High Impact Procurement Operating Models -- A Survey of Global CPOs
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High Impact Procurement Operating Models – Operating Models – A Survey of Global CPOs
description
Define what an operating model is and explore its impact on an organization's performance and structure Key Topics: • What is an operating model? • How are operating models deployed in the "real world" • How does the choice of operating model impact results delivered? • What are the trends in the selection of a targeted operating model? • What are key lessons learned for every organization? About our approach: KPMG and procurement leaders conducted a survey of 400+ procurement professionals in 2013. This effort sought a data-driven, empirical understanding of how organizations define and execute their target operating model.
Transcript of High Impact Procurement Operating Models -- A Survey of Global CPOs
High Impact ProcurementOperating Models –Operating Models –
A Survey of Global CPOs
Agenda
Today’s Agenda: Define what an operating model is and explore its impact on an organization’s performance and structure
Key topics:Key topics:
■ What is an operating model?
■ How are operating models deployed ‘in the real world’?
■ How does the choice of a target operating model impact results delivered?
■ What are the trends in the selection of a target operating model?
■ What are the key lessons learned for every organization?■ What are the key lessons learned for every organization?
About our approach:
KPMG and procurement leaders conducted a survey of 400+ procurement professionals in 2013. This effort sought a data driven empirical understanding of how organizations define andThis effort sought a data-driven, empirical understanding of how organizations define and execute their target operating model.
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 256568
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What is an operating model?
An operating model defines how the procurement organization interacts with other business groups and where decision-making authority rests between procurement and the business.
Potential operating models fall along a spectrum:
Decentralized Center-led Centralized1 2 3
Completely decentralized with
i ti it i
Category managers responsible for
centralized category t t d
Centralized leads coordinate
h i dmain activity in one particular location
strategy and implementation
purchasing and advise local buyers
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4 Hybrid
How are operating models used in the real world?
Operating models are characterized by their governance, commercial, and geographic structure:
Governance Commercial model Geographical structure Spend under
management by procurement
Spend under category management
Procurement staff reporting line
Structure of direct Structures for setting Geographic location or Structure of direct spend
Structures for setting strategies
Geographic location or procurement staff
Structure of indirect spend
Structures of category spending
The results of our survey showed that organizations’ declared operating models usually match their actual implementations, but virtually no organization had a ‘pure’ implementation.
Thi t f t f i di t d i d i t l t i d t li d d l
CPO reporting line
Thirty-four percent of indirect spend is managed via a central team in decentralized models, versus 57 percent for centralized models.
Thirty-seven percent of spend is under central category management in decentralized models, versus 57 percent in centralized models.
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Twenty-six percent of staff report to BU leaders in decentralized models, versus 11 percent for centralized models.
How does the choice of a target operating model impact results delivered?
In our survey, savings remain relatively constant across the spectrum…
Savings generated by different operating modelsD t li d C t l d C t li d H b id
…However, the operating model change process can be a lever for CPOs
Decentralized Center-led Centralized Hybrid6% 6% 5% 6%
Centralized
Stakeholder AlignmentStandardizationTax Efficiencies Stakeholder Satisfaction
Decentralized
Operational EfficienciesOperational Requirements
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 256568
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How are operating models changing over time?
Our survey found organizations are at varying stages of progress along a similar pathway, ultimately leading to center-led procurement:
P i d f P i d f
Centralized
Period of Centralization
Period of Decentralization Key Insight: 43 percent of
the most mature companies have a center-led target Most
O i tiCentralized goperating modelOrganizations
Currently
Center-led
Time
Decentralized
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 256568
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What does the data say about the ongoing wave of centralization?
We identified mature organizations where procurement acts as budget-holder for more than 60 percent of total global spend and compared their model selection against the general population:
General Population Mature Organizations
0% 25% 50% 75% 100% 0% 25% 50% 75% 100%
31% 21% 27% 21%
Target
Legacy 30% 18% 23% 30%
Target
Legacy
5% 35% 33% 27%Target
Operating Model
Decentralized
5% 43% 30% 23%Target
Operating Model
Decentralized
Mature organizations show a dramatic ongoing shift to
Center-led
Centralized
Hybrid
Center-led
Centralized
Hybrid
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dramatic ongoing shift to center-led procurement models
Where do we go from here?
Our analysis predicts most organizations will likely move towards one of two final destinations:
1) Super-Centralization
Period of Centralization
1) Super CentralizationMany are exploring the opportunity go beyond centralization into an outsourced model, enabling even further
Future Development
Centralized
model, enabling even further scale benefits.Most
Organizations Currently
Center-led2) DecentralizingSince there are few truly global supply markets, some decentralization may allow
Decentralized
ybetter alignment to regional supply markets and dispersed business stakeholders.
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 256568
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Time
How do organizations build these new models?
Organizations tended to launch a wide range of projects to transform their operating models, but many focused on supplier relationships and the requisition-to-pay cycle.
Projects Launched NumberjSRM/Supplier collaboration 19Enhance R2P 18Introduce/upgrade e-procurement 18Introduce category management 17Introduce category management 17Category-specific project 16Globalize procurement operations/staff 14Creating an alternative/more efficient procurement process 9Developing a shared service 9Organizational alignment 9Company-wide transition 8Spend analysis 7p yImprove contract management 5Enhance demand forecasting and planning 4Other 53Total 206
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 256568
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Total 206
What are the benefits and lessons learned?
Four key lessons learned:
1) Procurement operating model evolution is tightly aligned to the general evolution of the procurement function. From a past where the function was very much dispersed andthe procurement function. From a past where the function was very much dispersed and unconnected, purchasing now emerges as an influencer at the heart of the business.
2) We have seen in this survey that the most mature companies are looking to decentralize more and forge a more center-led structure. As achievable savings dry up, buyers begin to other avenues where they can deliver sustained value to the business via new operating models.
3) Global category management in the right categories yielded the highest levels of satisfaction across procurement business and supplier stakeholders Note thatsatisfaction across procurement, business, and supplier stakeholders. Note that procurement must have the authority to successfully execute this role.
4) By setting the strategy at a global level, with input from business units, the procurement function can continue providing the business with value long into the p p g gfuture.
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 256568
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KPMG can help
KPMG h l li d i i bl i k f l d KPMG helps clients drive sustainable improvements to make procurement a source of value and innovation across the enterprise.
Our approach supports both full-scale procurement transformation as well as targeted improvements to address key client issues and deliver tangible benefits.address key client issues and deliver tangible benefits.
Samir Khushalani Principal, Practice LeaderAmericas Procurement Advisory [email protected]@ p g
Femi ObiDirectorU.S. Procurement Advisory Servicesy617-988-1035 [email protected]
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printedin the U.S.A. NDPPS 248113
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Research Download
Read the complete findings: High Impact Procurement Operating Models: A Survey of Global CPOs
www.kpmg.com/us/procurement
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printedin the U.S.A. NDPPS 248113
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Appendix:Appendix:Survey RespondentRespondent Profile
Respondents by geography
6%
13%
28%
Brazil
United Kingdom of Great Britain and Ireland
United States of America
4%
4%
5%
6%
Germany
Canada
Switzerland
Brazil
2%
2%
3%
3%
Finland
France
India
Australia
2%
2%
2%
2%
Sweden
Netherlands
Italy
Denmark
9%
2%
2%
2%
Other
Belgium
China
Sweden
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 256568
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0% 5% 10% 15% 20% 25% 30%
Respondents by position level
The survey featured a group of 405 procurement professionals
CPO (Chief Procurement Officer)
19%14%
5%Head of Procurement
SCPSCP
VP
23%25%Director
Category/Commodity
2%11%
g y yManager/Head of Category/Category Lead
Buyer
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 256568
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Numbers have been rounded and may not equal 100%
Participants by industry
9%14%14%
Food & BeverageBanking & Financial ServicesManufacturing & Engineering
5%6%
7%8%
TelecomsOil & Chemicals
Consumer goods, Retail & LeisurePharmaceuticals & Healthcare
g
3%5%5%5%
Government & Public SectorConstruction & Mining
Energy & UtilitiesTechnology (Software & Hardware)
1%2%2%2%
Media & EntertainmentAutomotive
Business ServicesLogistics & Transportation
10%1%1%1%
OtherAgriculture
AviationDefense
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 256568
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0% 5% 10% 15% 20% 25%
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG I t ti l C ti (“KPMGKPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 256568
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