The Twin Dimensions of Procurement Excellence
The procurement profession has long striven for excellence to increase its role and stature within the organization. Here we provide insight into ‘The Twin Dimensions of Procurement Excellence’, offering our framework to achieve leadership in procurement and supply management.
Procurement Excellence – Does excellence matter?
Excellence is no accident. World-class organizations operate and perform very differently than their median peers, reports Hackett. Previous studies have found World-Class Procurement Drives 133% greater return than typical companies but cuts the cost of procurement by 20%. They calculated returns by dividing spend savings by the total cost of procurement operations. This advantage translates to $3.6 million to the company’s bottom line for every $1 million in procurement operations costs.
Achieving Procurement Excellence
Excellence is an integral part of professionalism in any job, but in a profession that has been breaking down barriers to redefine itself, a universally accepted definition of excellence in procurement has remained ‘fluid’.
One aspect of excellence that is now universally accepted is that procurement must align itself with the business priorities. So it must be skilled in meeting these priorities.
One business priority that is always present is the need to reduce cost and increase profits, and most businesses have insisted that CPO’s focus on this metric above all others. Many CPO’s have garnered hard-earned reputations of delivering cost savings, but have still to win a seat on the board.
Maintaining Procurement Excellence:
Peter Smith, at Spend Matters, discussed his observations that many organizations once regarded as pioneers in the field, “had faded as centers of procurement excellence and capability.”
The problem for procurement is that as while the pressure to reduce cost never goes away; business cycles change, increased global competition emerges, organizations grow through merger and acquisition, some even morph into entirely new businesses.When such changes occur, CPO’s must be able to respond in kind to deliver value in a downturn, enlarged organization, or in a completely different business altogether. They can only do this when their influence extends to making a contribution to corporate strategy development, new product development, marketing & sales strategy, and M&A activities.
The implications for sustained success is evident.
Procurement staff must understand the company’s business strategy, its objectives and what’s essential to gain a better understanding of its strategic imperatives and business drivers. CPO’s must be able to call upon a wide range of diverse skill sets to meet the changing needs of the business over time.
Few are currently in a position to do so and risk the fate of the dinosaurs when their business changes. CPO’s must carefully monitor the direction of the business and adapt the function to suit. Ask yourself:
- Could you react quickly to operating at 30% lower capacity if your company is engulfed in an industry downturn ? What strategies would you put in place?
- What would you do if a disruptive low-cost competitor emerges?
- If your company experienced a rapid growth phase, would your supply chain cope. What actions would you take?
- If your organization acquires a competitor, a much larger company, would your procurement organization measure up? Could you integrate the acquired staff easily, to ensure a stronger overall organization?
- If your business morphed from a manufacturing organization to a service-oriented company, would you have the required skill sets?
Could you adapt to these changes by making decisions quickly, and maintain procurement’s business contribution under volatile conditions? Ask yourself the following questions:
Peter Smith also points out the impact of more personal issues on sustained excellence, because of the loss of a charismatic CPO or by changes at board level. We believe, however, that this is more a reflection of a failure to embed Procurement Excellence in the organization in the first place. Instead, relying on a charismatic and influential figure who takes procurement along in their coat tails, but once gone the party is over.
Defining The Twin Dimensions of Procurement Excellence
So what should we do? A precise measure of excellence, one that incorporates both the organization and its people as the key performance drivers is required to achieve sustained success. Only then can we build value-adding capabilities that will drive results whatever the business priorities. These two steps we call the twin dimensions of excellence:
- Environment Dimension: Individuals can only be as successful as their environment allows. So if the business is not aligned, organization and governance structure’s are weak, then procurement’s performance will be limited as to what it can achieve.
- Individual Dimension: Individuals must have the right skills, mindset, role mandates, to drive successful outcomes and be given the necessary development and promotion opportunities to retain them. According to AT Kearney, excellence comes from the sum of the category, team, and supplier excellence. However, this fails to take into account the environmental dimension.
Functional Procurement Excellence
Our Procurement Excellence Program is designed to quantify the environmental dimensions of excellence and benchmark your organization against five environmental factors:
Critical to these dimensions are talented employees. Procurement leaders are three times more likely to spend at least 70% of their staffing costs on strategic roles rather than operational roles.
Individual, Role, and Team Capability
The iProcure Platform is designed to quantify the individual dimensions and benchmark these against a global standard to provide:
- Tailored competency framework
- Aligned Role Profiles
- Knowledge baseline
- Skills Gap Analysis
- Development plans
- Measure learning and growth
Together they provide a roadmap for the twin dimensions of excellence providing the opportunity to make long-lasting, sustainable changes in which we can support you in your initiatives to close gaps and develop your procurement maturity.
Designed and delivered by two of the world’s leading procurement specialists, the Procurement Excellence Program and the iProcure Platform provide the only independent, comprehensive and procurement-specific assessments of their kind.
What does Achieving Procurement Excellence Mean?
Achieving the ‘Standard’ level of excellence in the environment dimension signifies that you have all the procurement governance mechanisms in place for effective supply assurance and compliance. Achieving the ‘Advanced’ level of excellence in the environment dimension signifies the level of value, you can deliver for your organization. There are three levels.
Achieving excellence in the ‘individual dimension’ signifies that your team has all the skills required to deliver on the business strategy and that you manage your talent pool to ensure you have the right skills for the future and for sustainable success.
Together or as individual initiatives they provide a powerful tool to build the capability to deliver results and gain credibility with senior management to generate stronger buy-in and investment for systems and staff.
CPO’s must choose carefully where to invest. But regardless of the choices, the Brave CPO will always strive for excellence.
Adopting the pursuit of excellence as an ideal in procurement and supply management will ultimately generate innovations in the supply chain and better outcomes. By promoting and celebrating excellence, CPO’s will enhance the contributions their function already makes to meet the challenges of the organization and the individuals in it.
Contact us to learn more about our Procurement Excellence Program and the iProcure Platform.