1 File name

CPO Strategy 2013

&

The Future Role of Procurement

Tom Seal

Head of Research,

Procurement Leaders Network

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A Shared Direction

Build Skills &

Knowledge

Minimise

headline

prices

Minimise delivered cost

from third-party suppliers

Work with the internal

organisation to

develop optimum

supply specifications

Minimise the Total Cost

of Ownership across

the supply network and

product/service life.

Maximise the

value recognized by

the end customer.

Engage critical third-party

suppliers to develop competitive

supply and usage solutions

Integrate the end-to-end

supply network to define

and deliver customer needs

Price Cost Total Cost of Ownership Value

Co

mp

ete

nc

e

Co

op

era

tio

n

Co

llab

ora

tio

n

Co

he

ren

ce

Org

an

iza

tio

na

l M

atu

rity

Business Maturity

We all share a similar development path

Sourc

e: D

r Ian G

eorg

e

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A Century of Change

Firs

t Wo

rld W

ar

Se

co

nd W

orld

Wa

r

0

2

4

6

8

10

12

14

16

18

20

1890 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010

Deg

ree

of

Inte

gra

tio

n

Year

Ve

rtical C

on

so

lidatio

n:

Ma

ss P

roductio

n

Horiz

on

tal C

on

so

lida

tion:

Th

e C

on

glo

mera

te

Horiz

on

tal C

on

so

lida

tion

Horiz

on

tal C

on

so

lida

tion:

Th

e H

ostile

Ta

ke

ove

r

Horiz

on

tal C

on

so

lida

tion:

Th

e M

eg

a-D

ea

l

Horizontal Integration = Internal Complexity

Outsourcing = External Complexity

Horizontal

Integration

Vertical

Integration

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Procurement’s Progress

0

10

20

30

40

50

60

70

80

90

100

0 10 20 30 40 50 60 70 80 90 100% o

f S

pen

d w

ith

a C

ate

go

ry P

lan

% Spend Under Management

65%

52%

72%

56%

Spend underManagement

Spend under ExecutedCategory Strategies

2010

2011

Maturity Indicators

We gain control of

additional spending far

more readily than we can

execute category plans

It will take a decade to

complete what we have

started

Relationship Between

Category Strategies and Spend

Under Management

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2

3

4

< 33% Spend UnderManagement

34% - 65% SpendUnder Management

> 66% Spend UnderManagement

A Broader Role

High

Priority

Priority

Not a

Priority

Priorities Evolve with Functional Maturity

We only ever take on more responsibilities

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Investment

€ 0

€ 5.000.000

€ 10.000.000

€ 15.000.000

€ 20.000.000

€ 25.000.000

51-60% 61-70% 71-80% 81-90% 91-100%

% Spend Under Management

Sp

en

d p

er

Bu

ye

r

Spend per Buyer

We must grow our teams to fulfill our new

responsibilities

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0,00%

10,00%

20,00%

30,00%

40,00%

50,00%

60,00%

Technology Investment

Strategic sourcing tops the list

On which technologies are you most focused?

(ranking question, chart shows ranks 1 – 3)

Ranked 1

Ranked 2

Ranked 3

Source: SAP, 2011

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Changing Focus

-5 -4 -3 -2 -1 1 2 3 4 5

Stakeholder management

Supplier performance management

Sourcing activities

Cost management

Staff development

Supplier risk management

SRM

Innovation

We must grow our teams to fulfill our new

responsibilities

Change in resource prioritization from 2012 to 2017

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Innovation

How do you encourage

innovation in your supply

chain?

Procurement can't

significantly influence

innovation (3%)

We rely on

suppliers &

potential

suppliers to

bring us

innovation

(25%)

Innovation is

something we can

deliver through

processes (40%)

We rely on

entrepreneurial

behaviour to

deliver

innovation

(32%)

No consensus yet on

the best approach to

supply innovation

• Innovation is seen as being the

most powerful way of

delivering “value”

• Those who can deliver it are

seen as rare and talented

• It is notoriously difficult to

encourage innovation

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2020 Mega Trends

Global Mega Trend What it Means Phase

Socially Responsible

Corporations

Consumers and investors will associate themselves with

organisations that support their ethical ideals.

Early

The Rise of Asia The transition from low cost markets to key customers. Mid

Persistent Insecurity Individuals and corporations will perceive a constant risk

of cyber attack and terrorism.

Mid

Scarcity of Natural

Resources

We will move beyond straight forward inflation, the supply

of critical resources will no longer be a question of money.

Early

Diversification of

Offering

Companies will provide ever more personal and

customised services to their customers.

Early

Leading From The

Middle

In 2020 middle managers will take over from CEOs as the

dominant force.

Early

Localisation As emerging markets become critical customers we need

to tailor products to many geographies.

Mid

We believe it is unlikely that a mega trend will be

affecting us in 2020 that we can’t observe to some

extent in 2012.

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5 Forces Driving Green Procurement

Consumers demand green

products and services.

Organisations market

their green offerings to

consumers.

Regulations force

companies to change

their practices to

protect the

environment

Buying

Organization Consumers

1

2

Government

3

Suppliers

4

5

Procurement places

environmental demands

on suppliers

Suppliers influence their

customers

We will all be influenced differently

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Four “Green” Methods

Difficulty

Re-engineer and educate Switch

Make obsolete Sponsor

• Green alternatives already available

• Significant business change required

• Competitive pressure to green

Cars

• No substitute yet available

• May require consumer education

• A problem best solved as a

community • Environmental demand management

• Communicate policies/empower

Sea

Freight

Packaging

Water

coolers

Org

an

isa

tio

n’s

En

vir

on

me

nta

l Im

pa

ct

Procurement have the skills required to lead CSR

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Organizational Design

0,00%

10,00%

20,00%

30,00%

40,00%

50,00%

60,00%

Centralized Center-Led Decentralized Matrix

2011

2013

How is your procurement organization structured

today and in two years’ time?

• Centralization remains a strong trend

• Decentralized nearly obsolete

Source: SAP, 2011

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Category Management

Supplier Supplier Supplier

Procurement Procurement Procurement

Production Production Production

Marketing Marketing Marketing

Sales Sales Sales

Business

Unit

Business

Unit

Business

Unit

Supplier Supplier

Procurement Procurement

Production Production

Marketing Marketing

Sales Sales

Tier X Tier X

Business

Unit

Business

Unit

Category Management Value Chain Management

Supplier rationalization

Category consolidation

Standardization

Leveraging scale Transparency

Profit not cost

Capitalization of position in the supply

chain

Category management will evolve

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56% 25%

16%

3%

It has made procurement more of a priority

It has made procurement more of a priority and hasreceived additional resources

It has not affected other functions' attitudetowards procurement

It has been a threat to procurement in its currentform

Procurement’s Profile

How has the recession impacted your

procurement function?

Has procurement damaged it’s reputation?

• The function raised it’s profile

over the last 3 years

• Relationships have been built,

but may have reinforced

negative procurement

stereotypes

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Actions For 2013

Innovation:

Take the next step in capitalizing on ideas from the

supplier base

CSR:

Segment & prioritize purchases and/or suppliers

Organizational Design:

Experiment with business unit specialists where

category management benefits are tailing off