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This document contains trade secrets and other information that is company sensitive, proprietary, and confidential, the disclosure of which would provide a competitive advantage to others. As a result, the reproduction, copying, or redistribution of this document or the contents contained herein, in whole or in part, for any purpose is strictly prohibited without the prior written consent of The Hackett Group.
Lack of Spend Visibility (past spend and future spend) Lack of Savings Visibility, Value Contribution Visibility, and Trust/Credibility Lack of clear operating model and process ownership
Purchase-to-Pay Cash vs. Cost Risk vs. Cost of Controls Commercial Risk Management
Lack of Awareness, Resources, and Leadership Lack of Agreement on what Procurement’s and Finance’s roles SHOULD be
Move beyond efficiency: Every process can be squeezed for more Value (e.g., P2P)
Complexity Reduction• Transactional Purchasing Process Cost Reductions• Accounts Payable Process Cost Reductions
Strategic Business Enablement • Improved/protected customer service, revenue, profit• Brand protection: compliance risk; supply/supplier risk• Opportunity cost of management time
Value Drivers
Opportunity(For a $10B CPG Company)
Opportunity$4.4M
Opportunity$52.2M
Total*: $56.6 millionCurrent process baseline cost
~$26 million
Operating Excellence• Maverick Spending Reduction• Supplier Non-Compliance to contract• Demand Mgmt (Consumption Reduction)• Demand Mgmt (Spend Influence)• Sourcing Savings via better spend viz from P2P• Cost of Capital from DPO improvement• Early Payment Discounts• Rebates from Purchasing Cards• Reduced Cost of P2P Errors for Purchased
Finished Goods• Reduced Cost of P2P Errors for Raw Materials• Reduced Supplier Late Payments Penalties
Procurement has many Value Streams beyond delivering favorable Purchase Price Variance (PPV)
Source: The Hackett Group, 2011
Page 21- Hackett 2010 Procurement Value Measurement Study Findings – May 2010
Other than cost reduction & avoidance, Procurement value measurement is a work in progress. Before just attacking spend visibility, focus on “Value Visibility”
Avoided profit impact through supply risk management
Carrying costs reduced from raw material reductions or asset rationalization
Early payment discounts, P-card rebates, or other supply chain finance benefits
Requirements/specifications are simplified to support cheaper supplier solution
Purchase price reduction (e.g., year-on-year, new cost vs. previous baseline)
0%
7%
12%
12%
12%
15%
18%
21%
24%
24%
25%
27%
27%
44%
45%
45%
54%
79%
29%
27%
37%
34%
41%
3%
25%
24%
7%
32%
10%
20%
24%
27%
23%
23%
17%
7%
17%
15%
27%
34%
22%
10%
5%
31%
26%
10%
13%
15%
17%
7%
5%
20%
7%
10%
32%
29%
24%
17%
12%
28%
15%
17%
24%
17%
20%
22%
15%
15%
3%
10%
7%
2%
22%
22%
0%
2%
12%
45%
38%
7%
19%
17%
33%
17%
17%
7%
25%
3%
15%
2%
Hard Savings / Cost Reduction Soft Savings / Cost Avoidance No Finance Credit, but tracked by procurement No Credit - but applicable Not applicable to us
“No Credit Zone”
$$
$
$$
$
$$
$$$
$Savings Source: 2010 Hackett Study on Procurement Value Measurement and Spend/Savings Visibility
Recommendations to increase Finance and Procurement Collaboration
Procurement - “Make Finance your Friend”
Finance – “Make Procurement your Friend” Establish end-to-end cross functional process alignment
– P2P – and establish a single process owner or at least 2 joint owners
Use Risk Management to bypass the ROI death march Adopt an Internal cross-functional Audit buddy. Try for a “finding” Review the CapEx approval workflow for cross team involvement Get better clarity on the measurement system that each team is using. Agree on
some common and complimentary metrics Unite Finance (AP and Treasury) and Procurement for DPO optimization aligned with
an overall Working Capital Strategy Tap one another’s experience in shared services, outsourcing, analytics, etc. – or
Spend Management is a closed loop process that Procurement and Finance MUST design and operate together
Both functions need to not only serve each other better as internal buyer/suppliers, but also jointly serve the budget owners and external stakeholders (shareholders, external customers, suppliers, regulators)
World-class organizations optimize spend management through– Enterprise process ownership– Holistic metrics– Self-funded journeys to elevate their services, performance, and capabilities– Aspiring to having best the talent and tools available
Many have already done it. And Hackett has been right there with them.
Statement of Confidentiality and Usage Restrictions
This document contains trade secrets and other information that is company sensitive, proprietary, and confidential, the disclosure of which would provide a competitive advantage to others. As a result, the reproduction, copying, or redistribution of this document or the contents contained herein, in whole or in part, for any purpose is strictly
prohibited without the prior written consent of The Hackett Group.