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3 Management Summary
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David Rae
Editor – Procurement Leaders
Management Summary
What are the current challenges and drivers for your organisation?
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1 - Corporate restructuring 41.04% 9 - Corporate social responsibility 41.04%
2 - Cost reduction 94.03% 10 - Demonstrating increased shareholder value
3 - Business / operational risk management 47.76% 30.6%
4 - Financing / securitising the supply chain 11 - Supply chain improvements – process
14.93% efficiencies 57.46%
5 - Sustainable sourcing 49.25% 12 - Exchange rate fluctuations 20.15%
6 - M & A activity 14.93% 13 - Technology advancements 18.66%
7 - Raw material prices 41.79% 14 - Cross-functional collaboration 52.99%
8 - Supplier relationship management 70.15% 15 - Other (please state) 2.24%
The same principle applies to all areas of procurement needs to start looking at its
indirect spend. A poor understanding of alignment with the wider organisation and
stakeholder needs, insufficient supply- the talent within it.
base visibility and a lack of knowledge of
which suppliers can be used are often The next phase is to build the business
reasons why procurement initiatives do not case for change, which requires a real
yield results or, in some cases, even fail. understanding of the senior stakeholders
and key influencers affected and involved.
This is not only the case for the end users What advantages would they get out
of indirect goods and services but also for of a procure-to-pay programme? What
senior stakeholders. Management buy- disadvantages? What are their doubts,
in, a good project team, a solid software motivators and drivers?
infrastructure and change management
are the essential ingredients needed to put For instance, a procurement team at a
a successful buying organisation together. financial services company might come to
Among those, management buy-in typically the conclusion that the purchasing of new
plays a vital role and is easiest to achieve trading-room equipment will not provide a
with a centralised management structure. sufficient return on investment, resulting in
Bob Booth a push-back on the demand expressed by
These dynamics are subject to change its internal client.
again as soon as profit and loss (P&L)
In order to do successful procurement, responsibilities, for instance, in the form of The final step is to sell the business
is it critical that the procurement strategy department heads, enter the game. In fact, case for the change, using a “stake-
is aligned clearly with the strategies of a P&L structure is an ideal lever to resist holder influence map”, which displays
the wider business? Is it critical that it is any centrally-led procurement initiative. the stakeholders’ roles in the decision
aligned with the strategies of individual Regardless of how positive a central-led process, their likely motivation and their
business units? Is it sometimes even initiative would be for the entire company, personal and professional drivers. When
critical to align it with strategies of depart- these stakeholders are not responsible for the procurement organisation goes into
ments? Yes it is. the big picture, but for the profit of their the negotiation process, it should clearly
given entity, and only look at the cost and map out why it is engaging in the purchas-
Procurement departments and purchasing benefits impacts for themselves. ing initiative and understand the benefits
professionals are responsible for aligning that will be received, such as shorter
procurement’s aims with those of key So, what is the best approach? Before delivery circles, lower costs and allowing
stakeholders. This is to maximise the any organisation starts an indirect spend employees to focus on their key duties for
financial, process and quality benefits programme, it has to analyse the potential each group of stakeholders.
and reduce the negative impact of the scenarios and ask questions such as:
effect that buying decisions can have on what are the total, current indirect spend While such a structured approach may
company stakeholders. The alignment also volumes? What could be achieved by an require more effort, the long-term benefits
smoothens the establishment of a strategy e-procurement initiative? What are the not only affect procurement but also the
across the organization. potential savings? How would it affect wider organisation.
process costs, cost per order and cost per
Anyone who has been in charge of sourcing, invoice? What kind of business control and In summary, procurement is a continuous
for example, fleet for senior manage contract compliance can be achieved? change-management activity and unless
ment, will understand what this means. What is the ideal organisational structure you understand your stakeholders
Top management might be demanding that is needed to support the future, motivations and their likely objections, you
a company car that they feel meets their potentially automated, operating model? will struggle to convince them to support
personal needs. “Why are you so concerned the change you desire and to build a
with saving money for the company, when These questions build up to a procure- consensus for change.
this car is for me?” they might ask. ment value assessment. Once completed,
What are your current and future use of service from an outsourcing partner?
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Currently Use Consider Outsourcing
Outsourcing in the Future
1 – Inventory management 34.09% 65.91%
1 Inventory management 34.09% (15) 65.91% (29)
2 – Procure-to-pay 41.67% 58.33%
2 Procure-to-pay 41.67% (25) 58.33% (35)
3 – Strategic sourcing 45.71% 54.29%
3 Strategic sourcing 45.71% (16) 54.29% (19)
4 – Hosting of software apps 54.05% 45.95%
4 Hosting of software apps
5 – Innovations 54.05% (40) 45.95%
40%(34) 60%
5 Innovations
6 – Other 40% (12) 60% (18) 41.67% 58.33%
6 Other 41.67% (5) 58.33% (7)
Of those companies already engaged in ment & infrastructure was the most MIXED PICTURE ON PROVIDERS
some procurement outsourcing activ- commonly outsourced business function IT service providers are leading the way
ity, eProcurement systems management (49%), followed by payroll (39%) and when it comes to the supplier space. Of
turned out to be the most commonly logistics (32%). Finance & accounting those questioned, 44% are currently out-
outsourced procurement function; 51% (18%) and legal (13%) joined procure- sourcing their procurement to IT service
currently outsource this area of spend. ment (12%) as the three least outsourced providers, which once again illustrates
The study further reflected that 38% of business areas. how reliant organisations are on outside
those questioned had outsourced their expertise in the technology marketplace.
procurement transaction processing With that in mind, it is no surprise that Surprisingly, specialist outsourcing service
activity, while another 35% had moved IT-related activity is only topped by travel providers (24%), pure play procurement
their indirect goods & services procure- when it comes to the indirect spend service providers (16%), were topped by
ment out of house. This figure compares categories that our respondents are both logistics service providers (34%) and
starkly with the 13% that have outsourced currently outsourcing. Three-quarters of service or product suppliers (28%).
their direct goods procurement and the respondents (75%) named travel as their
20% that have outsourced their sourcing most frequently indirect spend category, PROCUREMENT’S INCREASING
(full or partial) activities. The findings also which, along with IT & telecommunications INFLUENCE ON OUTSOURCING
revealed that a minority of 3% is out (63%) and software & IT professional DECISIONS
sourcing all goods and services. services (63%) formed the top three. Does procurement have any say when it
Marketing (21%), professional services, comes to making outsourcing decisions?
IT AHEAD IN OUTSOURCING legal services and HR & personnel (17% One of the biggest revelations of this study
RACE respectively) were the four least out- was the increasing influence procurement
According to our research, IT manage- sourced areas of indirect spend. appears to be gaining in decision-making
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1 - IT & telecoms 82.71% (110) 7 - Office services & supplies 91.73% (122)
2 - Marketing services 63.16% (84) 8 - Fleet 67.67% (90)
3 - Human resources 53.38% (71) 9 - Logistics 71.43% (95)
4 - Facilities management 79.7% (106) 10 - Travel 84.21% (112)
5 - Utilities 73.68% (98) 11 - Other 14.29% (19)
6 - Professional services 79.7% (106)
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1 - HR / benefits 24.03% (31) 6 - Logistics 31.78% (41)
2 - IT management & infrastructure 48.84% (63) 7 - Real estate management 21.71% (28)
3 - Payroll 38.76% (50) 8 - Procurement 12.4% (16)
4 - Finance & accounting 17.83% (23) 9 - Legal 13.18% (17)
5 - Manufacturing 21.71% (28) 10 - Other 20.93% (27)
MANAGING RISK A MAJOR DRIVER important factors were a supplier’s change petencies being flagged as another key
Unsurprisingly, given the current management capability (63%) and financial stumbling block by 54%. Price also fit into
economic climate, when it comes strength (60%). this mix of top concerns as 53% voiced that
to selecting an outsourcing partner, outsourcing fees were too costly. This may
proven capability ranked highest Our findings indicate a mixed picture when come as a surprise to those who thought
in terms of importance (86%) – an it comes to the major concerns or risks that the price of outsourcing has become
indication companies are either unlikely, for those companies considering out less relevant as today’s companies are
or unwilling, to place their trust in sourcing. The top concern identified by deviating from low cost outsourcing work
an outsourcing provider without more than half of procurement executives and instead leverage quality and innovation
a proven track record of success. (56%) was unclear fee structure, implying in order to stay competitive. Slightly less
Spend category expertise was the that communication between buying than half of respondents (48%) stated that
second-most important criterion that organisations and their suppliers is less the perceived loss of control was a major
companies pay attention to as they than ideal. Another top concern expressed concern, a finding that further feeds into the
evaluate suppliers; this was supported by 55% was the supplier’s infrastructure recurring theme of lack of supplier trust.
by a response rate of 84%. Total cost and capacity to deliver, raising the issue of
also showed to be critical (81%), as did trust yet again. This sentiment was further
Return on investment (78%). Trailing, but compounded by outsourcing core com-
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1 - eProcurement systems management 50.7% 5 - All goods & services 2.82%
2 - Procurement transaction processing 38.03% 6 - Direct goods & services 4.23%
3 - Sourcing (full or partial) 19.72% 7 - Indirect goods & services 35.21%
4 - Direct goods 12.68%
LEARNING FROM THE PAST the increasing importance of innovation “As the market matures
Inventory management has been one is illustrated by these contrasting data
of the key issues facing procurement points: 60% would use an outsourcing then I think we’re going
over the past two years, and our study partner to leverage innovation in the future,
does indeed suggest it is the area most but “only” 40% do so now.
to see more and more
respondents will be looking for out-
sourced expertise in the future. Of those FACILITIES MANAGEMENT
companies looking to
questioned, only 34% currently use TAKING OFF procurement outsourcing
an outsourcing provider for inventory When asked to estimate which areas of
management, however, in future, this indirect spend had the most potential as a means of achieving
figure could rise to as high as 66%,
as estimated by our respondent base.
over the next five years, half of our
sample (50%) pointed to facilities. IT and
efficiencies and cost
Procure-to-pay might see a similar telecommunications (49%), software savings”
uptake: 52% currently use an outsourcing and IT professional services (45%) and
partner for it but in the future, 58% would contract labour (45%) proved to be its – CPO from major UK-based
consider using one. Another indication of closest challengers. Marketing, print, corporate.
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legal services, HR and personnel and a slight shift in opinion, with 42% regarding the need for procurement to remain “a
logistics were each identified by about a procurement outsourcing positively and far core competency” as the primary reason
third (32%-35%) as opportunities in the fewer (36%) reflecting a neutral stance. why outsourcing was not on his agenda.
first half of the decade. Conversely, office
equipment (26%) and packaging (11%) – When further probing as to which factors However, many others had a different
two areas of direct spend already being had contributed to these perceptions, the view, reporting that outsourcing had
extensively outsourced – were viewed as variety of responses illustrated that pro- enabled them to save money and
limited areas. curement outsourcing still has some way maintain tighter controls on procure-
to go to establish itself in the mainstream ment spend. Both the capability and
PERCEPTION VERSUS REALITY of outsourced business functions. capacity of the service provider were
As far as the perception of outsourcing is viewed as major factors contributing to
concerned, nearly half (45%) indicated to Lack of experience and concerns the success of the outsourcing outcome.
have no opinion either way. However, 37% over ROI (return on investment) were two
viewed procurement outsourcing in a posi- of the major factors that contributed to Among those who had no opinion on
tive light, and only 18% expressed to have the negative perceptions of procurement procurement outsourcing, the majority
a negative opinion. When asking a select outsourcing among some procurement admitted that the lack of exposure to it
group of CPOs the same question, there was executives. Another respondent identified contributed to their neutral standpoint.
Proven capability
Personality
conflicts
Extended supply chain /
centralisation
Already have existing
procurement systems
Implementation and
start up problems
Internal
talent
Impact on
internal morale
Unable to build compelling
business case
Perceived loss
of control
Outsourcing core
competencies
Infrastructure /
capacity to deliver
Outsourcing