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Focus: Sourcing/Procurement: Feature Article from Our Sourcing and Procurement Subject Area - See All

From SCDigest's On-Target e-Magazine

- Sept. 1, 2015 -

 
Supply Chain News: Procurement Success Today Requires Getting Closer to Business Managers, Hackett Group Says

Many Companies have Taken Traditional Efficiencies about as Far as They Can Go, Need to Better Align Procurement and Business Interests

 

SDigest Editorial Staff 

 

There are still huge gaps in performance between leading procurement organizations and the rest of the pack, the consultants at the Hackett Group say.

Their research finds top performers deliver services at 17% lower cost with greater effectiveness and require 26% fewer full-time equivalents (FTEs) per $1 billion in spend.

SCDigest Says:

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Hackett says leaders are building a culture focused on becoming "client-facing service providers," certainly a term or approach not seen traditionally associated with procurement departments.

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For many of these top performers, procurement efficiency gains have reached their practical limits, Hackett Group says, and they are looking to new areas to increase their value to the organization. That includes moving procurement to what Hackett calls "trusted advisor" status, which earlier Hackett Research found was a the top priority for companies in 2015. A combined 72% of respondents to a survey said that was either a critical or major goal for their procurement organizations this year. That put it ahead even of "reduce/avoid purchase costs" (69%) and "improve procurement's business agility" (68%). (See Procurement Organizations Strive to Reach "Trusted Advisor" Status.)

"Ultimately, procurement has to rebrand itself as a customer-centric organization," a new Hackett report says. "This will require rebalancing the service portfolio to focus on the areas with not only highest demand but the most potential to contribute to company revenue. Success will also hinge on procurement's ability to market itself in new ways to build awareness."

And in pursuit of those goals and process requirements, some procurement organizations are taking some unusual steps. For example, Hackett says that 83% of world-class organizations (versus 44% of peers) report high utilization of dedicated resources who act as liaisons between procurement and the business.

Beyond getting things done as quickly and efficiently as possible for internal customers, Hackett says managers in this role need to have well-honed interpersonal skills and the ability to recommend and sometimes even challenge proposed solutions when a better alternative is available. They of course also need to be able to well speak the language of business.

Too many procurement organizations are viewed as gatekeepers rather than valued business partners, Hackett adds. And the difference is more than just connected to internal prestige. Hackett says that procurement organizations that are viewed as valued business partners report 68% higher savings than those viewed as just gatekeepers.

Why is that? Hackett says companies in the world-class group have realigned their service portfolios to deliver more value to the business and thus increase demand for their services, emphasizing capabilities such as on-demand analytics and market intelligence. This in turn has increased the scope of their spend influence, the savings they are able to capture, and value delivered beyond just hard-dollar savings.

Among other recommendations, Hackett says internal surveys to gauge how the procurement organization is viewed by stakeholders are a good place to start.

Hackett also suggests identifying key stakeholders for each high-value activity and assigning a procurement team member to each one, though it cautions it will take some time determine the best cadence for interaction with each stakeholder.

Similarly, Hackett says leaders are building a culture focused on becoming "client-facing service providers," certainly a term or approach not seen traditionally associated with procurement departments.


(Sourcing and Procurement Article Continues Below)

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Hackett says changing performance metrics in procurement is also key, with the goal to align procurement's scorecards to stakeholders' own success metrics. In fact, Hackett research shows that world-class organizations that spend more time aligning with internal stakeholders generate 41% higher savings than peers.

All that can be summed up in the following four steps, also illustrated in the graphic below..

1. Identify different stakeholder groups and understanding how they interact with and think about the procurement organization: Segment customer groups based on attributes like importance and level of influence within the organization, creating the foundation for an engagement plan customized to the needs of each stakeholder type.

2. Develop formal customer satisfaction surveys tailored to each stakeholder group: While adoption of procurement surveys is high among world-class companies, there is still quite a bit of room to grow. The way these surveys are designed, administered, analyzed and acted on makes all the difference in their value, Hackett says.

3. Analyze and sharing measurement results: simple scorecard can be effective for executives. For broader stakeholder groups, procurement can hold information sessions that showcase procurement's plans.

4. Take a holistic approach to customer service: That includes broad use of technology that allows stakeholders to utilize self-service for procurement-related information.

 


"The next-generation procurement organization will feature a new type of talent, one that is comfortable with technology, able to speak the language of the business, and knowledgeable enough to navigate complex organizations in order to drive change," Hackett concludes. "There are no quick fixes here, no single action that will elevate procurement's brand and value proposition. Rather, ongoing self-reinvention is required for sustainable improvement."


Do you agree that the procurement approach Hackett recommends is - or should be - gaining favor? Let us know your thoughts at the Feedback button (email) or section (web form) below.



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