So How Do You Align Your Supply Management Organization and Advance its Maturity?

In our last post we indicated that the expected value of Supply Management maturity was a 50% improvement in ROIC and a 75% improvement in Operating Margin, but that effort was needed for an organization to reach that maturity level. However, any effort involved would pay off handsomely as this is only an average – for example, in Enterprise Procurement – Back on Track, a presentation on Aurizon’s Procurement Transformation presented last month, Roger McNeill documented a ROIC increased from 2.0% in 2010 to 8.0% in 2013, a 300% improvement!

We also indicated that if the effort was put into the right process, specifically the EPAM (Evaluate. Plan. Act. Measure.) process, the organization could move up the maturity curve and see this success, as well as make the necessary alignments with the business in the process. So how does it do this?

1. Evaluate

Start by measuring the organizational maturity on the axes of proactivity and organizational alignment. Specifically, is the organization:

  • Reactive and/or Internally Focused
    a Supply Management organization that is reactive and/or internally focussed is typically near the bottom of the maturity curve, still approaching sourcing from an auction or best-bid perspective, running on an ERP, and quoting savings numbers without validation
  • Proactive and Metric Focussed
    a Supply Management organization that is proactive and metric focussed is typically in the middle of the maturity curve, approach sourcing as a total cost optimization project, implementing P2P, adopting best practices, and measuring realized savings; they’re doing good, but could be doing better
  • Strategic and Organizational Strategy Focussed
    a Supply Management organization that is strategic and focussed on organizational strategy is at the leading edge of the maturity curve, approaching sourcing as a value generation exercise, running on a suite of best of breed source-to-pay solutions, approaching sourcing exercises as strategic joint ventures with other organizations, creating best practices, and measuring outcomes against shareholder value and time to that value


Where the organization is on the curve dictates what the organization has to do next.
An organization that is:

  • Reactive and/or Internally Focused
    needs to plan sourcing events with ample time to do the detailed spend and market analysis required to approach the category strategically, move to bid evaluation on total cost (of ownership) and not just landed cost models, implement a P2P or e-Procurement system to capture organizational spend and increase Spend Under Management (SUM), implement an appropriate e-Sourcing solution, institue best e-Sourcing practices, and start measuring realized savings using the P2P system
  • Proactive and Metric Focussed
    needs to plan sourcing events in conjunction with stakeholders and identify the outcomes that are most important to the stakeholders and give those outcomes the greatest weight in a total value model, run on an integrated end-to-end Source-to-Pay suite (which could include sub-suites from different leading BoB [Best-of-Breed] vendors), institutionalize and embed best practices in the sourcing technologies and processes, and measure outcomes using the metrics of interest to finance and the C-Suite (like ROIC, Operating Margin, increased market share, etc.)
  • Strategic and Organizational Strategy Focussed
    needs to embed itself in NPD and NPI (new product design and new product introduction) to take cost out before cost is baked in by Engineering (or Marketing when it insists on features that most of the target market doesn’t want, which Supply Management can identify by sourcing an appropriate market research study), work with Marketing to help it understand the risks and difficulties in new market entry based on its global market knowledge gained from sourcing from different regions, work with Operations to redesign the corporate footprint to reduce cost and increase sustainability, work with Finance to help it better manage Working Capital based on better demand management and improved cash-flow forecasting, and help the C-Suite define the corporate strategy


Once the plan is in place, the organization needs to execute the plan. The execution will vary based on the plan.


The plan, if properly defined, will include metrics and outcomes that can be measured quantitatively and evaluated qualitatively. When the plan has been executed, the results should be measured, compared against any baselines or expected outcomes, and reported.

The devil is in the details, but the process is sound. And there are a number of leading Supply Management software and solution companies that can help your organization through this process, including BravoSolution, if the organization is looking for software and services, and Deloitte, if the organization already has a sourcing software suite (from a provider that doesn’t provide transformation services). And even it it takes 4-5 years, which is the average for Global 3000 organizations, the end result will be worth it as most save hundreds of millions of dollars and see an increase in key financial metrics of 50% or more.