ProcureCon EUROPE 2014 BENCHMARKING SURVEY.
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1 2014 BENCHMARKING SURVEY
2 Introductory Remarks Created by the team behind Worldwide Business Research s ProcureCon conference, Europe s only event focused on the knowledge and networking needs of senior procurement leaders, this survey was distributed to over 2,000 procurement professionals from companies across Europe. The study aimed to discover their opinions on the following topics: v how procurement value is measured v how talent is created v what the key objectives are for procurement v how collaboration is being used to deliver against these objectives The goal of the survey was to understand where today s procurement teams stand on the most pressing issues arising in the marketplace. This is the first survey of its kind that gives senior procurement leaders the opportunity to share their views on how they can sustain and demonstrate procurement value more effectively. As businesses emerge from the recent recession into a fragmented supplier ecosystem, a normal approach to creating value through cost saving alone is no longer relevant. Instead, businesses are tasking procurement to affect enterprise-wide change, including implementing process improvement, operating beyond the contract with suppliers to co-create value, and exploring payment innovation. Undertaking these initiatives well requires a different skill set, understanding how these skills need to be developed is a key part of this year s survey. The roles of those answering this questionnaire included Chief Procurement Officer, Head of Indirect Procurement, Procurement Director, Head of Category Management and Head of Global Sourcing among many others of similar standing. Respondents represented companies including Mars, Ericsson, Coty, Bayer Healthcare, Tata Steel and more. So please read the first report that shares how procurement leaders are thinking and find out how you compare to your peers and competitors by reviewing the results and analysis inside.
3 01 02 Which metrics does your organization use to measure Are there better metrics? the value of procurement? 84.5% 60.3% 34.5% 77.6% 55.2% 19% 44.8% t Total cost savings 84.5% t Quality 60.3% t Delivery 34.5% t Cost avoidance 77.6% t Implemented cost reduction savings 55.2% t Procurement Cycle Time 19% t Supplier consolidation 44.8% t Procurement ROI 37.9% t Managed send as percentage 44.8% of total spend t Contract Compliance 53.4% t Other 13.8% Total cost savings came out on top as the most popular metric for measuring the value of procurement [85%]. In line with this, the second most popular answer was Cost avoidance, with 77% of respondents using this metric. Though 60% highlighted Quality as a metric, again cost was cited as key when 55% chose Implemented cost reduction savings. 37.9% 44.8% 53.4% NO 39.7% YES 13.8% 60.3% I am not surprised that cost savings comes out on top but the deeper point is that I don t think it is very clear what cost savings actually really means. Different companies have different definitions of cost saving and there are numerous ways of calculating it. There appears to be no standard procurement definition and as such there is limited credibility or interest for this measure within the Finance community. The majority of procurement professionals surveyed believe better metrics do exist [60%]. Those who believe there are better metrics in general wanted to move the focus away from solely looking at cost. The procurement function is still a little bit in selfjustification mode and hence the continued attempt to push savings as the sole and major measure. Clearly measures are needed but it is a shame we aren`t reaching the status of a Legal or Finance team where there is clear acceptance of the role and need for it. The sign of a mature function would be one where there was no doubt regards the existence, need or benefit delivered. There should be measurement. As well as financial benefits I aim to measure my team on internal stakeholder satisfaction and business influence they are having. Overall, measuring the value of procurement should include some form of gauging financial benefit, risk mitigation, efficiency, and customer satisfaction.
4 How far along are you with implementing category management of your indirect spend? What level of supplier contract compliance do you feel you have right now? Most businesses are neither at the start nor at the end of their journey for implementing category management for indirect spend: 38% said they are rolling out a strategy now; 41% called it established; while only 12% described it as best practice. t Not started 8.6% t Rolling out a strategy now 37.9% t Established 41.4% t Best practice 12.1% Category management means different things to different organisations. Am I structured by category? Yes. Do I work very closely with the stakeholders in charge of each of these categories? Absolutely. Do we create very detailed category plans that are specific to each category? No, but we will produce something that is appropriate to each of those categories that is of interest to the relevant stakeholder. Yet, the big question is whether procurement is able to, empowered to and encouraged to look at spend under a broad category irrespective of what budget it sits in and to then try to drive better procurement decisions. t None 1.7% t Poor 20.7% t Acceptable 69% t Excellent 8.6% The lion s share of respondents [69%] believe their level of supplier contract compliance is Acceptable, while only a small minority [8%] called their supplier contract compliance Excellent. However, 21% did call their level of compliance Poor.
5 What remains to do to achieve best practice contract management in your procurement function? How are you approaching recruitment for your organisation s procurement team? Before you take these considerations into account, you need to be clear who owns the contract management function. Then you need to be very clear what resource you re prepared to put into contract management and the business case for the investment. Within procurement you hear a lot about the theory that a significant amount of the value negotiated into a contract gets lost (leaks) over time and some say this is as much as 5% a month, but in reality it is quite difficult to acquire the evidence to back this up. 74.1% 12.1% 13.8% The majority [74%] look for a combination of functional and non-functional skills when recruiting, while the remainder of respondents were evenly split between bringing in talent with procurement skills and recruiting with an eye for sector-specific experience. t Functional bringing in 13.8% talent with procurement skills t Non-functional recruitment 12.1% bringing in talent with sector experience t A combination of the above 74.1% t Ensuring the right people are in place 51.7% to carry out the contract management activities t Managing the physical contract and 25.9% the timetable for making key decisions t Developing strong internal and 43.1% external relationships that facilitate delivery t Ensuring the service is provided the 51.7% in line with the contract t Ensuring payments are made to 31% supplier in line with the contract and that incentive mechanisms are in place and well managed t Understanding and managing 58.6% contractual and supplier risk t Effective handling of changes to the 32.8% contract t Having a programme for managing 55.2% and developing relationships with suppliers t Other 17.2% We absolutely look wider than people who have come from a retail background with strong functional procurement skills. We look for individuals with strong procurement skills but at least as important are those with strong softer skills or the clear capability to build those softer skills,such as relationship building and influencing. The other key thing in procurement is for the recruit to fit into the culture of the organisation. You could have the best person in the universe with fantastic procurement skills, but ultimately if they don t fit in to the organisation that could be a problem. For example, if you worked in a very long term contracting environment with lots of highly developed process (sort of environment where risk might be at the forefront of the mind) then adapting to a faster pace, shorter term mindset that often exists in retail could be a major challenge.
6 07 08 What are the top 3 skill gaps in your procurement teams today? How do you build cost savings targets? The top three skills gaps in order are Relationship management [60%], Risk analysis [52%] and then joint third were Supply chain analyses and Process management [40% respectively]. t Supply chain analysis 39.7% t Supply base analysis 31% t Risk analysis 51.7% t Negotiation skills 17.2% t Relationship management 60.3% t Contract management 20.7% t Contract selection and legal 24.1% t Process management 39.7% t Other 19% I think relationship management and the ability to influence internal stakeholders are the two core pieces. In my experience procurement people can at times wait for opportunities to come to them rather than selling and pushing what they can offer, or encouraging people to pull on what they do. For me relationship management, selling and influencing skills are key and then the other two core skills [supply chain and risk analysis] are more important once you ve got your feet through the door. 43.1% 48.3% 8.6% t Top down 43.1% t Joint 48.3% t Other 8.6% We have a high level budget challenge approach that means procurement supports the business areas deliver their cost targets. As part of this, we look forward to the next two to three years at the projects we re likely to work on. Then we analyse what might be achievable in those projects and build that into the approach for that budget. The benefit of supporting internal stakeholders through their budget challenge rather than procurement being the reason that budget is challenged in the first place is that you are then a provider of support and service rather than the person causing the stakeholders pain.
7 09 What type of third party solutions/services are you investing in? The most popular third-party services utilised by respondents are Consultants [59%], followed by Market intelligence [48.3%] and then Supplier management tools [43%]. I wonder if a lot of organisations have been implementing procurement for quite a while and have got it to a relatively good stage, but taking that next step is quite difficult. Whatever level of procurement you ve got to, often a consultancy is important to back up progression or bring in some new ideas. Working with a consultancy can help influence and sell to the organisation to make that big jump in terms of procurement transformation and change. t Consultants 58.6% t Spend Management 32.8% Solutions t Supplier Management Tools 43.1% t Market Intelligence 48.3% t Business Process 19% Outsourcing t Payment Solutions 27.6% t Training and Development Outsourcing 24.1% t Facilities Management 25.9% t Travel Management 31% t Contingent Labour 15.5% Management t Enterprise Resource 17.2% Management t Logistics and Distribution 17.2% t Contract Manufacturing 10.3% t Executive Search 19%
8 10 11 How do you see the role of procurement evolving in your organisation over the next 3 years? What are the 3 biggest challenges you can see coming up in the next year? The majority of respondents foresee procurement in their organisations Growing in importance with procurement moving towards making board level decisions [59%], while also positive was that 19% said Procurement is currently high on the agenda for them with the chief procurement officer already having a place on the board. However, 22% see it Remaining the same procurement seen as a secondary function. I see a real opportunity for procurement to grow and look at such elements as proper cross category management. However, I don t agree with is this massive yearning to have a procurement person on the board. Procurement should be well supported by the board and have influence at the board, but not necessarily sit on the board. It is key to focus on how you influence those on the board in a way that ultimately grows procurement profile rather that worry too much about physically sitting there. Respondents see the three biggest challenges in order as being Leading change during transformation to continuously drive better results [66%], Improving operational efficiency to sustain value creation [62%] and Creating talent to drive business growth from procurement [60%]. Furthermore, you re not only battling for talent with the marketing, finance and IT functions, you ve also got a battle going on between companies, where a recruit could work in the clearly structured world of finance, the fast moving but smaller teams of retail, or in FMCG where procurement is really established. t Remaining the same procurement seen as a secondary function 22.4% t Growing in importance with procurement moving towards making 58.6% board level decisions t Procurement currently high on the agenda the chief procurement officer 19% having a place on the board t Spend categorization and indirect procurement 36.2% t Contract management 19% t Creating talent to drive business growth from procurement 60.3% t Improving operational efficiency to sustain value creation 62.1% t Leading change during transformation to continuously drive better results 65.5% t Driving diversity across your procurement enterprise to transform the appeal 13.8% of your organization as employer t Finding the right the third party services/platforms 15.5% t Compliance 22.4% t Other 17.2%
9 Final Conclusion Savings continue to be the default way of measuring how well procurement is doing its job. However, this survey shows too that metrics such as stakeholder satisfaction and supplier innovation are becoming increasingly relevant as businesses gain confidence and markets start to pick up. As ever, the procurement function competes for influence and talent with other functions in the business and seems to perform best when the mindset of the procurement team is open to seeing through change and prioritizing relationship building. What stands out in the survey is the emphasis on relationships and relationship building as the way to achieve sustainable success both internally with stakeholders and externally with suppliers. If cost savings are joint targets, then internal business partnering can and does bring better results not just in the P&L, but in ongoing crossfunctional collaboration too. Similarly, if value is co-created with suppliers then results often exceed expectations normally limited by a contract, leading to more fruitful and longer-lasting relationships. In terms of what procurement should do going forward, driving better business decisions, managing risk in the supplier base, and unlocking value in contracts are all activities that respondents agree can justify investment in the function. Yet, getting the right people in the procurement team is indisputably the number one priority.
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