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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
What is world class
Chief Knowledge Officer
Optimum Procurement Group
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.
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
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!
1- 9 yrs 10 - 50 yrs
Has your remit moved beyond just traditional procurement?
PCP: Procuring Complex
Performance e.g. the
integrations necessary to
deliver and manage complex
CoPS: Complex Product
Systems e.g. capital projects,
oil rig production, industrial
machinery, and aerospace
(Adapted: Kraljic, 1983)
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
Aspiration : What do you
want Supply Side
Management to be?
drivers of change
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!
Technology - smart phones,
tablets, embedded chips, have
created a mobile work
environment for procurement
They will be professional;
strategic; sharp; global;
will know everything, from
the science, economics,
law and politics of their
supply markets on a global
Students of Industry
Procurement professionals will
generate consensus around
how to measure risk, and
access standardised, readily
available information for
operational risk assessment.
professionals need to
be data experts, able
to see major trends
takeaways in a mass
of data at a glance.
Procurement professionals will
deliver strategic impact, in
organisations they just won’t
be part of a large, discrete,
enterprise-level function any
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
will share risks and rewards
in contracts, and will
accept greater risk in
relationships so as not to
It’s all about people: the ‘bimodal’ procurement professional
Positive Value Drivers
Negative Value Drivers
Cost of Next
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
• 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.
Value: procurement’s latest game changer
Is it time to re-evaluate strategic procurement and look to establish Value
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
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
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
Procurement has reached a ‘tipping point’
CPOs must create an equilibrium in their focus between the business and the market it
This is where the next big windfalls will come from, the next big gains, the next
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.
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
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”).