather than control) to functional departments, with a mutual goal of optimising value

STOP

Chasing every last dollar: Focus resources on larger categories where strategic sourcing will pay big dividends

STOP

Overlooking change management: Strategic supply management initiatives stall without a paradigm shift and the associated effective change management

STOP

Focusing only on cost: Construct incentive schemes to guarantee minimum required performance and actively mitigate risks

STOP

Case study

19

1

• Costs of service, equipment and finance grew at a faster pace than revenue and market share

• Became increasingly difficult to remove costs

Cost

2

• The executive team developed a bold strategy for 2020

• Six strategic challenges were identified which required an organisation wide transformation to overcome

Desired Strategy

3

• Sustainability was imperative

• Cost reduction was key however it needed to be undertaken in a broader context which incorporates customer ease of doing business

Sustainability

4

• The industry is known for the rife competitive tension, regulatory change and challenges

Industry

An organisation wide transformation programme was needed to overcome the barriers while developing capability across the firm

18

Our client faced significant barriers to achieving their growth objectives

Invest in growth

Transform cost structure

Reorganise for purpose

Release funds

Invest in higher value-added

priorities

Enable & sustain

reductions

Cut costs & grow stronger

Clear strategy linked to business

plans

Clarity on strategy

Comprehensive

cost transformation

Align cultureAccelerate

change

19

We assessed opportunities firm wide within the client’s strategy using the Fit for Growth framework

Sources: Strategy& analysis

21

Business / ProductPortfolio

Customer Value

Proposition

Procurement and Sourcing

Outsourcing & Offshoring

AutomationNetwork

Deployment & Operation

Labour Costs

Channel Footprint

PlanningProcess

Optimisation, Assurance

Operating systems/practices

Operating policies/

procedures

Strategic Way to Play

Operating Model

Strategic / Portfolio Choices

“What Do We Do?”Change what is done

Operating Model / Org Choices

“How Do We Do It?”Change how service and operations activities are

performed

Operational / Execution Choices

“How Well Do We Do It?”

Improve efficiency of activities; change how task and support

activities are performed

Cost reduction opportunity

20

Identified focus areas within the organisationProcurement was identified as strategically important to the Fit for Growth project objectives

TrackPlan ImplementValidateRealised

valueIdea

Discovery

• Initial data analysis identified areas of focus

• Ideation workshops were held to flesh out opportunities

• Identified opportunities were validated to determine feasibility and size

• Business case and implementation plan was developed

• SLT approval

• Procurement team implemented various initiatives

• Ongoing tracking, monitoring and reporting

• Weekly check held in the project “Hub”

21

Procurement freed up significant value for reinvestment into the organisation’s strategic objectives

Procurement freed up “bad costs” for reinvestment into “good costs”

22

There were many other benefits for the procurement team from the enterprise wide transformation

Higherprofile

Strategic focus

Fewer sacred cows

Further investment

Team upskilling

Improved maturity

Clear future plan

Total value focus

Role in partnering

PwC

Thank you

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