BravoSolution - 10 Steps to Unlock the Power of Procurement

How to Move from Good to Great:10 Steps to Unlock the Power of Procurement

Mickey North RizzaBravoSolution, Vice President of Strategic Services

2© All Rights Reserved - Confidential

What You Will Learn

My promise to you:

Present you with a wealth of information to help you Unlock the Power of Procurement

Make sure you understand:

- Conventional procurement is dead- The top challenges driving the need for strategic procurement- Your suppliers must be at the center of your procurement process- Going from good to great strategic procurement by leveraging technology


The Next Generation of Procurement

Conventional

Procurement

Optimized

Procurement

Comprehensive

Procurement

Unlocked

Procurement

The Next Generation of Procurement

Unlock Procurement

Valu

e C

aptu

red

Procurement Maturity

As procurement organizations mature and basic goals are achieved with conventional procurement initiatives,

evolving organizations realize there are greater opportunities to deliver organizational value.


What’s Driving the Change to Unlocked Procurement?


Become Unlocked!

Unlock the Power of ProcurementUse the Right Keys and Move from Conventional Procurement


1. Moving from ‘e’fficient to ‘e’ffective and Value Driven

Efficiency Metrics Effectiveness and Value Metrics

Cost Savings/Cost Avoidance

• realized savings as a % of identified savings

• refunds, credits and rebates from suppliers

• value of improved warranties

• value of negotiated additional benefits

Supplier & Industry Development

• potential local suppliers identified

• # of new sources of particular goods and services

• # of suppliers in supplier development programs

Supplier Performance

• on-time delivery

• quality

• negotiation

• cost targets

Efficiency of Internal Procurement Systems & Processes

• % of electronic procurement spend

• % of Pcard spend

• % of spend under contract

• requisition to order cycle time

• source to contract execution cycle time

• order to delivery cycle time

• procurement operation costs as a % of managed spend

• reduction in transactions & inventory management costs

TVM: Highest Value to Cost Ratio (evaluates & minimizes risk)

Value Creation: Economics and Societal Benefits Relative to Costs

Profitability Increase

Time to Value

Returns to Shareholders

# and Types of Ideas/Patents Generated & Implemented

per Supplier

# and Types of Ideas/Projects in the Innovation Pipeline with

Projected Value

Net Present Value of New Product Portfolio

ROI on Innovation Projects

Revenue Increase

Improvements of EVA, ROIC, ROA

Source: ISM, CIPS, Spend

Matters


Strategic Procurement Ensures Efficiency and Effectiveness

Conventional procurement operates in information and process silos

Strategic procurement drives value through an integrated lifecycle process and supplier lifetime value


Operating Principles

2. Moving from Reactive to Proactive

Reactive

• Procurement is a cost center

• Procurement receives a specification

• Procurement rejects defective materials

• Procurement reports to Finance or Operations

• Procurement responds to market conditions

• Problems are the supplier’s responsibility

• Price is the main variable for decision

• Emphasis is on yesterday and today

• Technology systems are independent of suppliers

• Negotiation is win/lose

• Plenty of suppliers = security

• Plenty of stock = security

• Suppliers’ communication is one way—”do as I say”

• Process, cycle time and efficiency are metric-focused

• Technology-enabled; low adoption

• Procurement receives information and acts upon it

• Procurement’s main target is cost savings

• Information is power

Proactive

• Procurement can add substantial value

• Procurement & suppliers contribute to the specification

• Procurement avoids defective suppliers

• Procurement is strategic, reporting to CEO

• Procurement influences the market

• Problems are a shared responsibility with the supplier

• Total cost and value are the major decision factors

• Emphasis is on strategy and business plans

• Technology systems may be integrated with suppliers’ systems

• Negotiation is win-win or better

• Plenty of suppliers = lost opportunities

• Plenty of stock = waste

• Suppliers’ and Buyers’ communication at all levels of the organization

• Efficiency and effectiveness are the baseline; metrics are valued

• Technology-enabled, optimized business processes

• Procurement actively pursues outcomes with the business & suppliers

• Procurement can impact revenue, profitability, ROIC and ROA

• Information is valuable if shared


Procurement Service & Delivery

3. Scattered vs. Optimized Procurement Service & Delivery

• Lack of focus (e.g., business unit requirement)

• Communication barrier (e.g., with internal stakeholders)

• Common supplier’s different behavior in terms of geographic or market segments

DisAdvantages

Centralized

Advantages

• Reduced purchasing cost (bulk purchase)

• Consolidated supplier database

• Strategic focus and improved planning

• Better communication with internal stakeholders

• Swift response

• Easily managed cultural, geographical, political, taxation, etc., issues

• Loss of better supply opportunity

• Lack of standardization• Operational against strategic

focus

Center-Led

Advantages

Decentralizeda

DisAdvantages


4. Conciliator vs. Opportunistic


Market Analysis

Spend Management Supply Market

Addressable Spend

Procurement Control

Under Contract

5. Extreme Spend Focus vs. Supply Market Focused

Internal Facing External Facing


6. IT Investment with Little Adoption vs. IT Investment with Maximized ROI

Low Adoption Maximize ROI

• NIH - Not Invented Here

• Cool tool but doesn’t solve the business problem

• Set the expectations and then they are not met

• Do not plan for the business process to be different

• Stick vs. carrot

• Make the business case

- Efficiency

- Asset utilization

- Customer response

• Set expectations

• Find a Partner not a vendor

• Plan beyond go-live

• Measure the impact & change

• Show the ROI


7. Missing Knowledge and Talent vs. Talent and Knowledge Orrganized for Success

Waverly labs


8. Little Organization Alignment vs. 360° Business Alignment

AlignmentUncover What is Holding You Back

65% of organizations have an agreed-upon strategy

14% of employees understand the organization’s strategy

< 10% of all organizations successfully execute the strategy

Source: Larry Myler & Rosariolongo


30% of Misalignment isdue to the data

65% of Misalignment isdue to different definitions

5% of Misalignment isdue to different drivers

8. Little Organization Alignment vs. 360° Business Alignment


9. Reward Focused vs. Risk Eliminator

Reward vs. Eliminator

Types of Supplier Relationship Management

Supplier collaborationcreates new value

beyond the contract

Supplier performancemanagement moderately

improves value...

Basic management allows value to escape..

Value

Time

ContractSigned

Currently 60% of Procurement‘ssupplier focused time

Adapted from CEB


10. Low Supplier Focus vs. Supplier & Partner Focus

Equity Supplier

Partners

Shared ServicesVested

Supplier

Relationship

Performance-Based

Relationship

Preferred Supplier

Approved

SupplierSimple

Transaction

Supplier

LOW HIGH

LOW

HIG

H

Source: ©2015 Vested®

Potential to Create Value

Dep

ende

ncy

/ Ris

k

Rela

tiona

lIn

vest

men

t

Tran

sact

iona

l


10 Steps to Unlock the Power of Procurement

Start the Movement and Unlock the Power of Procurement

Conventional Procurement Unlocked Procurementto

1. ‘e’fficient, learning how to be ‘e’ffective

2. Reactive

3. Scattered Procurement Service & Delivery

4. Conciliatory

5. Extreme Spend-Focus

6. IT Investments with Low Adoption

7. Missing Knowledge & Talent

8. Little Organizational Alignment

9. Reward-Focused

10. Low Supplier Focus

1. e’fficient, e’ffective, & Value-Driven

2. Proactive

3. Optimized Procurement Service Delivery

4. Opportunistic

5. Supply Market-Focused

6. IT Investments = Maximized ROI

7. Knowledge & Talent Organized for Success

8. 360° Business Alignment

9. Risk Eliminator

10. Supplier & Partner Facilitator


Met the Objectives

Presented a wealth of information & examples to help you Unlock the Power of

Procurement

- Conventional procurement is dead- The top challenges driving the need for strategic procurement- Your suppliers must be at the center of your procurement process- Going from good to great strategic procurement by leveraging technology

Stay tuned for future ‘in-depth webinars’ to assist you on your journey going from good to great.


Questions?


Contact Information

Mickey North RizzaBravoSolution, VP, Strategic Services

[email protected]: @MNorthRizza

Visit us at BravoSolution.com

mailto:[email protected]