Procurement GPS

The Challenge

This organisation is a global top 500 multinational that has many diverse divisions covering all of the populated continents of the world. Procurement demonstrated a low level of capability in terms of both activity and performance. As a result it was not on the radar screen of many senior managers. The Executive Board's ambition was to compete with all of the players competing for investment from the stock market. They recognised that Procurement could play a part in raising their profile and attractiveness but did not know how to realise the full potential of the function.

The Solution

The programme was initiated by engaging the Executive Board as the visible sponsoring body. This was achieved by offering a savings target that was significantly larger than they had been used to in the past. The process of engagement was followed through into the divisions, where workshops were conducted to align the procurement priorities with the needs of the business as defined by the management team.

Underpinning the promises and obligations being made above was a structured improvement programme that combined the best thinking in procurement practice and organisational development. This was communicated across both the procurement community and wider stakeholders to signal both its importance and the determination of the procurement leaders to deliver it.

The improvement approach was an integration of three work streams:

1. The implementation of an infrastructure that would support sustainable improvement in procurement performance; 

2. A review and renegotiation of the current prices being paid to third parties; and 

3. The introduction of a 'critical few' projects in each division to develop new ways of managing the supply of product and services.

To ensure the credibility of the programme, the Board was asked to agree the measures by which Procurement would be assessed. In addition, Finance was asked to act as an impartial body that could assess and report the financial impact of the improvements generated. Whilst overall performance emphasised financial priorities, progress in implementing the programme was also reported as a key enabler of future savings.

As the programme built momentum, it became an imperative to engage other functional groups, such as Operations and Engineering, to support the development and delivery of cross-business solutions.

The Results

Over the life of the programme annual savings increased to more than ten times those normally experienced by the business and total savings equalled an extra year's profit (approximately 10% of turnover).

The above figures were delivered by a combination of better procurement practices and the provision of better products and services to the organisation, which resulted in both lower external costs and higher internal productivity.

The increased level of credibility experienced by Procurement meant that cross-functional and divisional cooperation was easier to secure as an enabler of tighter third-party spend and the delivery of innovative solutions.

The whole programme led to a better understanding by its stakeholders of what Procurement could contribute. This resulted in the function being seen as a critical competitive advantage and the logical first point of contact for all spend.

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