During Pierre Mitchell's presentation at Synergy, I sat in the back of the room with my notebook open, typing away as fast as I could. I tend not to take electronic notes during presentations at conferences, but with Pierre going a mile a minute, it was my only way to keep up. Today, I present the second part of my notes from his presentation.
In the first part of my summary, I highlighted how Pierre described that it has never been a better time for procurement and Spend Management (given the rise of the function and incredibly convincing benchmarking analysis that proves the rationale for making significant investments in the area). But there remain numerous challenges as well. Despite the success companies are realizing from Spend Management, budgets are being cut, and procurement leaders with "poor relationship skills" are having a hard time keeping their jobs. At the same time, indirect procurement visibility and performance is struggling, which has led to a credibility gap in savings reporting and "speaking the language" of the business. And there is still misalignment with spend owners inside organizations and unclear governance regarding procurement's overall role.
A major reason for these challenges is that perceptions of value are divergent. For example, an R&D procurement team might find a new supplier which is more expensive on a unit cost basis, but that provides a reduced TCO through value added services. Is this a success? Or consider when a new supplier is chosen for a category and actual savings are accrued, but budgets are not reduced. Again, is this a success? For these questions and others, the main point that Pierre raises is that would the spend owner and the CFO answer the same way? It does not matter how an organization answers, but what does matter is alignment.
The next question Pierre raised is how can companies close the gap between how procurement perceives their performance versus how others do. To close this gap, Pierre recommends taking a 360 degree look at procurement and funding processes which target high value areas where quantifying results is easier. However, according to Hackett data, most firms over-fund lower value processes while under-funding higher value ones. One example here is the amount that procurement organizations spend on PO management vs. truly strategic supplier relationship management. Pierre believes that much of the money ear-marked for procurement operations would be better spent on focusing on hunting big game rather than foraging in the underbrush.
But just as important as making the right investments is the need for procurement to market itself more aggressively through better "customer account management" in CRM-speak. The key is to make sure that procurement is organized around customers. By incorporating formal account management roles (independent of category teams), assessing service and delivery on a formal basis, and by migrating to a corporate shared services model, procurement organizations can materially improve how the rest of the organization perceives their efforts. Another statistic that Pierre shared is that 93% of world class procurement organizations conduct regular customer satisfaction surveys, while only 15% of average performing procurement organizations carry out similar surveying efforts.
The lack of outreach shows up in the voice of the customer (which should be sobering to the average procurement professional who believes his job to be highly strategic). Today, only 14% of the overall organization view procurement as a "valued partner". 35% view procurement as a negotiation / sourcing expert. But a majority of respondents (14% and 37% respectively) view procurement as a "gate keeper" or "administrator". So much for the rise of the CPO in 50%+ of companies!
In addition to enhanced internal marketing efforts, procurement can build better alignment with their organization by becoming more involved in enterprise level planning and budgeting. 57% of world class companies have procurement organizations involved at this level versus 12% for the peer group. But this is more than just about validating budget reductions. Active planning and visibility involvement requires spend visibility by supplier and cost center, as well as the ability to work closely with all key stakeholders and "spend owners" at planning time -- as well as on an ongoing basis -- through solid account management. And active involvement and coordination with the finance organization should go without saying as well.