Procurement Transformation – 4 Steps to transform your Procurement Capability
Procurement Transformation - Accelerating your journey to Procurement Excellence
Procurement is a long established value lever in many industries, delivering substantial bottom-line P&L impact - particularly in those organisations that have a long history of creating an actual end-product for sale, where component costs and subsequent margins can be examined very precisely and continuously improved.
But this isn't always the case.
Many organisations are only just arriving at the procurement party.
They often have small internal procurement functions - or none at all, with hundreds or even thousands of individuals responsible for the 'buying' of goods and services across an enterprise.
This is especially so in professional services businesses such as law firms, recruitment companies and rapidly growing financial service organisations.
There are also instances - from across every sector one can imagine - where often well known global brands don't have an effective internal approach to procurement.
However, although this may sound like a significant waste of money, putting it right can unlock big financial savings quite rapidly...
...which can be an excellent source of funding for the broader transformation agenda.
Step 1 – How is the existing procurement function performing?
The first step in developing procurement capability lies in understanding exactly how the existing function is currently performing. Areas to explore can include:
- how effective the function currently performs against existing business requirements
- how it compares, benchmarked against sector comparisons
- what areas might require enhancement in the light of longer term strategic aims
Procurement Function Diagnostic provides an effective way of creating a useful, early stage view on the effectiveness of an existing function, its positioning on the maturity curve and areas for development. The diagram below provides an example of how a procurement function in a public-sector organisation compared against industry level best practices.
Step 2 – Creating spend transparency, savings potential – and budget for investment
Undertaking a Spend Analysis and Opportunity Assessment to provide spend transparency and define savings potential - now and in the future - is an excellent way of grounding transformation planning in real, hard numbers.
With cost reduction possibilities defined (sometimes running into significant, recurring, seven figure numbers) budget that is derived from these savings can be released to invest in an overall programme of transformation.
In essence, an effectively delivered procurement transformation project can be self-funding and deliver a sustained return on investment.
Step 3 – Building the future vision for procurement
With a ‘starting point’ defined (based on the current capability of the procurement function and cost saving opportunities) an informed view can be made on how procurement can support the wider business strategy.
Areas for consideration might include:
- what % of non-pay spend should be actively managed through procurement
- the structure and size of the team required to support this
- what cost saving/cost avoidance/value-for-money objectives should the team deliver
- the role of procurement collaboration (e.g. across NHS Trusts in their STP areas)
- options for supplier relationship management, category management and contract management
- the role of e-procurement
- what opportunities exist for supplier collaborative cost reduction
Step 4 – Creating a transformation roadmap
With the future vision defined and a clear stating point in place, a road map can be created with a clear transformation plan in mind - mapping out the journey to procurement excellence.
Using the performance assessment tools and models (outlined above) has enabled organisations to define staged targets for improvement and enhanced financial performance.
In essence, the ‘Enablers of Success’ are defined and created.
An effective implementation model
Each unique organisation will require a unique approach for implementation. In instances where the existing procurement function has a lower maturity level, the emphasis is likely to be on upskilling, perhaps utilising a ‘mentor’ structure where internal teams work side by side with external category specialists. This ensures:
- expert management of the Transformation Roadmap / delivery of the ‘Enablers of Success’
- direct support in sourcing activity to deliver target savings - a “Co-Sourcing” approach embeds capability and delivers savings
- an end game where internal experience and capability is raised while cost reduction is delivered
Creating lasting change
Embedding sustainable improvement is crucial. The “Co-Sourcing” example highlighted above is an excellent basis for:
- Ensuring savings delivery
- Category knowledge transfer
- Supplier knowledge transfer
- New processes and approach embedded
- Demonstrating, coaching and guiding
- Creating engagement and buy in
- Procurement is an increasingly crucial component in the overall mix of activities for transformation
- Getting this element right creates funds for wider transformation projects
- Building in cost savings helps to ground transformation in hard numbers
- Effective spend analytics is a crucial component to transformation
- Learning through real experience is a highly effective way of creating engagement and buy-in from internal teams; they should not have transformation 'done to them' but instead play an active role in helping to shape it themselves
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