What makes a Procurement organization world-class?
This is often asked by many at procurement organizations.
Well, the elements that go into creating world-class procurement organizations include value-adding activities, digital transformation, data-driven decision-making, customer-centric service delivery, and skilled Procurement talent.
Research from the Hackett Group points out that such organizations have 18% lower operating costs than typical companies and work with 28% fewer staff while generating more than 2x the return on investment (ROI).
The Amazon Effect
Do you know that today, world-class global procurement organizations focus more than ever on digital business opportunities? This is the case because digital transformation has enabled world-class procurement organizations to achieve greater efficiency, effectiveness, and a higher return on investment.
The process has been optimized by going digital. Hence, this has helped reduce errors and free procurement staff for strategic work. Cloud, mobile, and other digital tools allow them to truly transform procurement functions by forecasting and planning more accurately, collaborating with suppliers more effectively, and improving the overall customer experience.
The application of these digital technologies is referred to as the “Amazon effect” on the procurement function. As we can see, companies are implementing cloud-based integrated source-to-settle solutions for gaining a competitive advantage in the market-place.
Five strategies by Hackett Group’s research used by current world-class procurement organizations to achieve superior results
1) Re-allocating resources from transactional focus to value-adding activities:
Global Procurement organizations falter when they devote much of their attention to transactional work and pay little attention to strategic activities. Value-adding activities include analytics, performance management, and devising purchasing strategies.
2) Digital transformation:
- World-class global procurement organizations spend more per FTE due to greater investments in process automation. The three critical steps in enabling digital transformation are creating a procurement technology strategy, partnering with the IT group, and creating a technology road map that defines the desired strategic outcomes, key performance indicators, and needed behaviors.
3) Analytics-based decision-making:
- By spending 23% more on technology per FTE, world-class procurement organizations invest a higher proportion of systems and tools to enable analytics capability. Data should be used beyond reporting to solve more complex business needs.
4) Customer-centric service delivery:
- Customers must be the focal point of all activities within procurement. World-class global procurement organizations design services and processes, keeping the customer perspective in mind.
- This includes service-level agreements with internal customers, the use of non-traditional project teams and skillsets in communication and digital media, and the “voice of customer” recommendations.
5) Re-skilling the procurement function:
- World-class global procurement organizations employ a more significant percentage of the overall staff for planning, and strategic roles. However, less performing organizations, have a greater focus on operations and compliance management.
- By focusing on building procurement skills, these organizations invest in talent development, increasing the business acumen of procurement staff; and developing analytics skills.
Risk Planning and Mitigation
Covid-19 caught the world by surprise. Hence, organizations weren’t prepared, and the worst affected were the Procurement departments that relied on human capital. World-class procurement organizations prepare themselves for calamity before it strikes.
They have intelligent contract management tools that look into force majeure clauses, performance tracking tools that notify about poor performing suppliers, and eProcurement solutions with intuitive user experience. Such organizations can sail through crises and outperform their competitors.
The tangible benefits of Source-to-Pay are greater procurement policy enforcement, efficient processes, higher spending under management, and reduce maverick spending. In today’s time, savings are not generated from just the transactional efficiencies of Procure-to-Pay. Businesses need to have competitive supply chains. Hence it becomes vital to have an effective Source-to-Pay process that makes procurement more efficient, responsive, and agile.
Source-to-Pay is about guiding people to get what they need, at the best value and faster – while they continuously seek out higher-quality offerings and better suppliers. Getting away from the mundane and tedious aspects of procurement and sourcing decisions allows the focus to shift to the business’s strategic needs.
Some companies still consider artificial intelligence to be in the early stages. However, AI-powered sourcing and contracting tools are already being utilized by most companies. In addition, these tools automate execution, analyze large data sets, and make intelligent recommendations.
Read more about how Porsche Cars NA propelled its Procurement processes with Zycus solutions.
Read More: Advantages of procurement planning