Redefining Procurement Models – A Next-Generation Operating Model

One of the ‘quick fire’ case study presentations at ProcureCon Indirect in Copenhagen last month, under the Redefining Procurement Models umbrella session, covered Next-Generation Operating Models. It was given by Alpar Kamber, Executive Vice President of WNS – Denali who gave us an inside look at how they are redefining their procurement operating model for greater agility, responsiveness and value. It was quite a detailed and strategic dive into their operating model, interesting, but not easy to relate simply in only a 20-minute session, however, here’s an overview of what we took away and understood about what an integrated source-to-pay model could look like.

He introduced it by taking a look at what he thinks Procurement should be focusing on now as operating models change in reaction to customer centricity and service delivery, that is Relationship Management, Category Management and Execution. These, he says, apart from transactional value, are the main areas within the sourcing function that should lead to increased value.

People come into procurement nowadays with a purpose: to make a difference and add value, rather than falling into the profession as often used to happen years ago. But limiting us from adding more value are the bottlenecks to throughput, something is missing from Procurement’s end-to-end system. He believes that is partly a focus on execution and a dedicated approach to solving that problem.

In an integrated source-to-pay model that can help deliver value, he sees three dynamics that must flow: Reach – increasing the strategic approach to spend (or spend under management), which comes under Category Management; Effectiveness – increasing savings and delivered business value, which comes under Source-to-Manage; Efficiency – increasing speed and compliance which comes under Procure-to-Pay (in their model).

And his three key principles guiding the next-generation operating model are Agility, Responsiveness and Value. This means spend is managed at both macro and micro level,  capabilities are integrated and offered through a menu-based service (cloud level), procurement is deconstructed, separating execution from strategy and decision making, and this is enabled through best in-class integrated technology leading to knowledge being captured, managed and applied – rather than outsourced.

So they are placing Category Managers and business stakeholders (budget holders) at the heart of the operating model, with a strategic support team helping. And they are creating pockets of teams to be more efficient and create less procurement waste. Many resources are often asked to perform too many diverse tasks, like building and nurturing relationships, demonstrating their value to the organisation, developing exceptional knowledge of their categories and suppliers, and deliver the more practical jobs like writing RFPs, executing them, negotiating contracts and so on. So the aim is to disentangle this mixture of strategic versus transactional roles, address them separately and deliver more efficiency.

The future integrated operating model will see the tactical roles, like PO and invoice management, on which we can currently spend 80% of our time, out-tasked to the most appropriate team and accounting for only 20% of our time. While the more strategic roles, like category strategy development and portfolio analysis and planning, will take up the lion’s share of the time.

And what you end up with is a strategic category management-driven approach with a Central Procurement Service Desk which runs: a Strategic Support Team for the likes of market, spend and internal business intelligence analytics and portfolio management; a Source-to-Manage Execution Team for  sourcing/RFP execution, contract authoring/negotiation and supplier enablement and performance management; a Transactional Execution Team for requisition to PO management, e-Catalogue management and invoice processing/queries.

The session drove a lot of interest from the audience, and one of the questions raised was around scalability of the model. In the short time we had left, the answer was that while you can’t always centralise sourcing, especially in the larger firms with different country requirements to adhere to, it does still need the same governance, control and compliance. So in terms of scalability, Alpar recommends always taking an organic approach to transitioning to an operating model like this. While it does work for all sizes and shapes, you do need to consider the cost/benefit and pick a path (category, region, process) that will show most benefits in the short-term and then drive adoption from there. Sound advice ...

 

 

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