In recent years, companies have enhanced their procurement capabilities and have made tremendous progress in identifying pain points that prevent the realization of operational efficiencies. But despite this progress, companies often find themselves unable to close the value gap between what is identified and what is actually realized. In Capgemini’s experience, a focus on Procurement Excellence is one way of closing this gap.
What is Procurement Excellence? Why is it important?
Procurement Excellence is an organizational practice that enhances operational efficiencies through tactical steps that eliminate value leakages and create a seamless procurement flow from requisition to payment. In turbulent economic times, these initiatives can offer companies a crucial and distinct competitive advantage by: 1) reducing operating costs throughout the P2P cycle, 2) maximizing realized savings, and 3) optimizing ROI of procurement assets. To achieve these results, a company must first close the various leakages that prevent value from being maximized.
Closing the Value Gap
There are many potential sources of value leakage that Procurement Excellence can to address; four common challenges include:
1. Compliance – Significant value leakages can be attributed to maverick spend, price and payment term discrepancies, limited spend visibility and poor invoice management .
Potential tactics to address leakage: Implementing a compliance program built on six dimensions (Governance, Executive Commitment, Policies & Guidelines, Communication, Measurement and Integrated Technology) can help achieve compliance goals and improve spend visibility
2. Supplier Performance – Poor supplier management leads to subpar performance in terms of quality, safety, traceability and on-time delivery, which impacts the bottom line.
Potential tactics to address leakage: Levering a comprehensive supplier framework to create/enhance the approach to assess, develop, audit and integrate suppliers through robust quality and performance metrics that optimize supplier base and reduce risk
3. Process Inefficiencies – Poor process design, lack of standardized data and processes and limited use of new tools creates process inefficiencies and increases overall operating costs.
Potential tactics to address leakage: Applying LEAN and Six Sigma principles to standardize/optimize processes can ensure maximum value is realized and leveraging payment tools such as ePayables to drive lower transaction costs
4. Supply Risk – Inadequate risk management exposes a company to strategic, financial, operational and natural disaster risks that makes the supply chain susceptible to increased volatility and disruption.
Potential tactics to address leakage: Developing and implementing risk management capabilities to assess risk, define risk response and measure key metrics can improve overall control and mitigate costly supply chain disruptions
Tackling the four common value leakages can be daunting but the inability or unwillingness to tackle these leakages can be the difference that separates a laggard from an industry leader. Achieving Procurement Excellence is one way to move ahead of the pack and realize sustainable cost savings and improvements.