As we plan for 2012, we take time to look back upon the achievements of procurement organizations in 2011. Again, as in previous years, the Capgemini CPO survey reveals that procurement organizations have fallen short of achieving many of their development goals. Due to the challenging economic conditions of 2011, many CPO’s have reverted to the “old school of procurement”: savings through squeezing suppliers, contract renegotiations, “until death do us part”. We feel this trend is unfortunate; the economic situation in 2012 creates numerous opportunities for procurement organizations to achieve savings while creating long term, sustainable relationships with suppliers.
How can procurement organizations respond to the need for short term savings while simultaneously focusing on long term supplier development? We present the “Seven Strategies for Future Procurement”, a practical framework to assist CPO’s in creating best in class procurement organizations. Regardless of the maturity of the organization, these strategies should be included in the strategic plans for the coming years.
A high level look at the “Seven Strategies for Future Procurement”:
- Closed Loop Procurement
Many procurement organizations are still struggling to master the basics: spend visibility, sourcing and contract compliance. Establishing closed loop procurement is a major achievement and an end goal in and of itself for most procurement organizations. This strategy involves optimizing the basic infrastructure for procurement from source to pay in processes, organization and supporting IT systems.
- Hybrid Organization Models
At a functional level, we see a trend towards hybrid organizational models that combine the benefits of central coordination with improved business collaboration. At a category level, we see further differentiation in organizational models depending on business, category and supply market specific characteristics. A one size fits all organization design is no longer good enough. Gain all the benefits from different organizational models and shape your own future procurement organization.
- Supplier Value Management
Leading procurement organizations manage collaborative supplier relationships to extract more value from the supply base. Creating value is on every agenda, but capturing this value is difficult. Utilizing a hybrid organization, you will be able to manage your different categories in a diverse manner. It is our belief that innovation is the driver for creating value. Use Innovation Driven Procurement (IDP) to accelerate the pace of innovation within organizations by leveraging the innovative power of the supply base. (For IDP see earlier articles on our Procurement Blog)
- Supplier Risk Management
Increased dependency on external suppliers, volatility in raw material and energy prices, shortages of key materials, currency imbalances and global financial crises have all made companies recognize once again the importance of supplier risk management and overall resiliency in the supply chain. Looking at the outlook for 2012, we believe risk management will become even more important in the year ahead. Risk management will be the beating heart of procurement combining risk, innovation, sustainability, preferred customer strategies and supplier management.
- End-2-End Supply Networks
Leading procurement organizations manage multiple supply networks that differentiate service characteristics by product/market segment. Managing complex supply networks requires pipeline visibility and alignment of planning and control across multiple-tiers of suppliers.
- Develop Talent
In the Capgemini CPO survey, respondents indicated that talent was the fourth biggest challenge for “marketing” procurement within their own organization. We strongly believe that talent will be the key driver of success for procurement organizations in the years to come. Leading companies have recognized talent as the key enabler for further developing the supply management function and are investing heavily in attracting, training and retaining top talent.
- Leverage Technology
Leading supply management requires technology that is more user-friendly, provides real-time visibility, is better integrated, enables more effective collaboration with the supply base and has more powerful analytic and simulation capabilities. Our 2012 SRM survey will help to explore the technology development areas for your organization.
Implementing the “Seven Strategies for Future Procurement” can help you to realize your organizational goals for 2012 and break free from the “old school of procurement”. Go for it!