Today’s guest post comes courtesy of Per Blomquist, Katie Boord, and Bob Derocher of Archstone Consulting, a consulting firm that focuses on strategy and operations consulting in supply chain, strategic sourcing, and procurement.
With today’s uncertain economy, volatile capital markets, and ever-worsening credit crisis, it is more important than ever for companies to stay focused on spend management in order to weather the storm.
While product-based businesses tend to have fairly mature procurement organizations due to the criticality of direct materials, service-based businesses often lag behind. Without a prominent and centralized role, and without the leadership of a CPO with budgetary influence, procurement groups within these companies often struggle to make inroads into functional silos where much of the enterprise spend resides. Bringing this spend under management by a disciplined procurement organization can have a dramatic impact to the bottom line.
Recent experiences with clients in the financial services industry have illustrated the existence of decentralized procurement efforts by functional areas such as marketing, e-commerce, legal, and collections. These engagements have highlighted some critical success factors for procurement organizations looking to break down barriers to spend beyond their current scope, as well as the resulting opportunities that exist.
CRITICAL SUCCESS FACTORS
- Executive Sponsorship
In the absence of a CPO, procurement organizations need to have visible senior management support in order to encourage business units to partner with them.
- Change Management and Communication
Recurring and consistent communication is necessary to convey the spend management goals of the company and the value that the procurement organization can provide in order to meet those goals.
- Spend Analytics
All external spend data needs to be compiled, scrubbed, categorized, and verified in order to understand what products and services are being purchased from which vendors by which areas of the enterprise.
- Partnership Development
Procurement “ambassadors” need to meet with senior stakeholders across the enterprise to articulate their value proposition (see three guiding principles listed below) and explore partnership opportunities.
Providing best-in-class tools, templates, and processes that can be deployed quickly with minimum effort from the stakeholders.
Supporting stakeholders with any part (or all) of the procurement process.
- Stakeholder Ownership
Assuring the stakeholders that the procurement organization will not dictate vendor decisions.
- Results Tracking and Reporting
Results (e.g., savings, improved contract terms, enhanced supplier relationships) must be tracked and reported to ensure appropriate progress and to bolster enterprise support.
- Increased Savings
The engagement of procurement organizations in the sourcing of categories such as Search Engine Marketing, Online Banner Advertising, Corporate Jets, Debt/Credit Protection Outsource Provider, Online Banking Website Design and Development, Online Banking Middleware Solutions, Market Research – Consumer Insights, and Consulting Services (to name a few) can result in millions of dollars in incremental savings and cost avoidances. Each “win” can strengthen existing stakeholder relationships and generate new partnership opportunities through referrals.
- Decreased Risk
Employing a disciplined procurement process can reduce enterprise risk through consistent NDA execution, standardized contract terms (including security and insurance requirements), and transparent communication of vendor utilization and performance metrics.
- Improved Governance
The tracking and reporting of procurement results can increase executive awareness and organizational accountability to formal savings targets. Spend analytics can support joint initiatives between procurement and finance organizations, such as the restructuring and redefining of AP account codes to enable the monitoring of category spend and policy compliance.
- Enhanced Process Efficiencies
Utilizing standardized processes and templates can save time and avoid duplication of efforts. Furthermore, better procurement results are achieved when best practices are followed, and lessons learned are communicated across the enterprise and leveraged for further improvements.
The authors would welcome the opportunity to discuss your experiences on this topic. They can be reached by email at the following addresses: