The Path to Procurement Excellence

8/7/2019 The Path to Procurement Excellence

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to procurementexcellenceA CPOs complete reference guide

to sustainable performance improvement

through strategic sourcing

and procurement management

THE PATH


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to procurementexcellence

A CPOs complete reference guide

to sustainable performance improvement

through strategic sourcing

and procurement management

THE PATH


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procurement excellence

Day One

Picture this: Youre the new Chie Procurement Ocer(CPO) or a multidivisional international company. Youwere hired by the Chie Executive Ocer (CEO). Youreport to the Chie Financial Ocer (CFO). Your task isto assemble an enterprise strategic sourcing and procure-ment management team that will ultimately manage allcorporate spending. Theres a policy to make it ocial.Your goal is to save ve hundred million in ve years.

Easy.

Six Months Later

Okay, not so easy. People dont like being told how tospend (or not spend) their budgets. In act, they hate it.So, you install systems to monitor spend activities. Systemscost money. Up goes your return-on-investment (ROI) bill.

And people are smart. They nd workarounds or systemsthey dont like. Not seeing things rom an enterprise per-spective, they say: I know my piece o the business better than

the execs making the rules; better to get my hand slappedi I getcaughtthan to suer the consequences o rules I know to be bador my business.

So, while never in outright rebellion, maybe theyreless-than-diligent about implementing the new spendpolicies and systems. Its a big company, hard to control.And while your CEO and CFO support you 100%, youget about 3.4% o their attention. When you do get theirattention, you had better have your acts straight.

And acts, well, theyre hard to come by in a company thatspans the globe with 45 instances o Enterprise ResourcePlanning (ERP) and 24 processes by which a person canspend money. Spend analysis by your group is ad hoc, manual. Andeven when you get the data together, youre not certain you cantrust it, rely on it or making big, risky strategic sourcing and pro-curement decisions.

But youre ambitious, determined to succeed. You have nine, scary-smart MBAs working or you who are more than willing to get theirhands dirty and pull some long hours or the cause o enterprise-level strategic sourcing and procurement management.

Prologue: Th CPO Tal

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One Year Later

Your teams hard work is paying off. Cost savings are addingup to real moneyin the millions. Youre getting 9.7% of yourbosses attention and winning allies throughout the corpora-

tionthough, mostly in business units that are underperformingon the revenue line.

The high fyers remain aloo; they perorm well, so top manage-ment gives them a pass. But, thats okay because there are stillplenty o obvious opportunities or achieving corporate peror-mance improvements through strategic sourcing and procurementmanagement; so many, in act, that your group is starting to get alittle stretched or time and resources.

Your processes or spend analysis, executing sourcing events, count-

ing and reporting perormance improvements are aster now, butstill manual, still project-ocused. Sourcing programs sometimesprogress at uneven speeds, deliver inconsistent results. Your teammembers spend more time than expected working to achieve com-pliance, turn contracted savings into something that can be counted.

And, still, cost savings dont always materialize. Maybe demandis poorly orecasted, so you dont hit the volume levels that trig-ger the biggest negotiated discounts. Or, your team moves on tonew sourcing projects, so are less-than-vigilant about ensuring thecompany achieves the nonprice termsearly payment discounts or

service levelstheyve negotiated with suppliers.

To eed your bosses steadily growing appetite or cost savings,you add more people to your payroll; you outsource procurementmanagement or certain spend categories. Youre also looking atsystems or automating and managing sourcing processes, systemsor managing compliance. The savings and other perormanceimprovements are adding up, but, so too is your ROI bill.

Three Years Later

Corporate spend is now organized into 42 top-level categories.

That doesnt cover everything, but enough to be making a notice-able impact on corporate nancial perormance. Each categoryunder management has gone through at least one major sourcinground. Youve renegotiated with all critical incumbent suppliers,rationalized your remaining supply base by 65%.

Management is now paying very close attention to your activi-ties; even high fyers are eeling the pressure, cooperating moreoten than not. Sixty percent o money transactions worldwide gothrough a system you control. Youre looking to increase that per-centage and branch into spend categories that were seen beore as

too complex or dicult to approach.

2

Your processes or spend analysis,

executing sourcing events, counting

and reporting perormance

mprovements are aster now, but

till manual, still project-ocused.


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By now, youve got a spend analysis solution; analysis is easier, aster thanit was three years ago, but still largely manual and project-ocused. Freshsourcing opportunities are getting harder to nd. When you do nd

them, theyre in supply industries that have not typically dealt with pro-curement, have no history o itemizing and codiying their pricing intoneat specications that can be sourced competitively with ease.

Youre thinking the time has come or your organization to get moreaggressive about standardizing on product or service eature sets (tominimize wasteul spending), managing total costs, and cutting totalconsumption o goods and services.

At the same time, your initial enterprise supply contracts are startingto expire. Youre more dependent on ewer suppliers whose margins

youve already squeezed to the breaking point. So, e-auctions, whichdelivered so nicely in the rst sourcing rounds, are no longer yourbest option. Your category managers are heading into direct negotia-tions with incumbent suppliers and they need to get more creative,collaborate with suppliers to nd new ways o reducing process- andtotal supply chain costs.

But, they dont really have all the inormation they need to executethese next steps eectively. Theyre craving better, more requent,more detailed insight into spend. The tools to get that visibility are outthere, but they cost money. Up goes your ROI billagain.

Five Years Later

Congratulations!Your teamnow up to 80 peoplehas made its vehundred million savings goal. Your CEO makes a big announcementwith great anare to all the major global nancial markets. The stockprice moves up. Everybody celebrates. Then, back to reality.

And the reality is this: Your company has saved ve hundred million inve years, but it has also paid high salaries, plus benets, plus expensesto some 80 MBAs that you hired and sent traveling all over the world.It has shelled out hundreds o thousands or needed IT systems andprocess automation. Time has been spent documenting and validatingsavings. And, in the end, maybe 30%, maybe more, o the ve hundredmillion you have saved never dropped to the bottom line, becauseit was simply shited to other budget line items and spent elsewhere.Theres ROI here, but its not ve hundred millionnot even close.

And yet, your CEO and CFO eel condent that their big investmentin enterprise strategic sourcing and procurement management is asound one; so condent, in act, that theyve just asked you to produceanother ve hundred million worth o savings. Only, this time theywant to see the savings in three years...

(this story has no end)

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IntroductionI the CPOs Tale, or any part o it, sounds amiliar, then this BOOK

is or you. The CPO in our story does all the right things or a big,diversied company that has never been in the habit o regularly com-municating among its parts, distilling its inormation into competitiveknowledge, and taking advantage o its total buying power in the globalmarketplace. But doing all the right things wont be enough to get thisstrategic sourcing and procurement management group through itssecond, third, or ourth rounds o corporate improvement goals.

Look closely at mature, highly successul strategic sourcing organiza-tions and you will quickly notice one thing: Processes mattera lot.Well-dened business processes are not only present in these organi-

zations, but also

Highly standardized, Consistently executed, Reliable at delivering expected outcomes, and Deeply embedded in daily workows.

Its no coincidence that amously successul strategic procurementgroups oten emerge in companies well known or their Six Sigmacultures, where variability in processes and process outcomes is notwell tolerated. Even where the specics o a situation vary greatly,

these groups are adept at addressing the unique while keeping theessence o a process intact.

But which processes matter most or strategic sourcing and procure-ment? And how important is process maturityin terms o thingslike standardization and consistencyto the organizations ability tocontinuously make positive contributions to corporate perormance?This BOOK, with support rom a new joint study byPurchasingmaga-zine and ZYCUS, sets out to answer these questions.

In all, the study tested 65 specic practices and processes oten asso-

ciated with strategic-sourcing maturity and success, relating to howstrategic sourcing and procurement groups

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Its no coincidence that

amously successul

strategic procurement

groups oten emerge in

companies well known or

their Six Sigma cultures,

where variability inprocesses and process

outcomes is not well

tolerated.


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Testing was or requency o usehow well embedded best practices

and processes are in the daily workfows o a corporationhow longit typically takes or a practice or process to transition rom ad hoctoembedded, and how achieving that transition relates to such popularperormance measures as total value delivery (cost savings) and percento spend under management by procurement.

This BOOK ocuses in detail on the practices and processes that, whenembedded, appear to dierentiate high-perormance organizations. Italso identies practices that, while still emergent in high perormanceprocurement groups, are consistently associated with rising peror-mance levels over time. There is something here or everybody.

Low performers: I youre just starting with strategic sourcingand procurement management or have been largely unsuccessulwith your eorts to this point, treat this BOOK as a process mapor accelerating your perormance contributions.

Intermediate performers: Identiy practices and processes associ-

ated with higher perormance that may be underdeveloped orunderused in your organizations.

High performers: Compare yourselves to other high perormers

to understand where process renements may be wanted andlearn how some o the most advanced strategic sourcing and pro-curement management organizations are preparing to meet thechallenges o the coming decade.

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Learn how some o

the most advanced

strategic sourcing

and procurement

managementorganizations are

preparing to meet

the challenges o the

coming decade.


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NOTES ABOUT THE STUDY

Survey participants were qualied on the basis o (a) working in companies thatundertake enterprise-level strategic sourcing and (b) participating directly in thoseeorts. Some 350 participants passed the qualication. They were asked to score 65best processes or practices based on requency o use in their organizations. A per-ect score o three signies that a practice or process is nearly always used; a scoreo one means it is virtually nonexistent. With MEAN scores alling between 2.4 and3.0 considered as embedded, 2.3 down to 1.6 as present but not embedded, and below 1.6as rare or nonexistent, top line study results (Fig1) are as ollows:

High performersgroups that claim 500 million or more in totalvalue deliveryhave 57% o the 65 practices or processes embed-

ded, 43% present but not embedded, and 0% missing.

Intermediate performersgroups that claim one to 500 millionin total value deliveryhave 8% o the 65 practices or processesembedded, 92% present but not embedded, and 0% missing.

Low performersgroups that claim less than one million in totalvalue deliveryhave 0% o the 65 practices or processes embedded,92% present but not embedded, and 8% missing.

Tested against percent o spend under management, the study also

nds the presence o embeddedbest processes to be signicantlygreater in procurement organiza-tions that have placed 75-100%o total spend under manage-ment (Fig2).

For sake o simplicity, studyresults presented in this BOOK

refect some data aggregation. For example,two intermediate perormance categories (1

million-100 million and 100 million-500 mil-lion in total value delivery) were combined asthe dierences in process proles or the twogroups were negligible and not particularlyinstructive.

With the objective o isolating specic practicesand processes that, when consistently executed,dierentiate high rom intermediate and lowerperormers, the ollowing perormance group-ings, used throughout the BOOK, yield the

most intriguing comparisons:

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FIGURE 1

Overall frequency ofbest-processes use versustotal value delivered tothe corporation

0

20

40

60

80

100

High Intermediate Low

Nonexistent (1.5 or lower)

Present but not embedded (1.6-2.3)

Embedded (2.4 or higher)

FIGURE 2

Overall frequency ofbest-processes useversus percent of totalspend under management

0

20

40

60

80

100

75-100 50-74 25-49 0-24

Nonexistent (1.5 or lower)

Present but not embedded (1.6-2.3)

Embedded (2.4 or higher)


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High2: greater than 500 million in total value deliveryand75-100% o spend undermanagement

High1: greater than 500 million in total value delivery Intermediate: 1 million to 500 million in total value delivery Low: less than 1 million in total value delivery

The researchers acknowledge that some precision has been lost in the groupingo perormance categories; it is quite possible, or example, that some relativelyhigh-perorming strategic sourcing and procurement management groupshave been inadvertently classied into the intermediate category o perormersdue to such actors as small company size or low gross spend levels.

Total value delivery is dened as cost savings plus any other improvements that havebeen quantied in terms o currency (so, mostly cost savings).

The study also examines process consistency according to percent o spend undermanagement in our quartiles: 0-24%, 25-49%, 50-74% and 75-100% and time spentdoing (or trying to do) strategic sourcing and procurement management as a meansor understanding typical leadtimes or achieving process maturity.

To understand which practices and processes may infuence perormance positively butare still underdeveloped in all procurement organizations, perormance-ecacy (PE)

scores were generated by adding a point each time an increasingly embedded practice isassociated with an upward move across 10 perormance transitions, or example, whenmoving rom low-to-intermediate in total value delivery, intermediate-to-high1, high1-to-high2, rst-to-second quartile in spend under management, second-to-third quartile, andso orth. Fig 3 shows how the overall scoring breaks out or the 65 practices and processestested; zero scored below a seven while 50% scored nine or ten.

The APPENDIX at the end of this BOOK contains PE scores and visual analysis tables foreach o the practices and processes studied.

FIGURE 3

1-6 7 8 9 10

18% 31% 35% 15%

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Chapter 1

Identify opportunitiesWell-dened processes or spend and opportunity analysis typicallyemerge at years 1-3 in the lie a strategic sourcing organization, butdont usually show as embedded in daily workfow until 3-5 years oreven later. Translated into words, the Purchasing/ZYCUS study datashows a typical evolution in spend and opportunity analysis lookingsomething like this:

Year 1

Pick areas o spend where the organization thinks itmayhave bigopportunities to save. Obtain accounts payable data, load it intospreadsheets and spend many hours manually sorting, mapping,aggregating, discarding, guesstimating to ll in holes, and so orth,until a reasonably good picture o spend with suppliers emerges.

Not perect, but good enough to justiy opening negotiations with largeincumbent suppliers.

Years 1-3

Continue with intuitive, manual, ad hocapproach, but shit ocusrom suppliers to spend categories. Begin to consistently classiyand categorize spend (Fig4) in ways that make sense or procure-ment rather than accounting. Example: This purchase I am autho-rizing or making today is not just an IT capital expense, but rather, adesktop personal computer.

Still not perect, but good enough to make a strong case that much can besaved by going rom many to ewer suppliers o just about anything.

Implement ront-end processes and systems or more requentlypulling, cleaning, normalizing, and classiying spend (Fig5) so theprocurement organization can move aster, identiy strategic sourc-ing opportunities as they arise versus waiting until categories comeup on a set cycle or it occurs to someone to take a look (or re-look)at the data.

Begin to rank and prioritize opportunities, select new sourcingcategories based on documented potential to deliver value versusintuition (Fig6).

Expand the reach o spend analysis beyond accounts payable data;capture spend fowing through T&E accounts, check requests,corporate credit cards, procurement cards, wire transers, and so

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FIGURE 4

Categorize + classifyspend data

High2 High1 Mid

Range of performance

Embedded

Score

Low

{

Classication shits the ocus o spend data romaccounting to procurement.

FIGURE 5

Normalize, clean, aggregatespend data

High2 High1 Mid

Embedded

Low

{


Score

Automation enables strategic procurement groupsto scale the work o data hygiene across the entirepectrum o spend.


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orth. Build data warehouse to take eeds rom multiple spend datasourcessome o them third-party, like suppliers or payment toolsproviders (Fig7).

Also, begin to enrich, slice, and dice spend data at a detailed/itemlevel (Fig 8).

Example: This purchase I am authorizing or making today is not just adesktop personal computer, but rather, a desktop personal computer withX set o hardware specications, Y set o applications unctionality, or aperson with Z set o job responsibilities.

At this stage, the spend analysis capabilities get more sophisticated,but are still largely manual and ad hocversus embedded in daily

workfow.

Years 3-5

Continue to rene spend analysis processes; transition rom project-oriented to more requent, systematic spend analysis. Start to tacklespend categories that have been avoided until now, either becausethe data is very dicult to capture or dees easy classication due tolack o industry standards or describing products or services and/orexcessive bundling o products or services by suppliers.

While many manage, by this point, to centralize and structure their spend

data, even mature, high-perorming strategic sourcing organizations willoten continue to allow the real work o spend and opportunity analysis toremain widely distributed across the organizationin spreadsheets on peoplesdesktops and laptops, where it can not be easily accessed, interpreted, reverseengineered, or repeated by subsequentprobably dierentsourcing teams.

Year 5 and beyond

Exhaust easy opportunities or leveraging spend at supplier andcategory levels; begin second and third sourcing rounds or man-aged categories. Continue to enrich, slice, and dice spend data atdetailed/item in order to

Cull out the more secretive cost savings opportunitiesplaceswhere suppliers have made up margin they lost in initialsourcing rounds,

Undertake more demand management and standardizationactivities, and

Make spend data more easily relatable to things other thansuppliers and top-level spend categories.

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FIGURE 6

Rank opportunities, allocateresources accordingly

High2 High1 Mid

Embedded

Low

{


Score

As momentum builds and goals get higher,procurement groups need better means or pickingwhich opportunities they will pursue.

FIGURE 7

Capture spend data frommultiple/all possible points

High2 High1 Mid

Embedded

Low

{


Score

High-perorming strategic sourcing groups ollowall the money fowing to suppliers.


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The case or speed

Results rom the study suggest that most strategic procurement organi-zations can nd a million, 10 million, even a hundred million worth ocost savings without having particularly good or consistently executed

processes or spend and opportunity analysis. But systematic, embed-ded best processes become more important in the transitions romintermediate to high cost savings levels and in placing the nal quar-tile, rom 75 to 100%, o spend under management.

O the ve spend and opportunity analysis practices and processestested in the study, our score as embedded in daily workfow, the thas nearly so among high perormers on the value delivery metric. Bycontrast, intermediate level perormers show only one o the processesas embedded and low perormers show none. On the spend undermanagement (SUM) metric, three o the processes score as embedded

among high perormers and two as nearly so.

This suggests that enterprise strategic procurement groups have a realopportunity to accelerate perormance improvement i they rene andembed these processes much earlier in their liecycles, say in years 1-3versus 3-5 or beyond. And, given the long leadtimes typically associ-ated with reaching ull maturity in spend and opportunity analysis,procurement organizations may be risking lengthy perormance pla-teaus i they wait too long to tackle the oten dicult and sometimescostly work involved in doing this. They also risk being unable to ullydevelop and embed other critical best processes that rely upon having

a rigorous inormation management platorm or procurement. (Moreon this as we progress.)

While still emergent among high perormers, the study nds a clearrelationship between embedded capabilities or requent, granularspend visibility and perormance. The slice-and-dice capability becomesparticularly important when strategic sourcing organizations startlooking to analyze and aect corporate perormance levers that reachbeyond the costs o goods and services or costs associated with acquir-ing goods and servicesthings like total discretionary spending, assetutilization, working capital perormance, even revenue and global

competitiveness.

Some popular tactics or embedding consistent, reliable, and repeat-able spend analysis and opportunity identication processes include:

Adopt well-dened standard classication and categorizationtaxonomy, such as UNSPSC.

Use electronic procurement tools so classication and catego-rization occurs automatically at point o purchase or shortlythereater.

10

I ad hoc, manual analysis

is daunting in years 0-3, it

becomes diabolical when

additional data complexity

is introduced and process

requency is raised.

FIGURE 8

Slice and dice spend dataat detailed/item level

High2 High1 Mid

Embedded

Low

{


Score

Granular spend data may not be required in theearly days o strategic sourcing, but advance plan-ning and good architecture makes it less dicultand less costly to add later on.


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Given the long

(5+ year) leadtime

typically associated

with reaching

ull maturity

[in spend and

opportunity analysis],

procurement

organizations may

be risking lengthy

perormance plateaus

i they wait toolong to tackle the

oten difcult and

sometimes costly

work involved in

doing this.

Where possible, map transactions directly to taxonomy so classi-cation is invisible to buyer. Where not possible to do this, ensurecorrect classication by using either ully automated classication

tools or semi-automated systems to suggest short lists o possibleclassications.

Use structured, central database to take automated feeds from mul-tiple systems.

Structure database also to ensure that spend data is easily relat-ablenot just to suppliers or spend categoriesbut also to thingslike budget/cost center, procure-to-pay process, payment terms, sup-plier perormance, supplier risk proles, and so orth.

Structure database to allow for ongoing, long-term enrichment ofspend data to item and item-attribute levels o detail.

Use either full automation tools (no human intervention) or semi-automation tools (minimal human intervention or exceptions han-dling only) to continually clean data and normalize or such vari-ables as pricing units, lot sizes, currencies, languages, and so orth.

Use IT dashboard to aggregate opportunity analyses and to solicitand enrich with market and other intelligence. For example, Is it agood time to go to market in this category? What is the risk associated with

supply base rationalization in this category? How much do we think we cansave by addressing this category? How political or dicult is this category?And, so orth.

Use IT dashboard to score, rank, prioritize, assign resources, aggre-

gate and monitor progress and perormance delivery against identi-ed opportunities and goals.


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There is no question that strategic sourcing and procurementmanagement organizations must have strong, consistent backingrom a companys senior management team. But, CEOs and CFOsdont typically control operations at a level o detail that ensuresstrategic sourcing groups always succeed; that bad sourcing andspend behaviors change promptly and dont revert when revenueperormance recovers or senior management shits its attention toother matters.

Executive mandates are good. Policies are better. But what otenmakes the dierence over the long term or leading procurementgroups are consistent, systematic approaches to how they engageand collaborate with stakeholdersbudget owners and suppliers, inparticular.

For example, it is airly standard practiceamong all but thelowest-level perormersor strategic sourcing and procurementgroups to assemble cross-unctional sourcing teams rom manycorporate unctionsprocurement, nance, materials manage-ment/supply chain, manuacturing, design, human resources,and so orth. But top perormers take more careul, methodical

approaches to how they combine personalities and populate theirsourcing teams to achieve an optimum balance between spendcategory and procurement expertise (Fig9). Some successul tacticsthey cite relating to teams:

Identify notoriously uncooperative stakeholders and pur-posely include them on teams,

Rely on facilitators to move teams through disagreements orimpasses, and

Co-locate procurement professionals with spend stakeholders(at least temporarily) so they can learn category undamen-

tals by osmosis and become steeped in the daily activities andrhythms associated with a spend category.

Interestingly, the use o cross-unctional sourcing teams appearsto peak and become less requent ater years 3-5 in a typical stra-tegic sourcing groups liecycle. This may coincide with a gradualexhaustion o untapped strategic sourcing opportunities. Butanecdotal evidence suggests something dierent may be happen-ing; that mature, high perorming strategic sourcing organizationsare actually pushing beyond representative team-based models to

13

Chapter 2

Achieve buy-in

FIGURE 9

Populate sourcing teamswith best mix of talent

High2 High1 Mid

Embedded

Low

{


Score

Savvy procurement leaders achieve stakeholderbuy-in by stang sourcing teams with obviouscategory expertise.

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more grassroots approaches or engaging spend stakeholders moredirectly and deeply in their evolving strategic sourcing and procure-ment management cultures.

Breaking all barriersTheres other evidence that high perormers win buy-in or stra-tegic sourcing by engaging budget stakeholders more consistentlythan their lower-perorming counterparts. For example, strategicprocurement organizations at all but the lowest perormance tierroutinely ask budget stakeholders to orecast their demand orgoods and services. Comparatively ew, however, invite stakeholdersto participate in writing and validating specications or sourcingevents. High performers, as a group, are at the cusp of doing thissystematically whereas intermediate-level perormers are noticeablyinconsistent about doing it and low perormers do it sporadically, i

at all (Fig10).

Systematic, external validation o cost savingswhether by budgetstakeholders themselves or by objective nance personnelis athird area where high perormers set themselves apart (Fig11).This involves mapping savings identied or negotiated in sourcingeventsbe they volume price reductions, rebates, discounts, avor-able payment terms, etcto accounting line items, quantiying howsavings, when realized, will accrue or be allocated to specic budgetowners, and asking budget owners to explicitly accept the estab-lished processes and their outcomes as valid.

Some sourcing groups acilitate savings validation by hiring ex-nance proessionals into their organizationspeople who havereal insight into how sourcing savings can be related to the compa-nys existing cost accounting structure. Others simply partner withtheir existing nance organizations.

Savings validation, however, does not typically show as embeddeduntil year ve or later in the lie o a strategic sourcing organiza-tion, according to the study. That may be preventing another criti-cal processthat o actively collaborating with budget stakeholders

to either take down budgets or reinvest savingsrom gaining aproper oothold. As Fig12 shows, strategic procurement organiza-tions are typically trying to introduce processes that drive sourc-ing savings through to budgets in years 1-3 o their liecycles, longbeorethey achieve a corresponding maturity in external savingsvalidation.

While collaborating with stakeholders to take down budgets showsa consistently positive relationship between requency and peror-mance, its no surprise, then, that even the highest-level perormers

GURE 10

nvite stakeholders to helpwrite and validate specs

High2 High1 Mid

Embedded

Low

{


Score

nvolving stakeholders directly may consume moreme, require more management, but it pays over time.

Objective validation o cost savings and o therocesses or tracking and booking cost savingsoes a long way toward establishing credibility orrategic procurement.

GURE 11

Validate savings throughinance or budget holders

High2 High1 Mid

Embedded

Low

{


Score


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15

are only at the edge o having systematic methods or doing thiswhile lower-level perormers stand ar behind the curve (Fig13).

Some tactics or embedding collaboration processes and achievinggreater stakeholder buy-in include:

Gain credibility by consistently choosing science over art.Didnt realize how much you spent on X last year? Heres the data.Dont know how that stacks up against the market? Heres the data.Think collaborating with procurement at an early stage in the buyingcycle doesnt matter? Heres the data that proves it does.

Embed procurements message in employee orientation andmanagement training programs.

Document and actively market procurement success storiesand benets; rame success stories in terms that are mostlikely to appeal to stakeholders. So, or example, instead owalking into manuacturing with a presentation about howprocurement is going to buy cheaper materials, walk intomanuacturing with a presentation about how procurementis going to increase supplier quality perormance and shrinkdelivery times with no corresponding increase in cost. Insteado walking into design engineering with a presentation abouthow procurement is going to take costs out o design, walk in

to design engineering with a presentation about how procure-ment is going to enhance product unction with no corre-sponding increase in cost.

Make full use of all corporate communications tools avail-ableprint newsletters, electronic newsletters, intranets,extranets, e-mail, collaborative online meeting tools, townmeetings, and so orth both or marketing and change man-agement. Control distribution o communications as closely aspossible (Do not rely on please cascade requests.)

Use technology tools to widen the net of stakeholder collabo-rationrom representative team-based models to grassrootsmodels o taking and synthesizing requent input rom manypeople who sit at the point o purchase, who deal directly withsuppliers, who know precisely what they need to completetheir daily jobs, and who are most directly aected by strategicprocurement decisions. For example, use Web/orms-basedsystems or requently prompting and collecting grassrootsdata about things like supplier perormance, customer satis-action or dissatisaction, planned spend levels/demand ore-casts, supplier criticality/risk, localized market intelligence,

5+ yrs3-5 yrs1-3 yrs


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external cost-savings validation and acknowledgement, input/validation o specications or products or services going outto bid, input/validation o how contradictory actorsorexample, price versus qualityshould be weighted in a totalcost o ownership (TCO) model, and inormation on productor service eature-set utilization. For example, Are there someeatures or unctions we are paying or but not really using that mightbe unbundled and eliminated to reduce total cost?

Make it as easy as possible for grassroots collaboration part-ners to provide consistent, accurate input; show prior data,prepopulate data elds, require verication and correctiononly, constrain input elds to accept only valid data, etc. Forexample, on a demand orecasting exercise, rerain rom ask-ing an open-ended question like: Approximately how many newcomputers will your department require in the coming year?Instead,oer something like: Last year, your department increasedheadcount by our and purchased six computer systems; our new,two replacements or upgrades, three desktops, three laptops. Do youanticipate increasing headcount again this year? (Yes/No) I yes, byhow many? (#) For anticipated new employees, how many will requiredesktops; how many will require laptops?And, so orth.

Getting buy-in rom suppliers (the other signifcant stakeholders)

Most strategic procurement organizations interact requently withtheir suppliers in the ollowing ways:

Ask them to standardize goods and services (so they can becompetitively sourced more easily)

Ask them to validate specications for large demandaggregations

Pursue process-related savings or other value with preferredsuppliers

Even among lowest-level perormers, the study nds these practicesto be clearly present i not yet particularly consistent or well embed-ded. High performers, meantime, distinguish themselves in severalareas.

First, they more requently approach suppliers about unbundlinggoods and services to gain deeper insight into cost levers (Fig 14).Example: Instead o asking suppliers to quote on desktop PCs, they ask sup-pliers to quote on each o the signicant pieces; things like memory, process-ing power, speed, storage, applications, tech support, and warranty. Thisparticular practice shows as embedded among high perormers onthe value metric, but not typically until ve years or later. Thats

16

This practice supports such objectives as stan-dardization and consumption management, so,generally shows up later in the strategic sourcingliecycle.

FIGURE 14

Ask suppliers to unbundlegoods and services

High2 High1 Mid

Embedded

Low

{


Score

High perormers morerequently approachuppliers about unbundling

goods and services togain deeper insight intocost levers.


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probably because the ability to do these things wellto accuratelyense where subtle cost levers may be lurking and to manage and

process the inormation properly once receivedrelies on having acapability to synthesize large quantities o data into optimal sourc-ng decisions or the corporation. The practice also tends to support

procurement standardization and demand managementobjectivesypically reserved, due to diculty, or much later in the lie o a stra-egic sourcing and procurement management organization.

High performers also collaborate more frequently and consistentlywith suppliers on design-related savings, working closely to nd andeliminate or avoid built-in costs that can not be infuenced throughcompetitive sourcing (Fig15). As a process, design collaboration withuppliers takes less time to achieve maturity (3-5 years on average)

mainly because it can be very benecial to suppliers and is less relianton having other capabilitiessuch as granular spend analysiswellestablished beore it can be done well.

The way a strategic sourcing and procurement management organi-ation treats and manages suppliers through its sourcing events alsoeems to pay o in terms o achieving supplier buy-in and, ultimately,n delivering consistently good perormance results especially on the

value delivery metric. For example, high perormers are nearly twiceas likely to be thoroughly training suppliers on how to use o theirourcing tools prior to conducting sourcing events. They also pay

more attention to:

Structuring sourcing events to ensure suppliers can not make ormistake key terms

Dening specic rule sets for sourcing events and then comply-ing strictly with those rules

And, while most procurement organizations make a airly consistentpractice o committing, explicitly and up ront, to transition busi-ness when nonincumbent suppliers win sourcing events, only high-evel perormers show embedded processes or mapping out specictrategies or how they will actually do it. This means they dedicate

plenty o planning time to answering such questions as: How will wephase the transition? Is a pilot or test needed? How will we communicate withbudget stakeholders about the transition? Is there an opportunity to improveor apply a best or low-cost procure-to-pay process? Is there institutional knowl-edge that is, things our incumbent suppliers people know about our people,our products, our company that might help our new supplier to succeed? I yes,how will we go about capturing and documenting that inormation? Is train-ng needed? What will be our compliance policy? How will we monitor and

measure the transition?And, so orth.

1717

Finding design-related savings with suppliers haslarge potential payos and is less reliant thansome other processes on advanced spend analysiscapabilities.

FIGURE 15

Pursue design-relatedsavings with suppliers

High2 High1 Mid

Embedded

Low

{


Score


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Compliance processes are usually introduced very earlywithinyears 1-3in the typical lie o a strategic sourcing and procure-ment management organization, but do not become embedded indaily workfow o the corporation until much later (i at all). Thatmay be due, in part, to the heavy emphasis on achieving stake-holder buy-in. Or it may be just wishul thinking; Do the buy-in partreally well and you can avoid assuming the unpopular and uncomortablerole o spend police.

But the study nds that high perormers eventually do get aroundto institutionalizing their compliance processes (somewhere beyondyear ve), which suggests the importance o consistent processesaround compliance rises as new sourcing opportunities becomesparse and the work o strategic sourcing shits either to,

Spend categories where procurement has not traditionallyhad a role, or

Being less about negotiating with suppliers and rationalizingthe supply base, more about changing stakeholders behav-iors, standardizing product and service eature sets, and cut-ting gross demand

Most strategic procurement organizations are reasonably consistentabout tracking supplier compliance to contract terms and takesome pains to ensure that nonprice contract terms get consistentlyexecutedboth traditional domains of procurement. Differentia-tion between high and lower-level perormers increases substan-tially as compliance processes turn inward to ace budget holdersand their behaviors around spend.

For example, high perormers more consistently use policies tolock down spend. Spend outside the corporate contract and you wontbe reimbursed on your T&E, or the supplier wont be paid. Do it once, getyour hand slapped; do it twice, get a nasty note rom your boss; do it threetimes, you could be red.A useul tactic is to time procurement policymoves to coincide with reports o poor results in nancial mar-kets or with senior management ats relating to cost savings. Forexample, CEO announces a reeze on all unnecessary travel; good timeto introduce a new policy around compliance with preerred travel servicessuppliers.

Chapter 3

Get compliance

20

FIGURE 16

Report compliancescorecards

High2 High1 Mid

Embedded

Low

{


Score

Tracking compliance is useul but reporting raisesthe stakes by exploiting competitiveness amongbusiness leaders.

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High performers also often shore up their policy structures withtechnology tools, or example, e-stores or virtual malls that areeither the only ways to buy goods and services or, by ar, the easi-est ways to buy. They succeed by paying very close attention to the

user interaces, extensively testing and rening to simpliy naviga-tion, drive to the ewest number o clicks, ensure that data inputprompts are both intuitive and inormative, ensure clear error mes-saging, identiy clear processes or troubleshooting, pre-populatenuisance elds such as account numbers and classication codes,automate and accelerate approval workfows, eliminate workfowbottlenecks, and so orth. They also requently integrate ront-endprocurement with supplier payment technology platorms, creat-ing closed looped procure-to-pay processes that are very dicult towork around.

In addition to using policies and technology to make it impossible(or at least very dicult) to spend outside o strategic contracts,high perormers also measure compliance more consistently thantheir lower-perorming counterparts. Measurement alone, based ongranular, requent visibility into individual users spending activitieshas power just in the knowledge that someone is watching spendclosely. But high perormers will also oten increase the power ocompliance measurement with systematic and requent compliancereporting (Fig16), that is, rolling up compliance scorecards to thedepartmental or business-unit level and publishing to exploit peerpressure and competition among business leaders.

The compliance story typically ends there, though. Complianceenorcement, whether by negative or positive means, is an appar-ently underdeveloped process at all perormance levels althoughit does become more consistent as perormance rises, suggestingit is an emergent process versus one that is never likely to becomewell established (Fig17). Among the lowest perormance tier, bothcompliance reporting and compliance enorcement practices showup as virtually nonexistent.

From a timeline perspective, both compliance reporting and

enorcement practices typically appear in years 1-3 in the lie oa strategic sourcing group, then spend years 4-5 and beyond lan-guishing in the present but not embeddedzone. Enterprise-levelstrategic procurement groups typically have executive mandates orsupport, but oten all shy o having real authority to enorce. Andit takes some time to build collaborative relationships with thosethat do have enorcement authoritynamely, accounts payable,expense management, corporate nance, and human resources.

Likewise, eective compliance reporting and enorcement requires

21

FIGURE 17

Enforce compliance

High2 High1 Mid

Embedded

Low

{


Score

While high perormers enorce compliance moreoten than lower-level perormers, they still dontdo it very requently. Whats not clear is whetherthey avoid enorcement out o choice or necessity.


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t is a common practice or strategic sourcing and procurement man-agement groups to employ some type o ormalized, standard strate-gic sourcing process (Fig18). Even among the lowest perormanceier, standard strategic sourcing processes are classied as stronglymbedded or groups that have been doing (or trying to do) strate-

gic sourcing or at least three years. But this suggests that the mereact o deploying a ormal strategic sourcing process does not signi-antly infuence perormance.

A key question that strategic sourcing leaders need to ask is this: Iwe were to take two similarly qualied but entirely dierent teams o peopleand assign them to strategically source the same spend category using ourproscribed strategic sourcing process and all the resources and tools we haveput into place, would they come up with the same or very similar results?Forxample--

Would their analyses of spend look similar? Would they aggregate demand in the same way? Would their competitive market analyses look similar? Would they assess risks in the same way? Would they drive to the same short list of supplier candidates? Would they select the same sourcing event type, the same pro-

cure-to-pay process? Would they make the same or similar decisions in how they

model total costs? Would they achieve similar results in terms of cost savings? Would they complete the process in about the same amount of

time?

the answers are anything short oprobably, then its likely there isoo much variation and not enough oversight and management inhe strategic sourcing process. That may not matter early on when

many years o egregious spend behaviors are ripe or the xing, butonsistency in process execution leads to repeatability in outcomes.

That becomes more important as cost savings and other peror-mance improvement goals rise, new opportunities become harder tond and procurement looks to aect corporate perormance leversnot directly associated with product or service costs.

Procurement organizations at all perormance levels are relativelyimilar in how they rate their consistency on practices and processeshat have been traditionally owned by procurement, according to the

Chapter 4

Control sourcing process

23

FIGURE 18

Use standard strategicsourcing process

High2 High1 Mid

Embed

ded

Low

{


Score

Its quite common to nd ormal, standard strate-gic sourcing processes...

FIGURE 19

Manage teams complianceto standard process

High2 High1 Mid

Embedded

Low

{


Score

...substantially less common to nd procurementorganizations that watch closely to ensure theirteams actually comply with standard processes.

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study. Most, eel, or example, that their organizations are consistentabout making the best supplier selections and in approaches theytake to negotiating and writing contracts with suppliers.

Small amounts o dierentiation emerge between high and lowerperormance tiers in less amiliar activity areas, in how consistentlythey do things like,

Evaluate a spend category for things like importance, risk,market competitiveness, and so orth, and then match thatevaluation up to the best sourcing process be it collaboration,negotiation, inrequent competitive market making, requentcompetitive market making, and so orth.

Choose the correct sourcing technology tool be it, eRFx, e-auc-tion, e-collaboration, etc.

An even bigger dierentiator or high perormers is consistent sourc-ing project management and compliance monitoring. The studynds that high perormers are much more likely to have embeddedprocesses or monitoring and managing strategic sourcing teamsprogress and compliance to standard strategic sourcing processesthan companies in the intermediate and low perormance tiers(Fig19) and they are more likely to cultivate internal process expertswho can jump in and help acilitate when compliance monitoringreveals that teams are getting into trouble or reaching some type oimpasse (Fig20).

There are also big gaps in how consistently procurement groupsexecute certain key strategic sourcing subprocesses. For example,high perormers are more likely to do the ollowing:

Have standardized procure-to-pay processes that map directly tospend classications (Fig21). That is, For a spend category clas-sied as low value, low risk, high competition, the associated procure-to-pay process is e-mail with manager-only or no approval workfow,e-payment and automated account reconciliation. For a spend category

classied as high value, high risk, low competition, the associated pro-cure-to-pay process is single-source, direct order, with director-level or com-mittee approval workfow, accounts payable processing.And so orth.

Consistently conduct deep-dive market analyses prior to execut-ing sourcing events and routinely identiy risk exposures orstrategic sourcing. So, Here is the total universe o suppliers who canmeet our needs. Heres how they rank competitively and heres where theystand nancially at this time. Heres a good estimate o total industrycapacity worldwide. Heres what weve been able to learn about capacity

IGURE 20

Cultivate internal processexperts/consultants

High2 High1 Mid

Embedded

Low

{


Score

A ew highly trained internal process experts canelp many teams get better at sourcing-processxecution, work through roadblocks and deliveresults more reliably.

IGURE 21

Use standard procure-to-pay processes

High2 High1 Mid

Embedded

Low

{


Score

Top perormers make it easy or sourcing teamso match spend categories to well-engineered,tandard procure-to-pay processes; that helps withtrategic contract execution and also helps to ensureompliance.


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25

expansion and reduction plans at this time. Heres a historical lookat pricing and price volatility in this market. Heres a historical lookat supply conditions in this market. Here is a look at current supplyconditions in this market. Here is what we know about how suppliers

price their products. Here is what we know about supplier protability.Heres how the total universe o suppliers ranks in terms o innovationor planned innovation; heres how that maps to our own innovationroadmap.And, so orth.

Rethink business models for specic spend categories, ratherthan simply sourcing within the traditional parameters odoing business. So, Weve always used distributors or this spendcategory because we dont want to do X, Y, and Z processes in house.But we no longer want to pay distributors big product cost markups,so were going to ask them to separate the services rom the products.

Benchmark total spend levels (Fig22). So, asking, For a best-in-class organization o X size and type, how much o Y good or serviceshould we be consuming?While this kind o intelligence can bevery dicult (and/or expensive) to obtain, high perormingsourcing organizations nd ways to do this, either by iden-tiying and partnering up with noncompetitive, best-in-classcompanies to trade benchmarking data or, i theyre large anddiverse enough, at least comparing similarly sized internalbusiness units or departments to gure out where gross spendlevels may be higher than is absolutely necessary.

Some other popular tactics or embedding and ensuring processconsistency in strategic sourcing include:

Build out process-step details and validation/approval work-fows that sourcing teams must complete beore they canprogress in the strategic sourcing process. For example, buildin a process gate at which a teams market research is vali-dated or completeness, accuracy, etc, beore they can pro-ceed to the strategy or TCO modeling phase.

Develop and/or deploy existing knowledge models or deci-sion trees to help sourcing teams step through critical deci-sion processes, or example, Based on the market intelligence wehave collected, how should we classiy this category o spend? Andwhich processes or sourcing, procure-to-pay, etc should be applied?

At the same time, embed sufcient exibility; allow denedprocess steps, documentation requirements or decisionprocesses to be overridden or done dierently, but insist thatreasons or doing so be documented (i only to inorm uture

FIGURE 22

Benchmark total spendlevels against market

High2 High1 Mid

Embedded

Low

{


Score

Its a dicult excercise to gure out how mucha company should be spending in a particularcategory, but top-level perormers clearly see thepractice as worthwhile.

High perormers are

more likely to rethinkbusiness models

or specifc spend

catagories, rather

than simply sourcing

within the traditional

parameters o doing

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2626

teams why something was or was not done at the time).

Appoint senior-level board or steering committee to overseeteams work and progress. Galvanizes buy-in at a critical level o

corporate management.

Missing: Embedded processes or modeling TCO

Procurement leaders pay a great deal o lip service to total cost oownership (TCO)understanding and making critical procurementdecisions based, not just on price, but all the costs associated withdoing business: executing transactions, moving goods, storing goods,servicing and supporting goods, and so orth.

But, or all the talk about TCO, the study shows surprisingly lowscores or both requency (Fig23) o total-cost modeling and con-

sistency with which TCO-modeling is executed in strategic sourcingprocesses. Looking at the trend line alone, TCO modeling appearsto be an emergent process, meaning both requency and consistencyincrease alongside perormance over time, but this is another casewhere the sequencing o process introduction versus maturity appearsto be all wrong.

For example, strategic procurement groups typically introduce TCOmodeling at 1-3 years, but ail to progress any urther toward maturitybecause there is no supporting maturity in how they conduct and/orvalidate market research, benchmark or understand global lowest

costs (should costs), or even engage suppliers in helping to build orvalidate a category TCO model.

GURE 23

Build total cost ofownership (TCO) models

High2 High1 Mid

Embedded

Low

{


Score

Even the best have yet to really master the art orue TCO modeling. Those who do will likelynjoy a competitive advantage or many years toome.


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Chapter 5

Manage procurement pipelineIn The CPOs Tale, the enterprise strategic procurement organiza-tion reaches its 500-million-in-ve-years savings goal through a com-bination o enthusiasm, intelligence, perseverance and hard work.But they also benet rom what might be called the newness actortheyre choosing rom a seemingly endless array o new strategicsourcing opportunities, repeatedly scoring big savings hits withnever-beore-used electronic auction or other e-sourcing technolo-gies. And, because senior management is cheering them on, theyregetting away with counting savings that never really materialize,never aect protability or competitiveness.

Unortunately, the newness actor wears o over time. New strategicsourcing opportunities get more dicult to nd. Savings rom com-petitive sourcing o goods and services transition rom monumentalto incremental. Management and budget stakeholders become lesswilling to accept things like identiedsavings or cost avoidance.And, yet, savings goals or procurement stay high or progress evenhigher over time.

So, one might expect high perormersthose in the high valuedelivery or high spend under management categoriesto experi-ence diminishing returns over time. But the study nds this isntoten the case. Ten percent o very high-level perormers do reportdeclines in perormance contributions and 14% say their trendis fattening out. But that leaves 76% still on the upswing. Whatsmore, ully 38% o high perormers say their trend in value deliveryis rising rapidly, compared to 26% or intermediate and just 13%among low perormers.

What are high perormers doing dierently to sustaineven accel-erate their perormance contributions over time? The study ndsthey distinguish themselves in three major ways; the rst being whatthey measure. Rates at which procurement organizations measureproduct and service cost savings or reductions in cost o goods soldare airly consistent across all perormance levels, but compared tolow-level perormers, high perormers are

Nearly twice as likely to be trying to comprehend their globalcompetitiveness, so looking to answer questions like: Are weachieving the global lowest cost versus merely beating our own year-agoperormance? Are we choosing suppliers that are best global perorm-ers on things like product quality or delivery speed?

FIGURE 25

Track savings realizedby strategic sourcing

High2 High1 Mid

Embedded

Low

{


Score

..but only higher-level perormers have estab-lished systematic methods or understanding howtheir activities convert to real savings or budgettakeholders.

IGURE 24

Track savings identifiedby strategic sourcing

High2 High1 Mid

Embe

dded

Low

{


Score

Nearly every strategic sourcing organization makes

habit o tracking the savings it identies throughourcing processess...

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Twice as likely to broaden their perspectives on cost savings tolook across the total supply chain, which means paying atten-tion and working to avoid merely shiting cost burdens rom

themselves onto suppliers.

Four times as likely to be looking at how their activities affectgross demand or goods and services. Not only are we payingless or the computers we buy, but were making ewer unnecessarycomputer purchases or buying only unctionality that will be highlyutilized by the existing workorce.

When high perormers look at cost savings, they are also morethorough in their approaches. For example, while intermediateand low perormers show reasonably embedded processes or track-

ing savings identied by sourcing teams (Fig24), high perormersare more likely to be measuring to ensure thatidentiedsavings areactually being realizedby budget holders (Fig25).

The other major way in which high perormers distinguish is bytaking systematic approaches to how they manage the perormancepipeline, meaning they draw precise strategies or how they willreach their goals, ensure that sourcing and individuals objectivesare tied to organizational goals, that sourcing teams and spendcategory managers understand clearly how they are expected tocontribute to the total goal, then manage and monitor closely to

ensure the organization as a whole is on track to meet its objectives.High performers, according to the study,

More frequently forecast cost savings or other ROI expectedrom strategic sourcing (Fig26).

Routinely track and report performance scorecards on them-selves (Fig27).

And, have embedded processes for being consistently aware ofwhere they stand on perormance to goal and how it all rollsup to the organizations top line goal (Fig28).

Some tactics or embedding and ensuring process consistencyinclude:

Add multiple forecasting exercises into the strategic sourc-ing process. For example: in the very beginning, ask sourcingteams or category managers to predict: How much cost savingsor other value do we think we can deliver in this category? And howmuch time is it likely to take?As they progress through the steps,ask teams to repeatedly revisit and revise their orecasts i onlyto develop organizational competencies or setting realistic

29

FIGURE 26

Forecast ROI from strategicsourcing process

High2 High1 Mid

Embedded

Low

{


Score

I nothing else, requent perormance orecastingexercises help a strategic procurement organizationto become competent at setting realistic expecta-tions and managing perormance to objective.

FIGURE 27

Report procurementperformance scorecards

High2 High1 Mid

Embedded

Low

{


Score

Keeping honest perormance-to-orecast trackrecords aids the organization in nding and elimi-nating variability in sourcing processes execution.Over time, that leads to more repeatable results.


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30

perormance expectations. In the end, ask sourcing teamsto conduct a postmortem process to understand and reporton why they met, did not meet, or exceeded their originalorecast.

Look outside the organization, conduct external benchmark-ing exercises with like (but noncompetitive) companies toacilitate in both new opportunity identication and in set-ting realistic perormance improvement expectations andtimelines.

Use process experts/facilitators to challenge teams to setstretch goals.

Recruit at least one professional into the organization who

is adept at designing eective metrics (or example, look tooperations management, quality control and/or nance orga-nizations as talent pools).

Focus objectives narrowly, then pick two or three welldesigned metrics that everybody pursues; embed the metricsas KPIs in individual contributors proessional developmentplans.

Use IT dashboard to monitor progress and performancedelivery against identied opportunities and goals. Use red

fag system to understand when goal attainment may be all-ing into jeopardy, requiring action by process experts or othermanagement team members.

FIGURE 28

Aggregate and monitor

teams progress to goals

High2

High1

Mid

Embedded

Low

{


Score

Top perormers are consistently aware o wherethey stand as an organization relative to totalgoal; this enables them to allocate resources eec-tively and be proactive about managing risks toperormance as they arise.


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Knowledge management is a nal area tested in the study wherehigh perormers are substantially more likely to show embeddedbest processes. For example, high perormers spend more timegrouping spend categories in creative ways, so they can leveragewhat they know and learn rom one category or subcategory to thenext (Fig29).

Some examples o how they do this

Group spend categories by risk or market competitivenessprole as means or consistently and correctly choosing themost appropriate sourcing process.

Group spend categories by buying channelsay, buys fromdistributors, buys made directly rom manuacturers, servicebuys based on statements o work, and so orthso process orother cost eciencies can be established globally at the chan-nel level, then leveraged down to specic categories.

Group spend categories by procure-to-pay workow, again sothat process eciencies can be established at a global leveland driven down to specic categories.

Another well-embedded practice among high-perormers is to rundebrieng or post-mortem sessions on all sourcing events, captur-ing, codiying and publishing lessons learned so the entire orga-nization can learn and improve over time. This acknowledges thatsuppliers will consistently learn and improve their approaches tosourcing events; that savvy sourcing organizations can never aordto stop learning and rening their tactics or going to market.

Its altogether too common or documents and inormationrelating to strategic sourcing activities to be widely distributedthroughout an organization on multiple peoples computers andin many ormats (word processing les, spreadsheets, databases).But this poses serious threats to the repeatability and sustainabil-ity of total value delivery over time. High performers are morelikely to be operating rom a centralized structure or inormationmanagement, structuring not just their spend data, but all sourc-ing program dataor example, market intelligence gathered,assumptions made, team decision-making, TCO weights, drawings,specications, contract documents, and so orthinto a single,centralized database that all authorized personnel can access easily(Fig30).

Chapter 6

Manage knowledge

IGURE 29

Group spend categories toeverage acquired knowledge

High2 High1 Mid

Embedded

Low

{


Score

Top strategic sourcing and procurement manage-ment groups avoid squandering precious resourcesy attacking problems at an enterprise level andeveraging solutions across similar spend categories.

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And, while many will recognize the wisdom o keeping a centralrepository o inormation, data, documents, and so orth, highperormers oten take this a step urther, parsing and structuring

strategic procurement data in ways that can dramatically increasetheir capabilities or manipulating, combining with other inorma-tion, and leveraging accumulated sourcing knowledge or manyyears into the uture.

Some tactics or embedding and ensuring process consistencyinclude:

Centralize information platform; all users work off a singleinstance o inormation; ensure that inormation fows easilyand automatically rom one process step to the next.

Identify talent and provide them with incentives throughpersonal perormance plans to become process and projectmanagement experts (may require outside education).

Carve out time for sourcing professionals to assess what theylearn, and to continually build, rene, and enrich knowledgemodels/structured decision trees that can be embedded intostrategic sourcing workfow.

Cultivate experts/power users of technology tools such ase-sourcing events, decision optimization engines, and sophisti-cated spend analytics platorms; make it their jobs to push thelimits o the technology then teach the larger organization

how to do it.

Simple decision support toolslargely intuitive and oten subjec-tive weighting systems or balancing actors like price against qual-ity, leadtime and other actorsare airly ubiquitous in strategicsourcing and procurement management organizations at all levelso perormance.

An emergent practice or higher-level perormers is to use sophis-ticated optimization engines or modeling and testing dierentconstraints and what iscenarios to optimize business award and

other supply chain processes (Fig31). So, or example, Here arespecications we have dened or this particular line item o spend: Xeature set, Y set o supplier perormance terms, and Z set o contract terms.Heres the RFP data we have collected rom the marketplace in response tothe specications we have set. Now, what is the best number o suppliers touse? Which suppliers should we choose based on their responses? What hap-pens i we make our supplier perormance values just a tiny bit less rigor-ous or alter our eature set in some small way? Can we get a bigger impacton cost by adjusting what was probably an arbitrary set o specications tobegin with?

33

FIGURE 31

Use complex optimizationengines for decision support

High2 High1 Mid

Embedded

Low

{


Score

Strategic procurement groups have yet to makeull use o the sophisticated decision-support toolsavailable on the market. As with TCO model-ing, there may be an opportunity or signicantcompetitive advantage i the correct skill sets canbe established.

Its a good idea to centralize procurement inorma-tion; its a great idea to structure procurement dataso it can be manipulated and used innovativelyby uture sourcing proessionalsin ways, perhaps,that have yet to be imagined.

FIGURE 30

Keep sourcing program dataand docs in structured database

High2 High1 Mid

Embedded

Low

{


Score


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epilogu: Supernovaor strategic force for change?The Purchasing/ZYCUS study nds a small cadre o enterprise-levelstrategic sourcing organizations claiming very high perormanceresults with little or no corresponding evidence o best-processmaturity or consistency. Clearly, these organizations are riding acrest o raw CEO and/or CFO support that views strategic sourcingonly as a short-termsay, 3-5 yearx or the balance sheet, rather

than a long-term approach to sustaining protability and improvingglobal competitiveness by making wise sourcing and spendbehaviors an ingrained part o the larger corporate culture.

Fortunately, this is a small minority. Its ar more common to ndenterprise-level strategic sourcing organizations evolving slowlytoward maturity, mainly because they are introducing and embed-ding best practices and processes by trial and error rather than byplan or design.

Let the remainder o this BOOK serve

as a process reerence guide intendedto coner the benets o experimenta-tion already undertaken by trail-blaz-ing, high-perormance procurementgroups. Use it to plot and, perhaps,speed up your path to strategic sourc-ing and procurement managementmaturity, to position your organiza-tion or long-term survival and sus-tainable delivery o corporate peror-mance improvements that reach ar

beyond the delivery o cost savings.

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PE SCORE: 7/10. Typical timeline: Emerges at 1-3 years, becomes embedded at 5+ years. Strongest perormance impacts: Value delivery, all transitions; spendnder management, rst to second and third to ourth quartiles.

PE SCORE: 8/10. Typical timeline: Emerges at 1-3 years, becomes embedded at 3-5 years. Strongest perormance impacts: Value delivery, all transitions; spendnder management, third to ourth quartile.

PE SCORE: 9/10. Typical timeline: Emerges at year one, becomes embedded at 1-3 years. Strongest perormance impacts: Value delivery, all transitions; spendnder management, second to third and third to ourth quartiles.

AppenDIx

PROCESS

ca sd daa i is (erp, Ap, -ad, hk qss, t&e, )

All

Total valudlivy/aving

High

Med

Low

Pocconitncy cal

emBeDDeD preSent But not emBeDDeD rAre or nonexIStent

Pcnt o pndund managmnt

0-24%

25-49%

50-74%

75-100%

PROCESS

naiz, a, aggga sd daa

All


High

Med

Low

Pocconitncy cal



0-24%25-49%

50-74%

75-100%

PROCESS

cagiz, assiy sd daa

All


High

Med

Low

Pocconitncy cal



0-24%

25-49%

50-74%

75-100%

return to tABle

return to tABle

return to tABle


41/63

PROCESS

Si ad di sd daa a daid i v

All

Total valu

dlivy/aving

High

Med

Low

Pocconitncy cal



0-24%25-49%

50-74%

75-100%

PROCESS

rak ia iiiaivs: aa ss adig va divy ia

All


High

Med

Low

Pocconitncy cal



0-24%

25-49%

50-74%

75-100%

37

PE SCORE: 9/10. Typical timeline: Emerges at 1-3 years, becomes embedded at 3-5 years. Strongest perormance impacts: Value delivery, all transitions, spendnder management: second to third and third to ourth quartiles.

PE SCORE: 8/10. Typical timeline: Emerges at 1-3 years, becomes embedded at 3-5 years. Strongest perormance impacts: Value delivery, all transitions; spendnder management, second to third quartile.

PE SCORE: 8/10. Typical timeline: Emerges at 1-3 years, becomes embedded ater year ve. Strongest perormance impacts: Value delivery, all transitions;pend under management, second to third and third to ourth quartiles.

AppenDIx

PROCESS

D ad aivy ak sss sis ad bfs

All


High

Med

Low

Pocconitncy cal



0-24%

25-49%

50-74%

75-100%

return to tABle

return to tABle

return to tABle


42/63

PROCESS

us ss-ia/divisia as

All


High

Med

Low

Pocconitncy cal



0-24%

25-49%

50-74%

75-100%

PROCESS

Fa sss sis i s ha aa sd sakhds

All

Total valu

dlivy/aving

High

Med

Low

Pocconitncy cal



0-24%25-49%

50-74%

75-100%

38

PE SCORE: 7/10. Typical timeline: Emerges at 1-3 years, does not become embedded. Strongest perormance impacts: Value delivery, all transitions; spendnder management, third to ourth quartile.

PE SCORE: 9/10. Typical timeline: Emerges in year one; becomes embedded at 1-3 years; loses requency in years 3-5 as groups transition to more grassrootsollaboration. Strongest perormance impacts: Value delivery, low to intermediate transition; spend under management, rom second to third/ourth quartiles.

PE SCORE: 9/10. Typical timerame: Emerges in years 1-3, becomes embedded ater year ve. Strongest perormance impacts: Value delivery, all transitions;pend under management, rom second to third and third to ourth quartiles.

AppenDIx

PROCESS

pa as wih bs i , ss-ia, ad agy is

All


High

Med

Low

Pocconitncy cal



0-24%25-49%

50-74%

75-100%

return to tABle

return to tABle

return to tABle


43/63

PROCESS

Ask bdg sakhds aiia i wiig ad vaidaig sifais

All


High

Med

Low

Pocconitncy cal



0-24%

25-49%

50-74%

75-100%

PROCESS

Vaida savigs h va hgh fa ad/ bdg hdig gaizais

All


High

Med

Low

Pocconitncy cal



0-24%

25-49%50-74%

75-100%

39

PE SCORE: 9/10. Typical timeline: Emerges at 3-5 years; does not become embedded. Strongest perormance impacts: Value delivery, all transitions; spendnder management, rst to second and third to ourth quartiles.

PE SCORE: 7/10. Typical timeline: Emerges at 1-3 years; becomes embedded ater year ve. Strongest perormance impacts: Value delivery, all transitions;pend under management, rst to second quartile.

PE SCORE: 8/10. Typical timeline: Emerges at 1-3 years, becomes embedded ater year ve. Strongest perormance impacts: Value delivery, low tontermediate; spend under management, rst to second and third to ourth quartiles.

AppenDIx

PROCESS

c-a a bs wih sd sakhds

All

Total valu

dlivy/aving

High

Med

Low

Pocconitncy cal



0-24%

25-49%

50-74%

75-100%

return to tABle

return to tABle

return to tABle


44/63

PROCESS

Ask bdg sakhds as hi dad

All

Total valu

dlivy/aving

High

Med

Low

Pocconitncy cal



0-24%

25-49%

50-74%

75-100%

PROCESS

Ask bdg sakhds is aiia i sagi as

All


High

Med

Low

Pocconitncy cal



0-24%

25-49%50-74%

75-100%

PROCESS

caba wih bdg sakhds ih ak dw bdgs ivs savigs

All


High

Med

Low

Pocconitncy cal



0-24%

25-49%

50-74%

75-100%

40

PE SCORE: 8/10. Typical timerame: Emerges in year one, becomes embedded in years 1-3. Strongest perormance impacts: Value delivery, low to intermediateransition; spend under management, rom rst to second quartile.

PE SCORE: 9/10. Typical timerame: Emerges in years 1-3, becomes embedded ater year ve. Strongest perormance impacts: Value delivery, all transitions;pend under management, rom rst to second and third to ourth quartiles.

PE SCORE: 9/10. Typical timerame: Emerges in years 1-3, does not typically become embedded. Strongest perormance impacts: Value delivery, low tontermediate; spend under management, rom third to ourth quartile.

AppenDIx

return to tABle

return to tABle

return to tABle


45/63

PROCESS

us hgy s k dw sd

All


High

Med

Low

Pocconitncy cal



0-24%

25-49%

50-74%

75-100%

PROCESS

us iis k dw sd

All

Total valu

dlivy/aving

High

Med

Low

Pocconitncy cal



0-24%

25-49%

50-74%

75-100%

PROCESS

ti sa ad bsiss-v a gas sagi iiiaivs

All


High

Med

Low

Pocconitncy cal



0-24%

25-49%

50-74%

75-100%

41

PE SCORE: 7/10. Typical timerame: Emerges in years 1-3, becomes embedded ater year ve. Strongest perormance impacts: Value delivery, all transitions;pend under management, rom third to ourth quartile.

PE SCORE: 8/10. Typical timerame: Emerges in years 1-3, becomes embedded ater year ve. Strongest perormance impacts: Value delivery, all transitions;pend under management, rom second to third and third to ourth quartiles.

PE SCORE: 8/10. Typical timerame: Emerges in years 1-3, becomes embedded in year ve or ater. Strongest perormance impacts: Value delivery allransitions; spend under management, rom rst to second and third to ourth quartiles.

AppenDIx

return to tABle

return to tABle

return to tABle


46/63

PROCESS

es ha a i s ahivd i as a d (diss, bas, )

All

Total valu

dlivy/aving

High

Med

Low

Pocconitncy cal



0-24%

25-49%

50-74%

75-100%

PROCESS

mas ia ia as

All


High

Med

Low

Pocconitncy cal



0-24%

25-49%

50-74%

75-100%

PROCESS

r ia sads

All


High

Med

Low

Pocconitncy cal



0-24%25-49%

50-74%

75-100%

42

PE SCORE: 8/10. Typical timerame: Emerges in year one, becomes embedded in years 1-3. Strongest perormance impacts: Value delivery low to intermediate;pend under management, rom rst to second and third to ourth quartiles.



AppenDIx

return to tABle

return to tABle

return to tABle


47/63

PROCESS

rwad/aiz bdg sakhds ia/ia

All

Total valu

dlivy/aving

High

Med

Low

Pocconitncy cal



0-24%

25-49%

50-74%

75-100%

PROCESS

mas si ia a s sd i as

All


High

Med

Low

Pocconitncy cal



0-24%

25-49%

50-74%

75-100%

PROCESS

us sadad sagi sig ss

All


High

Med

Low

Pocconitncy cal



0-24%

25-49%

50-74%

75-100%

43

PE SCORE: 8/10. Typical timerame: Emerges in years 1-3, does not typically become embedded. Strongest perormance impacts: Value delivery, all transitions;pend under management, rom third to ourth quartile.

PE SCORE: 7/10. Typical timerame: Emerges in years 1-3, becomes embedded ater year ve. Strongest perormance impacts: Value delivery, all transitions;pend under management, rom rst to second and third to ourth quartiles.

PE SCORE: 8/10. Typical timerame: Emerges in year one, becomes embedded in years 3-5. Strongest perormance impacts: Value delivery, all transitions;pend under management, rom third to ourth quartile.

AppenDIx

return to tABle

return to tABle

return to tABle


48/63

PROCESS

us sadad s --ay sss

All

Total valu

dlivy/aving

High

Med

Low

Pocconitncy cal



0-24%25-49%

50-74%

75-100%

PROCESS

mi ad aag as gss

Documents

The Path to Procurement Excellence