Let’s first consider what makes up a world-class procurement function. There are five key elements:

The five pillars of procurement

Proactive demand management

Proactive demand management focuses on ensuring the needs of the business are met – which means the right thing, at the right price, at the right quality, and at the right time! However, it needs to be managed according to the agreed priorities and strategy of the business, with a focus on maximizing business value, not only reducing costs.

The typical demand management tasks include request validation; purchase order processing; expediting and receiving returns; and invoice exception management. We can also consider alternatives, for example, a video conference versus a face-to-face meeting. Ideally, these demands should be forecast where possible. While this is generally true for direct, it is less so for say MRO (maintenance, repair and operations) or indirect purchasing.

In a frictionless operating model, we procurement processes are fully aligned to the needs not only of the business, but also of the category or commodity being procured. Buying channels are also be customized accordingly, and should be easy to use. Where possible, demand is predicted or forecasted.

Typical measures of success include:

  • Optimal procurement compliance (over 90%), including alignment of spend to buying channels
  • Procurement demand to meet the needs to the business
  • Significant reduction in cycle time
  • Demand optimization savings (10–15%).

Intelligent sourcing and contracting

The sourcing and contracting function covers category management, strategic, tactical, and spot-buy sourcing activities, as well as the contracting. The focus is on securing the maximum possible value at the right level of risk in each sourcing activity.

In a frictionless context, sourcing leverages a myriad of data sources to determine the right sourcing strategies for the specific category. Analytics help shape the strategy around the needs of the business. This also extends to strong collaboration between business areas, suppliers, and the sourcing team.

Typical measures of success include:

  • Spend savings (3–5% on strategic and 10–15% on tactical spend)
  • Organization value added (revenue, margin, risk reduced)
  • Improved contract compliance (up to 5% of spend)
  • Reduction in supplier base (over 15%).

Collaborative supplier management

Supplier management should focus on establishing the right relationships with an organization’s suppliers. Typical supplier management tasks include assessment of supplier performance and compliance; supplier enablement and support; contract management; quality management; supplier innovation; and accounts payable.

In the frictionless enterprise, supplier management is digitally enabled to provide real time connections and feedback that can effectively collaborate with suppliers throughout the entire procurement cycle.

Typical measures of success include:

  • Increased supplier compliance
  • Reduced net cost per supplier
  • Optimized supplier base
  • Increased revenue (through innovation)
  • Payment on time (over 99.9%).

Integrated risk management

Typical risk management tasks include assessments in three key areas – environmental, social, and governance (ESG). The focus is on minimizing risk in line with the requirements of the business.

Frictionless risk management not only leverages internal data collection, but also includes external data points collated from a wider range of sources, leveraging AI for data point confidence. This enables a more responsive approach to risk management as we can cover more data points in near real time.

Typical measures of success include:

  • Reduced supply risks
  • Reduced business loss
  • Increased social capital.

Procurement and sustainability

It’s no surprise that the procurement function is playing an increasingly important and strategic role in achieving a company’s sustainability objectives. In fact, in a survey conducted in recent years,* 81% of procurement organizations said that over the previous three years, their commitment to sustainable procurement had increased moderately or significantly.

Environment
Indirect carbon emissions can account for up to 90% of the total carbon impact of a company. For those engaged in a Net Zero Carbon neutrality, procurement can help suppliers continue to reduce their carbon footprint.

Society
Promote diversity and responsibility inside the procurement organization as well as through supplier selection by encouraging local suppliers’ partnerships and solidarity sourcing.

Social
Ensure suppliers’ compliance with international regulations and promote those favoring development, diversity, and fair treatment of their employees.

Sustainable economy
Raise internal stakeholders’ awareness to seek economic performance through consumption reduction and green projects.

* Source: Ecovadis & NYU, Sustainable Procurement Barometer, 2019

Actionable insight

Actionable insight is at the core of the procurement function, bringing in data points from the areas above, as well as external inputs to support the continued development of the procurement function at an operational, tactical, and strategic level.

Typical tasks associated with insight include analysis of spend and working capital; maintaining and interpreting intelligence about individual suppliers, and individual commodities; and analyzing category trends. These insights result in tangible actions.

 Typical measures of success include:

  • Increased spend visibility
  • Identification of savings and value opportunities
  • Continuous improvement to processes.

Contact Business Services

To learn more about how Cognitive Procurement Services can transform your organization to drive effective, sustainable, and frictionless procurement, contact: businessservices.global@capgemini.com

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