Search By Topic The Green Supply Chain Distribution Digest
Supply Chain Digest Logo

Category: Procurement and Sourcing

Supply Chain News: Time for a New Generation Operating Model, McKinsey Says

 

Excellent Procurement Execution Drives Significant Improvement in Key Enterprise Metrics

 

June 10, 2019
SCDigest Editorial Staff

Sometimes viewed as something of a corporate backwater, procurement is a key driver of overall corporate results, but the function needs rethinking in the digital age.

Supply Chain Digest Says...

To achieve seamless execution of these components requires close coordination and synchronization between procurement and its stakeholders.

What do you say?

Click here to send us your comments
Click here to see reader feedback

Those are a couple of takeaways from a recent article from the consultants at McKinsey, which notes that achieving procurement excellence "requires a concerted effort to align a variety of capabilities, insights, and activities in an integrated manner across the whole organization."

There are a variety of factors, including digitization, advanced analytics, growing focus on risk management and more that require the C-suite to "reexamine, rethink, and reimagine" the procurement function, McKinsey says.

And the rewards for getting procurement right are significant.

As seen in the graphic below, procurement leaders drive substantially improved results in annual procurement savings, reduction in cost of goods sold, and margins versus companies with middle of the road and lagging procurement performance.

But it's time to shake things up in procurement, McKinsey says, recommending adoption of a "next generation procurement model."

McKinsey says the model reframes the procurement function (the comprehensive set of interconnected activities it should either lead or participate in) as well as the enabling elements (the critical elements needed for efficient and effective execution of these activities).

Interconnections across the enterprise are key to driving maximum results, McKinsey says. For example, insights gained through business partnering influences such processes as specification definition, demand management, and sourcing decisions.

 

Source: McKinsey

 

Similarly, decisions made during contracting will have implications for payment-optimization strategies. There are many more such examples.



(See More Below)

CATEGORY SPONSOR: SOFTEON

Learn More about Softeon's Innovative Supply Chain Solutions

 

The next-gen operating model framework from McKinsey is shown below.

McKinsey's Next-Generation Procurement Operating Model

 



McKinsey says that the six elements surrounding the procurement strategy represent the comprehensive set of activities needed to capture and to sustain value.

"To deliver value, the procurement function must do more than develop appropriate sources of supply," McKinsey writes. "It must ensure transactional and compliance-driven activities are performed correctly, to sustain performance and avoid potential value leakage - which can be substantial."

To achieve seamless execution of these components requires close coordination and synchronization between procurement and its stakeholders, both internal (business operations as well as corporate functions such as finance, IT, internal audit, HR, and legal) and external (the supplier community), McKinsey says.

In turn, enabling the efficient and effective execution of these six elements requires that companies achieve excellence in six enabling components of the operating model - processes, digital, organization, capabilities and culture, governance, and data and analytics - represented by the outer ring of the model.

McKinsey then goes into some depth about the element in the center and the outer ring of the model, which SCDigest will summarize in part 2 of this article.


Is it time for a new operating model in procurement? What do you think of McKinsey's new model? Let us know your thoughts at the Feedback section below.

 

Your Comments/Feedback

 
 

Features

Resources

Follow Us

Supply Chain Digest news is available via RSS
RSS facebook twitter youtube
bloglines my yahoo
news gator

Newsletter

Subscribe to our insightful weekly newsletter. Get immediate access to premium contents. Its's easy and free
Enter your email below to subscribe:
submit
Join the thousands of supply chain, logistics, technology and marketing professionals who rely on Supply Chain Digest for the best in insight, news, tools, opinion, education and solution.
 
Home | Subscribe | Advertise | Contact Us | Sitemap | Privacy Policy
© Supply Chain Digest 2006-2019 - All rights reserved
.