10 Steps to Unlock the Power of Procurement

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Conventional procurement is dead—and if you continue to rely only on it, you increase your chances of dying along with it. Mickey North Rizza BravoSolution, Vice President of Strategic Services Merriam Webster defines “conventional” as typical, ordinary and the usual. Applying conventional to procurement diminishes the organization because it exists as an elementary step to quickly satisfy needs verses seeking opportunities to secure unlimited value. The world has moved beyond reactive, conciliatory, scattered procurement teams narrowly focused on spend management, savings and transaction management. While a view of spend is required to gain visibility to external purchases within the organization and to make plans for improvements, it isn’t the be-all and end-all. The conventional procurement approach de-emphasizes the supplier and promotes the buyer to leverage spend and exert power over the supplier. While it may be useful to get the first deals for basic items like office products, it doesn’t do much to promote collaboration or innovation, or to bring sustainable value to your more strategic suppliers that enhance revenue and profitability. Conventional procurement is dead—and if you continue to rely only on it, you increase your chances of dying along with it. It is no longer a procurement world focused only on spend management and controlling spend but rather on meeting the needs of the business, stakeholders, customers and yes, even the suppliers. Ten Steps to Unlock the Power of Procurement 217 N. Jefferson St., Suite 400, Chicago, IL 60661 T: +1 312-373-3100 [email protected] www.bravosolution.com A global $9B pharmaceutical company with a decentralized procurement organization spent two years centralizing their spend management process. The process helped secure more savings from indirect suppliers and was considered a hit within the company. The same spend management process was also introduced for new drugs from development through FDA approval, to manufacturing and sale of the drug. Unfortunately, the “power over the supplier” mentality was applied and this company lost an opportunity to bring a new drug to market with a new bottle and shelf package. Instead, the chosen supplier simply utilized a standard package to keep their price low as requested. This supplier then shifted the new packaging design to another pharmaceutical company with a similar product. The competing company sold more of their product in the new package because the package made it easier for the patient to receive the required dose. The value to the first company was great in terms of savings and margin, but the value to the second company and the supplier was even greater because of repeat sales based on design and use versus just the medication. The first pharmaceutical company traded off value for cost savings.

Transcript of 10 Steps to Unlock the Power of Procurement

Page 1: 10 Steps to Unlock the Power of Procurement

Conventional procurement is dead—and if you continue to rely only on it, you increase your chances of dying along with it.

Mickey North RizzaBravoSolution, Vice President of Strategic Services

Merriam Webster defines “conventional” as typical, ordinary and the usual. Applying conventional to procurement diminishes the organization because it exists as an elementary step to quickly satisfy needs verses seeking opportunities to secure unlimited value. The world has moved beyond reactive, conciliatory, scattered procurement teams narrowly focused on spend management, savings and transaction management. While a view of spend is required to gain visibility to external purchases within the organization and to make plans for improvements, it isn’t the be-all and end-all. The conventional procurement approach de-emphasizes the supplier and promotes the buyer to leverage spend and exert power over the supplier. While it may be useful to get the first deals for basic items like office products, it doesn’t do much to promote collaboration or innovation, or to bring sustainable value to your more strategic suppliers that enhance revenue and profitability.

Conventional procurement is dead—and if you continue to rely only on it, you increase your chances of dying along with it. It is no longer a procurement world focused only on spend management and controlling spend but rather on meeting the needs of the business, stakeholders, customers and yes, even the suppliers.

Ten Steps to Unlock the Powerof Procurement

217 N. Jefferson St., Suite 400, Chicago, IL 60661 T: +1 312-373-3100 [email protected] www.bravosolution.com

A global $9B pharmaceutical company with a decentralized procurement organization spent two years centralizing their spend management process. The process helped secure more savings from indirect suppliers and was considered a hit within the company. The same spend management process was also introduced for new drugs from development through FDA approval, to manufacturing and sale of the drug. Unfortunately, the “power over the supplier” mentality was applied and this company lost an opportunity to bring a new drug to market with a new bottle and shelf package. Instead, the chosen supplier simply utilized a standard package to keep their price low as requested. This supplier then shifted the new packaging design to another pharmaceutical company with a similar product. The competing company sold more of their product in the new package because the package made it easier for the patient to receive the required dose. The value to the first company was great in terms of savings and margin, but the value to the second company and the supplier was even greater because of repeat sales based on design and use versus just the medication. The first pharmaceutical company traded off value for cost savings.

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Unlocked ProcurementUnlocked procurement utilizes spend management practices where needed but places more focus on the supplier, one of the main reasons the procurement function exists within an organization—to manage the suppliers and their spend. “Unlocked” is defined by Merriam Webster as becoming unfastened or freed from mistakes. When applied to procurement, unlocked procurement provides an avenue to grow revenue and profitability focusing on the supply markets, the innovation and the collaboration from customer to stakeholders to the suppliers.

Moving to unlocked procurement requires a significant shift in the optimization of resources, more focus on the supply markets, and the development of a more opportunistic attitude to secure valuable business outcomes. A critical factor in moving to unlocked procurement is developing, acquiring and optimizing resources, including customers and suppliers.

Unlocked procurement may sound simple but it isn’t. It starts with the organization procurement is representing. Too many organizations still look at their procurement team as conventional. Conventional procurement departments react to what the stakeholders want and require. They fulfill purchase requests efficiently and focus on completing the transactions and workload while meeting the basic business needs. Conventional procurement teams have little time to focus on the larger value their stakeholders ultimately hope they will deliver.

It is easy to point out faults but not so easy to move beyond conventional. Procurement may want to move forward but typically it spends more time defending its position versus focusing on the outcomes, rallying support and making changes. Change management is never easy but to uncover procurement’s power and move to unlocked procurement, the organization must look within to move beyond conventional. It must change itself and as this change evolves, the procurement organization will positively change its image with stakeholders and this transformation will bring real value to the business.

There is a natural progression procurement organizations take on their journey to unlocked procurement. Typically, procurement teams plateau at each level of developed maturity and these steps become natural placeholders for procurement to understand the maturity progression.

Level 1: Conventional Procurement: At an elementary level procurement is reactive, transactional and efficiency motivated, with an internal spend view and scattered procurement services and delivery.

Level 2: Optimized Procurement: Sourcing capabilities are developed with total cost of ownership and demand management seen as critical to procurement services and delivery.

Level 3: Comprehensive Procurement: This level builds mature category management, some supplier relationship management, alignment of procurement with business strategies, and center-led procurement services and delivery.

Level 4: Unlocked Procurement: Procurement harnesses the supply markets for competitive advantage such that

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Ten Steps to Unlock the Powerof Procurement

217 N. Jefferson St., Suite 400, Chicago, IL 60661 T: +1 312-373-3100 [email protected] www.bravosolution.com

A county government put a requirement in place formore transparency and cost cutting. Because of the new requirement, the county procurement manager met with procurement teams in cities and municipalities to start leveraging the supply base across the county. As a result, the procurement teams began leveraging supplier agreements for lifts, janitorial supplies and fuel. In addition, the procurement teams began working closely on fleet maintenance agreements and waste management aspects to leverage buying power and supplier best practices, with the goal to secure better outcomes for the entire community. The suppliers were willing to work locally as well as across the county to obtain more business and to offer ideas on optimizing costs. The fleet maintenance suppliers offered set maintenance timeframes based on vehicle mileage and warranty requirements—plus brake, tire and vehicle fluid checks and yearly annual inspections. The waste management suppliers developed several new con-tainer collection ideas, county collection schedule variations to optimize sanitation costs, and options for recycling drives (such as electronics, furniture and yard waste) toencourage greener practices within the county. More value for the money was the key driver of the county’s initiatives.

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value increases, with total value management and optimized procurement services and delivery.

The Ten Steps Unlocking the power of procurement takes time and is an adventurous journey. It is an investment in oneself, the organization and maturity. It is a movement that brings forth greater procurement value contribution. Achieving greater value contribution isn’t easy. But when broken into smaller steps, unlocking the power of procurement becomes less daunting, more attainable and truly rewarding. Below are ten steps to help you on your journey to unlocked procurement.

Step 1: Moving from ‘e’fficient to ‘e’ffective and Value-DrivenEfficiency is required to run a tight ship and and is typically the largest driver in conventional procurement. Effectiveness and a value-driven approach, combined with efficiency, are critical

components to realizing unlocked procurement. To discover where you are on the journey to unlocked procurement, look at your procurement metrics:

• What is it you are measuring? • What metrics are you using to improve behavior both internally

and with suppliers? • What value do you derive from the metrics and how does that

unlock the power of procurement?

Important points to take into consideration include a combination of metrics that look at efficiency factors of internal and supplier performance, combined with effectiveness measures—financial metrics, internal customer satisfaction metrics—plus value metrics such as procurement ROI.

Moving from efficiency to effective and value-driven is a shift in

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Ten Steps to Unlock the Powerof Procurement

The Next Generation of Procurement

Unlock ProcurementAs procurement organizations mature and basic goals are achieved with conventional procurement initiatives,

evolving organizations realize there are greater opportunities to deliver organizational value.

Val

ue C

aptu

red

Procurement Maturity

Conventional Procurement

Optimized Procurement

ComprehensiveProcurement

Unlocked Procurement

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measurement principles. Efficiency metrics are defined as how well you did something. Effectiveness metrics are defined as how you did it. Value-driven is defined as the value you produce and obtain for a specified outcome that makes a difference in some societal and financial way. Typically value-driven metrics are based on a collaborative outcome with customers, stakeholders and suppliers. During discussions, practitioners have noted

Step 2: Moving from Reactive to ProactiveOperating principles define the way procurement operates and serves the customers. Reactionary procurement responds to events after they occur. Proactive procurement anticipates and makes changes before they can occur. Becoming and staying proactive is critical to unlocked procurement.

Proactivity leads to greater innovation, collaboration and market disruption, all which translate to tangible value. Proactive procurement opens up the mind to move beyond core processes and spend within the business, to extracting greater value outside the business because proactive procurement focuses on the supply markets and suppliers themselves.

What operating principles do you use? Look at the various principles and select where you are now. Can you envision how a more proactive approach can benefit your organization?

Step 3: Scattered vs. Optimized Procurement Service and DeliveryProcurement service and delivery requires the right structure, processes and technology coupled with the right employees to meet business needs. This strategy must also be communicated and executed within the organization. Every organization is different and the value levers required from procurement are also different.

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Efficiency Metrics Effectiveness and Value Metrics

Cost Savings/Cost Avoidance • realized savings as a % of identified savings • refunds, credits and rebates from suppliers • value of improved warranties • value of negotiated additional benefits

Supplier & Industry Development • potential local suppliers identified • # of new sources of particular goods and services • # of suppliers in supplier development programs

Supplier Performance • on-time delivery • quality • negotiation • cost targets

Efficiency of Internal Procurement Systems & Processes • % of electronic procurement spend • % of Pcard spend • % of spend under contract • requisition to order cycle time • source to contract execution cycle time • order to delivery cycle time • procurement operation costs as a % of managed spend • reduction in transactions & inventory management costs

TVM: Highest Value to Cost Ratio (evaluates & minimizes risk)

Value Creation: Economics and Societal Benefits Relative to Costs

Profitability Increase

Time to Value

Returns to Shareholders

# and Types of Ideas/Patents Generated & Implemented per Supplier

# and Types of Ideas/Projects in the Innovation Pipeline with Projected Value

Net Present Value of New Product Portfolio

ROI on Innovation Projects

Revenue Increase

Improvements of EVA, ROIC, ROA

Source: ISM, CIPS, Spend Matters

collaboration between buyers and suppliers adds as much as 20 times more value than the average supplier contract achieves.

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While structure is also important, the kind of service delivered to the organization is the critical juncture leading to unlocked procurement. Ask yourself if you are delivering real value with satisfied customers asking for more? Optimizing resources includes the best mix of talent, business processes and technology. Some organizations spend a great deal of money on technology that delivers little value. In order to make the technology work, they add more people, increasing costs, further eroding value. This is a no-win situation with too much cost and too little delivered value. The best procurement teams optimize all their resources as they:

• Hire the right people, outsource portions of the business to cut costs, and match the talent to short- and long-term business requirements.

• Not only work internally on their own processes, but work beyond the organization, utilizing an efficient and effective horizontal business process and then match this with value- driven supplier processes.

• Define their technology needs and match the best vendors to their roadmap. The best teams are constantly challenging the technology status quo, and stay ahead of their business by using only the best vendors.

Step 4: Conciliatory vs. OpportunisticMoving to unlocked procurement requires the organization to stop being conciliatory. Procurement cannot continue to just accept what they get in terms of budget, specifications, and pre-selected suppliers—nor can procurement stop negotiations once the requirements have been met. The process is about exceeding expectations and building a world-class procurement structure that leads organizational growth.

Becoming less of a conciliator requires a paradigm shift. Procurement must stop being the middleman, negotiating the deals and mediating disputes between the buyer and supplier. Instead, procurement must start redefining the relationship between the buyer and supplier, taking a holistic view on how to create meaningful value for all parties and influence innovation. The paradigm shift is about unlocking the potential opportunity of the buyer and supplier and creating value together.

Unlocked procurement requires procurement to be focused on the holistic view and opportunity, adding business value so it exceeds established (or conventional) business expectations. Business value may be processes that are reconfigured by procurement and stakeholders to be lean and horizontal; procurement being involved early in the design phase of a new

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Ten Steps to Unlock the Powerof Procurement

Reactive• Procurement is a cost center• Procurement receives a specification• Procurement rejects defective materials• Procurement reports to Finance or Operations• Procurement responds to market conditions• Problems are the supplier’s responsibility• Price is the main variable for decision• Emphasis is on yesterday and today• Technology systems are independent of suppliers• Negotiation is win/lose• Plenty of suppliers = security• Plenty of stock = security• Suppliers’ communication is one way—”do as I say”• Process, cycle time and efficiency are metric-focused• Technology-enabled; low adoption• Procurement receives information and acts upon it• Procurement’s main target is cost savings• Information is power

Proactive• Procurement can add substantial value• Procurement & suppliers contribute to the specification• Procurement avoids defective suppliers• Procurement is strategic, reporting to CEO• Procurement influences the market• Problems are a shared responsibility with the supplier• Total cost and value are the major decision factors• Emphasis is on strategy and business plans• Technology systems may be integrated with suppliers’ systems• Negotiation is win-win or better• Plenty of suppliers = lost opportunities• Plenty of stock = waste• Suppliers’ and Buyers’ communication at all levels of the organization• Efficiency and effectiveness are the baseline; metrics are valued• Technology-enabled, optimized business processes• Procurement actively pursues outcomes with the business & suppliers• Procurement can impact revenue, profitability, ROIC and ROA• Information is valuable if shared

Operating Principles

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product; procurement reaching out to the supply base to harness the largest sources of innovation and facilitate discussions with suppliers; and procurement recognizing every opportunity is an opening into value.

Unlocked procurement is about being an opportunist. Opportunists are not afraid to open the door to others, harness ideas, build trust, reduce fear and amplify imagination.

Walt Disney said, “You can design and create and build the most wonderful place in the world. But it takes people to make the dream a reality.”

Step 5: Extreme Spend Focused vs. Supply Market FocusedOver the past 10–15 years procurement’s intersection with technology has been focused on improving processes and gaining visibility into more standardized processes; uncovering the data of what was spent, why it was spent and with whom it was spent; and developing category management of the spend such as how an organization has captured the spend, how the spend was transacted, sourced, supplied and measured; and the

performance of the overall spend management process. At the time, this information was valuable—it provided an understanding of what was bought and who it was bought from, and it helped gain control of the mountains of data in spend management. But conventional procurement has a very isolated and inwardly-focused approach to spend only. Spend management is an internal control mechanism we use to look at our external spend. It doesn’t look at the external factors that can contribute more value and help to unlock the power of procurement.

An organization needs spend information but unless a supply market analysis is performed, you will never know if the organization has the right suppliers, are paying the right prices, or even command an understanding of the market. The 3rd and 4th generation levels (see The Next Generation of Procurement: Unlocked Procurement chart on page 3) of procurement organizations look externally to see what markets their suppliers are in, the current prices, hot market trends, high cost areas, new processes, new materials, new manufacturers, new markets and the lower cost region buying options. They look at the supplier’s lifecycle within the business. They understand what is required of the purchases they must make, but look externally to understand the market and bring that knowledge of suppliers back into the organization. They conduct supplier SWOT analysis (strengths, weaknesses, opportunities and threats), follow price indices and look at market forces of demand and supply. A supply market focus allows you to concentrate on what is important to strategic procurement—THE SUPPLIER!

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Ten Steps to Unlock the Powerof Procurement

Procurement Services & Delivery

Centralized Decentralized

Center-Led

DisAdvantages

• Lack of focus (e.g., business unit requirement)• Communication barrier (e.g., with internal stakeholders)• Common supplier’s different behavior in terms of

geographic or market segments

DisAdvantages

• Loss of better supply opportunity• Lack of standardization• Operational against strategic focus

Advantages

• Reduced purchasing cost (bulk purchase)• Consolidated supplier database• Strategic focus and improved planning

Advantages

• Better communication with internal stakeholders• Swift response• Easily managed cultural, geographical, political,

taxation, etc., issues

Moving from conciliatory to opportunistic requires an emphasis on designing, creating and building; it requires collaboration with team members that are stakeholders, leaders, customers and suppliers.

Adapted from the Anklesaria Group

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Moving to unlocked procurement means you need spend management as your baseline, but it must be complemented with a supply market and supplier’s lifecycle focus that ties into your overall supply base strategy.

Step 6: IT Investments with Low Adoption vs. IT Investment with Maximized ROIConventional procurement wisdom has us focusing on IT investment prep, roll-out process and implementation. But you spend so much time doing the basics you get caught up in it and end up focusing on the go-live instead of focusing on the outcome and maximizing the ROI.

Conventional procurement teams are pretty clever when looking for a solution but typically suffer from a few common technology constraints. These constraints end up amplifying problems, resulting in the wrong investments or l0w adoption. Key constraints to be aware of include:

• The not-invented-here (NIH) syndrome is the first line of defense of conventional procurement. If they can’t build it then why should they invest in it? Unlocked procurement uses an opportunistic approach of the best technology vendors to help you maximize your ROI.

• Conventional procurement is caught up in cool technology features and functionality but it doesn’t solve the business problem. Be on guard, as their investment will mean little or no ROI.

• Sometimes, conventional procurement sets expectations that miss critical processes or functionality. This may be caused by a lack of stakeholder or vendor involvement in helping to set the correct strategy. In some cases, companies select a technology because it gives them the same processes they have currently. The companies don’t plan for better, more improved business processes, visibility or stakeholder engagement—and as a result, they shortchange themselves.

Maximizing technology ROI requires one to engage with the vendor, listen to their ideas to understand how others have reaped more value, and then decide if it makes sense for the business. It also requires a solid business case, setting the right expectations, finding the right technology partner, planning beyond go-live, and measuring the impact and change to show the ROI. It often requires a leap of faith, something Steve Jobs knows quite a bit about.

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Ten Steps to Unlock the Powerof Procurement

Spend Management

Internal Facing External Facing

Supply Market

Under Contract

Procurement Control

Addressable Spend

Market Analysis

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Jobs said, “You can’t connect the dots looking forward. You can only connect them looking backwards. So you have to trust that the dots will somehow connect the future.”

Step 7: Missing Knowledge and Talent vs. Knowledge and Talent Organized for SuccessProcurement as a profession is at a crossroads. Since the 90s, procurement has utilized more technology from Procure to Pay to Sourcing to Spend Analysis to Contract Lifecycle Management. All of these technologies created new business processes and required new skill sets to move beyond manual business processes. Procurement has literally consolidated and enhanced business processes, and improved technology innovation. Unfortunately, procurement has also left many teams with

knowledge and talent gaps. And procurement is not alone. Supply chain in general is facing one of the worst talent shortages in history.

Unlocked procurement organizations are taking deliberate steps to upgrade talent. Unlocked procurement organizations recognize that procurement talent must understand the business context, challenges and opportunities. Unlocked procurement talent requires a new breed of employees, those that adapt quickly, have strong relationships, are technologically and analytically savvy, and are financially sophisticated. It is no longer about the transactional expert or report guru.

The Chief Procurement Officer (CPO) resource focus is now augmented with a talent pipeline. The CPO recognizes business has moved and therefore needs a strategic plan for managing talent. The strategy focus is on the design or structure of the organization including the workforce plan; a plan to attract and prepare new talent; a pathway to assess, develop and improve the

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Ten Steps to Unlock the Powerof Procurement

IT Investment

Maximize ROI

• NIH - Not Invented Here• Cool tool, but doesn’t solve the business problem• Set the expectations...and then they are not met• Do not plan for the business process to be different• Stick vs. carrot

• Make the business case - Efficiency - Asset utilization - Customer response

• Set expectations• Find a partner, not a vendor• Plan beyond go-live• Measure the impact & change• Show the ROI

The right people utilizing the right technology partner to drive the desired business outcomes will help you maximize your business results.

Low Adoption

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current talent; and a plan to retain existing talent. All of this needs to feed into the roadmap for organization success.

Step 8: Little Organizational Alignment vs. 360° Business AlignmentHow aligned is your procurement organization? Conventional procurement organizations work in silos, isolated from the rest of the business. Did you know approximately 65% of organizations have an agreed upon strategy? Or that only 14% of people actually understand the organization strategy? And less than 10% of organizations successfully execute the strategy? With these dismal results, alignment is actually misalignment.

One of the easiest ways to align within the business is to work toward common goals with well-designed business processes. But it must be done right. Mike Hammer noted in The Agenda, “People who are aligned around a common goal but lack the discipline of a well-designed business process will go nowhere…likewise, the best-designed business process has no chance of survival when people aren’t aligned around the process and its goals.”

The problem is that even with goals and business processes there are still misaligned areas. To unlock the power of procurement you must uncover misalignment and use it to move beyond the isolated silos of conventional procurement and situation-only interactions. Three areas of misalignment in any situation are data, definition and drivers.

Conventional procurement typically uses spend data, but in many cases hasn’t even tapped into half of all the data. Without a view of all the spend data, the opportunity for substantial savings is out of reach. In addition, suppliers miss out on opportunities for new business and the procurement plan is flawed. Conventional procurement also looks at definitions and drivers as internally facing within their own organization—not tying it into the customers’ and suppliers’ view—therefore, missing the information that can unlock more procurement value.

Unlocked procurement takes into account the areas of misalignment and works toward business and partner alignment using a leadership role to influence the required positive business outcomes. It influences the business by linking to

the business strategic plan, bringing a unified approach to all stakeholders, customers and suppliers; and requires all relationships be based on transparency, accountability and trust. In addition, procurement is an influencer and continually removes misalignment barriers while shaping relationships to meet joint business outcome goals. Unlocked procurement has 360° degree transparency and alignment across all areas within the business and externally into the value chain, concentrating on the supplier’s lifecycle and value throughout.

Step 9: Reward Focused vs. Risk EliminatorConventional procurement is focused on cost savings, transactions, control and compliance of managed spend. And conventional procurement is rewarded for its accomplishment of these particular goals. Although conventional procurement is rewarded for specific goals achieved, they leave real value on

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Ten Steps to Unlock the Powerof Procurement

Misalignment

30% of Misalignment isdue to the data

65% of Misalignment is due to different definitions

5% of Misalignment isdue to different drivers

Businesses with unlocked procurement teams typically have up to 2.5 times better procurement ROI than their conventional procurement counterparts.

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the table, as shown below in the statistics from the Corporate Executive Board regarding conventional procurement practices and uncovered opportunity:

• Potentially lose up to 75% of sourcing savings within the first 18 months

• Fail to establish “customer of choice” status with 95% of their suppliers

• Develop inconsistent, disparate processes and continuous improvement initiatives

• Ignore supplier non-conformance worth an additional $60M of value (on $6B in spend)

• Missed staff productivity up to 7.5%• Missed supplier collaboration opportunities

Fortunately, businesses are now asking more of procurement. They also want more collaborative relationships with stakeholders and suppliers, horizontal transparent business processes and real value delivered to the business—the foundation of unlocked procurement. Businesses recognize that with disturbing statistics like those above, they must move forward to unlock procurement to turn negative statistics into delivered value.

Unlocked procurement recognizes transactional efficiency, sourcing effectiveness and supplier relationship management value are the baseline. Value obtained reaches or extends beyond this baseline.

One of the largest areas of focus for unlocked procurement is risk elimination. Procurement is exposed to risk every day in many areas including personnel, brand/reputational, bribery, geopolitical, country, currency, disaster and supplier risk. All are elements of procurement’s larger value delivery and can hurt the business if left exposed. Unlocked procurement is focused on mitigating exposure and eliminating risk so more value is extracted. One such way to eradicate some of the risk is supplier collaboration and development. Collaborating with suppliers can lead to new and innovative products. These new products can eliminate competitors and open up new markets, immediately enhancing revenue for both your business and the suppliers. Suppliers are also developed to bring more, and at a faster rate than their current products, with changes in material, form and features. High tech brands such as Apple are great supplier

collaborators and exceptional at developing suppliers. Both avenues not only reduce risk but also bring greater value beyond the typical contract.

Step 10: Low Supplier Focus vs. Supplier & Partner FocusConventional procurement spends so much time managing spend, processes and efficiency metrics that it is not recognizing the value from suppliers. Companies that move beyond conventional procurement have moved from a low supplier focus to a supplier and partner focus. Recently, John W. Henke, Jr., Ph.D., president and CEO of Planning Perspectives, Inc., released the 15th annual North American Automotive - Tier 1 Supplier Working Relations Index® Study. The study details how better supplier relationships add more to profitability.

Henke noted three critical characteristics of suppliers’ relations from the study. In his report:

1. Henke states the better the relations with the suppliers, the greater the suppliers’ contribution to the OEM profitability; the more adversarial the relations, the less contribution to the OEM profit.

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Ten Steps to Unlock the Powerof Procurement

Reward vs. EliminatorTypes of Supplier Relationship Management

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2. It quantifies the economic value of suppliers’ non-price benefits to the OEM for such things as supplier sharing new technology, providing “A team” support to the OEM, providing support that goes beyond the supplier’s contractual obligation, and other “soft” benefits.

3. It establishes that the economic value of the suppliers’ non-price benefits can greatly exceed the economic benefit realized from suppliers’ price concessions. On average, the economic value of the suppliers’ non-price benefits can be up to 4 to 5 times more than the suppliers’ price concessions.

While the above details outline what unlocked procurement can do to bring more value, the proof is in the outcome and data from the report regarding their Supplier Relationship Management practices. The report states in one year:

• Ford, GM and FCA lost a combined $1.7 B in profitability• GM & FCA = $144 lost profitability per vehicle• Ford = $116 lost profitability per vehicle

The best: Honda & Toyota improved an average of 8.7% in one year.

Using these attributes of supplier relations to move to a more partner and supplier facilitator role is a requirement of unlocked procurement. However, it also starts with your sourcing and segmentation strategy. Unlocked procurement selects the right sourcing business model based on your level of dependency/risk and your potential to create value.

Kate Vitasek, a faculty member at Haslam College of Business, The University of Tennessee with a focus on sourcing, describes the sourcing business model as the combination of two critical concepts—what contractual relationship framework is used to work with the supplier (transactional-, relational- or investment-based), and what economic model is used (transactional-, output- or outcome-based).

Kate says, “today’s procurement challenge is stretching one’s ability to shift from a base of power to a coalition of collaboration where suppliers are no longer viewed as a necessary evil you have to control, but rather a sustainable source of mutual competitive advantage.” But to do so, you must first know who is included

in your supply base, what they do, their capabilities, their performance, and their lifecycle value to your business, as well as your value to them. All of this changes the paradigm shift from “all suppliers are created equal” to those that bring value focused on the collective outcome-based model concentrated on business results.

This model creates value through win-win solutions. Unlocked procurement grows the pie together with suppliers and becomes a vested relationship for both parties versus fighting over the pie.

Move NOW to Unlocked ProcurementMoving to unlocked procurement is a necessity for organizations to reap significant value from procurement and the supply base. It is no longer an option; it is a procurement imperative.

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Procurement must move to unlocked procurement or risk obsolescence.

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About BravoSolutionSupply management executives are now, more than ever, under pressure to deliver more savings, develop and manage strategic supplier relationships, accelerate procurement cycles, and maintain process excellence. Confronted with these diverse yet consistent challenges, CPOs and sourcing professionals must seek tailored solutions that deliver rapid ROI to their business.

BravoSolution offers leading software and services to fit the needs of today’s sophisticated supply management organizations.

Our services organization, one of the world’s largest teams of professionals dedicated exclusively to sourcing and procurement consulting, delivers lean, targeted services to support strategic sourcing and procurement initiatives. Our industry-leading software toolkit supports the full supply management lifecycle across myriad industries, geographies and business models.

As of today, over 60,000 procurement professionals in 60 different countries are benefiting from BravoSolution’s technology and services, while unlocking tangible benefits such as increased process efficiency, decision support, cost reduction,

improved process governance, greater quality relationships with vendors, and the ability to share, understand and act upon the wealth of sourcing-related data held within their organization. BravoSolution has locations in the United Kingdom, Italy, France, Germany, Spain, Benelux, United States, Mexico, China, United Arab Emirates, Australia and the Nordics.

Engage the experienced team. The BravoSolution customer commitment is to provide exceptional people and smart, proven, cutting-edge processes to ensure you are successful. BravoAdvantage is powered by the most extensive team of global procurement professionals, completely equipped to help with organizational transformation and management, implementation, adoption, support and procurement strategy. The team drives more value for proven customer outcomes, with more passion than anyone else. Those that work with Bravo outperform.

Connect with a BravoSolution professional to learn more about BravoAdvantage and how we can help unlock your organization’s hidden value and savings throughout the procurement processes.

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217 N. Jefferson St., Suite 400, Chicago, IL 60661 T: +1 312-373-3100 [email protected] www.bravosolution.com

Ten Steps to Unlock the Powerof Procurement

Start the Movement and Unlock the Power of Procurement

Conventional Procurement Unlocked Procurement

1. ‘e’fficient, learning how to be ‘e’ffective2. Reactive 3. Scattered Procurement Service & Delivery4. Conciliatory5. Extreme Spend-Focus6. IT Investments with Low Adoption7. Missing Knowledge & Talent 8. Little Organizational Alignment9. Reward-Focused10. Low Supplier Focus

1. e’fficient, e’ffective, & Value-Driven2. Proactive 3. Optimized Procurement Service Delivery4. Opportunistic5. Supply Market-Focused6. IT Investments = Maximized ROI7. Knowledge & Talent Organized for Success8. 360° Business Alignment9. Risk Eliminator10. Supplier & Partner Facilitator

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