SlideShare una empresa de Scribd logo
1 de 64
Global Chief Procurement Officer
Survey 2010:


Achieving sustained business value
through procurement




                                     Cover-Reference Number
Prepared and edited by

Adrian Penka                               Capgemini Consulting, US
Bryan Garcia                               Capgemini Consulting, US
Hamish McKechnie Sharma                    Capgemini Consulting, UK
Mark van den Berg                          Capgemini Consulting, Netherlands
Sanjeev Itagi                              Capgemini Consulting, India
Stefan Becker                              Capgemini Consulting, Germany




2   Global Chief Procurement Officer Survey 2010
Co n t e n ts

4
      Foreword




7                                   24
      Participating                       Insights and Intelligence
      Companies and
      Organizations


                                     25   Achieving Sustainable Results through
                                          effective collaboration of the CFO



10
      Executive Summary                   and CPO - Hamish McKechnie-Sharma,
                                          Capgemini UK


                                     30   Maintaining a Leading Practice
                                          Procurement Organization – Four Key
                                          Pillars for Success - Dan Zoltowski,
                                          Capgemini US



12
      Aftermath of Global
      Economic Downturn              38   Procurement organization in a Global
                                          Context: Emerging needs, Design
                                          considerations, and Current models -
                                          Marco Alberti, Capgemini Italy, Graham
                                          Skinner, David Reid and Stephen
                                          Hemmingsley, Capgemini Consulting UK




16
      Highlights from the
                                     44
                                          Services Procurement – Essential
                                          Success Factors to achieving
      Survey Findings                     Sustainable Benefits - Stefan Becker,
                                          Elmar Holschbach, Capgemini Germany


 17   Key Procurement
      performance indicators are     48   Procurement as a Service – IT and
                                          Business Strategies that Quicken the
      still too narrowly focused          Pace of the CPO’s Transformation
      on cost control and savings         - Andreas Bernhard, Capgemini BPO
                                          Germany
 20   Procurement operating
      models - From emerging
                                     54
      to sustaining                       Raising the value of Procurement
                                          through Procurement Performance -

 21   Cost is important but               Sreekanth Venkata, Capgemini US
      Value is King!

                                     58
                                          Lean Procurement: Removing Barriers

 23   eProcurement solutions
      remain elusive
                                          to Innovation - Jean-Gabriel Padovani
                                          and Christian Westarp, Capgemini France




                                                Global Chief Procurement Officer Survey 2010   3
Global Chief Procurement Officer Survey



F or e w o r d
O
                     ver the last couple of years, the business   understand the trends and issues affecting Procurement
                     world has witnessed unprecedented            executives across the globe. We have now conducted in
                     challenges due to the global economic        excess of 750 interviews over the past four years, and this
                     meltdown, with many organizations across     edition continues to provide peer-based insights for
                     the globe having struggled to survive the    executives on macroeconomic issues and trends across the
                     tough economic conditions. With revenue      Procurement profession.
performance under pressure, companies continue to place
significant expectations on driving deeper and more rapid cost    Capgemini Consulting surveyed over 150 global
reduction, as well as operational efficiency improvement          companies worldwide during the course of this year’s
initiatives to support their balance sheets.                      research – respondents consisted of CPOs and senior
                                                                  supply chain leaders. These enterprises represent a diverse
Now, as the economy starts to show signs of recovery,             cross-section of most business sectors including
particularly in some sectors, organizations are at a cross-       manufacturing, financial services, energy, utilities, retail,
road. They need to strike a balance between capitalizing on       public sector and telecommunications.
the initiatives that were born out of the recession and
setting a strong platform for future growth once the              In this report, we provide insights of the survey,
economy has fully recovered.                                      a perspective on the aftermath of the recent economic
                                                                  recession, emerging trends in the Procurement function,
Procurement at the moment enjoys a leading role in cost           and thought-provoking articles on where the industry is
reduction, bottom-line improvement, and budget impacting          headed both professionally and through sheer necessity. –
change that continues to draw the limelight in supporting         we hope you enjoy the read.
both recovery and growth alike. However, this may be
short lived. As budgets become more generous,                     Capgemini Consulting would like to take this opportunity
Procurement faces the risk of fading from the limelight.          to thank each participant for their time, contribution,
However, by focusing on delivering growth and innovation,         openness, and candor regarding their issues, areas of focus,
Procurement can cement its leadership position and secure         and future plans.
its place in the CEO’s agenda.

This fourth Chief Procurement Officer (CPO) survey
marks Capgemini Consulting’s continued efforts to




                                                                  Adrian Penka                               Roy Lenders
                                                                  Global Procurement Transformation          Global Supply Chain
                                                                  Practice Leader                            Practice Leader
                                                                  Capgemini Consulting                       Capgemini Consulting




                                                                                         Global Chief Procurement Officer Survey 2010   5
CPO                                                A note of
                                                   thanks....
                                                   Capgemini Consulting would like to extend its thanks
                                                   to the senior Procurement professionals who made
                                                   time to participate in the Global Survey. Without their
                                                   cooperation and support, research of this nature
                                                   would have not been possible.




6   Global Chief Procurement Officer Survey 2010
O  Global Chief Procurement Officer Survey



Participating Companies
and Organizations
Participating Companies and Organizations


AB Svenska Bostäder                                Danone Waters
Acea                                               Dansoff-Bauer
Air Liquide                                        Destia
Alessi                                             Deutsche Post DHL
Alstom Transport                                   Duni
AMB Generali                                       E.ON
APG Groep                                          ECCLESIASTICAL INSURANCE
Artsana                                            Elisa Corporation
Astellas                                           Eneco
Atlas Copco                                        Finmeccanica Group Services
AVL Emission Test Systems                          GAC Antwerpen
AZ Damiaan                                         GDF Suez
Barilla                                            H. Lundbeck
B-Bridge (Randstad)                                Hewlett-Packard
BD                                                 HMH
Belastingdienst                                    Hydro One Networks
BNP Paribas                                        ISS Facility Services
Bouygues Telecom                                   Itella Corporation
Brookshire Brothers                                KCOM
Capgemini                                          Kemira Corporation
Caraustar                                          KONE Corporation
Chryso Italia                                      Konecranes
Claas                                              Koninklijke BAM Groep nv
Coca Cola                                          Lafarge
Cofely                                             Lantmannen
Consip                                             L’Oreal
CZ                                                 Luxottica Group




8   Global Chief Procurement Officer Survey 2010
Participating Companies and Organizations


LVMH Group                                  S-Proserve Erste Bank
Mattsson Metal                              Stad Gent
Metropolitan Police Service                 Stad Leuven
Metso Oyj                                   Stadsbestuur Kortrijk
Metso, Mining and Construction Technology   Stora Enso
MITIE                                       Stork
Nokia Corporation                           Suomen Lähikauppa Oy
Nordkalk                                    Swiss International Airlines
NS                                          Syngenta
Numonyx                                     Takeda Pharmaceuticals
Nynas                                       TATA Steel Group
OCMW Gent                                   TDF
OMV Petrom                                  Telecom Italia
OP-Pohjola Group                            Tessenderlo Groep
Pages Jaunes                                Thomas Cook
Pirelli Tyre                                TOTAL
Provincie Antwerpen                         Toyota Material Handling
Provincie Vlaams-Brabant                    Toyota Motor Europe
Prysmian                                    Treves
RWE                                         Turbomeca
Siemens Healthcare                          Unicredit Bank
Skatteverket                                UZ Gent
SKF                                         Vodafone
Smit                                        Webster Bank NA
Snam Rete Gas                               ZNA
Sophus Berendsen
Southwestern Energy




And many other companies and organizations that wished to remain anonymous




                                                              Global Chief Procurement Officer Survey 2010   9
Global Chief Procurement Officer Survey



Ex ec u t i v e
Su m m a ry
T
              his year’s study assesses Procurement a year after    Procurement is better positioned to be more strategic. From
              the global recession took hold, to see how            the reporting structure perspective, around 70% of
              Procurement executives handled the demands of         respondents said that they now report to the board room
              their sponsors to maintain the double-digit           within their organizations, and one out of four respondents
              savings targets required in a failing economy.        reported directly to the CEO or head of their business. The last
Unsurprisingly, this was not the only task expected of              few years have seen a subtle trend where Procurement is
Procurement since the recession began. The study also assesses      maintaining their support of the CFO’s objectives, while
how those same executives were challenged to adjust                 shifting their alignment to the CEO, which signals a focus on
Procurement’s position in the organization so as to be              more strategic objectives.
recognized as a key player in the strategic direction of the
company, regenerate top talent to contribute to the new             If Procurement does not seem to be operating with a focus on
requirements of Procurement’s role, as well as attempting to        value, but it has the strategic alignment to do so, is Procurement
position their organization to contribute to objectives beyond      at least aware that the expectations of their organization may be
cost cutting.                                                       changing? We have found that the answer is yes. Almost 80%
                                                                    of our participants responded that top management expected
So what has changed since our last survey 12 months ago?            them to improve the overall value contribution of Procurement.
What is clear is that there is still significant uncertainty over   This means that Procurement will need to shift the focus from
the economy’s direction. Experts have diametrically opposing        short-term cost cutting to long-term value-based relationships
opinions, with some claiming that the economy is improving          with suppliers, in order to drive deeper savings throughout the
while others claim that we face a double dip recession. So          supply chain and to bring true innovation into the company,
what does the Procurement community think? When asked               allowing for top-line growth as well as continued bottom-line
about their opinion on the recession and a possible future          reduction. This will require new skill sets, such as the ability to
recovery, 65% of respondents felt that the economy is               understand market mechanisms and the macro- and micro-
showing signs of recovery, although they remain uncertain as        economic influences in the end-to-end product supply chain.
to the time it will take to move into a ‘business as usual’         Procurement can then translate this understanding into
environment. Indeed, almost 30% were of the opinion that            opportunities to reduce risks and contribute to other corporate
the economy is still very much in recession and that their          objectives, such as growth and corporate responsibility.
industry faces substantial challenges.
                                                                    In order to help executives tackle some of these challenges, we
Let us assume for a moment that the optimists are correct. If       have developed a series of articles under the banner of ‘Insights
that is the case, then the behavior of most Procurement             and Intelligence’ at the end of this report. These articles examine
organizations seems to be slightly misaligned. For example,         some of the key strategies and approaches that executives can
our survey clearly indicates that far too many Procurement          employ to ensure Procurement drives the strategic agenda. In
organizations are primarily focused on cost reduction through       order, they look at:
negotiations on price. One needs to look at the Key
Performance Indicators (KPIs) section of the report to see that     • Building a collaborative relationship with the CFO
the most important KPIs are related to control and savings,         • Establishing and delivering longer-term strategic
e.g. spend under control (1), supplier performance (2),               objectives through data, technology, processes and talent
Procurement ROI (3) and compliance (4). Where is all the            • Building the right organization and operating model
focus on innovation and bringing growth to the company’s top        • Extending influence into service spend
line? If the market is on an upward trajectory, there are two       • Employing procurement-as-a-service to transform
key truths that Procurement must ready itself for. One is that        the organization
prices will not be so easy to slash, and simple negotiations will   • Understanding best practice in procurement performance
not yield the quick savings of last year. The other truth is that     measurement
Procurement organizations will not find every business              • Using Lean procurement to remove barriers to
stakeholder clamoring for Procurement’s services. When                innovation.
budgets are healthier, cost savings are less of an issue for the
business stakeholders that Procurement serves.                      By tackling these issues, Procurement can redefine the value it
                                                                    brings to the organization.
This raises a question: if Procurement is seeing the world
primarily through the lens of cost cutting, rather than             Reading the Capgemini Consulting 2010 CPO survey will
achieving their deeper potential to operate through a lens          highlight how Procurement executives define value, and what
focused on total value, are they at least organized so that they    they are doing to modify their objectives to deliver the new
can take on a more strategic role when the economy starts to        value - beyond cost cutting - that organizations are poised for a
strengthen? Our findings are encouraging and show that              recovery desire.

                                                                                              Global Chief Procurement Officer Survey 2010   11
Global Chief Procurement Officer Survey



Aftermath of the Global
Economic Meltdown
C
               onsidering the significant impact of the global                                        No E ect
               economic meltdown and the recent signs of                                                3%
               recovery, a section of Capgemini Consulting’s                             Low
               2010 survey was aimed at:                                                       14%               27%        Very High


• Assessing Procurement leaders’ perceptions about the
  current economic climate.
                                                                                               23%
• Formulating a view on companies who used the recession
  as an opportunity for growth and those who just tried to                         Medium
                                                                                                                 33%
  stay alive.                                                                                                             High
• Understanding the strategies adopted by these
  organizations to become more resilient to such global
  economic upheavals in the future.
                                                                           Figure 1: Effect of tough economic conditions on
                                                                           Procurement function
We asked the Procurement executives to what extent the
economic conditions affected the Procurement function.
Nearly one-third (33%) saw their function highly affected by
the economic environment while close to another third                      sustain such cost reductions in the face of a potential
(27%) found their function affected to an unprecedented                    turnaround?
degree (Figure 1).
                                                                           Beside these quantitative targets, almost 80% of our
But, what does it mean to be “affected”? In order to                       participants responded that top management expected them
understand, we asked specific questions related to how                     to improve the overall value contribution of Procurement.
corporate and business functions place pressure upon                       Nearly 60% said that they were asked to identify new
Procurement. In our 2009 survey, we observed that the                      sources for cost reductions, while enhancing the overall
savings target levels had substantially increased, practically             scope and control of spend. In addition, more than half of
doubling in most organizations. This trend continued in                    the CPOs we talked to stated that Procurement was given
2010 with 40% of our participants being committed to                       the task of preventing/controlling Procurement risks and
additional savings of 6 to 10% of annual spend, and at least               limiting or avoiding the associated costs of that risk.
8% experiencing increases greater than 10%. The ability to                 Looking beyond the expectations of Procurement, CPOs
support double digit increases year after year must be                     used few key strategies to overcome the present challenges.
questioned in light of the current economic conditions. If                 These strategies are shown in Figure 2.
the economic crisis is truly in its final stages, is it possible to


                      Enhance Procurement’s value delivered                                                                   64%
                                      Contract re-negotiation                                                               62%
               Implement Clear Procurement Operating Model                                                                  60%
                    Improve supplier management strategies                                                   43%
                              E ective demand management                                              40%
                          Contract Compliance improvement                                             40%
                            Global/Low cost country sourcing                                          39%
                  Multi-sourcing to reduce supply disruptions                                   30%
                       Implement cost e ective technologies                              22%
                                          Commodity Hedging                              19%
                                Internal Shared Service model                      17%
                                            Currency hedging                       17%
                                    Layo s from Procurement                        16%
                       Outsourcing of non-strategic activities                     15%
                                                  Spot buying                      14%
                                                       Others         3%


Figure 2: Procurement strategies during tough economic conditions

                                                                                                  Global Chief Procurement Officer Survey 2010   13
As was the trend in 2008 and 2009, more than two thirds of          Educated reduction of waste with appropriate supplier
the interviewed Procurement executives continued in 2010            margins will build innovative partnerships.
to substantially review and re-negotiate contract scope,
prices, price indices, as well as respective terms and              In addition to the contract renegotiation, two other strategies
conditions. This is not surprising considering the continued        were utilized to combat the challenges of 2010. First of all,
focus on cost reductions.                                           some 40% of the participants initiated further global and low
                                                                    cost country sourcing activities. Encouraged by top
However, this pressure on cost will require more innovative         management, these companies are now prepared to take a
solutions. For example, the impact of changing commodity            higher proportion of risk in this area than prior to the
prices on the sourced product needs to be assessed early in         economic crisis. Interestingly, we did not see the same
the sourcing cycle in order to get ahead of the volatility and      tendency with regard to the organizational set up. The move
use it to Procurement’s advantage.                                  to Procurement Shared Service centers, their re-location to
                                                                    near or offshore locations, as well as Procurement Business
Commodities like oil have always been subject to external           Process Outsourcing was instituted on average in only one
factors. The price of a barrel has fluctuated significantly due     out of five companies.
to the increased demand over the last years, not to mention
the impact of the recession, the growing economies in China         Managing supply risk was another strategy used to manage
and India, and several conflicts in the world. Bad weather          the tough economic challenges. Half of our participants
has caused the price of soybeans and potatoes to rise,              worked on reviewing and improving supplier management to
causing the price of beef and chips to increase. Even though        identify and manage supplier risks.
these examples are very simplistic, it does demonstrate the
point that fluctuation can present both opportunity and risk.       Facing a difficult economic environment and challenging
                                                                    targets, nearly 65% of the CPOs utilized management’s
These external drivers demand a completely different way of         attention and the ambitious targets in order to initiate a review
looking at a commodity. It forces the Procurement                   of the Procurement operating model and the way of working
professional to look all the way down the supply chain to           with functional interface partners. Consequently, the move to
understand which commodities are part of the “bill of               central Procurement functions has continued, with more than
material” of the product to be sourced, to understand how the       70% of our participants managing their spend centrally.
external factors affect the price, and how Procurement can be
pro-active to mitigate the financial consequences. This requires    Looking back on the past two years, most CPOs have stated
different skills and in-depth market knowledge. Oil is used in      that it has been a tough environment consisting of increased
transport, energy, plastics, medication, food production; a         pressure on Procurement, but as a positive result, over 60%
change in the price of oil will have an effect on the cost and      confirm that economic crisis has left Procurement more of a
therefore price of these downstream products. Understanding         winner than a loser (Figure 3).
of these commodity inter-linkages and mechanisms can not
only reduce the risk of volatility but also provide opportunities
since benefits can be obtained when commodity prices
fluctuate in either directions.                                                                  No signi cant
                                                                                                    change
An additional skill of the Procurement professional will                                                         14%
therefore be required in this volatile environment. That skill           Strategically positioned to
is the ability to understand these mechanisms, and the                   build a strong future
macro- and micro-economic influences, in the complete                                                   18%
supply chain of the product to be sourced, and translate this
into opportunities to reduce the risks involved and to further
drive down costs. But, the opportunity to drive down costs               Procurement just helped        6%                  62%
                                                                         steer through crisis.
should be carefully executed. Procurement professionals
should look to reduce waste introduced in the supply chain
                                                                                                                       Emerged as a winner
rather than reducing suppliers’ margins. Uneducated                                                                    with improved image
demands for price concessions that result in lower margins
for the suppliers will build unhealthy supply chains.
                                                                    Figure 3: Position of Procurement after managing the crisis

14 Global Chief Procurement Officer Survey 2010
Economy has         3%                              3%      Economy is
                  recovered and                                             completely out
                  “new normal” reached                                       of recession




             Economy is still          29%
             very much in
             recession

                                                                   65%              Economy is
                                                                                    recovering from
                                                                                    recession




Figure 4: CPOs’ opinion on the recent economic meltdown

A newfound position at the boardroom table and the need         Some organizations clearly spent the year in survival mode,
for immediate action has changed the role and recognition of    paring back their organization and focusing solely on cost
Procurement and its performance capability in most              reduction; while other organizations used the year to get
companies. At the same time, a substantially high number of     ahead of the competition by using the tactics highlighted
Procurement managers exploited the given opportunity and        above and in the remainder of the survey.
initiated the improvement of organizational set up to manage
their spend efficiently.                                        Using the key findings of our CPO survey, we will provide
                                                                some more detail on this subject in the next chapter.
When asked about their opinion on the economic recession
and a possible future recovery, a healthy 65% of the
respondents felt that the economy is showing signs of
recovery from recession, although there is still some time
before the perspective moves into a ‘business as usual’
environment. Interestingly, only six percent of the
respondents felt that the economy has fully recovered and
that the worst is behind us (Figure 4).

Both effects indicate that caution and moderate optimism is
the general feeling of the CPOs. In the aftermath,
Procurement has clearly increased its awareness, gained more
control over spend, and proven their value to the
organization. But, the main challenges in the near future for
a Procurement organization are clearly marked: to sustain
and further improve its position in the organization, to look
for innovative ways to continue to drive costs down, and to
stretch its ability to further add value to the organization.

                                                                                       Global Chief Procurement Officer Survey 2010   15
Global Chief Procurement Officer Survey



Highlights from the
survey findings
1 Key Procurement                                                                  Thoughts on what “value”
performance indicators are still                                                    means for Procurement
                                                                                    executives responsible for
too narrowly focused on cost                                                        delivering it::

control and savings                                                                 “Value creation through commercial
                                                                                    innovation, and sustainable and scaleable
Similar to our earlier surveys, in order to assess the health of the Procurement    “Go To Market” business processes. An
function, we continued our efforts to understand the development and                objective measure: Alignment to the
direction of key Procurement performance indicators.                                business through supply-side, TCO, and
                                                                                    business risk improvement deliverables.” –
Based on the survey findings, spend under control of Procurement has                Head of Supply Chain, Leading
increased slightly as compared to last year. For over 70% of the companies          Construction Company is Sweden
surveyed (as compared to 65% last year), spend under control of Procurement
was well above 60%. This serves to demonstrate the increased effort of              “Driving continuous improvement through
Procurement executives to enhance the influence of Procurement over sourcing        third party relationships that contribute to
and compliance management of non-traditional spend categories to drive down         company revenue/margin growth and
leakage and increase compliance to transactional Procurement. It is this same       protect the enterprise. Delivered through
compliance management and transactional Procurement, which is often seen            cost, quality, service, innovation, time to
now as an area ripe for direct transition into outsourcing opportunities.           market, emerging market infrastructure,
                                                                                    risk management, responsible Procurement,
                                                                                    etc.” –
        % of spend under                                                            CPO of a Large Pharma Company
      control of Procurement

                                                                         32%        “Savings, lean processes, strategic
          >80%                                                             33%      Procurement” – CPO of a large Energy&
                                                         19%                        Utilities company
       71 - 80%
                                                               24%
                                                  14%                               “Value creation is a function of the
        61- 70%
                                                  14%                               following factors: 1) delivery of the exact
        51- 60%                        10%                                          product or service, which is required by the
                               5%
                                                                                    internal customer to produce at the highest
        41- 50%                   7%                                                level of efficiency our final output: the
                                        11%
                                                                                    outstanding quality of our product 2) the
          <40%                                          18%                         best possible cost of the product, while
                                             13%
                                                                                    respecting the needs of our supplier (i.e. to
                               % of respondents
                                                                                    guarantee the long-term cooperation and
                                                               2009   2010
                                                                                    stable win-win relationship) 3) at the
                                                                                    minimum risk to the business (minimizing/
Figure 5: Spend under control of Procurement                                        avoiding late delivery, poor quality,
                                                                                    financial or social issues on the supplier’s
To further understand what this increased spend under control means, we             side).”
asked the respondents to name the major categories that they are responsible        – Business Unit Finance Officer,
for managing. The results show that Procurement functions are now responsible       Automotive giant in Europe
for sourcing many non-traditional categories including services like facilities
management, energy, consulting services, relocation services, contingent labor,     “Collaboration Drives Value”
creative services, print, marketing / promotion etc. This is an encouraging trend    - James Gurulé, Head of Corporate
and in the long run will help improve the overall strategic value of the            Procurement – UK, IR, ME, Africa for
Procurement function within the organization.                                       DHL




                                                                                        Global Chief Procurement Officer Survey 2010   17
Indirect materials                                                                 68%
                                            Telecom                                                                67%
                                    Direct materials                                                              66%
                            Facilities management                                                                65%
                                             Energy                                                              65%
                    IT Services/System integration                                                              65%
                                Capital Equipment                                                             62%
                                                Print                                                       60%
                               Consulting Services                                                        58%
                    Warehousing/ Logistic Services                                                       57%
                                   Security services                                                     57%
                                   Marketing spend                                                      56%
                               Waste management                                                        54%
                                            Training                                                  53%
                    Maintenance, Repair, Overhaul                                                   52%
                                Contingent Labour                                                 49%
                                              Travel                                            48%
                                         Promotions                                             47%
                                  Outsourcing/BPO                                               47%
                                   Creative services                                          45%
                               Event management                                             44%
                                      Legal Services                                  38%
                              Real Estate/Property                                 35%
                                          Relocation                             33%
                                Audit /Tax services                             32%
                                   Executive Search                       26%
                                        Architecture                     26%                               % of respondents (Multiple responses allowed)
                      Brokerage/ Customs services                      23%


Figure 6: Major categories sourced

                                                        It is also encouraging to see that more and more non-product related goods and
                                                        services are under control. These are the categories that are traditionally
  “Value to me is anything that helps the
                                                        purchased through eProcurement channels or subject to outsourcing, freeing
  company’s competitive situation. It can be
                                                        up time and talent to focus on the true value a Procurement organization can
  cost savings, securing a lower cost level
                                                        deliver to its internal and external customers. In the coming years we will see if
  than competitors (despite cost
                                                        this trend continues.
  increases...), secure risk management,
  assisting in new product development,
                                                        However, one would be remiss in not pointing out the paradox in the data.
  challenging internal mindset, etc. One of
                                                        While spend under control seems to be improving we know that spend cannot
  the biggest values that we have added, I
                                                        truly be under control when more than 65% of the Procurement executives state
  believe, is to convince the board to accept
                                                        that less than 20% of their spend goes through an eProcurement application.
  (very) long term contracts. Our costs have
  gone up for that category but we have
                                                        Spend under control is, however, not the only indicator that a Procurement
  secured our future business and opened
                                                        organization is performing poorly or well. We already expressed the importance
  the door to innovation.” - Peter Løgtved,
                                                        of an increased focus on value delivery. Procurement executives indicated in
  Director, Group Sourcing and
                                                        this year’s survey that the most important strategies to deliver value are a ‘focus
  Procurement, Rockwool International
                                                        on Total Cost of Ownership’ (73%), and ‘proactively designing business
                                                        requirements through strong collaboration with business stakeholders and
  “Creating an environment to allow the
                                                        users’ (74%).
  Supply Chain to collaborate with other
  lines of business (LOB’s) in satisfying their
  requirements will drive creative thinking
                                                        But what is value?
  when applying policy and procedure. It
  will make them flexible in aligning to our
  client’s needs and creating and adding
                                                        A CPO who responded to the survey describes the value delivered as: “Driving
  value to the company’s bottom line.
                                                        continuous improvement through third party relationships, contributing to
  Sustainable value cannot be created for
                                                        company revenue/margin growth, and protecting the enterprise. Delivered through
  one LOB unless it is created for all of
                                                        cost, quality, service, innovation, time to market, emerging market infrastructure,
  them.”
                                                        risk management, responsible Procurement, etc.”
  - Head of Supply Chain Management,
                                                        Costs, service to internal/external customers, innovation, risk management, etc. are
  Large Canadian Utilities Company
                                                        therefore all indicators that can contribute to Procurement’s performance. This is in

18 Global Chief Procurement Officer Survey 2010
line with the indicated strategies used to improve the perception of the value delivered
(see Figure 7).

But, when Procurement executives were asked about the importance of the Key
Performance Indicators (KPIs) measured, the most important KPIs are related to
control and savings, e.g. spend under control (1), supplier performance (2),
Procurement ROI (3), and compliance (4). And, if service to the internal customer is
measured by the Procurement organization, this is mostly done by a survey.
This is not surprising considering that the focus of the last few years has been on
cost reductions.

However, if a Procurement organization truly wants to add value, other KPIs or
elements should be included such as:

• Percentage of innovations driven by Procurement coming from the
  supply chain
• the contribution of Procurement in the sustainable objectives of the
  entire organization
• Involvement in initiatives; internal collaboration with the business or functions
• Total Cost of Ownership approach
• Or, as the Head of Corporate Procurement for a major Logistics Provider noted, his
  Procurement organization measures the amount of new business ideas that they
  develop jointly with the business.

In addition, barely 47% of the respondents mention that KPIs are aligned with
business goals and consistently measured. A conclusion can be that in roughly half of
the organizations, Procurement KPIs are fully aligned with and integrated in the           “The Procurement organization
business and its objectives. Is that a glass half full or a glass half empty view?
                                                                                           measures the amount of new
As a conclusion, we consider it half full and see it as encouragement for further          business ideas that they develop
Procurement involvement and collaboration within the organization. But to drive            jointly with the business.”
more value, it is desirable to include more performance indicators that support            Head of Corporate Procurement
the measurement of value instead of only focusing on cost and control.
                                                                                           - Major Logistics Provider
Procurement executives must be a bit more bold and stretch the ability of the
Procurement organization to execute the strategies desired.



                Measure Procurement performance in nancial terms                                                       70%
                             (Bottom line savings / Top line growth)

              Strong collaborations with internal customers /business                                              68%
                                               to de ne requirements

                                      Build strong Procurement team                                            65%

                    Strong relationships with internal stakeholders to                                      62%
                          support stakeholders’ objectives and goals

                  Align Procurement strategy with corporate strategy                                  57%
               Promote Procurement‘s value to top management and
                                             provide business cases
                                                                                                  52%

                     Procurement marketing within the organization                         45%
                                                                                             % of respondents (multiple responses allowed)




Figure 7: Strategies to improve the perception of the value delivered by Procurement


                                                                                           Global Chief Procurement Officer Survey 2010      19
2 Procurement                                                        Further analysis of the underlying Procurement
                                                                      organizational structures and operating models revealed that

operating models -                                                    over 50% of the organizations favored either hybrid or center
                                                                      led models to support them, which combine the features of

From emerging to                                                      central direction and distributed execution. However, the
                                                                      centralized model still remains the single major model with

sustaining
                                                                      around 41% respondents favoring it. As compared to last
                                                                      year’s results, Procurement organizations seem to be moving
                                                                      away from a pure centralized model. This trend might be a
                                                                      natural response to the prevailing tough economic conditions
Through this survey and our one-on-one discussions with               and the organizations’ need for tighter control over strategies
the respondents, it is becoming more and more evident that            and execution to minimize the impact (Figure 9).
the Procurement function is certainly on the verge of
emerging as one of the key strategic levers within the
organization. There is a paradigm shift in the way
Procurement is viewed and perceived – a shift from the
traditional view of Procurement as a support function that
drives cost reduction to a strategic partner that delivers
sustained business value.                                                                                            40%
                                                                          Hybrid/ Centre-led                                       59%
To understand and elaborate on this further, we asked two                        Centralized                       37%
types of questions to the Procurement executives– one                                                                41%
focusing on the current position of the Procurement function          Shared Services Center       9%
                                                                                                  7%
within the actual organization and secondly, the underlying
Procurement operating models and organization structures in                  De-centralized           12%
                                                                                                4%
use to support such a shift.
                                                                                Outsourced     2%
                                                                                                3%
From the reporting structure perspective, around 70% of
respondents said that they now report to the board room                              Others 0%
                                                                                             1%
within their organizations, and one out of four respondents
reported directly to the CEO or head of their business. The                                                          % of respondents
                                                                                               2009   2010
last few years have seen an increasing demonstration of the
value Procurement can provide and this is clearly shown
through the strategic priority that board level management
gives Procurement (Figure 8).                                         Figure 9: Procurement Organization structure


                                                                      Another interesting observation, however, is that in spite of
                   Others   5%     2% Head of Facilities              the current challenges one out of ten organizations surveyed
                                          Management                  still favored either shared services or potentially challenging,
                                                                      yet rewarding, outsourced Procurement models. This trend
       Other CxO                                    CEO/MD/ Head of
                                                                      might have stemmed from the need to focus more on
                      13%                    26%        Business      strategic Procurement activities and to outsource (internally
                                                                      or externally) the transactional activities to a specialized team
                                                                      to drive improvements in efficiencies and hence reduce the
           COO
                       15%                                            operational costs of the organization.
                                            20%
                                                                      This is also evident from the fact that, on average, 55% of the
                               19%                  CFO               Procurement staff within surveyed organizations focus
                                                                      completely on strategic Procurement activities and the
                    VP/Head of Supply
                    Chain/ Operations                                 remaining 45% focused on transactional activities. We
                                                                      believe that going forward the strategic component of
                                                                      Procurement activities will significantly increase.
Figure 8: Procurement reporting structure

20 Global Chief Procurement Officer Survey 2010
3 Cost is important                                               In the first part of this publication (Aftermath of the Global
                                                                    Economic Downturn) we noted that most Procurement

but value is king!                                                  executives estimate that in 2010 the economic climate is slowly
                                                                    returning back to normal. Looking at their saving targets, it is
                                                                    apparent that cost reductions continue to be a major focus area
                                                                    as the savings targets remain at the levels of 2009. Of course, we
Corporations are facing the consequences of a deep                  only found extreme targets beyond 10% in about 9% of the
economic crisis, so it is no surprise that cost reduction and       companies, but we still found ambitious targets between 5% and
cost cutting initiatives appeared at the top of CPOs’ priority      10% in nearly 43% of the organizations.
lists in 2009 and again in 2010.
                                                                    This brings us to the second point, a deeper dive into the nature
We were interested in assessing two aspects. First, the             of savings, especially as we see savings levels remain unchanged
savings target levels and their respective development from         while the economy is showing signs of improvement.
2008 when the crisis started, to the present when most CPOs
say that the recession is coming to an end. Second, the             In our 2009 survey, cost reduction initiatives were mainly
nature of savings transitioning from a focus on short-term          driven by the immediate need for contract re-negotiations.
targets to long-term sustainability.                                For example, most CPOs told us that after years of exploding
                                                                    prices for steel and other industrial metals, it was essential to
Let’s look to the first point. Our 2009 survey showed that in       take advantage of the crisis to re-negotiate prices and price
2008 nearly 70% of the Procurement organizations had a              clauses for such commodities. Our present survey shows that
saving target up to 5%, and some 20% of organizations had           cost cutting remains important but sustainable value is the
a more ambitious target between 5 and 10%. Less than 10%            real king!
of the companies had exceptional high targets beyond 10%.
As a consequence of the economic downturn, in 2009 the              When asked about the direction of their cost reduction
saving targets were stretched by the boardroom. Logically,          initiatives, three fourths of the Procurement executives stated
the group with rather moderate targets of up to 5% declined         that in 2010 the overall optimization of product requirements
to 46% while the group with ambitious targets of up to 10%          in collaboration with business stakeholders is their priority,
increased up or doubled to 41% of the interviewed                   thus demand management, value based sourcing, and access to
companies. The next group with extreme targets up to 15%            innovations. 55% of the respondents consider their suppliers
increased from 6% up to 10%, as well (Figure 10).                   as a partner to assist in enhancing product and service




                      80%
                                                                                    2008     2009       2010
                      70%   72%

                      60%
   % of respondents




                      50%
                                  46% 48%
                      40%
                                                  41% 43%
                      30%

                      20%
                                            19%
                      10%
                                                                   10% 4%
                                                                                  3% 2% 3%                      2%
                      0%
                                                             6%                                           0% 1%
                              <5%            6 - 10%             11 - 15%          16 - 20%                  > 20%



Figure 10: 2008 - 2010 savings targets of Procurement

                                                                                             Global Chief Procurement Officer Survey 2010   21
innovations. More than 73% said that instead of looking just
at purchase prices and contract terms, a broader analysis and
optimization of the total cost of ownership of products and
services are on the agenda (Figure 11)
.
Obviously, a key learning from the economic crisis in most
Procurement organizations is that quick substantial savings can
be expected from contract re-negotiations in challenging and
competitive markets, but what happens when things turn
around? Can a Procurement organization really be expected to
continue a path of double digit cost savings in a turnaround
market? Maybe, but one thing that also has to be learned is
that a focus on long-term, value based relationships with
suppliers is equally critical in order to drive deeper savings
throughout the supply chain through partnerships. It is these
same partnerships with external parties that are also responsible
for bringing innovation into the company and growing the top
line. A cost focus may be important, but bringing new value
into the organization is what will make Procurement king!




         Proactively design the business requirements                                                                        77%
       through strong collaboration with stakeholders

                 Focus on Total Cost of Ownership (TCO)                                                               74%

            Exploit the supplier capabilities to enhance
                    product/process/service innovation
                                                                                                  57%

                          Implement a social/sustainable                              45%
                                 Procurement strategy

                         Bring alternate product ideas to                       36%
                               optimize the buying costs

         Measure Procurement's contribution towards
        product positioning or e cient manufacturing
                                                                          30%

         Use lean techniques in procurement activities              19%

                                                  Others    4%
                                                                                       % of respondents (multiple responses allowed)




Figure 11: Procurement strategies to deliver value

22 Global Chief Procurement Officer Survey 2010
4 eProcurement
                                                                     • Optimizing the Procurement process by defining and
                                                                       implementing Procurement channels.

solutions remain elusive                                             The benefits are clear and proven, so either eProcurement is
                                                                     implemented in organizations and not used, or organizations
                                                                     still use traditional ERP applications.

Over the course of our earlier surveys we have followed closely      In the first case, it is likely that the talent or effort required to
the actual penetration, usage and success of eProcurement            embed eProcurement into the organization has failed. In the
solutions that include eSourcing, eRFX (request for information/     latter case, it is likely that organizations are yet to discover the
quote/proposal including auctioning), contract management,           benefits of eProcurement and it is therefore not surprising that a
and transactional eProcurement platforms covering catalogues         large amount of expenditure is not being presented in a way that
and workflow solutions.                                              it is useful for the CPO and category managers to manage.

Surprisingly, usage of eProcurement solutions still faces similar    The following strategies can help organizations reap the
challenges that we observed over the last 3-4 years.                 maximum benefits out of eProcurement initiatives:
Approximately 64% of surveyed organizations still have less
than 20% of their spend handled through eProcurement                 • A clear case for action, translated into clear objectives
solutions. Looking at the future, around 70% of the                  • A proper understanding of the value of P2P in the context of
organizations confirmed that they do not expect a drastic              the end-to-end Procurement process
increase in spend handled through such platforms.                    • A clear vision of the future process and way of working
                                                                     • Good understanding of the organizational impact
                                                                     • A clear and approved Procurement systems strategy
   Spend through                                                     • A set of clear P2P policies
   e-Procurement                                                     • Alignment of all of the above for the key stakeholders of
                                                                       your organization.
        (in%)
                                                                     Even if the above elements exist, change management to
    >80%        7%
                                                                     enhance acceptance of these applications is a very important
  61 - 80%      6%                                                   factor as compared to just implementing a technology
                                                                     solution, and the ability to embed change management into
  51- 60%       5%                                                   both, acceptable cultural practices and ‘business as usual’,
                                                                     remains a challenge for executives. Indeed the inability to
  41- 50%       3%
                                                                     insight change continues to plague Procurement executives’
  31- 40%       5%                                                   desires to increase compliance and increase the involvement
                                                                     of the various business functions. We would advocate a
  21- 30%            10%                                             continued and seeded integration of key employees,
                                                                     sponsors, and management throughout the lifetime of any
    <20%                                                   64%       change that is paired with such a solution.
                           % of respondents



Figure 12: Spend managed through e-procurement channels


This is an interesting observation, especially if you consider the
benefits of the usage of eProcurement tools:

• More and immediate visibility of expenditure, which can help
  in identifying potential savings
• Less maverick expenditure due to contract compliance
• By applying SRM tools in the sourcing cycle, many of the
  administrative activities are supported like auctions,
  tenders, etc.



                                                                                               Global Chief Procurement Officer Survey 2010   23
Global Chief Procurement Officer Survey



Insights and intelligence
  We understand that you are busy and have less time on your hands so we have given you
  an indication of how long it will take to read each of these articles so you can pick the ones
  that interest you.
1 Achieving
                                                                 contribution to enhancing the overall value to the
                                                                 organization”, which provides clear indication that value from
                                                                 Procurement should be seen as internal through service to the
sustainable results                                              client, and external in terms of widening the gap between
                                                                 revenue and cost.
through effective                                              • A further 70% of respondents highlighted the need to
                                                                 ensure “measurement on Procurement performance in
collaboration of the                                             financial terms” which demonstrates bottom line
                                                                 savings as well as top line growth.
CFO and CPO                                                    • Since the last survey in 2009, 20% of the audience has
                                                                 highlighted the need to increase savings by at least a
                                                                 double digit effort year on year in order to either survive or
                                                                 meet base targets.
Demonstrating the value and influence that
Procurement can bring to the CFO                               With a greater presence of CPOs established as corporate board
                                                               members across most sectors and industries, the time has never
Hamish McKechnie-Sharma, Capgemini Consulting, UK              been more fitting than now in leveraging integration for CPOs
                                                               and CFOs to demonstrate, sustain, and improve growth.
Reading Time: 12 Minutes

                                                               The fundamentals to sustaining the alliance
How many times do we hear that the CFO
and CPO of a major organization are not                        Listening to over 150 participants from our survey, as well as
                                                               our varied current client base, there are three core principles
forging an effective enough collaboration?
                                                               that are driving greater synergy for both functional areas:
The role of a CPO has now moved beyond                         target driven partnerships; an aligned organizational structure
                                                               that considers changing economic conditions; and the fact
just the pure provision of cost reduction
                                                               that while systems, technology and process remain a focal
effectiveness, compliance resilience, supplier                 point, change remains the denominator.
rationalization and performance management.
                                                               1 Target driven partnership
The role is now an integral part of any
                                                               Embedding savings into financial based budgets as part of
organizational strategy in delivering continued
                                                               category and strategic Procurement based planning is critical to
value to the shareholders, the customers                       any form of joined-up thinking and paramount to delivering hard
                                                               cash across the organization.
and the public. With economic instability still
dwindling during the latter stages of 2010,                    Rather than simply apply a focus on savings, Procurement is
                                                               involving the wider organization through the customer to whom
it is shareholders’ appetite for stability and
                                                               the service is provided. The targets remain those of the business,
success that drives an increasing collaboration                and whilst a shadow target may exist, the only reasonable and
                                                               sustained manner in which Procurement can demonstrate value
where the CPO’s effort in delivering tangible
                                                               is through early adoption and acceptance with the customer. In
bottom-line value serves as the foundation for                 some organizations, a lack of both understanding and
                                                               communication as to what Procurement can bring and how it
CFOs to demonstrate shareholder optimism.
                                                               can help drive better reporting for Finance is a clear indictment
                                                               of how some multinational organizations continue to operate.
Do Procurement and Finance share the same DNA? To some         As one global manufacturing CPO highlighted during the course
extent they do, and Capgemini Consulting’s 2010 survey has     of the survey, “I often hear that Finance owns the budget and
highlighted a number of observations which support the drive   they should determine how it is managed, so what value
for a closer alliance:                                         does Procurement provide?”

• 79% of our CPO survey respondents said that Procurement      The importance of savings transparency should not be
  pressures should be more focused on “improving the           underestimated. An approach that allows for measurable and

                                                                                        Global Chief Procurement Officer Survey 2010   25
traceable savings from inception through to delivery is
                                                                   fundamental. This ensures clarity throughout the whole process
                                                                   for any form of saving and significantly involves Finance from
                                                                   the outset where the core governance principles can be agreed
                                                                   prior to embedding these across Procurement, Finance and the
                                                                   organization. Ensuring these are both flexible and adaptable to
                                                                   changing organization or economic conditions is important and
                                                                   as such it would be prudent to review these periodically, most
                                                                   likely at the start of each financial year.

                                                                   This approach should not be seen as reducing an area of
                                                                   expenditure through demand management practices and
                                                                   plugging an area of overspend, although admittedly this is an
“I often hear that Finance owns the budget and they                increasingly common practice. Starting with a clear set of
                                                                   organizationally agreed upon definitions as to what
should determine how it is managed, so what value                  constitutes a saving (e.g. cashable, cost avoidance etc.) and
does Procurement provide?”                                         how this is budgetarily treated provides a basis for both
- CPO of a Global Manufacturing Company                            integrity and pragmatism. In turn this ensures the portfolio
                                                                   of Procurement based opportunities are owned by Finance,
                                                                   Procurement and the business. Importantly, however, it




                                                          Procurement/Finance/Business


          CORE                           IDENTIFIED         CAPTURED                VALIDATED                 DELIVERED
       GOVERNANCE

     Agreement of                   Procurement           Procurement           Procurement              Finance driven as
     savings types and              Driven and            driven through        driven into              budget treatment
     de nitions                     business owned        provisions of         Finance with             is applied
                                                          e ective              business
     De ned targets for             Identi cation of      Procurement           acceptance               Con rmation of
     Procurements and               savings through       Practices                                      savings being
     Finance                        tangible                                    Finance                  cashable / non
                                    opportunities with    Savings considered    con rmation of           cashable
     Integration of                 a portfolio of        locked in             calculations and
     targets into                   Procurement           through the           evidence to              Declaration of
     personal                                             form of               support saving           business in
     performance plans              Initiatives jointly   agreements such as                             support of
                                    owned; Clear          contractual                                    savings target
                                    documentation
                                    articulated and
                                    agreed




Figure 13: Method of benefits management

26 Global Chief Procurement Officer Survey 2010
avoids the need to have disputes further into a financial year                  Conclusion:
when all too often savings cannot be agreed or worse still are
ignored and lost.                                                               Involving Finance in the process of defining and
                                                                                establishing savings from point of identification is
Furthermore, the need to address department performance                         crucial. Showing Finance exactly what the savings are
against savings targets needs to be driven through and built
                                                                                and how they affect the bottom line ensures
into personal performance plans for employees – but how
easy is this to implement in practice? Put simply; it is not.                   Procurement has Finance involved in the wins that it is
One of the more common ways in achieving this has been to                       making. The common thread of both parties is working
drive greater discipline and rigor in how Procurement,                          together for the interest of the shareholders and, simply
Finance and other integrated areas operate. A recent
                                                                                put, savings should be achievable, proactively managed
discussion with a number of CPOs has highlighted that to do
this effectively, and have this sustained, requires up front                    and more sustainable.
transparency in all Procurement based savings and
opportunities. While Procurement can provide value, it is
Finance who must agree to the savings as they apply them,
                                                                               2   Aligned organizational structure that considers
and it is the business who signs them off as it is their budget
that is ultimately reduced.                                                        changing economic conditions

Just under 70% of our survey participants highlighted the                      Whilst board-level sponsorship for Procurement is often
need for Procurement to forge a “greater collaboration                         represented by the CFO (40% based on survey findings),
with internal customers in order to improve the                                there is a growing trend to provide autonomy and leadership
perception of value generated by the Procurement                               on both fronts to further illustrate increased value from
function” including Finance.                                                   Procurement, which is continuing to demonstrate a greater
                                                                               breadth of strategic input at board level. Whilst there is
CPOs must ensure that Procurement engages strongly with                        often pragmatic sense to have Procurement reporting into
business units to allow a comprehensive understanding of                       Finance in some sectors, there is a clear trend of Procurement
business needs and encourage the development of targets,                       being seen as a trusted commercial advisor who can advise
which are aligned and focused on revenue, cost, cash flow                      across a variety of strategic solutions. As quoted in the
and profitability.




                            Fundamental             Signi cant        Slightly Signi cant        Nice to Have          Trivial


 Driving Integration of information across the enterprise                                                      Having usable Financial metric data and
                                                                                                               clear information Flows to demonstrate
     Supporting / Managing / Mitigating enterprise risk                                                        appropriate interoperability has been
                                                                                                               identi ed as a key requirement by 62%
          Continuous process / business improvements                                                           of CFOs
                     Aligning Finance with the business
                                                                                                               3 out of 4 CFOs consider aligning
               Identifying /Executing growth Strategies                                                         nance with the business of signi cant
                                         Cost Reduction                                                        importance to the overall corporate
                                                                                                               strategy
    Portfolio management for nance related programs
                                   People development                                                          82% of responses to recent CFO
                                                                                                               questionnaires have highlighted that
         Measuring / Monitoring business performance                                                           the ability to monitor business
                                                                                                               performance is critical to Finance
                        Meeting statutory requirements
                                                            0    20       40        60      80       100




Figure 14: CFO ‘crucial agenda items’ at Board Level, Capgemini Survey 2009/10

                                                                                                           Global Chief Procurement Officer Survey 2010   27
‘Director of Finance ’ online forum, a Director for one of the
UK-based police forces concurred: “It is a shame that it has
taken the current financial situation to bring Procurement to
the fore, but there is an opportunity to shape the future of
the public sector and bring more of our commercial
knowledge into play.” Granted, and this commercial
presence for Procurement is invaluable if some of the more
competitive strategic solutions being touted are to land more
effectively and regularly across organizations. This includes
areas such as Procurement centralization and outsourcing,
emerging market infrastructure and deployment, responsible
Procurement, effective commercial-sales models, external
collaborations and innovation. Furthermore, CPOs must
also work in partnership with CFOs and take the lead in
providing monetary understanding across the organization to
ensure that Procurement’s contribution to company
performance is both evident and visible, not only to
customers, and the board, but externally to analysts
and shareholders.

Our survey has highlighted that some of the strongest sponsors
of Procurement are at board-level including the CEO, COO and
CFO, where more often than not there is a mutual respect that
Procurement can add value to the organization.

Considering the CFO perspective is just as critical. In a
separate but recent survey with our CFO client base, the
following areas of ‘crucial agenda items’ were highlighted.
What is evident is the increased focus on stewardship, where
75% of the CFO respondees wanted to see a greater focus on
aligning Finance with the business and other departmental
areas. With an additional 92% of CFOs expecting the
current credit crisis to have the greatest impact during 2010,
the time has never been more opportune to converge
operations strategically across Finance, Procurement and
even the wider supply chain at the executive level.

  Conclusion:
   Procurement has a part to play at the board level,
   and while in some cases this is more of an emerging
   nature, the need still exists. Importantly, however,
   such a platform provides Procurement with the
   opportunity for a wider senior audience to support            “It is a shame that it has taken the current financial
   the mandated bottom line cost reduction which can             situation to bring Procurement to the fore, but there
   be governed effectively across the Organization. Only         is an opportunity to shape the future of the public
   once this corporate level of governance is in play (as        sector and bring more of our commercial knowledge
   an integral part of the organizational DNA), can              into play.”
   Procurement truly consider it has landed at the               Director for one of the UK based police forces
   strategic level.



28 Global Chief Procurement Officer Survey 2010
function is critical. Continued integration of processes,
3 Systems, technology and process remain a focal                       systems and technology can and will drive a better joined
    point yet change remains the denominator                           up value for the business, creating the footprint for an even
                                                                       wider set of supply chain Finance-based growth
Do organizations design common processes across Procurement            opportunities.
and Finance that are then implemented into systems? We
would like to think so but few succeed in involving both             • Joint effort – joint results. The increased effort that some
protagonists from the outset. Take the standard ‘Purchase to           organizations are going through to ensure Finance and the
Pay Process’. We all know this starts with Procurement and ends        wider business are joined up and supportive of true
in Finance (Accounts Payable), but truthfully, are both areas of       cashable savings is undeniably worth it. The transparency
the organization actively interested in the end-to-end process, or     on the cash position and the more effective usage of
should they be? More often than not the processes are separated        revenue and capital is what CEOs, investors and analysts
out with a focus on invoicing and payment provided to Finance          are really interested in.
and the purchasing scenarios being driven by Procurement.
This is ideal when considering the detail, yet a challenge when
seeking to ensure integration and a more unified level of
thinking.                                                             Conclusion:
Second-generation Procurement-based technology is upon us,
whether this is ripping out one solution implemented five years        The level of change required may often seem greater
ago and putting in another, or providing real end-to-end               than it truly is, the core essence for CPOs remains in
systems provision through full Source to Payment technology.           ensuring an effective business usage of what systems
Regardless, organizations have a real opportunity to ensure that
                                                                       and processes exist to make sure they are
CFO and CPO thinking is better merged, including ensuring
systems are demonstrating integration, compliance,                     fundamentally ‘fit for purpose’ and applicable to the
transparency, flexibility as well as harmonization across the          user base.
respective functional areas.

IInterestingly, our survey has highlighted that 70% of
respondents have 61% or above of their expenditures under
control yet only 67% of this is managed through a formal and
effective channeled route to purchase that is system driven.
There is still much to do, with one in two responses highlighting
that the awareness of Procurement across the organization
continues to be a challenge. This provides the base of
opportunity to provide a greater understanding and
demonstration of value through greater innovation and insight,
quality, service, supplier mitigation and increasingly corporate
responsibility, thereby allowing Procurement to springboard
from the CFO’s agenda to the CEO’s agenda.

Final reflections


Having recently spoken to a number of CPOs there is no longer
a question as to whether a CPO and CFO can work better
together, it is more a question of how. Given the drivers and
considerations highlighted, we would advocate organizations
consider the following as the search for a greater level of
momentum at board level for Procurement increases:

• Adaptability and acceleration. Stability is no longer a
  scenario for a CPO. With the volatility of commodity
  prices, the need to be both flexible and reactive as a




                                                                                             Global Chief Procurement Officer Survey 2010   29
2 Maintaining a                                                    This point of view will explain four pillars which are necessary
                                                                    to successfully operate a leading practice Procurement

leading practice                                                    organization: data, technology, processes, and talent. These
                                                                    focus areas are highly interdependent and, when well integrated,

Procurement                                                         can be pivotal in demonstrating the value of Procurement,
                                                                    delivering costs savings, and aiding top line growth.

organization – four key
                                                                    Data
pillars for success
                                                                    “Knowledge is power” – Sir Francis Bacon (Religious
                                                                    Meditations, Of Heresies, 1597). This quote directly applies to
Illustrating the continued importance of data,
                                                                    a Procurement organization: without proper knowledge on
technology, process, and talent in the Procurement                  items purchased, the supply market, or spend, you can try to
function.                                                           execute a strategy but you will no doubt fail. The ability to
                                                                    collect, organize, and access data is a common challenge within
Dan Zoltowski, Capgemini Consulting, US
                                                                    Procurement organizations, but a necessity. Successful data
Zach Ettner, Capgemini Consulting, US                               management enables a company to develop accurate and flexible
                                                                    Procurement strategies, identify improvement opportunities, and
                                                                    monitor progress against Procurement objectives. Inadequately
Reading Time: 20 Minutes


The world is changing fast. The economy
is volatile and the position of companies                            “Quick and accurate data was the key to establishing
within their sectors can shift in weeks, not                         a clear reporting culture measuring the service
years. Every nation has their examples                               provided (e.g. vendor information, delivery against
of disappearing banks, multinationals                                objectives and targets etc.)”
                                                                     CPO from a facilities management organization
disposing of less profitable businesses,
lay-offs and cost reductions throughout
every sector. So what’s new you may ask?
Well, CXOs need to continuously adapt
their organization to the new playing field in
                                                                                                  Data
order to enable growth in terms of money,
competitiveness and competency. And
CPOs have a real part to play.                                                                  Four pillars
                                                                                                    of
                                                                                  Talent       procurement      Technology
CPOs are also facing these challenges. The constant pressure to
deliver cost savings has been the number one priority in the last
few years. Quick realization of cost savings may be a short-term
fix, but the focus is slowly shifting towards adding value in
terms of talent, innovation, sustainability and serving the
                                                                                                Processes
external customer.

How can one cope with these different drivers? How can the
Procurement organization evolve to successfully meet the long-
term as well as short-term objectives?

30 Global Chief Procurement Officer Survey 2010
Visualize the output to determine what types of data will be needed
         IDENTIFY            De ne the speci c data elds that need to be collected
                             Understand how the collected data will be leveraged


                             De ne which systems will be used for data collection
         CAPTURE             Validate processes designed to support collection of required data components
                             Utilize automation to increase the accuracy of data


                             Create standardized reports and metrics / KPIs
                             Leverage data technology solutions to aggregate data from source systems
          REPORT
                             De ne a formal approach for reviewing procurement data




Figure 15: The pivotal three data considerations


managed data can result in lost opportunities to service the         re-organizing frequently and this has consequences for the data
business, and to identify and realize cost savings for               sources and who in an organization views the data. Another
the company.                                                         explanation is the lack of invested time, money and resources in
                                                                     data management due to alternative priorities.
Procurement leaders who responded to the CPO survey
indicated that improving spend information and availability was      However, knowledge is power and CPOs acknowledge that, so
the second largest area of focus for their organization during the   apart from the required investments, what are the key areas of
past year, just behind cost reduction initiatives. The survey        improvement to unlock that knowledge?
results indicate that this is also a key component of 2010-2011
Procurement plans. One Procurement leader from a facilities          Key improvement opportunities
management organization cited that “quick and accurate data
was the key to establishing a clear reporting culture measuring
the service provided (e.g. vendor information, delivery against      Whilst not exhaustive, the list below contains six critical success
objectives / targets, etc.).”                                        factors for effective data management within a Procurement
                                                                     organization which, if considered collectively, will start to
There are three key areas that Procurement leaders should            address the ability to manage data more effectively across
consider when developing strategies related to data, as              the organization:
illustrated in Figure 15: identifying what data needs to be
collected, understanding how the data will be captured, and          •	 Stakeholder alignment – meet with stakeholders within and
defining the structure of the data for reporting and review.            outside of Procurement to confirm the data fields needed to
Figure 15 shows the most important aspects of each of the three         support future analysis; ensure the necessary data is
key areas.                                                              collected to support Procurement strategies and activities.

You could consider this straightforward, so why do                   •	 Data integration – integrate data from multiple sources to
organizations continuously fail to develop proper data                  minimize the level of effort required for data analysis.
management? Why does this come back as a point of attention             Consider using a data warehousing tool to eliminate design
in the CPO survey year after year?                                      issues that allow data to be maintained in silos. Consider
                                                                        the end-to-end picture while identifying data integration
One explanation can be the changing business and                        opportunities.
technological environment; Companies are merging and
                                                                                               Global Chief Procurement Officer Survey 2010   31
Global Chief Procurement Officer Survey 2010
Global Chief Procurement Officer Survey 2010
Global Chief Procurement Officer Survey 2010
Global Chief Procurement Officer Survey 2010
Global Chief Procurement Officer Survey 2010
Global Chief Procurement Officer Survey 2010
Global Chief Procurement Officer Survey 2010
Global Chief Procurement Officer Survey 2010
Global Chief Procurement Officer Survey 2010
Global Chief Procurement Officer Survey 2010
Global Chief Procurement Officer Survey 2010
Global Chief Procurement Officer Survey 2010
Global Chief Procurement Officer Survey 2010
Global Chief Procurement Officer Survey 2010
Global Chief Procurement Officer Survey 2010
Global Chief Procurement Officer Survey 2010
Global Chief Procurement Officer Survey 2010
Global Chief Procurement Officer Survey 2010
Global Chief Procurement Officer Survey 2010
Global Chief Procurement Officer Survey 2010
Global Chief Procurement Officer Survey 2010
Global Chief Procurement Officer Survey 2010
Global Chief Procurement Officer Survey 2010
Global Chief Procurement Officer Survey 2010
Global Chief Procurement Officer Survey 2010
Global Chief Procurement Officer Survey 2010
Global Chief Procurement Officer Survey 2010
Global Chief Procurement Officer Survey 2010
Global Chief Procurement Officer Survey 2010
Global Chief Procurement Officer Survey 2010
Global Chief Procurement Officer Survey 2010
Global Chief Procurement Officer Survey 2010
Global Chief Procurement Officer Survey 2010

Más contenido relacionado

La actualidad más candente

George Coulston - Kennametal's Innovation Journey
George Coulston - Kennametal's Innovation JourneyGeorge Coulston - Kennametal's Innovation Journey
George Coulston - Kennametal's Innovation JourneyCincinnati Innovation
 
Tcg ata glance_2012
Tcg ata glance_2012Tcg ata glance_2012
Tcg ata glance_2012bmcginley12
 
Unleashing the power of innovation
Unleashing the power of innovationUnleashing the power of innovation
Unleashing the power of innovationPwC Russia
 
BetaCodexC2 - Case Study "Logoplaste" on Transformation
BetaCodexC2 - Case Study "Logoplaste" on TransformationBetaCodexC2 - Case Study "Logoplaste" on Transformation
BetaCodexC2 - Case Study "Logoplaste" on TransformationGebhard Borck
 
How to transform a failing business
How to transform a failing businessHow to transform a failing business
How to transform a failing businessJohn Greig
 
BPO Call Center, Contact Center Investment Market Landscape for M&A Corporate...
BPO Call Center, Contact Center Investment Market Landscape for M&A Corporate...BPO Call Center, Contact Center Investment Market Landscape for M&A Corporate...
BPO Call Center, Contact Center Investment Market Landscape for M&A Corporate...Charles Bedard
 
Youth Entrepreneurship Summit 2012
Youth Entrepreneurship Summit 2012Youth Entrepreneurship Summit 2012
Youth Entrepreneurship Summit 2012Wir sind das Kapital
 
BMNT Mission Results 2018
BMNT Mission Results 2018 BMNT Mission Results 2018
BMNT Mission Results 2018 BMNT Partners
 
Growth Strategy Workshop
Growth Strategy WorkshopGrowth Strategy Workshop
Growth Strategy WorkshopDwight Calbert
 
Looking beyond the obvious - Globalization and new opportunities for growth
Looking beyond the obvious - Globalization and new opportunities for growthLooking beyond the obvious - Globalization and new opportunities for growth
Looking beyond the obvious - Globalization and new opportunities for growthEY
 
Jon Cohn Exton PA - EA and Innovation
Jon Cohn Exton PA - EA and InnovationJon Cohn Exton PA - EA and Innovation
Jon Cohn Exton PA - EA and InnovationJon Cohn
 

La actualidad más candente (17)

George Coulston - Kennametal's Innovation Journey
George Coulston - Kennametal's Innovation JourneyGeorge Coulston - Kennametal's Innovation Journey
George Coulston - Kennametal's Innovation Journey
 
Global innovation survey
Global innovation surveyGlobal innovation survey
Global innovation survey
 
Tcg ata glance_2012
Tcg ata glance_2012Tcg ata glance_2012
Tcg ata glance_2012
 
Unleashing the power of innovation
Unleashing the power of innovationUnleashing the power of innovation
Unleashing the power of innovation
 
BetaCodexC2 - Case Study "Logoplaste" on Transformation
BetaCodexC2 - Case Study "Logoplaste" on TransformationBetaCodexC2 - Case Study "Logoplaste" on Transformation
BetaCodexC2 - Case Study "Logoplaste" on Transformation
 
How to transform a failing business
How to transform a failing businessHow to transform a failing business
How to transform a failing business
 
BPO Call Center, Contact Center Investment Market Landscape for M&A Corporate...
BPO Call Center, Contact Center Investment Market Landscape for M&A Corporate...BPO Call Center, Contact Center Investment Market Landscape for M&A Corporate...
BPO Call Center, Contact Center Investment Market Landscape for M&A Corporate...
 
PEI 139_OPEX_digi
PEI 139_OPEX_digiPEI 139_OPEX_digi
PEI 139_OPEX_digi
 
Deloitte On M&A
Deloitte On M&ADeloitte On M&A
Deloitte On M&A
 
Op Ex Review 0812
Op Ex Review 0812Op Ex Review 0812
Op Ex Review 0812
 
DCA Innovation
DCA InnovationDCA Innovation
DCA Innovation
 
Youth Entrepreneurship Summit 2012
Youth Entrepreneurship Summit 2012Youth Entrepreneurship Summit 2012
Youth Entrepreneurship Summit 2012
 
Business value 2012
Business value 2012Business value 2012
Business value 2012
 
BMNT Mission Results 2018
BMNT Mission Results 2018 BMNT Mission Results 2018
BMNT Mission Results 2018
 
Growth Strategy Workshop
Growth Strategy WorkshopGrowth Strategy Workshop
Growth Strategy Workshop
 
Looking beyond the obvious - Globalization and new opportunities for growth
Looking beyond the obvious - Globalization and new opportunities for growthLooking beyond the obvious - Globalization and new opportunities for growth
Looking beyond the obvious - Globalization and new opportunities for growth
 
Jon Cohn Exton PA - EA and Innovation
Jon Cohn Exton PA - EA and InnovationJon Cohn Exton PA - EA and Innovation
Jon Cohn Exton PA - EA and Innovation
 

Similar a Global Chief Procurement Officer Survey 2010

Capgemini Global BPM Report
Capgemini Global BPM ReportCapgemini Global BPM Report
Capgemini Global BPM ReportCapgemini
 
Global Business Process Management report
Global Business Process Management reportGlobal Business Process Management report
Global Business Process Management reportpexnetwork
 
How to Plan, Execute and Deliver the Right TPM Solution
How to Plan, Execute and Deliver the Right TPM SolutionHow to Plan, Execute and Deliver the Right TPM Solution
How to Plan, Execute and Deliver the Right TPM SolutionTradeInsight
 
The 9 big issues of shared services and outsourcing: research insights from ACCA
The 9 big issues of shared services and outsourcing: research insights from ACCAThe 9 big issues of shared services and outsourcing: research insights from ACCA
The 9 big issues of shared services and outsourcing: research insights from ACCAsharedserviceslink.com
 
Maximising People Power
Maximising People PowerMaximising People Power
Maximising People Poweraliibrm
 
World Quality Report 2012-13
World Quality Report 2012-13World Quality Report 2012-13
World Quality Report 2012-13Capgemini
 
Icebreaker executive interim management governance
Icebreaker executive interim management governanceIcebreaker executive interim management governance
Icebreaker executive interim management governanceicebreakereim
 
Supplier Relationship Management (SRM) Research 2010-2011
Supplier Relationship Management (SRM) Research 2010-2011Supplier Relationship Management (SRM) Research 2010-2011
Supplier Relationship Management (SRM) Research 2010-2011tdolder
 
Supplier Relationship Management Srm Research 2010 2011
Supplier Relationship Management  Srm  Research 2010 2011Supplier Relationship Management  Srm  Research 2010 2011
Supplier Relationship Management Srm Research 2010 2011ColinHartog
 
Supplier Relationship Management Srm Research 2010 2011
Supplier Relationship Management  Srm  Research 2010 2011Supplier Relationship Management  Srm  Research 2010 2011
Supplier Relationship Management Srm Research 2010 2011salleijn
 
Capgemini SRM Research 2010 2011
Capgemini SRM Research 2010 2011Capgemini SRM Research 2010 2011
Capgemini SRM Research 2010 2011Robbert den Braber
 
Roger Davies, Group Head of Procurement at Marks & Spencer - Our capability d...
Roger Davies, Group Head of Procurement at Marks & Spencer - Our capability d...Roger Davies, Group Head of Procurement at Marks & Spencer - Our capability d...
Roger Davies, Group Head of Procurement at Marks & Spencer - Our capability d...Global Business Events
 
Succeed or Fail on Purpose
Succeed or Fail on PurposeSucceed or Fail on Purpose
Succeed or Fail on PurposeFirm Thinking
 
Invitation for Wealth Management Feasibility Analysis
Invitation for Wealth Management Feasibility AnalysisInvitation for Wealth Management Feasibility Analysis
Invitation for Wealth Management Feasibility AnalysisJordan Andreola
 
Business Intelligence Competency Centers Best Practices
Business Intelligence Competency Centers Best PracticesBusiness Intelligence Competency Centers Best Practices
Business Intelligence Competency Centers Best PracticesCapgemini
 
aerce 201006 (slideshare)
 aerce 201006 (slideshare) aerce 201006 (slideshare)
aerce 201006 (slideshare)Sammy Rashed
 
Mastering the Dynamics of Innovation by Bernt Kristian Jensen and Tore Hundsn...
Mastering the Dynamics of Innovation by Bernt Kristian Jensen and Tore Hundsn...Mastering the Dynamics of Innovation by Bernt Kristian Jensen and Tore Hundsn...
Mastering the Dynamics of Innovation by Bernt Kristian Jensen and Tore Hundsn...Mobilskole AS
 
ProcureCon 2010 Brochure-Managing A Volatile Market Recovery - Manufacturing ...
ProcureCon 2010 Brochure-Managing A Volatile Market Recovery - Manufacturing ...ProcureCon 2010 Brochure-Managing A Volatile Market Recovery - Manufacturing ...
ProcureCon 2010 Brochure-Managing A Volatile Market Recovery - Manufacturing ...Amanda Aslan
 

Similar a Global Chief Procurement Officer Survey 2010 (20)

Capgemini Global BPM Report
Capgemini Global BPM ReportCapgemini Global BPM Report
Capgemini Global BPM Report
 
Global Business Process Management report
Global Business Process Management reportGlobal Business Process Management report
Global Business Process Management report
 
How to Plan, Execute and Deliver the Right TPM Solution
How to Plan, Execute and Deliver the Right TPM SolutionHow to Plan, Execute and Deliver the Right TPM Solution
How to Plan, Execute and Deliver the Right TPM Solution
 
The 9 big issues of shared services and outsourcing: research insights from ACCA
The 9 big issues of shared services and outsourcing: research insights from ACCAThe 9 big issues of shared services and outsourcing: research insights from ACCA
The 9 big issues of shared services and outsourcing: research insights from ACCA
 
Maximising People Power
Maximising People PowerMaximising People Power
Maximising People Power
 
World Quality Report 2012-13
World Quality Report 2012-13World Quality Report 2012-13
World Quality Report 2012-13
 
Six Sigma for Global Sales
Six Sigma for Global SalesSix Sigma for Global Sales
Six Sigma for Global Sales
 
Icebreaker executive interim management governance
Icebreaker executive interim management governanceIcebreaker executive interim management governance
Icebreaker executive interim management governance
 
Supplier Relationship Management (SRM) Research 2010-2011
Supplier Relationship Management (SRM) Research 2010-2011Supplier Relationship Management (SRM) Research 2010-2011
Supplier Relationship Management (SRM) Research 2010-2011
 
Supplier Relationship Management Srm Research 2010 2011
Supplier Relationship Management  Srm  Research 2010 2011Supplier Relationship Management  Srm  Research 2010 2011
Supplier Relationship Management Srm Research 2010 2011
 
Supplier Relationship Management Srm Research 2010 2011
Supplier Relationship Management  Srm  Research 2010 2011Supplier Relationship Management  Srm  Research 2010 2011
Supplier Relationship Management Srm Research 2010 2011
 
Capgemini SRM Research 2010 2011
Capgemini SRM Research 2010 2011Capgemini SRM Research 2010 2011
Capgemini SRM Research 2010 2011
 
Roger Davies, Group Head of Procurement at Marks & Spencer - Our capability d...
Roger Davies, Group Head of Procurement at Marks & Spencer - Our capability d...Roger Davies, Group Head of Procurement at Marks & Spencer - Our capability d...
Roger Davies, Group Head of Procurement at Marks & Spencer - Our capability d...
 
Succeed or Fail on Purpose
Succeed or Fail on PurposeSucceed or Fail on Purpose
Succeed or Fail on Purpose
 
Capgemini - A MNC
Capgemini - A MNCCapgemini - A MNC
Capgemini - A MNC
 
Invitation for Wealth Management Feasibility Analysis
Invitation for Wealth Management Feasibility AnalysisInvitation for Wealth Management Feasibility Analysis
Invitation for Wealth Management Feasibility Analysis
 
Business Intelligence Competency Centers Best Practices
Business Intelligence Competency Centers Best PracticesBusiness Intelligence Competency Centers Best Practices
Business Intelligence Competency Centers Best Practices
 
aerce 201006 (slideshare)
 aerce 201006 (slideshare) aerce 201006 (slideshare)
aerce 201006 (slideshare)
 
Mastering the Dynamics of Innovation by Bernt Kristian Jensen and Tore Hundsn...
Mastering the Dynamics of Innovation by Bernt Kristian Jensen and Tore Hundsn...Mastering the Dynamics of Innovation by Bernt Kristian Jensen and Tore Hundsn...
Mastering the Dynamics of Innovation by Bernt Kristian Jensen and Tore Hundsn...
 
ProcureCon 2010 Brochure-Managing A Volatile Market Recovery - Manufacturing ...
ProcureCon 2010 Brochure-Managing A Volatile Market Recovery - Manufacturing ...ProcureCon 2010 Brochure-Managing A Volatile Market Recovery - Manufacturing ...
ProcureCon 2010 Brochure-Managing A Volatile Market Recovery - Manufacturing ...
 

Global Chief Procurement Officer Survey 2010

  • 1. Global Chief Procurement Officer Survey 2010: Achieving sustained business value through procurement Cover-Reference Number
  • 2. Prepared and edited by Adrian Penka Capgemini Consulting, US Bryan Garcia Capgemini Consulting, US Hamish McKechnie Sharma Capgemini Consulting, UK Mark van den Berg Capgemini Consulting, Netherlands Sanjeev Itagi Capgemini Consulting, India Stefan Becker Capgemini Consulting, Germany 2 Global Chief Procurement Officer Survey 2010
  • 3. Co n t e n ts 4 Foreword 7 24 Participating Insights and Intelligence Companies and Organizations 25 Achieving Sustainable Results through effective collaboration of the CFO 10 Executive Summary and CPO - Hamish McKechnie-Sharma, Capgemini UK 30 Maintaining a Leading Practice Procurement Organization – Four Key Pillars for Success - Dan Zoltowski, Capgemini US 12 Aftermath of Global Economic Downturn 38 Procurement organization in a Global Context: Emerging needs, Design considerations, and Current models - Marco Alberti, Capgemini Italy, Graham Skinner, David Reid and Stephen Hemmingsley, Capgemini Consulting UK 16 Highlights from the 44 Services Procurement – Essential Success Factors to achieving Survey Findings Sustainable Benefits - Stefan Becker, Elmar Holschbach, Capgemini Germany 17 Key Procurement performance indicators are 48 Procurement as a Service – IT and Business Strategies that Quicken the still too narrowly focused Pace of the CPO’s Transformation on cost control and savings - Andreas Bernhard, Capgemini BPO Germany 20 Procurement operating models - From emerging 54 to sustaining Raising the value of Procurement through Procurement Performance - 21 Cost is important but Sreekanth Venkata, Capgemini US Value is King! 58 Lean Procurement: Removing Barriers 23 eProcurement solutions remain elusive to Innovation - Jean-Gabriel Padovani and Christian Westarp, Capgemini France Global Chief Procurement Officer Survey 2010 3
  • 4. Global Chief Procurement Officer Survey F or e w o r d
  • 5. O ver the last couple of years, the business understand the trends and issues affecting Procurement world has witnessed unprecedented executives across the globe. We have now conducted in challenges due to the global economic excess of 750 interviews over the past four years, and this meltdown, with many organizations across edition continues to provide peer-based insights for the globe having struggled to survive the executives on macroeconomic issues and trends across the tough economic conditions. With revenue Procurement profession. performance under pressure, companies continue to place significant expectations on driving deeper and more rapid cost Capgemini Consulting surveyed over 150 global reduction, as well as operational efficiency improvement companies worldwide during the course of this year’s initiatives to support their balance sheets. research – respondents consisted of CPOs and senior supply chain leaders. These enterprises represent a diverse Now, as the economy starts to show signs of recovery, cross-section of most business sectors including particularly in some sectors, organizations are at a cross- manufacturing, financial services, energy, utilities, retail, road. They need to strike a balance between capitalizing on public sector and telecommunications. the initiatives that were born out of the recession and setting a strong platform for future growth once the In this report, we provide insights of the survey, economy has fully recovered. a perspective on the aftermath of the recent economic recession, emerging trends in the Procurement function, Procurement at the moment enjoys a leading role in cost and thought-provoking articles on where the industry is reduction, bottom-line improvement, and budget impacting headed both professionally and through sheer necessity. – change that continues to draw the limelight in supporting we hope you enjoy the read. both recovery and growth alike. However, this may be short lived. As budgets become more generous, Capgemini Consulting would like to take this opportunity Procurement faces the risk of fading from the limelight. to thank each participant for their time, contribution, However, by focusing on delivering growth and innovation, openness, and candor regarding their issues, areas of focus, Procurement can cement its leadership position and secure and future plans. its place in the CEO’s agenda. This fourth Chief Procurement Officer (CPO) survey marks Capgemini Consulting’s continued efforts to Adrian Penka Roy Lenders Global Procurement Transformation Global Supply Chain Practice Leader Practice Leader Capgemini Consulting Capgemini Consulting Global Chief Procurement Officer Survey 2010 5
  • 6. CPO A note of thanks.... Capgemini Consulting would like to extend its thanks to the senior Procurement professionals who made time to participate in the Global Survey. Without their cooperation and support, research of this nature would have not been possible. 6 Global Chief Procurement Officer Survey 2010
  • 7. O Global Chief Procurement Officer Survey Participating Companies and Organizations
  • 8. Participating Companies and Organizations AB Svenska Bostäder Danone Waters Acea Dansoff-Bauer Air Liquide Destia Alessi Deutsche Post DHL Alstom Transport Duni AMB Generali E.ON APG Groep ECCLESIASTICAL INSURANCE Artsana Elisa Corporation Astellas Eneco Atlas Copco Finmeccanica Group Services AVL Emission Test Systems GAC Antwerpen AZ Damiaan GDF Suez Barilla H. Lundbeck B-Bridge (Randstad) Hewlett-Packard BD HMH Belastingdienst Hydro One Networks BNP Paribas ISS Facility Services Bouygues Telecom Itella Corporation Brookshire Brothers KCOM Capgemini Kemira Corporation Caraustar KONE Corporation Chryso Italia Konecranes Claas Koninklijke BAM Groep nv Coca Cola Lafarge Cofely Lantmannen Consip L’Oreal CZ Luxottica Group 8 Global Chief Procurement Officer Survey 2010
  • 9. Participating Companies and Organizations LVMH Group S-Proserve Erste Bank Mattsson Metal Stad Gent Metropolitan Police Service Stad Leuven Metso Oyj Stadsbestuur Kortrijk Metso, Mining and Construction Technology Stora Enso MITIE Stork Nokia Corporation Suomen Lähikauppa Oy Nordkalk Swiss International Airlines NS Syngenta Numonyx Takeda Pharmaceuticals Nynas TATA Steel Group OCMW Gent TDF OMV Petrom Telecom Italia OP-Pohjola Group Tessenderlo Groep Pages Jaunes Thomas Cook Pirelli Tyre TOTAL Provincie Antwerpen Toyota Material Handling Provincie Vlaams-Brabant Toyota Motor Europe Prysmian Treves RWE Turbomeca Siemens Healthcare Unicredit Bank Skatteverket UZ Gent SKF Vodafone Smit Webster Bank NA Snam Rete Gas ZNA Sophus Berendsen Southwestern Energy And many other companies and organizations that wished to remain anonymous Global Chief Procurement Officer Survey 2010 9
  • 10. Global Chief Procurement Officer Survey Ex ec u t i v e Su m m a ry
  • 11. T his year’s study assesses Procurement a year after Procurement is better positioned to be more strategic. From the global recession took hold, to see how the reporting structure perspective, around 70% of Procurement executives handled the demands of respondents said that they now report to the board room their sponsors to maintain the double-digit within their organizations, and one out of four respondents savings targets required in a failing economy. reported directly to the CEO or head of their business. The last Unsurprisingly, this was not the only task expected of few years have seen a subtle trend where Procurement is Procurement since the recession began. The study also assesses maintaining their support of the CFO’s objectives, while how those same executives were challenged to adjust shifting their alignment to the CEO, which signals a focus on Procurement’s position in the organization so as to be more strategic objectives. recognized as a key player in the strategic direction of the company, regenerate top talent to contribute to the new If Procurement does not seem to be operating with a focus on requirements of Procurement’s role, as well as attempting to value, but it has the strategic alignment to do so, is Procurement position their organization to contribute to objectives beyond at least aware that the expectations of their organization may be cost cutting. changing? We have found that the answer is yes. Almost 80% of our participants responded that top management expected So what has changed since our last survey 12 months ago? them to improve the overall value contribution of Procurement. What is clear is that there is still significant uncertainty over This means that Procurement will need to shift the focus from the economy’s direction. Experts have diametrically opposing short-term cost cutting to long-term value-based relationships opinions, with some claiming that the economy is improving with suppliers, in order to drive deeper savings throughout the while others claim that we face a double dip recession. So supply chain and to bring true innovation into the company, what does the Procurement community think? When asked allowing for top-line growth as well as continued bottom-line about their opinion on the recession and a possible future reduction. This will require new skill sets, such as the ability to recovery, 65% of respondents felt that the economy is understand market mechanisms and the macro- and micro- showing signs of recovery, although they remain uncertain as economic influences in the end-to-end product supply chain. to the time it will take to move into a ‘business as usual’ Procurement can then translate this understanding into environment. Indeed, almost 30% were of the opinion that opportunities to reduce risks and contribute to other corporate the economy is still very much in recession and that their objectives, such as growth and corporate responsibility. industry faces substantial challenges. In order to help executives tackle some of these challenges, we Let us assume for a moment that the optimists are correct. If have developed a series of articles under the banner of ‘Insights that is the case, then the behavior of most Procurement and Intelligence’ at the end of this report. These articles examine organizations seems to be slightly misaligned. For example, some of the key strategies and approaches that executives can our survey clearly indicates that far too many Procurement employ to ensure Procurement drives the strategic agenda. In organizations are primarily focused on cost reduction through order, they look at: negotiations on price. One needs to look at the Key Performance Indicators (KPIs) section of the report to see that • Building a collaborative relationship with the CFO the most important KPIs are related to control and savings, • Establishing and delivering longer-term strategic e.g. spend under control (1), supplier performance (2), objectives through data, technology, processes and talent Procurement ROI (3) and compliance (4). Where is all the • Building the right organization and operating model focus on innovation and bringing growth to the company’s top • Extending influence into service spend line? If the market is on an upward trajectory, there are two • Employing procurement-as-a-service to transform key truths that Procurement must ready itself for. One is that the organization prices will not be so easy to slash, and simple negotiations will • Understanding best practice in procurement performance not yield the quick savings of last year. The other truth is that measurement Procurement organizations will not find every business • Using Lean procurement to remove barriers to stakeholder clamoring for Procurement’s services. When innovation. budgets are healthier, cost savings are less of an issue for the business stakeholders that Procurement serves. By tackling these issues, Procurement can redefine the value it brings to the organization. This raises a question: if Procurement is seeing the world primarily through the lens of cost cutting, rather than Reading the Capgemini Consulting 2010 CPO survey will achieving their deeper potential to operate through a lens highlight how Procurement executives define value, and what focused on total value, are they at least organized so that they they are doing to modify their objectives to deliver the new can take on a more strategic role when the economy starts to value - beyond cost cutting - that organizations are poised for a strengthen? Our findings are encouraging and show that recovery desire. Global Chief Procurement Officer Survey 2010 11
  • 12. Global Chief Procurement Officer Survey Aftermath of the Global Economic Meltdown
  • 13. C onsidering the significant impact of the global No E ect economic meltdown and the recent signs of 3% recovery, a section of Capgemini Consulting’s Low 2010 survey was aimed at: 14% 27% Very High • Assessing Procurement leaders’ perceptions about the current economic climate. 23% • Formulating a view on companies who used the recession as an opportunity for growth and those who just tried to Medium 33% stay alive. High • Understanding the strategies adopted by these organizations to become more resilient to such global economic upheavals in the future. Figure 1: Effect of tough economic conditions on Procurement function We asked the Procurement executives to what extent the economic conditions affected the Procurement function. Nearly one-third (33%) saw their function highly affected by the economic environment while close to another third sustain such cost reductions in the face of a potential (27%) found their function affected to an unprecedented turnaround? degree (Figure 1). Beside these quantitative targets, almost 80% of our But, what does it mean to be “affected”? In order to participants responded that top management expected them understand, we asked specific questions related to how to improve the overall value contribution of Procurement. corporate and business functions place pressure upon Nearly 60% said that they were asked to identify new Procurement. In our 2009 survey, we observed that the sources for cost reductions, while enhancing the overall savings target levels had substantially increased, practically scope and control of spend. In addition, more than half of doubling in most organizations. This trend continued in the CPOs we talked to stated that Procurement was given 2010 with 40% of our participants being committed to the task of preventing/controlling Procurement risks and additional savings of 6 to 10% of annual spend, and at least limiting or avoiding the associated costs of that risk. 8% experiencing increases greater than 10%. The ability to Looking beyond the expectations of Procurement, CPOs support double digit increases year after year must be used few key strategies to overcome the present challenges. questioned in light of the current economic conditions. If These strategies are shown in Figure 2. the economic crisis is truly in its final stages, is it possible to Enhance Procurement’s value delivered 64% Contract re-negotiation 62% Implement Clear Procurement Operating Model 60% Improve supplier management strategies 43% E ective demand management 40% Contract Compliance improvement 40% Global/Low cost country sourcing 39% Multi-sourcing to reduce supply disruptions 30% Implement cost e ective technologies 22% Commodity Hedging 19% Internal Shared Service model 17% Currency hedging 17% Layo s from Procurement 16% Outsourcing of non-strategic activities 15% Spot buying 14% Others 3% Figure 2: Procurement strategies during tough economic conditions Global Chief Procurement Officer Survey 2010 13
  • 14. As was the trend in 2008 and 2009, more than two thirds of Educated reduction of waste with appropriate supplier the interviewed Procurement executives continued in 2010 margins will build innovative partnerships. to substantially review and re-negotiate contract scope, prices, price indices, as well as respective terms and In addition to the contract renegotiation, two other strategies conditions. This is not surprising considering the continued were utilized to combat the challenges of 2010. First of all, focus on cost reductions. some 40% of the participants initiated further global and low cost country sourcing activities. Encouraged by top However, this pressure on cost will require more innovative management, these companies are now prepared to take a solutions. For example, the impact of changing commodity higher proportion of risk in this area than prior to the prices on the sourced product needs to be assessed early in economic crisis. Interestingly, we did not see the same the sourcing cycle in order to get ahead of the volatility and tendency with regard to the organizational set up. The move use it to Procurement’s advantage. to Procurement Shared Service centers, their re-location to near or offshore locations, as well as Procurement Business Commodities like oil have always been subject to external Process Outsourcing was instituted on average in only one factors. The price of a barrel has fluctuated significantly due out of five companies. to the increased demand over the last years, not to mention the impact of the recession, the growing economies in China Managing supply risk was another strategy used to manage and India, and several conflicts in the world. Bad weather the tough economic challenges. Half of our participants has caused the price of soybeans and potatoes to rise, worked on reviewing and improving supplier management to causing the price of beef and chips to increase. Even though identify and manage supplier risks. these examples are very simplistic, it does demonstrate the point that fluctuation can present both opportunity and risk. Facing a difficult economic environment and challenging targets, nearly 65% of the CPOs utilized management’s These external drivers demand a completely different way of attention and the ambitious targets in order to initiate a review looking at a commodity. It forces the Procurement of the Procurement operating model and the way of working professional to look all the way down the supply chain to with functional interface partners. Consequently, the move to understand which commodities are part of the “bill of central Procurement functions has continued, with more than material” of the product to be sourced, to understand how the 70% of our participants managing their spend centrally. external factors affect the price, and how Procurement can be pro-active to mitigate the financial consequences. This requires Looking back on the past two years, most CPOs have stated different skills and in-depth market knowledge. Oil is used in that it has been a tough environment consisting of increased transport, energy, plastics, medication, food production; a pressure on Procurement, but as a positive result, over 60% change in the price of oil will have an effect on the cost and confirm that economic crisis has left Procurement more of a therefore price of these downstream products. Understanding winner than a loser (Figure 3). of these commodity inter-linkages and mechanisms can not only reduce the risk of volatility but also provide opportunities since benefits can be obtained when commodity prices fluctuate in either directions. No signi cant change An additional skill of the Procurement professional will 14% therefore be required in this volatile environment. That skill Strategically positioned to is the ability to understand these mechanisms, and the build a strong future macro- and micro-economic influences, in the complete 18% supply chain of the product to be sourced, and translate this into opportunities to reduce the risks involved and to further drive down costs. But, the opportunity to drive down costs Procurement just helped 6% 62% steer through crisis. should be carefully executed. Procurement professionals should look to reduce waste introduced in the supply chain Emerged as a winner rather than reducing suppliers’ margins. Uneducated with improved image demands for price concessions that result in lower margins for the suppliers will build unhealthy supply chains. Figure 3: Position of Procurement after managing the crisis 14 Global Chief Procurement Officer Survey 2010
  • 15. Economy has 3% 3% Economy is recovered and completely out “new normal” reached of recession Economy is still 29% very much in recession 65% Economy is recovering from recession Figure 4: CPOs’ opinion on the recent economic meltdown A newfound position at the boardroom table and the need Some organizations clearly spent the year in survival mode, for immediate action has changed the role and recognition of paring back their organization and focusing solely on cost Procurement and its performance capability in most reduction; while other organizations used the year to get companies. At the same time, a substantially high number of ahead of the competition by using the tactics highlighted Procurement managers exploited the given opportunity and above and in the remainder of the survey. initiated the improvement of organizational set up to manage their spend efficiently. Using the key findings of our CPO survey, we will provide some more detail on this subject in the next chapter. When asked about their opinion on the economic recession and a possible future recovery, a healthy 65% of the respondents felt that the economy is showing signs of recovery from recession, although there is still some time before the perspective moves into a ‘business as usual’ environment. Interestingly, only six percent of the respondents felt that the economy has fully recovered and that the worst is behind us (Figure 4). Both effects indicate that caution and moderate optimism is the general feeling of the CPOs. In the aftermath, Procurement has clearly increased its awareness, gained more control over spend, and proven their value to the organization. But, the main challenges in the near future for a Procurement organization are clearly marked: to sustain and further improve its position in the organization, to look for innovative ways to continue to drive costs down, and to stretch its ability to further add value to the organization. Global Chief Procurement Officer Survey 2010 15
  • 16. Global Chief Procurement Officer Survey Highlights from the survey findings
  • 17. 1 Key Procurement Thoughts on what “value” performance indicators are still means for Procurement executives responsible for too narrowly focused on cost delivering it:: control and savings “Value creation through commercial innovation, and sustainable and scaleable Similar to our earlier surveys, in order to assess the health of the Procurement “Go To Market” business processes. An function, we continued our efforts to understand the development and objective measure: Alignment to the direction of key Procurement performance indicators. business through supply-side, TCO, and business risk improvement deliverables.” – Based on the survey findings, spend under control of Procurement has Head of Supply Chain, Leading increased slightly as compared to last year. For over 70% of the companies Construction Company is Sweden surveyed (as compared to 65% last year), spend under control of Procurement was well above 60%. This serves to demonstrate the increased effort of “Driving continuous improvement through Procurement executives to enhance the influence of Procurement over sourcing third party relationships that contribute to and compliance management of non-traditional spend categories to drive down company revenue/margin growth and leakage and increase compliance to transactional Procurement. It is this same protect the enterprise. Delivered through compliance management and transactional Procurement, which is often seen cost, quality, service, innovation, time to now as an area ripe for direct transition into outsourcing opportunities. market, emerging market infrastructure, risk management, responsible Procurement, etc.” – % of spend under CPO of a Large Pharma Company control of Procurement 32% “Savings, lean processes, strategic >80% 33% Procurement” – CPO of a large Energy& 19% Utilities company 71 - 80% 24% 14% “Value creation is a function of the 61- 70% 14% following factors: 1) delivery of the exact 51- 60% 10% product or service, which is required by the 5% internal customer to produce at the highest 41- 50% 7% level of efficiency our final output: the 11% outstanding quality of our product 2) the <40% 18% best possible cost of the product, while 13% respecting the needs of our supplier (i.e. to % of respondents guarantee the long-term cooperation and 2009 2010 stable win-win relationship) 3) at the minimum risk to the business (minimizing/ Figure 5: Spend under control of Procurement avoiding late delivery, poor quality, financial or social issues on the supplier’s To further understand what this increased spend under control means, we side).” asked the respondents to name the major categories that they are responsible – Business Unit Finance Officer, for managing. The results show that Procurement functions are now responsible Automotive giant in Europe for sourcing many non-traditional categories including services like facilities management, energy, consulting services, relocation services, contingent labor, “Collaboration Drives Value” creative services, print, marketing / promotion etc. This is an encouraging trend - James Gurulé, Head of Corporate and in the long run will help improve the overall strategic value of the Procurement – UK, IR, ME, Africa for Procurement function within the organization. DHL Global Chief Procurement Officer Survey 2010 17
  • 18. Indirect materials 68% Telecom 67% Direct materials 66% Facilities management 65% Energy 65% IT Services/System integration 65% Capital Equipment 62% Print 60% Consulting Services 58% Warehousing/ Logistic Services 57% Security services 57% Marketing spend 56% Waste management 54% Training 53% Maintenance, Repair, Overhaul 52% Contingent Labour 49% Travel 48% Promotions 47% Outsourcing/BPO 47% Creative services 45% Event management 44% Legal Services 38% Real Estate/Property 35% Relocation 33% Audit /Tax services 32% Executive Search 26% Architecture 26% % of respondents (Multiple responses allowed) Brokerage/ Customs services 23% Figure 6: Major categories sourced It is also encouraging to see that more and more non-product related goods and services are under control. These are the categories that are traditionally “Value to me is anything that helps the purchased through eProcurement channels or subject to outsourcing, freeing company’s competitive situation. It can be up time and talent to focus on the true value a Procurement organization can cost savings, securing a lower cost level deliver to its internal and external customers. In the coming years we will see if than competitors (despite cost this trend continues. increases...), secure risk management, assisting in new product development, However, one would be remiss in not pointing out the paradox in the data. challenging internal mindset, etc. One of While spend under control seems to be improving we know that spend cannot the biggest values that we have added, I truly be under control when more than 65% of the Procurement executives state believe, is to convince the board to accept that less than 20% of their spend goes through an eProcurement application. (very) long term contracts. Our costs have gone up for that category but we have Spend under control is, however, not the only indicator that a Procurement secured our future business and opened organization is performing poorly or well. We already expressed the importance the door to innovation.” - Peter Løgtved, of an increased focus on value delivery. Procurement executives indicated in Director, Group Sourcing and this year’s survey that the most important strategies to deliver value are a ‘focus Procurement, Rockwool International on Total Cost of Ownership’ (73%), and ‘proactively designing business requirements through strong collaboration with business stakeholders and “Creating an environment to allow the users’ (74%). Supply Chain to collaborate with other lines of business (LOB’s) in satisfying their requirements will drive creative thinking But what is value? when applying policy and procedure. It will make them flexible in aligning to our client’s needs and creating and adding A CPO who responded to the survey describes the value delivered as: “Driving value to the company’s bottom line. continuous improvement through third party relationships, contributing to Sustainable value cannot be created for company revenue/margin growth, and protecting the enterprise. Delivered through one LOB unless it is created for all of cost, quality, service, innovation, time to market, emerging market infrastructure, them.” risk management, responsible Procurement, etc.” - Head of Supply Chain Management, Costs, service to internal/external customers, innovation, risk management, etc. are Large Canadian Utilities Company therefore all indicators that can contribute to Procurement’s performance. This is in 18 Global Chief Procurement Officer Survey 2010
  • 19. line with the indicated strategies used to improve the perception of the value delivered (see Figure 7). But, when Procurement executives were asked about the importance of the Key Performance Indicators (KPIs) measured, the most important KPIs are related to control and savings, e.g. spend under control (1), supplier performance (2), Procurement ROI (3), and compliance (4). And, if service to the internal customer is measured by the Procurement organization, this is mostly done by a survey. This is not surprising considering that the focus of the last few years has been on cost reductions. However, if a Procurement organization truly wants to add value, other KPIs or elements should be included such as: • Percentage of innovations driven by Procurement coming from the supply chain • the contribution of Procurement in the sustainable objectives of the entire organization • Involvement in initiatives; internal collaboration with the business or functions • Total Cost of Ownership approach • Or, as the Head of Corporate Procurement for a major Logistics Provider noted, his Procurement organization measures the amount of new business ideas that they develop jointly with the business. In addition, barely 47% of the respondents mention that KPIs are aligned with business goals and consistently measured. A conclusion can be that in roughly half of the organizations, Procurement KPIs are fully aligned with and integrated in the “The Procurement organization business and its objectives. Is that a glass half full or a glass half empty view? measures the amount of new As a conclusion, we consider it half full and see it as encouragement for further business ideas that they develop Procurement involvement and collaboration within the organization. But to drive jointly with the business.” more value, it is desirable to include more performance indicators that support Head of Corporate Procurement the measurement of value instead of only focusing on cost and control. - Major Logistics Provider Procurement executives must be a bit more bold and stretch the ability of the Procurement organization to execute the strategies desired. Measure Procurement performance in nancial terms 70% (Bottom line savings / Top line growth) Strong collaborations with internal customers /business 68% to de ne requirements Build strong Procurement team 65% Strong relationships with internal stakeholders to 62% support stakeholders’ objectives and goals Align Procurement strategy with corporate strategy 57% Promote Procurement‘s value to top management and provide business cases 52% Procurement marketing within the organization 45% % of respondents (multiple responses allowed) Figure 7: Strategies to improve the perception of the value delivered by Procurement Global Chief Procurement Officer Survey 2010 19
  • 20. 2 Procurement Further analysis of the underlying Procurement organizational structures and operating models revealed that operating models - over 50% of the organizations favored either hybrid or center led models to support them, which combine the features of From emerging to central direction and distributed execution. However, the centralized model still remains the single major model with sustaining around 41% respondents favoring it. As compared to last year’s results, Procurement organizations seem to be moving away from a pure centralized model. This trend might be a natural response to the prevailing tough economic conditions Through this survey and our one-on-one discussions with and the organizations’ need for tighter control over strategies the respondents, it is becoming more and more evident that and execution to minimize the impact (Figure 9). the Procurement function is certainly on the verge of emerging as one of the key strategic levers within the organization. There is a paradigm shift in the way Procurement is viewed and perceived – a shift from the traditional view of Procurement as a support function that drives cost reduction to a strategic partner that delivers sustained business value. 40% Hybrid/ Centre-led 59% To understand and elaborate on this further, we asked two Centralized 37% types of questions to the Procurement executives– one 41% focusing on the current position of the Procurement function Shared Services Center 9% 7% within the actual organization and secondly, the underlying Procurement operating models and organization structures in De-centralized 12% 4% use to support such a shift. Outsourced 2% 3% From the reporting structure perspective, around 70% of respondents said that they now report to the board room Others 0% 1% within their organizations, and one out of four respondents reported directly to the CEO or head of their business. The % of respondents 2009 2010 last few years have seen an increasing demonstration of the value Procurement can provide and this is clearly shown through the strategic priority that board level management gives Procurement (Figure 8). Figure 9: Procurement Organization structure Another interesting observation, however, is that in spite of Others 5% 2% Head of Facilities the current challenges one out of ten organizations surveyed Management still favored either shared services or potentially challenging, yet rewarding, outsourced Procurement models. This trend Other CxO CEO/MD/ Head of might have stemmed from the need to focus more on 13% 26% Business strategic Procurement activities and to outsource (internally or externally) the transactional activities to a specialized team to drive improvements in efficiencies and hence reduce the COO 15% operational costs of the organization. 20% This is also evident from the fact that, on average, 55% of the 19% CFO Procurement staff within surveyed organizations focus completely on strategic Procurement activities and the VP/Head of Supply Chain/ Operations remaining 45% focused on transactional activities. We believe that going forward the strategic component of Procurement activities will significantly increase. Figure 8: Procurement reporting structure 20 Global Chief Procurement Officer Survey 2010
  • 21. 3 Cost is important In the first part of this publication (Aftermath of the Global Economic Downturn) we noted that most Procurement but value is king! executives estimate that in 2010 the economic climate is slowly returning back to normal. Looking at their saving targets, it is apparent that cost reductions continue to be a major focus area as the savings targets remain at the levels of 2009. Of course, we Corporations are facing the consequences of a deep only found extreme targets beyond 10% in about 9% of the economic crisis, so it is no surprise that cost reduction and companies, but we still found ambitious targets between 5% and cost cutting initiatives appeared at the top of CPOs’ priority 10% in nearly 43% of the organizations. lists in 2009 and again in 2010. This brings us to the second point, a deeper dive into the nature We were interested in assessing two aspects. First, the of savings, especially as we see savings levels remain unchanged savings target levels and their respective development from while the economy is showing signs of improvement. 2008 when the crisis started, to the present when most CPOs say that the recession is coming to an end. Second, the In our 2009 survey, cost reduction initiatives were mainly nature of savings transitioning from a focus on short-term driven by the immediate need for contract re-negotiations. targets to long-term sustainability. For example, most CPOs told us that after years of exploding prices for steel and other industrial metals, it was essential to Let’s look to the first point. Our 2009 survey showed that in take advantage of the crisis to re-negotiate prices and price 2008 nearly 70% of the Procurement organizations had a clauses for such commodities. Our present survey shows that saving target up to 5%, and some 20% of organizations had cost cutting remains important but sustainable value is the a more ambitious target between 5 and 10%. Less than 10% real king! of the companies had exceptional high targets beyond 10%. As a consequence of the economic downturn, in 2009 the When asked about the direction of their cost reduction saving targets were stretched by the boardroom. Logically, initiatives, three fourths of the Procurement executives stated the group with rather moderate targets of up to 5% declined that in 2010 the overall optimization of product requirements to 46% while the group with ambitious targets of up to 10% in collaboration with business stakeholders is their priority, increased up or doubled to 41% of the interviewed thus demand management, value based sourcing, and access to companies. The next group with extreme targets up to 15% innovations. 55% of the respondents consider their suppliers increased from 6% up to 10%, as well (Figure 10). as a partner to assist in enhancing product and service 80% 2008 2009 2010 70% 72% 60% % of respondents 50% 46% 48% 40% 41% 43% 30% 20% 19% 10% 10% 4% 3% 2% 3% 2% 0% 6% 0% 1% <5% 6 - 10% 11 - 15% 16 - 20% > 20% Figure 10: 2008 - 2010 savings targets of Procurement Global Chief Procurement Officer Survey 2010 21
  • 22. innovations. More than 73% said that instead of looking just at purchase prices and contract terms, a broader analysis and optimization of the total cost of ownership of products and services are on the agenda (Figure 11) . Obviously, a key learning from the economic crisis in most Procurement organizations is that quick substantial savings can be expected from contract re-negotiations in challenging and competitive markets, but what happens when things turn around? Can a Procurement organization really be expected to continue a path of double digit cost savings in a turnaround market? Maybe, but one thing that also has to be learned is that a focus on long-term, value based relationships with suppliers is equally critical in order to drive deeper savings throughout the supply chain through partnerships. It is these same partnerships with external parties that are also responsible for bringing innovation into the company and growing the top line. A cost focus may be important, but bringing new value into the organization is what will make Procurement king! Proactively design the business requirements 77% through strong collaboration with stakeholders Focus on Total Cost of Ownership (TCO) 74% Exploit the supplier capabilities to enhance product/process/service innovation 57% Implement a social/sustainable 45% Procurement strategy Bring alternate product ideas to 36% optimize the buying costs Measure Procurement's contribution towards product positioning or e cient manufacturing 30% Use lean techniques in procurement activities 19% Others 4% % of respondents (multiple responses allowed) Figure 11: Procurement strategies to deliver value 22 Global Chief Procurement Officer Survey 2010
  • 23. 4 eProcurement • Optimizing the Procurement process by defining and implementing Procurement channels. solutions remain elusive The benefits are clear and proven, so either eProcurement is implemented in organizations and not used, or organizations still use traditional ERP applications. Over the course of our earlier surveys we have followed closely In the first case, it is likely that the talent or effort required to the actual penetration, usage and success of eProcurement embed eProcurement into the organization has failed. In the solutions that include eSourcing, eRFX (request for information/ latter case, it is likely that organizations are yet to discover the quote/proposal including auctioning), contract management, benefits of eProcurement and it is therefore not surprising that a and transactional eProcurement platforms covering catalogues large amount of expenditure is not being presented in a way that and workflow solutions. it is useful for the CPO and category managers to manage. Surprisingly, usage of eProcurement solutions still faces similar The following strategies can help organizations reap the challenges that we observed over the last 3-4 years. maximum benefits out of eProcurement initiatives: Approximately 64% of surveyed organizations still have less than 20% of their spend handled through eProcurement • A clear case for action, translated into clear objectives solutions. Looking at the future, around 70% of the • A proper understanding of the value of P2P in the context of organizations confirmed that they do not expect a drastic the end-to-end Procurement process increase in spend handled through such platforms. • A clear vision of the future process and way of working • Good understanding of the organizational impact • A clear and approved Procurement systems strategy Spend through • A set of clear P2P policies e-Procurement • Alignment of all of the above for the key stakeholders of your organization. (in%) Even if the above elements exist, change management to >80% 7% enhance acceptance of these applications is a very important 61 - 80% 6% factor as compared to just implementing a technology solution, and the ability to embed change management into 51- 60% 5% both, acceptable cultural practices and ‘business as usual’, remains a challenge for executives. Indeed the inability to 41- 50% 3% insight change continues to plague Procurement executives’ 31- 40% 5% desires to increase compliance and increase the involvement of the various business functions. We would advocate a 21- 30% 10% continued and seeded integration of key employees, sponsors, and management throughout the lifetime of any <20% 64% change that is paired with such a solution. % of respondents Figure 12: Spend managed through e-procurement channels This is an interesting observation, especially if you consider the benefits of the usage of eProcurement tools: • More and immediate visibility of expenditure, which can help in identifying potential savings • Less maverick expenditure due to contract compliance • By applying SRM tools in the sourcing cycle, many of the administrative activities are supported like auctions, tenders, etc. Global Chief Procurement Officer Survey 2010 23
  • 24. Global Chief Procurement Officer Survey Insights and intelligence We understand that you are busy and have less time on your hands so we have given you an indication of how long it will take to read each of these articles so you can pick the ones that interest you.
  • 25. 1 Achieving contribution to enhancing the overall value to the organization”, which provides clear indication that value from Procurement should be seen as internal through service to the sustainable results client, and external in terms of widening the gap between revenue and cost. through effective • A further 70% of respondents highlighted the need to ensure “measurement on Procurement performance in collaboration of the financial terms” which demonstrates bottom line savings as well as top line growth. CFO and CPO • Since the last survey in 2009, 20% of the audience has highlighted the need to increase savings by at least a double digit effort year on year in order to either survive or meet base targets. Demonstrating the value and influence that Procurement can bring to the CFO With a greater presence of CPOs established as corporate board members across most sectors and industries, the time has never Hamish McKechnie-Sharma, Capgemini Consulting, UK been more fitting than now in leveraging integration for CPOs and CFOs to demonstrate, sustain, and improve growth. Reading Time: 12 Minutes The fundamentals to sustaining the alliance How many times do we hear that the CFO and CPO of a major organization are not Listening to over 150 participants from our survey, as well as our varied current client base, there are three core principles forging an effective enough collaboration? that are driving greater synergy for both functional areas: The role of a CPO has now moved beyond target driven partnerships; an aligned organizational structure that considers changing economic conditions; and the fact just the pure provision of cost reduction that while systems, technology and process remain a focal effectiveness, compliance resilience, supplier point, change remains the denominator. rationalization and performance management. 1 Target driven partnership The role is now an integral part of any Embedding savings into financial based budgets as part of organizational strategy in delivering continued category and strategic Procurement based planning is critical to value to the shareholders, the customers any form of joined-up thinking and paramount to delivering hard cash across the organization. and the public. With economic instability still dwindling during the latter stages of 2010, Rather than simply apply a focus on savings, Procurement is involving the wider organization through the customer to whom it is shareholders’ appetite for stability and the service is provided. The targets remain those of the business, success that drives an increasing collaboration and whilst a shadow target may exist, the only reasonable and sustained manner in which Procurement can demonstrate value where the CPO’s effort in delivering tangible is through early adoption and acceptance with the customer. In bottom-line value serves as the foundation for some organizations, a lack of both understanding and communication as to what Procurement can bring and how it CFOs to demonstrate shareholder optimism. can help drive better reporting for Finance is a clear indictment of how some multinational organizations continue to operate. Do Procurement and Finance share the same DNA? To some As one global manufacturing CPO highlighted during the course extent they do, and Capgemini Consulting’s 2010 survey has of the survey, “I often hear that Finance owns the budget and highlighted a number of observations which support the drive they should determine how it is managed, so what value for a closer alliance: does Procurement provide?” • 79% of our CPO survey respondents said that Procurement The importance of savings transparency should not be pressures should be more focused on “improving the underestimated. An approach that allows for measurable and Global Chief Procurement Officer Survey 2010 25
  • 26. traceable savings from inception through to delivery is fundamental. This ensures clarity throughout the whole process for any form of saving and significantly involves Finance from the outset where the core governance principles can be agreed prior to embedding these across Procurement, Finance and the organization. Ensuring these are both flexible and adaptable to changing organization or economic conditions is important and as such it would be prudent to review these periodically, most likely at the start of each financial year. This approach should not be seen as reducing an area of expenditure through demand management practices and plugging an area of overspend, although admittedly this is an “I often hear that Finance owns the budget and they increasingly common practice. Starting with a clear set of organizationally agreed upon definitions as to what should determine how it is managed, so what value constitutes a saving (e.g. cashable, cost avoidance etc.) and does Procurement provide?” how this is budgetarily treated provides a basis for both - CPO of a Global Manufacturing Company integrity and pragmatism. In turn this ensures the portfolio of Procurement based opportunities are owned by Finance, Procurement and the business. Importantly, however, it Procurement/Finance/Business CORE IDENTIFIED CAPTURED VALIDATED DELIVERED GOVERNANCE Agreement of Procurement Procurement Procurement Finance driven as savings types and Driven and driven through driven into budget treatment de nitions business owned provisions of Finance with is applied e ective business De ned targets for Identi cation of Procurement acceptance Con rmation of Procurements and savings through Practices savings being Finance tangible Finance cashable / non opportunities with Savings considered con rmation of cashable Integration of a portfolio of locked in calculations and targets into Procurement through the evidence to Declaration of personal form of support saving business in performance plans Initiatives jointly agreements such as support of owned; Clear contractual savings target documentation articulated and agreed Figure 13: Method of benefits management 26 Global Chief Procurement Officer Survey 2010
  • 27. avoids the need to have disputes further into a financial year Conclusion: when all too often savings cannot be agreed or worse still are ignored and lost. Involving Finance in the process of defining and establishing savings from point of identification is Furthermore, the need to address department performance crucial. Showing Finance exactly what the savings are against savings targets needs to be driven through and built and how they affect the bottom line ensures into personal performance plans for employees – but how easy is this to implement in practice? Put simply; it is not. Procurement has Finance involved in the wins that it is One of the more common ways in achieving this has been to making. The common thread of both parties is working drive greater discipline and rigor in how Procurement, together for the interest of the shareholders and, simply Finance and other integrated areas operate. A recent put, savings should be achievable, proactively managed discussion with a number of CPOs has highlighted that to do this effectively, and have this sustained, requires up front and more sustainable. transparency in all Procurement based savings and opportunities. While Procurement can provide value, it is Finance who must agree to the savings as they apply them, 2 Aligned organizational structure that considers and it is the business who signs them off as it is their budget that is ultimately reduced. changing economic conditions Just under 70% of our survey participants highlighted the Whilst board-level sponsorship for Procurement is often need for Procurement to forge a “greater collaboration represented by the CFO (40% based on survey findings), with internal customers in order to improve the there is a growing trend to provide autonomy and leadership perception of value generated by the Procurement on both fronts to further illustrate increased value from function” including Finance. Procurement, which is continuing to demonstrate a greater breadth of strategic input at board level. Whilst there is CPOs must ensure that Procurement engages strongly with often pragmatic sense to have Procurement reporting into business units to allow a comprehensive understanding of Finance in some sectors, there is a clear trend of Procurement business needs and encourage the development of targets, being seen as a trusted commercial advisor who can advise which are aligned and focused on revenue, cost, cash flow across a variety of strategic solutions. As quoted in the and profitability. Fundamental Signi cant Slightly Signi cant Nice to Have Trivial Driving Integration of information across the enterprise Having usable Financial metric data and clear information Flows to demonstrate Supporting / Managing / Mitigating enterprise risk appropriate interoperability has been identi ed as a key requirement by 62% Continuous process / business improvements of CFOs Aligning Finance with the business 3 out of 4 CFOs consider aligning Identifying /Executing growth Strategies nance with the business of signi cant Cost Reduction importance to the overall corporate strategy Portfolio management for nance related programs People development 82% of responses to recent CFO questionnaires have highlighted that Measuring / Monitoring business performance the ability to monitor business performance is critical to Finance Meeting statutory requirements 0 20 40 60 80 100 Figure 14: CFO ‘crucial agenda items’ at Board Level, Capgemini Survey 2009/10 Global Chief Procurement Officer Survey 2010 27
  • 28. ‘Director of Finance ’ online forum, a Director for one of the UK-based police forces concurred: “It is a shame that it has taken the current financial situation to bring Procurement to the fore, but there is an opportunity to shape the future of the public sector and bring more of our commercial knowledge into play.” Granted, and this commercial presence for Procurement is invaluable if some of the more competitive strategic solutions being touted are to land more effectively and regularly across organizations. This includes areas such as Procurement centralization and outsourcing, emerging market infrastructure and deployment, responsible Procurement, effective commercial-sales models, external collaborations and innovation. Furthermore, CPOs must also work in partnership with CFOs and take the lead in providing monetary understanding across the organization to ensure that Procurement’s contribution to company performance is both evident and visible, not only to customers, and the board, but externally to analysts and shareholders. Our survey has highlighted that some of the strongest sponsors of Procurement are at board-level including the CEO, COO and CFO, where more often than not there is a mutual respect that Procurement can add value to the organization. Considering the CFO perspective is just as critical. In a separate but recent survey with our CFO client base, the following areas of ‘crucial agenda items’ were highlighted. What is evident is the increased focus on stewardship, where 75% of the CFO respondees wanted to see a greater focus on aligning Finance with the business and other departmental areas. With an additional 92% of CFOs expecting the current credit crisis to have the greatest impact during 2010, the time has never been more opportune to converge operations strategically across Finance, Procurement and even the wider supply chain at the executive level. Conclusion: Procurement has a part to play at the board level, and while in some cases this is more of an emerging nature, the need still exists. Importantly, however, such a platform provides Procurement with the opportunity for a wider senior audience to support “It is a shame that it has taken the current financial the mandated bottom line cost reduction which can situation to bring Procurement to the fore, but there be governed effectively across the Organization. Only is an opportunity to shape the future of the public once this corporate level of governance is in play (as sector and bring more of our commercial knowledge an integral part of the organizational DNA), can into play.” Procurement truly consider it has landed at the Director for one of the UK based police forces strategic level. 28 Global Chief Procurement Officer Survey 2010
  • 29. function is critical. Continued integration of processes, 3 Systems, technology and process remain a focal systems and technology can and will drive a better joined point yet change remains the denominator up value for the business, creating the footprint for an even wider set of supply chain Finance-based growth Do organizations design common processes across Procurement opportunities. and Finance that are then implemented into systems? We would like to think so but few succeed in involving both • Joint effort – joint results. The increased effort that some protagonists from the outset. Take the standard ‘Purchase to organizations are going through to ensure Finance and the Pay Process’. We all know this starts with Procurement and ends wider business are joined up and supportive of true in Finance (Accounts Payable), but truthfully, are both areas of cashable savings is undeniably worth it. The transparency the organization actively interested in the end-to-end process, or on the cash position and the more effective usage of should they be? More often than not the processes are separated revenue and capital is what CEOs, investors and analysts out with a focus on invoicing and payment provided to Finance are really interested in. and the purchasing scenarios being driven by Procurement. This is ideal when considering the detail, yet a challenge when seeking to ensure integration and a more unified level of thinking. Conclusion: Second-generation Procurement-based technology is upon us, whether this is ripping out one solution implemented five years The level of change required may often seem greater ago and putting in another, or providing real end-to-end than it truly is, the core essence for CPOs remains in systems provision through full Source to Payment technology. ensuring an effective business usage of what systems Regardless, organizations have a real opportunity to ensure that and processes exist to make sure they are CFO and CPO thinking is better merged, including ensuring systems are demonstrating integration, compliance, fundamentally ‘fit for purpose’ and applicable to the transparency, flexibility as well as harmonization across the user base. respective functional areas. IInterestingly, our survey has highlighted that 70% of respondents have 61% or above of their expenditures under control yet only 67% of this is managed through a formal and effective channeled route to purchase that is system driven. There is still much to do, with one in two responses highlighting that the awareness of Procurement across the organization continues to be a challenge. This provides the base of opportunity to provide a greater understanding and demonstration of value through greater innovation and insight, quality, service, supplier mitigation and increasingly corporate responsibility, thereby allowing Procurement to springboard from the CFO’s agenda to the CEO’s agenda. Final reflections Having recently spoken to a number of CPOs there is no longer a question as to whether a CPO and CFO can work better together, it is more a question of how. Given the drivers and considerations highlighted, we would advocate organizations consider the following as the search for a greater level of momentum at board level for Procurement increases: • Adaptability and acceleration. Stability is no longer a scenario for a CPO. With the volatility of commodity prices, the need to be both flexible and reactive as a Global Chief Procurement Officer Survey 2010 29
  • 30. 2 Maintaining a This point of view will explain four pillars which are necessary to successfully operate a leading practice Procurement leading practice organization: data, technology, processes, and talent. These focus areas are highly interdependent and, when well integrated, Procurement can be pivotal in demonstrating the value of Procurement, delivering costs savings, and aiding top line growth. organization – four key Data pillars for success “Knowledge is power” – Sir Francis Bacon (Religious Meditations, Of Heresies, 1597). This quote directly applies to Illustrating the continued importance of data, a Procurement organization: without proper knowledge on technology, process, and talent in the Procurement items purchased, the supply market, or spend, you can try to function. execute a strategy but you will no doubt fail. The ability to collect, organize, and access data is a common challenge within Dan Zoltowski, Capgemini Consulting, US Procurement organizations, but a necessity. Successful data Zach Ettner, Capgemini Consulting, US management enables a company to develop accurate and flexible Procurement strategies, identify improvement opportunities, and monitor progress against Procurement objectives. Inadequately Reading Time: 20 Minutes The world is changing fast. The economy is volatile and the position of companies “Quick and accurate data was the key to establishing within their sectors can shift in weeks, not a clear reporting culture measuring the service years. Every nation has their examples provided (e.g. vendor information, delivery against of disappearing banks, multinationals objectives and targets etc.)” CPO from a facilities management organization disposing of less profitable businesses, lay-offs and cost reductions throughout every sector. So what’s new you may ask? Well, CXOs need to continuously adapt their organization to the new playing field in Data order to enable growth in terms of money, competitiveness and competency. And CPOs have a real part to play. Four pillars of Talent procurement Technology CPOs are also facing these challenges. The constant pressure to deliver cost savings has been the number one priority in the last few years. Quick realization of cost savings may be a short-term fix, but the focus is slowly shifting towards adding value in terms of talent, innovation, sustainability and serving the Processes external customer. How can one cope with these different drivers? How can the Procurement organization evolve to successfully meet the long- term as well as short-term objectives? 30 Global Chief Procurement Officer Survey 2010
  • 31. Visualize the output to determine what types of data will be needed IDENTIFY De ne the speci c data elds that need to be collected Understand how the collected data will be leveraged De ne which systems will be used for data collection CAPTURE Validate processes designed to support collection of required data components Utilize automation to increase the accuracy of data Create standardized reports and metrics / KPIs Leverage data technology solutions to aggregate data from source systems REPORT De ne a formal approach for reviewing procurement data Figure 15: The pivotal three data considerations managed data can result in lost opportunities to service the re-organizing frequently and this has consequences for the data business, and to identify and realize cost savings for sources and who in an organization views the data. Another the company. explanation is the lack of invested time, money and resources in data management due to alternative priorities. Procurement leaders who responded to the CPO survey indicated that improving spend information and availability was However, knowledge is power and CPOs acknowledge that, so the second largest area of focus for their organization during the apart from the required investments, what are the key areas of past year, just behind cost reduction initiatives. The survey improvement to unlock that knowledge? results indicate that this is also a key component of 2010-2011 Procurement plans. One Procurement leader from a facilities Key improvement opportunities management organization cited that “quick and accurate data was the key to establishing a clear reporting culture measuring the service provided (e.g. vendor information, delivery against Whilst not exhaustive, the list below contains six critical success objectives / targets, etc.).” factors for effective data management within a Procurement organization which, if considered collectively, will start to There are three key areas that Procurement leaders should address the ability to manage data more effectively across consider when developing strategies related to data, as the organization: illustrated in Figure 15: identifying what data needs to be collected, understanding how the data will be captured, and • Stakeholder alignment – meet with stakeholders within and defining the structure of the data for reporting and review. outside of Procurement to confirm the data fields needed to Figure 15 shows the most important aspects of each of the three support future analysis; ensure the necessary data is key areas. collected to support Procurement strategies and activities. You could consider this straightforward, so why do • Data integration – integrate data from multiple sources to organizations continuously fail to develop proper data minimize the level of effort required for data analysis. management? Why does this come back as a point of attention Consider using a data warehousing tool to eliminate design in the CPO survey year after year? issues that allow data to be maintained in silos. Consider the end-to-end picture while identifying data integration One explanation can be the changing business and opportunities. technological environment; Companies are merging and Global Chief Procurement Officer Survey 2010 31