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Procurement Mastery and Benchmarking NCMA Accenture Research and Insights into Procurement Performance Mastery

Procurement Mastery and Benchmarking NCMA Accenture Research and Insights into Procurement Performance Mastery. Breakout Session #604 Bernie Donachie and Jim Grabulis July 20, 2010 Time: 1600. 1. Approach. Agenda

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Procurement Mastery and Benchmarking NCMA Accenture Research and Insights into Procurement Performance Mastery

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  1. Procurement Mastery and Benchmarking NCMAAccenture Research and Insights into Procurement Performance Mastery Breakout Session #604 Bernie Donachie and Jim Grabulis July 20, 2010 Time: 1600 1

  2. Approach Agenda Introduction to Accenture “Procurement Mastery” research to share benchmarking to NCMA Leading practices discussion along the six dimensions of procurement Q & A Today’s presentation will provide a perspective on the characteristics of Procurement Masters

  3. Procurement Mastery 1 Procurement strategy • Vision, mission, core values • Operating model • Performance management • Category strategic planning 2 Sourcing and category management • Strategic sourcing • Category policy setting • Category management framework • Compliance monitoring 3 • Transaction processing • Assisted buying Requisition to pay • Master data management • Fulfillment 4 Supplier relationship management • Supplier development and integration • Supplier performance mgt • Contract management 5 • Working in an organization that facilitates working together • Having the right network of competent people Workforce and organization 6 • Technology that delivers the right information • Systems cover all functions: strategy to operations Technology Today’s presentation is built around six separate dimensions of procurement mastery.

  4. Survey Demographics 225 companies worldwide have participated in the Procurement Mastery survey. … by job function … by responsibility 82% of respondents are CPOs or Directors 74% are responsible for procurement on a companywide level 83% have more than 5 years’ experience in procurement, 59% more than 10 years 50% of companies are businesses with equal or more than 5bn$ revenues (2005) … by experience … by revenue

  5. Research approach Masters are identified by achieving an overall score one standard deviation better than the average • The unweighted average of all procurement performance elements from all participants is calculated • Master: The company‘s average mastery level is one standard deviation above the average • Low performer: if the company‘s average mastery level is one standard deviation below the average Low performer 17% Midrange performer 67% Master 16% +1 -1 Standard deviation

  6. Research approach Masters are identified by achieving an overall score one standard deviation better than the average Midrange performer Master Low performer high • Masters and low performers have been identified by analyzing 160 statements describing procurement processes in six dimensions according to Accenture’s procurement model • Only those organizations who are one standard deviation better than the average have been classified as master • There are some organizations with a high performance but a low or average best practice level (upper left box). Due to the wide and diverse sample, many different industries are part of our analysis and so there are a variety of organizations within this category. Procurementperformance Average low low Procurement mastery high

  7. Key Findings 1 2 3 4 5 6 7 Masters consistently apply best practices across all dimensions. Upon completion of the exercise we will be able to compare Open Text to all respondents. Procurement Masters Mid-Range Performers Open Text Low Performers Procurement strategy Sourcing and category management Requisition to pay Supplier relationship management Workforce and organization Technology

  8. Why Mastery is Important Masters are more efficient and have a 30% higher effectiveness year-on-year. This translates into 10x higher productivity level. Masters cost to procure are half as high but provide 30% higher savings vs. low performers Masters save 10 times as much as it costs them to operate their procurement organizations 10x +30% 4x -50% * On US$1 billion of controlled, normalized spend * On US$1 billion of controlled, normalized spend

  9. Procurement Mastery Exercise 1 Procurement strategy • Vision, mission, core values • Operating model • Performance management • Category strategic planning 2 Sourcing and category management • Strategic sourcing • Category policy setting • Category management framework • Compliance monitoring 3 • Transaction processing • Assisted buying Requisition to pay • Master data management • Fulfillment 4 Supplier relationship management • Supplier development and integration • Supplier performance mgt • Contract management 5 • Working in an organization that facilitates working together • Having the right network of competent people Workforce and organization 6 • Technology that delivers the right information • Systems cover all functions: strategy to operations Technology Today’s presentation is built around six separate dimensions of procurement mastery.

  10. Procurement Strategy Masters systematically apply a strategic approach to purchasing, aligning it to the business needs and proactively managing relationships. Best practice in procurement strategy(Percentage of responses) • Masters undertake strategic category planning (3–5 years exploration) proactively for critical business categories i.e. looking at future business needs/identifying trends to plan supplier selection strategy/relationship to guarantee supply at the right cost. • Masters have a clear mandate from top management and full accountability to achieve big business impact (innovation, cost reduction, etc.) • 80% of masters measure procurement performance using a balanced scorecard; a clear definition of value is shared throughout the company to drive purchasing decisions.

  11. Procurement Mastery Exercise 1 Procurement strategy • Vision, mission, core values • Operating model • Performance management • Category strategic planning 2 Sourcing and category management • Strategic sourcing • Category policy setting • Category management framework • Compliance monitoring 3 • Transaction processing • Assisted buying Requisition to pay • Master data management • Fulfillment 4 Supplier relationship management • Supplier development and integration • Supplier performance mgt • Contract management 5 • Working in an organization that facilitates working together • Having the right network of competent people Workforce and organization 6 • Technology that delivers the right information • Systems cover all functions: strategy to operations Technology Today’s presentation is built around six separate dimensions of procurement mastery.

  12. Sourcing and Category Management Masters leverage centralization and cross-functional perspectives to provide best practice sourcing & category management. Best practice sourcing and category management(Percentage of responses) • 100% of masters have implemented a centrally guided category management structure, which cuts across organizational entities. A quarter of low performers are also moving towards such a structure. • 90% of masters have a best practices strategic sourcing process and structure in place that includes: • Cross-functional sourcing teams defining for a given category-project, the optimal sourcing strategy, running the supplier selection and implementing the contracts. This is an end-to-end process without handovers. • The execution of the project is formally tracked against key milestones. • Cross-functional collaboration is formalized top-down through the structure of category boards. These boards typically hold senior people from different technical and user-departments on top of procurement organization and project leadership.

  13. Procurement Mastery Exercise 1 Procurement strategy • Vision, mission, core values • Operating model • Performance management • Category strategic planning 2 Sourcing and category management • Strategic sourcing • Category policy setting • Category management framework • Compliance monitoring 3 • Transaction processing • Assisted buying Requisition to pay • Master data management • Fulfillment 4 Supplier relationship management • Supplier development and integration • Supplier performance mgt • Contract management 5 • Working in an organization that facilitates working together • Having the right network of competent people Workforce and organization 6 • Technology that delivers the right information • Systems cover all functions: strategy to operations Technology Today’s presentation is built around six separate dimensions of procurement mastery.

  14. Requisition to Pay Masters invest in efficient and transparent approval chains, using assisted buying concepts. Best practice in requisition to pay(Percentage of responses) • 83% of masters provide clear and documented buying channels to the end-user. Category specific processes are defined, transparent and consolidated through buying portals. Masters enjoy 67% catalogue buying and the approval chains are efficient and transparent at 89%. • Masters focus and learn from assisted buying to improve their requisition to pay efficiency and effectiveness continuously and drive towards further reduction of “spot” buys. • Three quarters of masters manage the process from requisition to payment fully integrated and strongly automated.

  15. Procurement Mastery Exercise 1 Procurement strategy • Vision, mission, core values • Operating model • Performance management • Category strategic planning 2 Sourcing and category management • Strategic sourcing • Category policy setting • Category management framework • Compliance monitoring 3 • Transaction processing • Assisted buying Requisition to pay • Master data management • Fulfillment 4 Supplier relationship management • Supplier development and integration • Supplier performance mgt • Contract management 5 • Working in an organization that facilitates working together • Having the right network of competent people Workforce and organization 6 • Technology that delivers the right information • Systems cover all functions: strategy to operations Technology Today’s presentation is built around six separate dimensions of procurement mastery.

  16. Supplier Relationship Management Masters combine a strategic approach to segmentation with an automated supplier performance assessment. Best practice in supplier relationship management(Percentage of responses) • Masters excel over low performers in that they apply a supply-base segmentation strategy, implementing differentiated approaches by supplier segments and tiers. • Masters focus on key suppliers and establish with them long-term partnering agreements. • Masters centrally log contracts and pro-actively manage contract information and compliance data. • Tracking and reporting suppliers’ performances and assessment is an area of improvement for masters.

  17. Procurement Mastery Exercise 1 Procurement strategy • Vision, mission, core values • Operating model • Performance management • Category strategic planning 2 Sourcing and category management • Strategic sourcing • Category policy setting • Category management framework • Compliance monitoring 3 • Transaction processing • Assisted buying Requisition to pay • Master data management • Fulfillment 4 Supplier relationship management • Supplier development and integration • Supplier performance mgt • Contract management 5 • Working in an organization that facilitates working together • Having the right network of competent people Workforce and organization 6 Technology Today’s presentation is built around six separate dimensions of procurement mastery. • Technology that delivers the right information • Systems cover all functions: strategy to operations

  18. Technology Masters use common and automated technology which also supports the sourcing process and can provide easy reporting. Best practice in technology(Percentage of responses) • The importance of a common and automated technology supporting requisition to payment is highly regarded by masters. Almost 80% of them have the integrated platform in place and have achieved to a high degree procurement master data harmonization. The ratio of suppliers integration technology is fairly high. • Masters are heavily supporting their sourcing process with technology to keep collaboration and knowledge sharing high. • The value of user friendly ad hoc reporting capabilities is seen by over 70% of the masters who deployed technology allowing timely reports driven transparency into the organization.

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