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Supply Chain News: Hackett Group Report Identified Four Key Procurement Capability Requirements

 

From Buyer and Negotiator to Strategic Partner to the Business

 

April 16, 2018
SCDigest Editorial Staff

Earlier this year, The Hackett Group again released its annual CPO Agenda report, based on recent survey data from executive management and leaders of finance, human resources, information technology and procurement organizations at a global set of mid-sized and large enterprises.

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By gaining an improved understanding of spend categories, procurement can pursue sourcing initiatives in ways that go beyond one-time events, Hackett says.

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Among the several interesting areas in the report is the identification of four key capabilities Hackett says procurement organizations must develop for success. These are:

Number 1 - Align procurement skills and talent with changing business needs: The Hackett survey found that 77% of respondents consider alignment of procurement skills and talent with changing business needs to be of "high" or "critical" importance, up a bit from 73% in 2017.

While the total increase is small, Hackett says that it is notable that the percentage that consider this area to be of critical importance jumped from 10% to 17%.

"To meet this challenge, leading procurement organizations are looking at new talent/skill areas, with 28% of respondents evaluating the addition of non-traditional, insight-related roles and skills (e.g., physicists, data scientists) to the organization," Hackett says.

Number 2 - Measure and manage procurement performance and business value: This year, 76% of organizations ranked measuring and managing procurement performance and business value as high/critical in importance - but only a little more than half (56%) believe they have the ability to address the challenge, Hackett says.

It adds that as procurement organizations mature, they start looking beyond traditional areas of tactical supply assurance and price. That includes spending more time on strategic business enablement, "an area that requires more coordination and collaboration with internal stakeholders and suppliers based on criteria outside of negotiated cost alone."

Hackett adds that increasingly, service delivery requires advanced business skills such as negotiation, relationship management, problem-solving and strategic thinking.

"Moving into these areas, procurement serves as more than a buyer/negotiator; it becomes a consultant and change agent," Hackett says.

That said, the research found that 81% of procurement organizations still get most of their hard dollar recognition for purchase-price reduction success, not achievements in softer areas.

Number 3 - Obtain more value from existing suppliers through supplier relationship management: Hackett says that forging strategic partnership with the business requires taking on more responsibility for supplier relationship management (SRM) initiatives.

The research found that 74% of respondents acknowledge the importance of obtaining more value from existing suppliers through SRM, but 51% have only a low or moderate ability to meet this objective.

Of course, SRM is not a new target area for procurement. But the research found a high level of interest in moving SRM activities (along with supplier onboarding, performance management and more) to a Center of Excellence (COE) or similar leveraged model, likely to make better use of these relatively scare skills.

"The implication is increased interest in linking supplier-centric processes to wider source-to-pay efforts and strengthening the acuity of supply market intelligence," Hackett says.

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Number 4 - Obtain more value from existing categories through category management: By gaining an improved understanding of spend categories, procurement can pursue sourcing initiatives in ways that go beyond one-time events, Hackett says.

83% of respondents consider obtaining more value from existing categories through category management to be of high/critical importance, but again only 56% currently have the ability to meet this objective.

What's more, 25% of respondents also consider as critically important the deepening of procurement's influence on complex indirect spend categories to drive value beyond sourcing. 44% are evaluating or piloting migration of analytics to a Center of Excellence for category management.

"Even if major spend categories are properly sourced and the supplier base is rationalized, procurement must still find further ways to help the enterprise tap suppliers for more value," Hackett says, adding that using a category strategy execution framework can help organizations apply the appropriate value drivers, techniques and tools to meet the value objectives in other areas including strategic sourcing, SRM, value engineering, process reengineering, demand management, and compliance management.

Earlier in the report, as referenced above, Hackett again this year included a graphic that charts various procurement initiatives along two-dimensions: strategic importance (X-axis) and a company's ability to address the need (Y-axis), as shown below:'

 

That leads Hackett to identify five critical development areas, consisting of those requirements that are strategically important but which on average most companies are not yet well positioned for success.

All told, another goods report from The Hackett Group. The full report can be downloaded with registration here.

What would you add to Hackett's four critical capabilities for procurement? Let us know your thoughts at the Feedback section below.

 

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