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World class procurement and your business

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A world class procurement function is one that has a measureable impact on the organisation’s profit and loss and adds real commercial value. Find out how effective use of innovation and smarter working can help you get there.

Presented by: Gerard Chick, FCIPS (Optimum Procurement) at PfH Live 2014

Publié dans : Business, Formation
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World class procurement and your business

  1. 1. What is world class procurement? Gerard Chick Chief Knowledge Officer Optimum Procurement Group
  2. 2. My Agenda today An quick outline of Optimum Procurement Group A little bit of background on procurement’s evolution A look at what has brought this change about – and how you can take steps to position procurement in your organisation Some discussion on contemporary procurement skill sets What good looks like A couple of takeaways for you to think about.
  3. 3. Value through procurement Optimum Procurement in 30 seconds… A recognised global player in procurement outsourcing An enterprising approach to market © 2014 OBS Group Ltd. © 2014 OBS Group Ltd.
  4. 4. What is contemporary procurement? The emergence of procurement as a profession… Supply Management, unheard of in the 1970s, core to today’s organisation; as a concept it was born at the beginning of the 1980s. So why is that… well predominantly due to the rise of professional managers (1960s on) and the focus on annularity as a consequence of the principle of Shareholder Value Maximisation in the 1980s Looking back the trends this created are easy to spot: •The 1980s was about the demands of just-in-time •The 1990s it was all about outsourcing and offshoring •The 2000s it was the emergence of IT solutions •The 2010s thus far has been all about risk built in the previous 3 decades!
  5. 5. Value Proposition Role of Supply Management Increasingvalueanddevelopmentofsupply-sidecapabilities … and at the right price and quality; Purchase Cost Reduction Negotiations Total Cost of Ownership Reduction … and by reducing total supply costs. Cost modelling; supplier/market analysis; supplier management; SRM; supply planning; project management; risk management. Achieving Cost reducer Supply Assurance Site-level tactical sourcing, ordering and expediting Right stuff, right place, right time; Demand Management Reduction of unneeded demand activity, complexity, immediacy and variability; Customer relationship management; money management; demand/specification influence Exceeding Supporting business strategy … ultimately stimulating good demand and increasing business value derived from spend (and supply markets) rather than simply reducing spend magnitude. Value Management Safely harnessing the power of supply markets for competitive advantage Leading Influencing business strategy World Class Procurement Value-add Procurement Procurements accepted role Lagging Fire-fighter © 2014 OBS Group Ltd. Procurement maturity: understanding performance versus value…
  6. 6. Modern Procurement’s ‘operating space’ Managing Markets Performance Measurement Risk Governance (public-private) Supply Management Innovation Management Knowledge & Learning Sustainability Product-service Innovation Discontinuity Procurement Outsourcing Relationships Contracts Alliances Complexity Through Life Capability Complex Products & Services Lifecycle Management Temporal Dynamics 4 domains © 2014 OBS Group Ltd.
  7. 7. Low High High Profitimpact Supply risk 1- 9 yrs 10 - 50 yrs Co-creationofvalue ContractualfocusRelationalfocus Traditional procurement Procuring routine performance Complex contractual management PCP CoPS e.g. PFI Has your remit moved beyond just traditional procurement? PCP: Procuring Complex Performance e.g. the contracts; relationships; integrations necessary to deliver and manage complex performance CoPS: Complex Product Systems e.g. capital projects, oil rig production, industrial machinery, and aerospace (Adapted: Kraljic, 1983)
  8. 8. © 2011 OBS Group Ltd. The five game changers DEVELOPING ECONOMIES 18% 18% 15% 25% 24% CHANGING DEMOGRAPHIC
  9. 9. Taking a practical approach to improvement: introducing the Ace Model - Aspiration, Capability and Execution Capability : How good are the people and processes you have today what do you need to bring about change? Execution : What performance level is required for efficiency and effectiveness? Aspiration : What do you want Supply Side Management to be? Implementing Change Readiness for Change Planning Leadership & Direction Processes Organisation & Resources Behaviours Systems & Controls Need for Change External/internal drivers of change Planning Leadership & Direction Processes Organisation & Resources Behaviours Systems & Controls Need for Change
  10. 10. Procurement professionals need to get savvy professional; polished; intelligent; respected; influential; persuasive; visionary; strategic; sharp; global; collaborative; executive; business savvy. These are what procurement and business leaders will expect of the future supply professional. A new definition of ‘expert’ a significant characteristic of the new supply professional is the extent and depth of his or her knowledge; they will become “students of their industry”.They will know everything, from the science, economics, law and politics of their supply markets on a global scale. The battle for Talent there is considerable opinion regarding the talent pipeline. Is it too sparsely populated to meet the demand for strategic supplier-facing professionals that will develop this decade? The outcome will be intense competition to attract the best and brightest but on their terms. The skill sets of procurement professionals must change!
  11. 11. PROCUREMENT COMPETENCE Knowing what procurement tools and techniques are available to you the practitioner. Understanding when it is appropriate to use particular tools and techniques under specific circumstances to deliver corporate goals operationally. Knowing in detail the range of contingent supply chain market circumstances which face you the practitioner. Strategic goals must be clearly articulated in supply chain terms. KNOWLEDGE 1 KNOWLEDGE 2 UNDERSTANDING STRATEGIC CLARITY Procurement competence is based a knowledge mix © 2014 OBS Group Ltd.
  12. 12. Technology - smart phones, tablets, embedded chips, have created a mobile work environment for procurement professionals Tech Savvy They will be professional; polished; intelligent; respected; influential; persuasive; visionary; strategic; sharp; global; and collaborative. Business Savvy Procurement professionals will know everything, from the science, economics, law and politics of their supply markets on a global scale. Students of Industry Procurement professionals will generate consensus around how to measure risk, and access standardised, readily available information for operational risk assessment. Risk Aware Procurement professionals need to be data experts, able to see major trends and important takeaways in a mass of data at a glance. Analytics Procurement professionals will deliver strategic impact, in organisations they just won’t be part of a large, discrete, enterprise-level function any more. Enablers Procurement professionals will focus on profitability, but will they concentrate on cost savings or revenue growth to get there. These people will make and take that decision Executive Procurement professionals will share risks and rewards in contracts, and will accept greater risk in relationships so as not to de-motivate suppliers. Commercially Prudent Part Commercial Part Analyst It’s all about people: the ‘bimodal’ procurement professional
  13. 13. Positive Value Drivers Cost Capital assets Revenue Negative Value Drivers Defects/Failures Cost Cost of Next Best Viable Substitute Economic Value Unique costs Unique economic advantage Differentiation Value Value is difficult to define precisely moreover it is used frequently, loosely and in a number of contexts. In Supply management value has the following connotations: • Value is relative to an alternative – value cannot be judged in isolation. • Value is composite and decomposable – value can be analysed into a set of value drivers – for example - time, cost, quality and service • Value can be used in several contexts – in B2B relationships it tends to be economic in nature, but it is essentially qualitative the emotional, environmental and social value may also be considered. • Value is measureable/quantifiable – economic value might be see as revenue generation , or cost savings; but other aspects have their own forms of measures such as Intellectual Property Rights. Value in the context of procurement “The customer never buys a product. By definition the customer buys the satisfaction of a want. He buys value.” Value is in essence, utility, i.e. the total satisfaction derived from a good or service.
  14. 14. Value: procurement’s latest game changer Is it time to re-evaluate strategic procurement and look to establish Value Procurement? Today procurement professionals are under considerable pressure to deliver value adding business performance – but what might this entail? It is no longer enough to build a supply management capability that is efficient, demand-driven and transparent – perhaps this requires a market facing mind-set Procurement must offer the organisation something that is value adding; a new supply management where the strategic scope of procurement’s value is delivered via – innovation; a networked function and focus
  15. 15. Will value procurement will be category management’s legacy? Today procurement leaders face a dichotomy: Cost (reduction) - v –Value (creation) CPOs have think hard about how well they understand the market CPOs must be truly market facing; not focusing only on their internal clients and stakeholders; Procurement has reached a ‘tipping point’ CPOs must create an equilibrium in their focus between the business and the market it serves This is where the next big windfalls will come from, the next big gains, the next competitive advantage.
  16. 16. 10 things the best procurement organisations do! Leverage the full capability of their supply markets They help their organisation safely harness the power of supply markets to glean additional value from external spending – gate opener as well as gate keeper. Value can mean spending less, but also it means getting more utility from spend; so you influence (not just support) the business strategy. Have flexible rather than rigid operating models Adapts service delivery and transformation model to a diverse set of budget holders (functional partners) in the value chain rather than fixating on how to organise and control an n-step procurement process. Create clear value propositions that are understood and valued by stakeholders They create a very clear value proposition and “brand” that can be understood, articulated, and championed by the spend owners themselves. Performs “customer management” processes to ensure that they’re getting most value both from the suppliers, as well as Procurement. Engage in business spend planning, not just “spent analysis” Work with the business on “spend planning” as part of financial/operations planning and budgeting, gaining earliest influence, and providing forward-looking economic spend/supply information rather than forensic “spent analysis” activity – “post mortem” strategizing. Explicitly align to the business through a project portfolio plan They “join the dots” in tying metrics, processes, and capabilities to their value proposition (rather than working on them individually). There are many disjointed activities within the Procurement Project Portfolios of organisations.
  17. 17. 10 things the best procurement organisations do! Protect the business from supply risk and from itself Uses formal risk management and market intelligence techniques to provide the business not only with visibility into risk, but also with a governance structure and process to gain consensus with Finance /Business on which risks to treat and how to best treat them systematically - often with limited funds. Shift the game from talent to knowledge Moves from a purely talent management model (“throw the best people at it”) to a knowledge management model by: 1) shifting from current FTE staffing models to more flexible/variable resourcing models and 2) providing better IT support for better capture and re-use of knowledge/intelligence. Turn data into information, intelligence, knowledge and insight Use information management as a weapon to transcend basic ERP/e-sourcing to a more thoughtful information architecture that helps manage extended supply chains and external intelligence. Measure suppliers, but also tap their hearts, minds and budgets Not only measures the suppliers through automated scorecards, but works collaboratively with suppliers to reduce total supply costs (not just supplier margins) and create innovations that will deliver economic value. Around not just when you most need them, but also when they most need you. Uses P2P transactional processes as an asset –not a liability Provides not just “hands free” processes to make life easier for Procurement, but rather a failsafe “guided buying” experience to channel employees to preferred buy-pay channels. This implies integration between P2P and sourcing as well as a deliberate “P2P transactional channel optimisation” methodology (i.e., think about applying Lean to the P2P “transaction factory”).
  18. 18. Question Time