Consultants at the Hackett group say there are huge gaps in performance between leading procurement organisations and the rest of the pack.
They’ve found top performers deliver services at 17% lower cost with greater efficiency and require 26% fewer full-time equivalents per $1billion in spend.
For top performers, efficiency seems to have reached its limited. They are now looking to different areas to increase their value to their organisation, such as moving procurement to what Hackett calls a ‘trusted advisor’ status.
The new Hackett report says:
“Ultimately, procurement has to rebrand itself as a customer-centric organization. This will require rebalancing the service portfolio to focus on the areas with not only highest demand but the most potential to contribute to company revenue. Success will also hinge on procurement’s ability to market itself in new ways to build awareness.”
Some procurement organisations are taking some unusual steps to pursue these goals and process requirements. For example, Hackett says that 83% of world-class organizations (versus 44% of peers) report high utilisation of dedicated resources who act as liaisons between procurement and the business.
Beyond getting things done as quickly and efficiently as possible for internal customers, Hackett says managers in this role need to have well-honed interpersonal skills and the ability to recommend and sometimes even challenge proposed solutions when a better alternative is available.
Too many procurement organisations are viewed as gatekeepers rather than valued business partners, Hackett adds. And the difference is more than just connected to internal prestige. Hackett says that procurement organisations that are viewed as valued business partners report 68% higher savings than those viewed as just gatekeepers.
Hackett says the savings are due to companies in the world-class group having realigned their service portfolios to deliver more value to the business and thus increase demand for their services, emphasising capabilities such as on-demand analytics and market intelligence. This in turn has increased the scope of their spend influence, the savings they are able to capture, and value delivered beyond just hard savings.
Among other recommendations, Hackett says internal surveys to gauge how the procurement organisation is viewed by stakeholders are a good place to start.
Hackett also suggests identifying key stakeholders for each high-value activity and assigning a procurement team member to each one; though they caution it will take some time determine the best cadence for interaction with each stakeholder.
Similarly, Hackett says leaders are building a culture focused on becoming “client-facing service providers,” certainly a term or approach not seen traditionally associated with procurement departments.
Hackett says changing performance metrics in procurement is also key, with the goal to align procurement’s scorecards to stakeholders’ own success metrics. In fact, Hackett research shows that world-class organizations that spend more time aligning with internal stakeholders generate 41% higher savings than peers.
To employ the same strategies of top procurers, implement these tips:
1. Take a holistic approach to customer service: That includes broad use of technology that allows stakeholders to utilise self-service for procurement-related information.
2. Analyse and share measurement results: simple scorecard can be effective for executives. For broader stakeholder groups, procurement can hold information sessions that showcase procurement’s plans.
3. Develop formal customer satisfaction surveys tailored to each stakeholder group: While adoption of procurement surveys is high among world-class companies, there is still quite a bit of room to grow. The way these surveys are designed, administered, analysed and acted on makes all the difference in their value, Hackett says.
4. Identify different stakeholder groups and understand how they interact with and think about the procurement organisation: Segment customer groups based on attributes like importance and level of influence within the organisation, creating the foundation for an engagement plan customised to the needs of each stakeholder type.
“The next-generation procurement organisation will feature a new type of talent, one that is comfortable with technology, able to speak the language of the business, and knowledgeable enough to navigate complex organisations in order to drive change,” Hackett concludes. “There are no quick fixes here, no single action that will elevate procurement’s brand and value proposition. Rather, ongoing self-reinvention is required for sustainable improvement.”