I caught up with some old colleagues of mine at The Hackett Group, who offered to let me share some of the insights from their 2013 procurement key issues study. I am familiar with the study (because I actually developed it!), but here are some of the highlights and my reflections upon them one quarter into 2013:
- The overall focus for the enterprise was not just cost discipline, but agility to respond to changing global business conditions. Just sitting in on annual stakeholder planning and budgeting sessions is not enough to stay aligned. Proactive engagement of stakeholders to develop scenarios and potential mitigations is key. You need to build a good playbook so that you can pull out the right play rather than pulling out excuses.
- Global procurement process design beyond center-led sourcing is very active with the confluence of global market entry, best country sourcing, shared services, P2P re-design, ERP rollouts, coming together. Global P2P and supplier management (including risk/compliance management) is non-trivial and the best sourcing process is meaningless without downstream execution prowess.
- Of the ‘going global’ competencies being built, the top three areas of change were Centers Of Excellence (CoEs), Master Data Management (MDM), and performance measurement (i.e., KPIs). Companies are trying to ‘scale’, and doing so requires “one-to-many” CoEs, a trusted virtual system of reference (for suppliers, contracts, items, etc.), and a scalable performance measurement system for supply that is independent of the organizational hierarchies.
- Hybrid operating models with mixed use of shared services (or “Global Business Services” if you will), intra-functional CoEs, outsourcing, and self-service methods are increasingly being orchestrated by category, process, region, etc. (e.g., using “buying desks” for tactical sourcing of “tail spend”). You better be good at process management and also have some flexible systems to orchestrate this level of complexity!
- Category management is growing more aggressively as a competency than just strategic sourcing. This is understandable because sourcing is just one process in an end-to-end lifecycle view. For more on this topic, see here.
- Everything has become more important, but budgets are still flat. The directive of “do more with less” is pretty clear. Doing this study for 5 years straight, I’ve never seen such a large increase of priorities across the board. But, this is unrealistic unless productivity goes up. As I always say: "Efficiency funds Effectiveness" - it is not a tradeoff. I think there are some untapped opportunities here, but we’ll save this for a future post.
- In terms of broader capability building, the action in 2013 has been in supply market intelligence, analytics, tuning the hybrid operating models (as discussed above) and technology improvement (which includes analytics, but also MDM and broader application suite rollouts). In terms of supply market intelligence, supplier intelligence is the top area (e.g., supplier risk analysis) and category intelligence taking the second spot.
- With regard to procurement CoEs, the largest implemented area is for strategic sourcing (including eSourcing tools), but analytics and market intelligence are close behind. The analytics includes spend analysis, but the area of benchmarking/KPIs/Reporting/Value Measurement was also cited as an active area. I’ve spent a lot of time with the “Procurement Excellence” CoE folks, and they are really driving a lot of the change in Procurement. Change management is a big deal, and the focus on talent management to get the right skills for process execution and increasingly for procurement transformation is also a very hot area. We’ll be writing a lot more about these topics in the coming months.
The bad news for procurement is that no good deed goes unpunished. The latest Hackett study showed that procurement continues to over-deliver in its service performance – especially relative to IT, finance, and the worst function of all: HR. Talent management continues to be a major challenge for organizations, yet HR struggles to not only help with talent management, but also just the basics in its own service delivery. The bigger problem for procurement is “getting out of the [cost savings] box.” Hopefully with all the work going on this year to up-skill and fine-tune the procurement operating model, the value proposition (as measured by the breadth of procurement activities/services) for procurement will increase rather than just the savings targets on existing services/metrics. Otherwise, ‘stretch goals’ will merely become overly optimistic forecasts – and under-delivering is clearly not a long-term recipe for success.