In Hackett’s latest Advisory Piece, Evolving the Value Proposition of Procurement: A Five Stage Model, Pierre Mitchell & Christopher Sawchuk present a five stage model (with three supply management stages and two customer management stages) that procurement executives can use to assess where they stand on the evolutionary scale of procurement service models. The five stages presented are:

• Supply Assurance
  The goal is the right goods and services at the right place and the right time, with a focus on perfect order.
• Price
  The goal is the right goods and services at the right price, with a focus on cost savings and avoidance.
• Total Cost of Ownership
  The goal is lowest Total Cost of Ownership with a focus on quality, capital, ancillary costs, and opportunity costs.
• Demand Management
  The goal is to reduce demand variance and complexity immediacy with a focus on reducing maverick spend and increasing customer satisfaction.
• Value Management
  The goal is to increase business value derived from spend with a focus on overall operational metrics.

These stages are more or less correct – the one caveat is whether or not a company approaches them in the order given, or a slight variation. Some companies will start with a focus on price rather than cost assurance, and after achieving a basic mastery of TCO some companies will move on to trying to maximize value before trying to manage demand

In addition to laying out the stages of procurement mastery, they also have a number of insights from their book of numbers. First of all, world-class organizations spend proportionally more on strategic processes than their peers – and 27% more on sourcing strategy and analysis and 45% more on supplier management and development in particular. Secondly, 78% more world class companies actively involve procurement in the firm’s planning and budgeting process. Thirdly, world class organizations spend proportionately less on transactional processes – and 25% less on compliance management and 50% less on supply data management in particular.

Some of the best insights relate to their fifth stage, value management, where procurement has no other agenda than to advance and support the business strategy. This is harder to achieve than it looks since procurement:

• can not use a parallel measurement system as it must be restricted to the metrics that define value for the organization as a whole,
• must harness the power of supply markets to identify breakthrough business strategies instead of simply translating existing business strategies to supply markets, and
• must make the business strategy development process itself a core competency.

Leaders of world-class procurement organizations don’t simply wait for a sea change in business leadership to evolve these value propositions. They sense when there’s an opportunity to elevate the firm’s game to the next level and then fill in the leadership void themselves. As they do this, they evolve not just themselves and their teams, but also evolve the concept of procurement as a whole, raising the stakes for all other firms to follow.

As with the majority of Hackett’s insight pieces, this piece is for members only, but it goes to show that with Hackett, the insights you get with advisory services are worth your time.

The European Leaders Network recently ran an interesting article entitled “The Key Trends in Sourcing Impacting Procurement Today” that summarized the key trends in the Sourcing Industry for 2007/8.

According to the author, the following market trends are currently impacting the way procurement professionals source goods and services.

• Increased multi-sourcing
  Mega-deals are on the decline and niche players are on the rise. Value-add is slowly overtaking the ‘monolithic empire’.
• Greater significance to governance
  The skills and disciplines associated with good governance are starting to be recognized as the key to sustainable relationships with their associated benefits.
• Continued rise of global sourcing
  These days global sourcing is more a question of ‘when’ and ‘how much’ and not ‘if’. Even Europe is embracing the paradigm.
• Consolidation in the IT supplier market
  There is significant consolidation occurring in the outsourcing space which should ultimately serve to benefit sourcing professionals.
• Concentration on value
  Whereas the last few years have placed emphasis on short-term objectives in transaction execution, pushing sustainability onto the service provider, going forward, the trend is to concentrate on long-term value up-front and ensure that delivery will be metric-driven and focussed on the business needs in an effort to meet the overriding goals.

This is a good start, but it fails to mention the following trends that are also in play, as pointed out in Sourcing Innovation’s recent Sourcing 2007 and Sourcing Innovation cross-blog series. Consider the following:

• On-Demand Software-as-a-Service Providers and (Enterprise) Open Source is changing the landscape
  Companies like Iasta (acquired by Selectica, merged with b-Pack, rebranded Determine, acquired by Corcentric) and Procuri (acquired by Ariba, acquired by SAP) are driving down cost while driving up value.
• M&A activity is also happening within the software provider space
  The latest example is the Cormine (acquired Perfect Commerce, rebranded Perfect Commerce, rebranded Proactis) and Perfect Commerce announcement.
• Sustainable Supply Strategies are becoming mainstream.
  Consider the recent Goldman Sachs report that found that companies implementing environmental, social, and governance (ESG) policies outperformed the general stock market by 25% over the last two years.
• Raw material and commodity prices are skyrocketing across the board.
  The days of the constant Walmart rollback are over, especially if you are a minerals buyer.
• The Talent Crunch is worsening by the day.
  Supply teams have no choice but to adopt best practices and do more with less.