Business Adviser

Adding significant value through procurement

By Charlie Whitworth
Senior Manager, Strategy & Operations, KPMG

Around the world and across all sectors organizations are experiencing an unprecedented pace of change. As a result, privately-held businesses are rapidly re-evaluating their operating models and market strategies not just to withstand these market forces, but to capitalize on them.

Clearly, Procurement has a significant role to play in helping today's private companies achieve their objectives and prepare for the uncertainty ahead. In part, this will require Procurement to focus on driving costs out of the business. But the opportunity also exists for the function to add value in a much more strategic way.

And as we engage with the people responsible for procurement within their employer, KPMG Enterprise professionals have witnessed a number of highly mature Procurement teams, large and small that have stepped-up their game, fundamentally changing the way they work with the business and – as a result – are increasingly taking a leadership role in helping drive growth and reduce costs across the company. But what exactly does a ‘mature’ Procurement approach look like? How does the person(s) responsible for procurement add value beyond traditional cost-cutting measures? And what can small and medium-sized businesses learn from their more evolved peers?

In order to better quantify the maturity of Procurement capabilities around the world, KPMG, in association with CPO Agenda, surveyed 585 Procurement leaders globally. What we found was that – overall – there is a significant gap between where Procurement is now and where it could be.

In particular, our research identified five key areas where Procurement could evaluate its game to add significant value to its employer:

• Partnering with the business: For Procurement to achieve a place at the table, more work should be done to align to key stakeholders and understand the business operations to become a true strategic partner. This means moving up the value chain to ensure that the function is involved much earlier in the decision making processes and clearly demonstrating how active involvement adds tangible value to both the bottom and the top lines.
• Moving beyond cost savings: Driving costs from supply contracts will always be a central tenet of the individual responsible for procurement, but many businesses seem to be struggling to extend their activities proactively into core capabilities such as category management, and beyond into demand management, Supplier Relationship Management (SRM) and risk management. With relatively low levels of spend under contract and under management in many sectors, there remains a significant opportunity for Procurement to stretch beyond cost savings to deliver more strategic value to the business.
• Achieving the optimal operating model: While the majority of employees responsible for procurement have already adopted a more centralized operating model, many still face challenges in translating this into strategic value for their businesses. In larger companies, CPOs and Supply Chain Directors will increasingly find themselves reassessing their operating models to squeeze greater value from their activities around the world, while providing a robust centralized framework that delivers efficiencies across the business at a reduced operating cost for the function as a whole.
• Prioritizing supply chain risk: Given the events of the past five years – financial crisis, natural disasters and massive supplier failures, to name just a few – the research demonstrates a worrying lack of leadership in the area of supplier risk. The procurement team will need aggressively to push the inclusion of supply chain risk on the broader business agenda in order to protect the business from the uncertainty and turbulence that almost certainly lies ahead.
• Leveraging systems and technology: Whilst supply chain technology and business systems have evolved rapidly, many responsible for procurement seem unable – possibly unwilling – to leverage these new capabilities in order to bring greater automation to the business. In many cases, the situation is even more alarming: having made the investments, they have yet to realize the value. In particular, the business will increasingly be looking to Procurement to maximize their existing systems and technology to provide greater clarity into the Management Information and Business Intelligence processes.

Regardless of the size of the privately-held company, an opportunity exists for those employees responsible for procurement to drive real value for their company and – as a result – tangible competitive advantage. Now it’s up to them to make the most of this opportunity.