The Art of Procurement Mastery

Now more than ever, procurement leaders have enormous responsibilities on their shoulders. Not only are they expected to drive even larger cuts in costs of goods sold but they are under fierce pressure to make every business process as efficient as it can possibly be. So notes Gregory Spray in a recent Supply Chain Management Review article on The Art of Procurement Mastery.

The article also notes that not many companies are using the downturn as an opportunity to radically rethink their activities and strategies. A downturn is a great opportunity to snap up top talent, apply business analytics to develop sharper insight, collaborate closely with suppliers to drive product innovation, and outsource effectively.

The article examines the performance gap between “procurement masters” and their lesser performing industry peers that was highlighted in a recent Accenture survey across more than 600 procurement executives from Asia, Europe, and North America which found that procurement masters achieve 30% higher savings with costs that are 50% lower, procurement masters outsource at a frequency that is two to four times higher than low performers (depending on the function), and procurement masters are leaders in supplier relationship management. I have to say that these results are not unexpected, given that Hackett has been logging similar results for almost three years now.

The study defined a “procurement master” as one with superior performance in the following five metrics:

  • Total-Cost-of-Ownership (TCO) savings
  • Spend Under Management (by Procurement)
  • Ratio between TCO Reduction and Procurement Operating Costs
  • Percentage of NPD/NPIs where Procurement has a Material Role
  • Percentage of Suppliers Managed Under a Formal Process

So what do procurement masters do that their industry peers don’t?

  1. More Thoughtful and Pragmatic Procurement Strategy
    Masters look and think three to five years out when planning purchases for critical business categories and they do a more innovative job of measuring procurement performance.
  2. Better Guidance for Sourcing and Category Management
    Masters employ a center-led organizational design that cuts across organizational entities and employ best-practice sourcing processes that emphasize

    • common processes
    • wide-spread usage of cross-functional procurement teams
    • formally tracked activities
    • tight focus on TCO
    • end-to-end supply chain orientation
  3. Greater Innovation in Procurement Processes
    For example, 83% of masters (compared with 8% of low performers) excel at providing clear and documented buying channels to end users and 87% of masters use LCCS for value creation.
  4. More Assertive Supplier Relationship Management
    Supplier Relationship Management is a leading practice of procurement masters with 84% employing a supply-base segmentation approach (compared to 1% of low performers), 83% employing automated tracking and reporting of supplier performance (compared with 1% of low performers), and 80% employing central logging and proactive management of contracts (compared with 8% of low performers).
  5. Supplier Workforce Management and Organization
    Masters excel in workforce management with 78% (compared to only 3% of low performers):

    • Objectively measuring existing competencies
    • Frequently adjusting organizational skills to align with procurement strategy
    • Emphasizing ongoing training
    • Blanketing competency development strategies across the procurement network
    • In addition, 86% of masters use variable pay schemes (that compensate high performers).

  6. More Effective Use of Technology
    As the article astutely points out, technologies and technology-based solutions have advanced considerably in being able to support innovations in procurement and leading procurement executives are looking to new technology solutions to help digitize the entire supply chain.

As this echoes many of the messages my fellow bloggers and I have been conveying for the past few years, I’d say that this is good advice across the board.