How to be world class? That is a question everyone needs the answer to. Though cost savings will be the primary procurement benchmark for the foreseeable future, leading entities expect a lot more than just cutting the cost.World-class procurement organizations make significant efforts to provide unique value beyond cost reduction which includes, being the trusted advisers to business, supplier innovation, providing insights, focusing on risk management and agile staffing.
According to Hackett Group a global business consultancy, “world-class” procurement departments operate about 20% more cheaply than average companies, and they have 27% fewer employees. Isn’t that great! Hackett report also noted that average players are starting to hold up and should improve their savings by 4%-7%. When we limit the spending and increase the savings, then there is also a high chance of risk that you would not get the quality and value over time.
Let’s have a look at dominant characteristics of world-class procurement organization below
Trusted Advisers to Business: Hackett Research shows that world-class organizations have a high level of involvement in planning and budgeting, almost more than four times when compared to the typical organizations. This higher involvement makes it possible to reverse engineer costs, explore potentially less expensive and higher-quality alternatives. Procurement organizations need to be valued and trusted partners rather than the gatekeepers or administrator. Trusted advisers are the ones who engage and encourage their clients with best practices, new ideas and so on.
Enhance Supplier Innovation: Companies that have a collaborative relationship with suppliers have the added advantage of suppliers investing in innovative ideas and building long term relationships. Collaborative activities with the supplier can be enhanced by involving supplier in their processes and working closely with suppliers to help improve their competitiveness regarding cost and quality. Hackett Group’s research found that top organizations drive more than double the incremental revenue as typical organizations through supplier innovation efforts.
Providing Insights: Research has found that world-class procurement organizations have a significant level of information available nearly 90 percent of the time. This is twice as much when compared to typical companies. Best performing companies are more engaged in budgeting and planning which makes them able to provide analysis and on-demand predictive insights on supply markets which turn these into a valuable commodity.
Risk Protection: According to the Hackett research world-class organizations have formal risk management programs with a formal and broadly-applied strategy for assessing risk. A well-implemented supplier risk assessment process could increase the procurement organizations ROI by 25 percent or more.
Agile Staffing: There is a need to go across the functional and geographical boundaries to find the right candidates. Hackett’s research shows that top-performing procurement organizations tend to invest twice as much in training hours and are three times more likely to have retention plans for employees with critical skills. This is one of the reasons why leading procurement organizations can achieve more with fewer people than average ones.