Procurement leaders are increasingly asked to extract more value in light of unprecedented economic conditions. It is understood that pure sourcing alone does not optimise value and many organisations have pushed the boundaries of what is considered traditional purchasing.
So, how far do the boundaries extend? Organisations, even FTSE 100 and Fortune 500, have different procurement operating models. Many procurement functions are constrained by their remit and where organisational demarcation lines are drawn. In many instances procurement still stops when the contract is signed, missing the opportunity to drive additional value over the contract life and typically up to 50 per cent of the value can be lost.
Maturity levels can be summarised as:
1. Localised basic sourcing
2. Strategic sourcing and contract management (not necessarily in the same structure)
3. End-to-end category management including category strategies and supplier relationship management
4. Full value procurement where the CPO sits on a level with the CFO and procurement are directly involved in business strategy and decisionmaking
A number of organisations are at or progressing to stage four, but remarkably few. This suggests that the majority of procurement functions have some way to go to deliver their full potential. There is a growing body of evidence that the higher the level of maturity, the greater the business benefit delivered.
In these times, how are procurement leaders going to answer the call of the CEO and CFO to increase benefit delivery? Is it to take the same approach as last time and squeeze out every last possible drop, or take the opportunity to push the boundaries into areas of untapped potential?
In 2012, how are you going to push the boundaries of procurement scope and increase value delivery?
☛ Paul Bakstad is advisory director at Ernst & Young