beyond procurement survey results

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Executive summary

1 Source: Beyond Procurement online survey

•  Procurement is under constant and increasing pressure to deliver more, however the development of new solutions has evolved at a slower pace than the growing expectations.

•  The contribution of the function could be significant to yield higher levels of firm-wide productivity, yet is often confined within current mandate to drive compliance and cost savings

•  The survey aimed to identify “what‘s next” for the function, moving from securing supply to globally and holistically managing company spend, and specifically to validate the hypothesis that the biggest impact would come from the following options: a)  Better leverage the supply base to spark greater innovation b)   Apply and combine proven productivity approaches across the entire cost base

•  119 participants: Experienced professionals in mid- or high-level managerial positions (incl. CPOs, COOs, CFOs) from various functions (e.g. procurement, finance, business) and industries (e.g. Engineering/Manufacturing, FMCG, Pharma) to get an exhaustive rather than single dimensional overview on the topic

•  Geographic focus on Europe, North America, and Asia

Purpose of the survey

Reach and relevance

Results and findings

•  “Innovation Sourcing” and “Total Cost-Base Management” come out as the two most promising options in terms of performance and feasibility, which validates the survey hypothesis

•  “Global Business Services” expected to continue delivering high returns, although the approach appears to be already implemented in many organizations

•  Looking forward, participants plan greater external involvement via “Extended SRM” (e.g. helping build LSS capabilities at suppliers) to deliver additional value. However the function may lack the required capabilities to drive further

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TCBM2

Extended SRM3

Sourcing Innovation

From a long list of productivity options, the survey distilled four concrete approaches to deliver high results

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1 Based on implementation priority and return performance; 2 Total Cost Base Management; 3 Extend SRM building up lean/6-sigma capabilities at suppliers

Source: Beyond Procurement online survey

TCBM2

Global Business Services

Sourcing Innovation

Importance1 today

Importance1 in the future

Top 3 options for procurement voted1 Four main productivity options to pursue

THE CHAMPIONS Both options Sourcing Innovation and TCBM2 rank amongst the highest in terms of implementation priority as well as actual / expected return (ranging from 4 – 5 %); today as well as in the future

THE NEWCOMER Extended SRM3 shows the highest increase in importance. An average return of ~5% ist expected from this option

THE VETERAN Continuing to deliver high returns of ~5%, participants still highly value GBS, but do not expect further implementation efforts

Focus of the next pages

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Deep dive discussion of top option: Innovation Sourcing


• Better leverage the supply base’s potential to drive product and process innovations by defining a well-managed and replicable process

• Recognize and incentivize for “innovation sparks” at suppliers through a burning platform that considers elements of close relationship as well as extraordinary pressure

• Preserve disruptive innovations from getting rejected in their early development phase through internal skepticism and biased review process

Description of productivity option

Survey results1

Implementation priority

today future Comment

Actual / expected return

Organizational readiness

Capability proficiency

Very high

Very high

Respectively ranking #2 (today) and #1 (future) – out of 10

About 5% annual productivity increase expected

Average to high

One of 3 top options that are supported / required by the org.

n/a Currently only some professionals show the required capabilities

1 Detailed results and scores - please refer to backup

Very high

Very high

Average

n/a

Survey item

Average level,

Upcoming research on…

3

…how to leverage potential:

§  How can procurement ensure to “trigger and spot innovation sparks”?

§  What is the right supplier management / relationship / governance to improve suppliers‘ innovativeness?

§  How can the function overcome allergies to disruptive change internally?

…how to increase procurement‘s capabilities:

§  Which profile of a procurement professional required for innovation sourcing?

§  What are appropriate performance measures for sourced innovations?

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Deep dive discussion of top option: TCBM


Description of productivity option

Survey results1

today future Comment



Very high High Respectively ranking #3 (today)

and #5 (future) – out of 10

Expected return increases from ~4% to ~5%

Average Amongst top 60% of options that are supp. / required by the org.

n/a Average proficiency level of procurement professionals

1 Detailed results and scores - please refer to backup

High Very high

Average

n/a

Survey item

Average level,

Upcoming research to…

… better understand:

• What industries and areas (F&A, Commercial, Production,…) are best suited for TCBM?

• Key drivers and initiators behind adopting approach?

• Which processes / functions other than Procurement, LSS, and O&O are typically included in TCBM?

• Major organizational barriers and how they were overcome?

… validate:

• Actual % savings returns generated by TCBM

• What other KPIs/metrics are used to demonstrate versatility of new combined organization

• Increase in Sr. Execs in organizations who’s career included TCBM

Implementation priority

Actual / expected return

• Comprehensive method of managing all costs, both internal and external.

• Combines existing functions like Procurement, Offshoring & Outsourcing (O&O), and Lean / Six Sigma (LSS) into a single organization, with robust project management approach

• Offers end-to-end cost management team which help organizations diagnose, drive, and deliver optimization projects

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BACKUP

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Overview of survey results – Performance measures

6 SOURCE: Beyond Procurement online survey

Top line contributor

Sourcing innovation

TCBM1

GBS2

Risk protect. / mgmt.

Take over operations

Next level collab. buying

Int. consultant

Extended SRM

Embed func. Into bus

Option

Implementation priority Positive answers in percent

Today / status quo

Estimated return In percent

Total performance score In percent

Future outlook

52

43

67

26

56

77

62

68

70

60

3,7

3,3

3,2

4,4

2,5

2,3

4,8

4,2

2,9

4,0

19

13

44

0

15

8

58

57

87

50

55

65

70

59

44

74

55

62

74

56

3,7

4,8

4,5

5,3

2,6

3,6

5,0

5,2

2,9

4,8

27

58

34

18

0

0

38

48

88

40

Implementation priority Positive answers in percent

Estimated return In percent

Total performance score In percent

Top 3 options per item

Number of “yes” answers compared to total answers of whether option is (currently being) implemented

Actual / estimated return per option as implemented / planned at the moment

Importance score of current situation of options combining indices of the prior two questions

Expected return per option for the future

Importance score of current situation of options combining indices of the prior two questions

Number of “yes” answers compared to total answers of whether to implement option in the future

1 Total cost base management 2 Global business services

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Overview of survey results – Feasibility measures

7 SOURCE: Beyond Procurement online survey

Top performing options in terms of implementation priority and expected returns (see previous page)

2

3

4

2 3 4

Organizational readiness Grades: 1 (low) to 5 (high)

Embed function in bus.

Extended SRM

Int. consultant

Next level coll. buying

Take over operational act.

Risk protect.

GBS TCBM

Sourcing Innovation Top line contr.

Capability proficiency Grades: 1 (low) to 5 (high)

Willingness of the respondents’ company to implement

Skills / ability of the procurement function to successfully drive the respective option forward

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Identified “Top Ten Options” for Procurement to drive company-wide productivity (1/2)

Leverage the process, transferable skills, and internal capabilities to impact sales growth. Examples of this include training the sales team on negotiations, applying mastery of contracts in the areas of business development or licensing, or creating a new offering all together which can then be offered to external customers.

Top-line contributor

Comprehensive risk management

Global business services

Total cost base management

Innovation Better leverage the supply base’s potential to drive product and process innovations by recognizing (and even creating) “innovation sparks” and developing them through a well-managed and replicable process. Since innovation is best triggered not by adding money but rather when facing financial constraints, the pressure to realize savings can represent a useful burning platform.

Beyond the specific role of ensuring compliance when committing funds to 3rd-parties, this area seeks a more comprehensive and proactive approach to mitigating risks for the company. For example moving from the usual approach of having key categories supported by back-up suppliers to a full supply risk management and business continuity plan.

Combining proven approaches and processes such as Demand Management , LEAN/Six-Sigma, and Offshoring & Outsourcing, offering a broader range of solutions to internal stakeholders. This also allows Procurement’s scope to expand beyond 3rd-party spend.

An approach adopted by many leading global organizations, which streamlines non-customer facing activities and aggregates them into an internal unit that services the rest of the business.

1

2

3

4

5

SOURCE: Beyond Procurement online survey

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Often as a result of category projects Procurement can be left holding the operational responsibilities when the function which previously owned it is reduced or in some cases outsourced (e.g. Travel, Fleet, Facility Management,...).

Take over operational activities

Embed function into business

Extended SRM (building lean / 6 sigma capabilities at suppliers)

Internal consulting / Project management

“Next level” collaborative buying

In contrast to the various current forms of consortium buying, this approach recognizes the risks of collaborative sourcing and capitalizes on Procurement’s ability to scan joint buying opportunities but de-risk the benefit stream through the creation of individual joined ventures focused at narrow categories of spend.

Take a critical look at Procurement’s scope and identify which categories of spend are better managed centrally (typically general/corporate spend etc...), as well as infrastructure related activities (Guidelines, Training, Talent Development,...), and consider embedding the Procurement resources for more customer –focused categories directly in the line-functions.

Since most category initiatives are usually complex initiatives which require cross-functional leadership skills and strong stakeholder engagement, Procurement could take these skills to the next level and turn into an internal capability which offers an alternative to external consultants.

A variation of some others above, this applies the LSS process early in the production cycle by ensuring a clear and relentless focus on the Voice of Customer, removing all activities considered non-value added and which bring unnecessary costs. There have been many good examples of this in the Direct areas, but not as many in the Indirects categories.

6

7

8

9

10

SOURCE: Beyond Procurement online survey

Identified “Top Ten Options” for Procurement to drive company-wide productivity (2/2)

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Questions from online survey


Future expectations

LOOKING AHEAD - In the next two years: •  Please indicate which of the listed Top-10 options' are planned to be rolled-out

(i.e. implementation importance) •  If so, what return is expected for each option •  What function will be responsible for driving the implementation / taking the

option over


•  Please answer for each option what is TODAY the level of Organizational Readiness (i.e. the willingness of your company to implement it). Answer using range of 1 (very low) to 5 (very high).


•  Please answer for each option what is TODAY the Capability Proficiency (i.e. skill / ability of the Procurement function to successfully drive). Answer using range of 1 (very low) to 5 (very high).

Status quo LOOKING BACK - In the past two years: •  Please indicate which of the listed Top-10 options have been implemented (i.e.

implementation importance) •  If so, what return was achieved for each option •  What function was responsible for driving the implementation / taking the option

over

PERFORMANCE

FEASIBILITY

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Survey statistics of participants and their companies

Total number of participants: 119

26

1810

18

28> 26

11 - 25 6 - 10

1 - 5

< 1 21

16

24

24

15> 100

1 - 10

10 - 50

50 - 100

< 1

Employees [1000 FTE] Revenue [EUR bio]

24

6677 10

40

Utilities Biz Services

FMCG Eng./Manuf.

Pharma

Telecom

Other 10

23

65

Other 2

Asia

NA

EU

810

10

72

Finance Biz Stakeholder

COO/CEO

Procurement

Function Geography Industry

Source: Beyond Procurement online survey 11

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Prof. Dr. Michael Henke Head of Institute Phone +49 611 7102 2100 [email protected] www.ebs.edu/iscm

Dr. Daniel Hollos Project Manager for Industrial Research Projects Phone +49 611 7102 2138 [email protected] www.ebs.edu/iscm

Additional contacts - Authors and contributors to the survey:

Dipl.-Ing. Matthias Kaesser External Doctoral Candidate (on educational leave at McKinsey & Company) Phone +49 89 5594 8586 [email protected] www.ebs.edu/iscm

Sammy Rashed, MBA Global Head of Productivity Strategy & PMO, Novartis Pharma AG Executive Partner for Corporate Research, Institute for Supply Chain Management Phone +41 79 593 9121 [email protected]

Giles Breault, MBA, C.P.M., MCIPS Former CPO, Roche & Aventis, Head of Global Productivity and Business Services, Novartis Pharma AG Chairman of Advisory Board – Procurement Leader Network Phone +41 79 820 3706 [email protected]

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Practitioners Academia EBS Business School, Institute for Supply Chain

Management – Procurement and Logistics

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beyond procurement survey results

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