4 Key Procurement Objectives for 2014
4 Key Procurement Objectives for 2014 During the recent Webinar ‘Real-time Procurement Benchmarking: Insights into Key Issues & KPIs for 2014 & beyond’, held on Dec 12, 2013, in association with ISM, The Hackett Group & Zycus, a small survey was conducted among the 861 procurement professionals who attended the webinar. This survey was aimed at understanding the business/procurement objectives and challenges anticipated by the webinar attendees in the year 2014. The survey results can be seen in this info-graphic: Driving Down The Procurement 2014 Lane.
Procurement Objectives for 2014
1
Improving Profits
The top two enterprise objectives for 2014 among procurement professionals are to achieve better Revenue Growth (40.9%) and to Improve Profit Margins (44.2%). With an objective to improve profit margins, it is important that procurement focus on identifying savings opportunities by
Improve Margins
Revenue Growth
developing visibility into the direct and
40.9%
44.2%
indirect spend of the organization. One of the prevalent cost factors in most businesses is purchased goods and services. Reducing the costs of purchased goods and services has a direct impact on a company's profit margin. 60% of the procurement professionals revealed that reduction and avoidance of purchasing costs are the top two procurement-related issues that need to be addressed in 2014.
The survey results also revealed that at present 46% of organizations have less than 40% of their indirect spend influenced formally. World-Class Companies have 97% of their indirect spend formally influenced, as per the
by World class Companies in 2013
2013 Hackett Group study.
Indirect Spend formally influenced The other critical procurement issue, which needs to be addressed in 2014 according to 45% of the procurement professionals is, expanding awareness of the importance of procurement and its influence on the bottom line. These issues may be addressed by adopting the following process: i. Investing in Skilled Professionals: Investing in skilled professionals with strong negotiation skills and overall knowledge of the industry, the raw materials cost and suppliers' capabilities can enable procurement to master the negotiations and get best deals for the organization from suppliers. ii. Leveraging Procurement Automation: Technology can enable higher visibility and control over different facets of the procurement process, such as: sourcing activity, supplier evaluation and selection, contract terms compliance, overall spend etc., thus enabling timely identification of bottlenecks and savings opportunities.
For achieving high visibility and identifying greater savings opportunities, best-in-class procurement organizations are leveraging procurement automation by implementing a spend analysis solution. A spend analysis solution facilitates sourcing performance, reduces maverick spend, increases compliance and generates savings. Spend Analysis features expand the performance-improvement horizon by: Embedding spend data classification into real-time buying processes Automating and accelerating the identification of savings opportunities Synthesizing spend data with global market intelligence to inform competitive sourcing and
supply management strategies To learn about the Zycus' Spend Analysis Solution, Click Here
OBSERVATION
ACTION
from the survey
The top 2 enterprise objectives for 2014 are a. Revenue Growth (40.9%) and b. Improved Profits (44.2%)
OBSERVATION from the survey
A critical issue to be addressed in 2014 a. Formally influencing the indirect spend
to implement
Invest in a. Qualified People b. Efficient Processes c. Effective Technology
ACTION to implement
Adopt the following Practices a. Invest in Skilled Professionals b. Leverage Procurement Automation
2
Improving Visibility
According to the survey only 40% of procurement professionals revealed that they have significant ability to view spends data by supplier on an enterprise-wide basis. As per the Hackett Group study, 89% of World Class Companies had significant ability to view spends data by supplier on an enterprise-wide basis in 2013.
as per current study
for World Class Companies
Significant ability to view spend by supplier Lack of a holistic view is a major impediment to identifying savings opportunities, spend patterns across suppliers, utilization of contract terms and, more importantly, tracking the performance of key suppliers. Best-in-class organizations are leveraging technology to provide seamless information across the various dimensions of the procurement function, and not just getting visibility into supplier spend data. An integrated Source-to-Pay solution assists procurement professionals with a single view across the various stages of the procurement processes. Some of the key benefits of integrating procurement processes are: I. Better Visibility: An integrated view of spend analysis with supplier management will provide better visibility, not only in terms of spend per supplier, but also segmented per categories and savings realized per supplier. Information like this can better enable procurement professionals to sharpen their category sourcing strategies, and reap better results from their sourcing initiatives, leading to savings more quickly.
ii. Monitor Maverick Spend and Realize better Savings Opportunities: With the integration of spend analysis, supplier management and contract management, organizations will be able to view on-contract and off-contract spends made in each category with each supplier. This not only helps with tracking of maverick spending, but also helps monitor suppliers on key contract terms. Also, if certain spend is off-contract with a certain supplier, the organization or the procurement professional raising the Purchase Order will be alerted regarding the contract (and the discount agreed upon in the contract), enabling realization of saving opportunities with the ability to view enterprise-wide-data in a few clicks.
OBSERVATION
ACTION
Over 60% of respondents lack signiďŹ cant information visibility into spend data by supplier on an enterprise-wide basis
Integrate Procurement processes to a. Gain Better Visibility b. Monitor Maverick Spend and Realize better Savings Opportunities
from the survey
to implement
3
Addressing Strategic Sourcing as a key capability related issue
According to the survey results, 45% of respondents
45%
cited strategic sourcing as the top procurement capability-related issue in 2014. Strategic Sourcing is an approach to procurement whereby the business
Cited Strategic Sourcing as top capability related issue in 2014
needs of the organization are matched with the supplier market. The important Steps of Strategic Sourcing are: 1. 2. 3. 4. 5. 6. 7.
Analyze the requirement for sourcing – identify spend Search for Suppliers Request Information Request proposal or quotation Event Roll-out Analyze Supplier Information Award the contract and begin to track suppliers
To get a detailed understanding of the above-mentioned steps of Strategic Sourcing, refer to the e-book ‘7 Step Guide to Strategic Sourcing’. The survey results also show that only 29% of respondents, have 80% - 100% of annual RFX's done electronically. This low figure indicates that many organizations still need to make better use of technology and adopt an eSourcing solution for sourcing automation. As
for World Class Companies in 2013
per The Hackett Group, World-Class Companies handled 85% of their RFXs electronically last year.
eRFXs
Benefits of e-Sourcing: I. Reduces cycle time: A well-defined and automated sourcing process is easy to manage and provides output in a shorter time frame. According to a recent study by the Aberdeen Group, a structured process reduces the sourcing cycle time by 25% - 40%. ii. Avoid bottlenecks: With higher visibility and control over the sourcing projects, the organization can easily identify the bottlenecks and take prompt measures to resolve them. This helps in cutting costs and realizing savings opportunities. To learn about the Zycus' e-Sourcing Solution, Click Here
OBSERVATION from the survey
Top Procurement capabilityrelated issue for 2014 is Strategic Sourcing, as mentioned by 45% of respondents during the current study
ACTION to implement
The important Steps of Strategic Sourcing are: a. Analyze the requirement for sourcing – identify spend b. Search Suppliers c. Request Information d. Request proposal or quotation e. Event Roll-out f. Analyze Supplier Information g. Award the contract and begin to track suppliers
OBSERVATION
ACTION
Over 70% of respondents handle less than 80% of their annual RFX's electronically at their organization
Adopt an e-Sourcing solution for sourcing automation and reap the following benefits: a. Reduce cycle time b. Avoid bottlenecks
from the survey
to implement
4
Value realization through non-sourcing activities
43% of respondents cited that 10% - 50% of procurement value arises from non-sourcing activities. These activities largely consist of Supplier Relationship Management, Contract Management and Spend Analysis. Supplier Management can help companies have better visibility into supplier deliverables and offers the following beneďŹ ts: removal of hidden cost drivers, increase in competitive advantage by reducing cycle times, inducing charge-backs for non-conforming material, gaining insight into how to best leverage the supply base, and streamline processes. The survey results also revealed that 60.2 % of procurement professionals either totally lack a formal scoring methodology or have it only for a select few strategic suppliers.
Lack Formal Scoring Methodology
1 6 02%
A formal scoring methodology for suppliers helps the organization understand the strengths and weaknesses of their suppliers. Supplier performance management can help companies have better visibility into supplier deliverables. Scorecards can also help companies develop their suppliers and help them overcome their weaknesses which is beneďŹ cial to both the companies and the suppliers. Organizations can leverage supplier management programs which help in setting up key performance indicators, capture data inputs, set stakeholder surveys and manage supplier scorecards. BeneďŹ t of using a Scoring Methodology for Supplier Performance Management: Develops Strategic Relationships: Based on the scorecards, organizations may choose to benchmark suppliers with their peers in the industry, execute supplier development programs which can help the organization improve supplier performance, product/service quality, reduce cost and attain higher value from the suppliers. Procurement can thus leverage and enhance strategic supplier relationships and also help reduce business risks.
To learn more about Supplier Management, read 'What, Why and How of Supplier Management’ To learn about Zycus' Supplier Management Solution, please Click Here
OBSERVATION
ACTION
from the survey
Over 60 % of procurement professionals have disclosed that a formal scoring methodology either does not exist or is extended and maintained only for a select few strategic suppliers.
to implement
A formal scoring methodology for suppliers helps the organization to a. Understand the strengths and weaknesses of their suppliers & b. Develop Strategic Relationships
Conclusion The increasingly complex business environment, coupled with evolving procurement needs and objectives, requires procurement to focus on the right people, processes and technology. The procurement technology landscape has evolved to provide cutting-edge technology for meeting the requirements at different point in the procurement cycle. The year 2014 requires the procurement function to move towards process standardization, automation and integration for enterprise-wide information availability and to overcome various capability-related issues. Read AMD’s case study to understand how AMD leveraged the Zycus Suite
Know More To know more about Procurement Automation Solutions and the value that the Procurement Automation Suite can deliver to your organization, or for any other advice on procurementrelated issues… Feel free to Contact Zycus for help and clarifications.
About Zycus
Zycus is dedicated to positioning procurement at the heart of business performance. With our spirit of innovation and a passion to help procurement create even greater business advantages, we have evolved our portfolio to a complete Source-to-Pay suite of procurement performance solutions which includes - Spend Analysis, eSourcing, Contract Management, Supplier Management, Financial Savings Management, and Procure-to-Pay. Behind every Zycus solution stands an organization that possesses deep, detailed procurement expertise and a sharp focus on being responsive to customers. We are a large — 600+
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and growing — company with a physical presence in virtually every major region of the globe. We see each customer as a partner in innovation and no client is too small to deserve our attention.
PROCURETO-PAY
With more than 200 solution
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deployments among Global 1000 clients, we search the world continually for procurement practices proven to drive competitive business performance. We incorporate these practices into easy-to-
SPEND ANALYSIS
SUPPLIER MANAGEMENT
E-SOURCING
use solutions that give procurement teams the power to get moving quickly — from any point of departure — and to continue innovating and pushing business and procurement
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performance to new heights.
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