As I mentioned in Achieving World-Class Procurement Part 1, today’s increasingly competitive market landscape is driving organizations to reinvest in their procurement and strategic sourcing departments like never before. Beyond establishing centralized purchasing operations, best-in-class companies are elevating their procurement organizations by taking a deeper look at people, processes, technology, and metrics and optimizing them in ways that support enterprise-wide goals – through procurement transformation. Transformation initiatives allow companies to gain more value from their procurement operations, moving from a reactionary model focused on reducing costs to a more proactive approach to managing spend that streamlines purchasing practices and enhances supplier relationships.
The transformation process is much like taking a road trip; you must understand where you are in order to plan the best route to your final destination. Start by forming a comprehensive understanding of your current state. Documents - in detail - the people, processes, technologies, and unique metrics / KPIs that persist in the current organization. Conduct key-staff and stakeholder interviews and collect data such as governance and process flow information, contracts, general ledger reports, and spend data.
People
The procurement team is a good starting point for the current state assessment. Analyze the procurement team starting at the highest level by evaluating the current organizational structure. This includes the management and reporting structure as well as detailed job descriptions and duties of each unique role.
Things to consider in this process include:
- What types of skills and capabilities does each role have?
- How does the team interact with each other?
- Are roles cross functional or siloed? Which roles are included in procurement’s purview?
- Which individuals perform tactical versus strategic tasks? How is legal integrated into the team?
These questions can then be used to build a current state report on the procurement team and used to identify gaps in staffing or misalignment between current and desired skills.
Processes
This area of evaluation includes the most detail due to the number and diversity of procurement processes. When evaluating processes you must gain an understanding of the business rules, negotiation strategies, spend visibility across all categories, supplier relationship management, category management and the overall strategic sourcing process.
Consider:
- How well are existing processes documented and followed?
- How often are processes reviewed and re-implemented?
- How do processes in place today align with industry best practices?
Tools and technology Systems
Virtually every business uses some form of procurement technology to help improve efficiency, whether rudimentary software or a fully integrated ERP system. The effectiveness of these tools, however, depends on how well procurement organizations utilize them and how well they are aligned with the team’s requirements. Assessing procurement tools and technologies includes looking at available templates, e-sourcing tools, internal dashboards, supplier portals, contract lifecycle management tools, enterprise purchasing software platforms, and the integration (or lack thereof) of all tools.
In assessing these components, keep in mind:
- How well do current tools integrate with one another?
- Are the tools utilized adequately for their functionality?
- What are the costs of the system(s) in place?
Metrics
The last step of the current state evaluation process includes understanding the KPI and metrics used to gauge performance and track overall procurement efficiency. Areas to focus on include annual savings goals, contract compliance, supplier-specific KPIs, and total spend under management. In addition, you may want to incorporate other departments’ feedback to a get a better idea of how well procurement groups its internal stakeholders and identifies areas for improvement.
During this stage of the assessment, you should aim to answer these questions:
- Do current metrics match business goals and priorities?
- In there a standard process for reviewing metrics?
- Who are the people responsible for generating and manipulating performance data and are the right people involved in the review of the information?
With a detailed understanding of the current procurement landscape, the best path forward can then be determined. The design process includes adjusting the organizational structure, defining business rules, re-engineering the processes necessary to fit the business rules, identifying technology opportunities, and ultimately developing an implementation roadmap. In my next article I will discuss the design process in detail and things to consider when proposing different elements of procurement transformation.