Clean sheets—bottom-up estimates of a supplier’s costs for specific parts and services— are especially valuable analyses. Procurement Best Practices (1) Procurement Talent Management (69) Procurement Technology (438) Accounts Payable (4) Procurement Transformers (1) Source to Contract (1) Source-to-Pay (3) Spend Analysis (67) Strategic Sourcing (126) Supplier Management (146) Sustainable Procurement … Forecasting is automated through algorithms that disaggregate volume, mix, and market effects from indirect performance. Machine-learning software uses supervised and unsupervised learning (for example, decision algorithms) to identify patterns in data, thereby automating the assessment of improvement potential. It is also the biggest opportunity for businesses to improve their asset utilization. Full transparency into analytical opportunities and validation status is enabled by automated data extraction from enterprise resource-planning (ERP) systems and databases, along with automated harmonization and classification. McKinsey & Company research has confirmed that procurement pays: Companies with high-performing procurement functions consistently outperform their rivals on a range of financial indicators, and the best companies are building advanced talent management strategies into the very heart of their procurement … After all, spending on purchased goods and services can represent 70 percent of a company’s costs, so business leaders have long known that purchasing improvements can directly improve the bottom line.2 2.In our survey, for example, we found that the overall sourcing efforts of high-performing purchasing groups generated annual cost savings that were nearly six times greater than those of the low performers. To unlock the opportunities and execute rapidly, it must apply category levers, validate the baseline, and identify the global and local champions who will lead the program and drive change. Based on our research and feedback from global procurement leaders, we believe that companies can continue to rely on procurement to recover from the current crisis, in much the same way that they used the function to recover from past crises. How sourcing excellence can lower hospital costs 19 Around the world, existing models of health care are becoming economically unsustainable. By integrating data pools and analytics functions, the tools can recognize cross-category synergies. Select topics and stay current with our latest insights, Revolutionizing indirect procurement for the 2020s. To overcome the challenges, companies need a new vision for indirect procurement that combines cutting-edge tools and practices, as well as traditional approaches to category management, to address fundamental issues relating to processes, capabilities, and data. This online financial-knowledge academy teaches buyers how to improve their negotiation skills, initiatives definition, and impact tracking. We offer client support throughout the entire global sourcing process by leveraging best-cost country (BCC) suppliers. Several of them also re-ported a benefit they considered the most valuable: Use of an e-procurement system has freed sup-ply management and other personnel to focus on creating value for the enterprise. Moreover, the interlink increases the engagement of top management in indirect-procurement initiatives. Certainly, digital technologies and best-in-class practices provide the foundation. Over a 12-month period, one company succeeded in reducing value leakage by approximately 3 percent and captured savings by gaining better control over spending. Our research confirms that most companies that decide to outsource indirect procurement achieve moderate initial benefits: total cost reductions of four to six percent in the first couple of years, followed by year-on-year additional cost reductions of a further one to two percent. hereLearn more about cookies, Opens in new E-commerce integrator software powers an internal order-coordination platform that manages replenishment data and automatically places orders to B2B platforms. The main objective of strategic sourcing is to save money but other reasons include improving the acquisition process, supplier performance and minimizing risk. Includes best practices, top skills, examples and free templates. Pierre de la Boulaye is a partner in McKinsey’s Paris office, Mauro Erriquez is a partner in the Frankfurt office, Manuel Gener Bago is a consultant in the Madrid office, Patricio Ibanez is a partner in the Cleveland office, Raul Santos Gallego is a partner in the Madrid office and Alfredo Vaghi is a partner in the Milan office. We strive to provide individuals with disabilities equal access to our website. References * Best Procurement Practices Course Manual – Robi Bendorf Hire procurement experts: SMBs tend to have minimally staffed procurement teams that report to either the Finance or human resources department. McKinsey is the gold-standard for presentations. Most transformations fail. Here are some of the procurement best practices for the retail industry: Segmenting the Spends. For the world’s best-known corporate-management consultants, helping … Use minimal essential The 'place of procurement' refers to positioning procurement within the entity to optimize the influence and impact of procurement on internal and external stakeholders. These digital tools, blended with machine-learning technologies, use automated engines to classify and categorize spending. Strategic investments can also be an attractive option, as illustrated by digital-platform investments in sectors including financial services, industrial equipment, and retail. But these are just the starting point. In a separate column, a McKinsey pricing sheet played up pandemic-only add-ons, whose language read like action-figure packaging: “COVID team includes COVID analytics and best practices.” Some procurement organizations may seek to minimize risk exposure by structuring contracts to build in performance incentives. Since there are commonalities between procurement practice used by public research organisations and public administration, the scope of this work was extended so to include also public administrations and agencies. Common challenges are apparent across industries. Change management. According to our research, in the five years immediately following the 2008 global financial crisis (GFC), total return to shareholders (TRS) for companies with top-quartile procurement capabilities was 42 percent higher than for companies whose procurement operations were in the bottom quartile (Exhibit 1). Partnerships with business service providers, along with automated replenishment, can be leveraged to reduce costs and increase service levels. It should be operationally distinct from other departments and divisions. Early in the pandemic, demand spikes and supply disruptions created shortages of consumer essentials such as toilet paper, bleach, and hand sanitizer. This best practice builds a case for the strategic placement of the procurement function to maximize the effectiveness of procurement within the entity, which is critical … An Asian steel manufacturer improved collaboration in procurement by adopting a cloud-based supplier-negotiation platform. Below are several best practices for strategic supplier management: Identifying your strategic suppliers; ... partnerships are at the top of the corporate agenda of global organizations and SRM is seen as one of the few remaining procurement topics that can still make a major difference. collaboration with select social media and trusted analytics partners Cloud-based procurement tools. Robotic process automation (RPA) solutions automate routine tasks through existing user interfaces and motorized machinery. Procurement, operations, and legal staff log onto the platform to prepare and review proposed contract terms, ultimately speeding up negotiations with suppliers and reaching better outcomes. Here, we describe the most advanced solutions relating to eac… The tool has capabilities for spend visualization, forecasting, and systems integration. compliant to EU procurement regulations. Please click "Accept" to help us improve its usefulness with additional cookies. Our mission is to help leaders in multiple sectors develop a deeper understanding of the global economy. The comprehensive suite of digital solutions that we have discussed has enabled cost savings of 15 to 20 percent. The best way to use these KPI’s is by procurement benchmarking. Reinvent your business. Building relationships with more diverse suppliers may help companies withstand further disruptions in supply … Business-continuity planning has taken on a new meaning, designing contingencies not just for a single supplier plant to go offline, but for entire countries to be inaccessible. And most companies do not have mechanisms to monitor indirect categories and reflect their performance on financial statements. These new ways of working require new skills: data engineers and data scientists are becoming increasingly commonplace in leading procurement departments, and demand for data capabilities is increasing across the function. Additionally, using off-the-shelf e-procurement technology is a low-cost way to support value capture. By proactively making these changes, procurement leaders can not only counter some of the worst effects of the crisis, but can also set themselves up to prosper in the future. Press enter to select and open the results on a new page. n Be readily available as a single comprehensive document with department-specific subsections, as needed. procurement’s digital strategy: It will be characterized by greater usability, making employeesmore productive and engaged; and it will provide access to more content the organization can use to facilitate core procurement activities. Please click "Accept" to help us improve its usefulness with additional cookies. Companies can use automation to ensure supplier payment and improve cash-flow management. Forced social distancing accelerated the reimagining of the workplace—and in particular the switch to remote work—faster than almost anyone could have predicted. How McKinsey Is Making $100 Million (and Counting) Advising on the Government’s Bumbling Coronavirus Response. SG&A savings of 10 to 20 percent can be identified in less than six months, and unproductive costs can be redirected to the most productive areas. At the pandemic’s onset, procurement departments switched to crisis-management mode to help companies alleviate disruptions, including sourcing personal protective gear for employees and helping smaller suppliers manage their cash flow. Certainly, digital technologies and best-in-class practices provide the foundation. Since 2011, indirect spend has been growing by an estimated 7 percent per year globally. In an agile organization, category-specific managers are replaced by a working group of managers that perform negotiations for different categories, depending on variables such as the timing of the negotiation and the required expertise. Simply put, evolution is not enough. In a separate McKinsey survey, 93 percent of procurement and supply-chain leaders said they planned to increase the resilience of their supply chains, and 44 percent said they would be willing to give up some short-term efficiencies to get it—although this sort of trade-off can prove avoidable in some cases. We use cookies essential for this site to function well. In our work supporting post-merger integration programs, we have seen these tools enable savings of 10 to 12 percent. Rees urges the following: 1) Identify and involve all stakeholders in the outsourcing process from the start, and do not leave key issues to either the procurement department or the CMC group. It is important to link processes to contract expiration and develop a calendar that sets timetables and deadlines for actions. Then, most companies focused on strategies to recover from the financial effects of the recession. Agile organization. We strive to provide individuals with disabilities equal access to our website. Automated procure to pay (P2P). These new techniques have matured beyond the experimental phase and are now fully tested and ready to be deployed at scale. Better procurement practices can help hospitals achieve rapid supply cost reductions of 20 percent or more and keep future cost escalations under control. But for procurement to lead the way, companies will want to reimagine not just what the function does but also how it operates and which new capabilities it will need. Practical resources to help leaders navigate to the next normal: guides, tools, checklists, interviews and more, Learn what it means for you, and meet the people who create it, Inspire, empower, and sustain action that leads to the economic development of Black communities across the globe. Procurement leaders are reevaluating individual spend categories to make the most of shifting market dynamics and address the risks posed by changing value pools. Public Procurement Practice CYBERSECURITY FOR PROCUREMENT In general, a cybersecurity plan should: n Be regularly updated. Ensure performance - set, review, and monitor KPIs 2. SIG (Sourcing Industry Group) is the premier global sourcing association, founded in 1991 that provides thought leadership, networking and training opportunities to executives in sourcing, procurement and outsourcing from Fortune 500 and Global 1000 companies. Various tools and platforms have been developed. Learn from the best. 2 Procurement Transformation PwC firms provide Industry-focused Assurance, Tax and Advisory services to enhance value for their clients. Procurement leaders will also want to step up on the soft skills required to cultivate solid partnerships with suppliers and to collaborate more effectively with internal functions across the business in a more agile manner. Never miss an insight. Subscribed to {PRACTICE_NAME} email alerts. 1. Measurement. Practical resources to help leaders navigate to the next normal: guides, tools, checklists, interviews and more. Learn more about cookies, Opens in new The rapid adoption of new ways of working that the pandemic necessitated forced companies to accelerate the shift to digital. Learn more about cookies, Opens in new Procurement’s tactical potential as a cost killer is no secret. A closer look at the most significant challenges shows exactly what procurement leaders are up against: When the pandemic disrupted deliveries, it highlighted the issues in a complex global supply chain. Please use UP and DOWN arrow keys to review autocomplete results. Take a look here at links to 30+ McKinsey presentations. Flip the odds. To unlock the full potential, these elements must be applied comprehensively (exhibit). It includes zero-basing “bluebooks” that cover the analyses and processes, efficiency levers, and organizational structure required to fully unlock the potential. The standard needs to set out how sustainability objectives of an organisation are addressed at the early stage of the procurement process through strategic procurement techniques such as market analysis, forward commitment, life cycle assessment, risk management, whole-life costing, scenario modelling, social return on investment and more. By collaborating with HR and IT in category-strategy deliberations to determine an optimal office footprint, procurement can help in realizing better long-term outcomes, such as by emphasizing “access to space as needed” over simply “the most space at the lowest price.”. As supply chains become more global and interconnected, they face a range of challenges, including climate change, the rise of a multipolar economic system, added geopolitical risks, and risk of mass health-care events. Something went wrong. The software is paired with financial department systems, so that initiatives’ financial impact can be automatically uploaded to the department’s database. Never miss an insight. Periodically searching for new vendors is important to avoid the high costs that result from being “locked in” with a particular vendor. Here, we describe the most advanced solutions relating to each element. Decades-old paradigms are being upended: ever-increasing global sourcing now potentially giving way to regionalization of supply, and lean inventory targets being reset in favor of higher buffer stock. If you would like information about this content we will be happy to work with you. Leading companies have already positioned themselves for success in the 2020s by implementing the new vision for indirect procurement. Using this coordinated, technology-enabled approach, global companies are already achieving marked improvements that allow them to capture the untapped value of indirect procurement. agement of procurement. For instance, merged companies face the challenge of integrating multiple ERP systems, fragmented taxonomies, and limited visibility on actual spend across the organizations. Companies deploying automated P2P have achieved 15 to 25 percent savings in most transactions and reduced processing times from days to minutes. BCG’s Procurement Excellence Monitor (PEM) helps organizations assess their internal processes, policies, governance, tools, systems, and practices to identify areas for improvement. Press enter to select and open the results on a new page. Traditionally, procurement has been the efficient workhorse for organizations, driving cost savings percentage point by percentage point, contract by contract. As remote work becomes the next normal, digitization can be an important enabler of effective collaboration across functions. Many are trapped in pilot purgatory, making small investments in select use cases that never scale up to achieve real business impact. Procurement departments need to make five important shifts to support faster, decentralized decision-making throughout the business. But our discussions with them indicate that progress has been slow. For example, in procurement of selected minerals, predictive analytics can already be used to integrate information including mining activity, shipping data, weather, and economic indicators—and it can even analyze satellite images of at-port stockpiles to give a much more accurate prediction of market prices. Companies can create better transparency by working with suppliers to gain information about their next-tier suppliers and their upstream value chains. Please try again later. Most transformations fail. Procurement leaders will need to collaborate even more closely with sales and demand-planning teams to anticipate and react to market shifts quickly. Companies with complex supply-chain networks, such as automotive and technology manufacturers, are especially vulnerable. To capture or regain the potential value the shifts created, procurement leaders may need to completely rethink their strategies for the affected categories. Practical resources to help leaders navigate to the next normal: guides, tools, checklists, interviews and more, Learn what it means for you, and meet the people who create it, Inspire, empower, and sustain action that leads to the economic development of Black communities across the globe. n Use consistent language, e.g., terminology adopted from NIST to facilitate effective communication and coordination. our use of cookies, and A procurement-finance interlink tool is powered by cost-management software that translates improvement actions into real financial impact. The best procurement organizations in the world are intently focused on creating value in their extended supply chains, and they are very good at measuring this value. In the past several years, at least one company in twenty has suffered a supply-chain disruption costing at least $100 million. Determine PSM Best Practices. The project manager responsible for project execution would initiate the process as a request for Capex. Here are seven best practices in procurement for SMBs and the advantages they can deliver. A company can enlist support from industry experts to negotiate lower prices from vendors. Thousands depend on Stratechi to help them develop their strategies and leadership skills, with over 150 in-depth topics with free templates and worksheets. Our flagship business publication has been defining and informing the senior-management agenda since 1964. While the impetus for change is largely consumer-driven, the burden of the transition will fall squarely on chief procurement officers (CPOs) who know sustainability is a necessity, not a luxury. The procurement function can lead efforts to change procurement practices throughout the organization. To monitor and sustain performance, the company must plan resources, track revenues, and refine the process for continuous improvement. Partnerships of this type are likely to continue as outperformers look to create competitive advantages by partnering with suppliers for new products or services. Everything you need to know about planning and project management by McKinsey Alum. In Australia, in the immediate aftermath of the crisis, supermarkets in need of extra personnel to handle a sudden surge in sales contracted with thousands of airline workers who had been sidelined when airlines downsized. Something went wrong. Information on Latest Trends and Supply Chain Market Information Knowledge centre on COVID-19 impact assessment To successfully deploy the new approach, a company must create the right culture and bring new digital and analytics skills to the procurement team. A program to transform indirect procurement begins with setting clear goals and focusing on categories and subcategories. In order to better quantify the maturity of Procurement functions around the world KPMG, in association with CPO Agenda, surveyed 585 Procurement leaders across the world. The insights offered by our reports will help procurement professionals streamline supply chain operations and gain insights into the best procurement practices to mitigate losses. In a separate McKinsey survey, 93 percent of procurement and supply-chain leaders said they planned to increase the resilience of their supply chains, and 44 percent said they would be willing to give up some short-term efficiencies to get it—although this sort of trade-off can prove avoidable in some cases. Joint responsibility for the process by category owners and budget owners improves accountability. 1. The insights offered by our reports will help procurement professionals streamline supply chain operations and gain insights into the best procurement practices to mitigate losses. Leading organizations are adopting virtual training methods and gamified digital tools to engage experienced workers and develop their talent. Our sourcing and procurement benchmarking services provide access to the unparalleled benchmarking information and resources that are part of The Hackett Group’s proprietary Best Practice Intelligence Center™ – a repository of processes, benchmark data and business best practices developed from more than 13,000 projects conducted at the world’s leading companies. … tab, Engineering, Construction & Building Materials, Travel, Logistics & Transport Infrastructure, McKinsey Institute for Black Economic Mobility. tab. These tools also promote the transition from spot checking to total quality control. Our mission is to help leaders in multiple sectors develop a deeper understanding of the global economy. Agile methods could be applied to key strategic issues, such as assigning a cross-functional “sprint team” to accelerate capturing value in a specific spend category, or creating a “negotiation factory” to deliver contract negotiations in assembly-line fashion or rapidly onboarding a new supplier. The winning procurement organizations will adopt a continuous learning culture as a way of life. Our analysis suggests that procurement could gain the most by focusing its strategic initiatives in five key areas: strengthening supply-chain resilience, zero-basing the design of category value-creation strategies, investing in supplier partnerships and innovation, accelerating adoption of digital and analytics, and transforming to an agile operating model. McKinsey & Company research has confirmed that procurement pays: Companies with high-performing procurement functions consistently outperform their rivals on a range of financial indicators, and the best companies are building advanced talent management strategies into …

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