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High Performance through Procurement:

2010 National Procurement Survey of Ireland: Accenture Procurement Mastery Benchmarking

Introduction 3

Executive Summary 4

Survey Demographics 6

Survey Insights 8Bottom Line Impact 10

Procurement Decision Drivers 11

Trends and Innovations in Irish Procurement 12

The Dimensions of Procurement Mastery 14Case Study 15

Strategy 16

Sourcing and Category Management 18

Requisition to Pay 19

Supplier Relationship Management 20

Workforce & Organization 21

Technology 22

Summary 23

Contacts 24

Contents

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Accenture has created the term—“procurement mastery”—and over the past 4 years has gathered data from around the world to quantify the relationship to high performance (the traits exhibited by those companies that consistently outperform their peers). The National Procurement Survey research looks at how procurement mastery in the Irish market compares to norms seen in the Accenture global database. The basic dimensions of procurement mastery (strategy, sourcing and category management, requisition to pay, and supplier relationship management) and two key enablers (workforce & organization and technology) have been shown to be predictors of high performance in procurement and key drivers of competitive advantage.

Introduction

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Few corporate functions have evolved more dramatically than procurement. As recently as the 1970s, it was generally regarded as a clerical, reactive position—a cost center. At many companies, the exact opposite is now true. Procurement has become a strategic, proactive process that contributes as much or more than other business functions to profitability, corporate growth and competitive advantage. In the National Procurement Survey 85% of procurement functions reported delivering 6% or more bottom line savings to their company’s bottom line in the past 12 months. But although the strategic nature of procurement has changed completely, its core goals have changed very little. Then, as now, procurement is all about obtaining high-quality goods and services

for the lowest possible total cost of ownership. Increasingly however, the procurement function is becoming pivotal to fulfilling requirements around Risk Management, Sustainability and innovation.

In summary, processes and potential are what’s new about procurement—new strategies, insights, partnerships and technologies applied to the singular objective of acquiring low cost, high-quality products. The fact remains, however, that most companies continue to undervalue and under optimize their procurement functions. Accenture global research indicates that the masters’ procurement organizations typically cost half as much to run as those who do not follow procurement best practice. Lower cost and higher

productivity are the hallmarks of procurement mastery. In this report, Accenture will benchmark Procurement practice in Ireland—to define, understand and quantify procurement mastery compared to the global database. In this way, we will help companies to understand where they reside along the path to mastery, and provide a framework for improving performance regardless of their current competence. Inputs from 77 senior procurement executives in Ireland, across many industries and government departments and agencies are the basis for our insights.

Irish Procurement masters excel across the board.

They exceed the survey average in strategy, sourcing and category

Executive Summary

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management, requisition to pay, supplier relationship management, workforce & organization, and technology. Ireland matches the Accenture global data base distribution for procurement mastery; with 14% achieving mastery across all dimensions.

Procurement mastery is a clear predictor of high performance through procurement.

Mastery in Procurement was shown to be a predictor of procurement effectiveness and organization performance. This is confirmed by the findings of the Irish National Procurement Survey. National Procurement Mastery is above average mid range performance in all dimensions of procurement and 85% of respondents were shown to deliver 6% or more bottom line savings to their organization in the past year.

In summary, processes and potential are what’s new about procurement—new strategies, insights, partnerships and technologies applied to the singular objective of acquiring low cost, high-quality products and services.

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In Q3 and Q4 2010, Accenture Ireland Supply Chain Practice requested procurement-related input from senior executives at leading companies and public agencies across Ireland through an online survey known as the National Procurement Survey. The aim of the research was to understand the practices and perspectives associated with procurement mastery in Ireland and to make a comparison between global norms documented in extensive research known as the High Performance Procurement (HPP) asset conducted over 4 years with over 600 companies worldwide. 77 survey responses were collected and the insight provided by many of the top state and private organizations within the country has been analysed.

Survey respondents and their organizations come from a wide mix of industries. As shown in Figure 2. Services, Public Sector, Healthcare and Financial Services were most strongly represented (Figure 2). 40% of respondents to the National Procurement survey sourced 60% or more of their total spend within Ireland (Figure 3). The UK and the rest of Europe account for 69% of imports with the US and Asia accounting for 12% and 13% respectively of total imports by respondents (Figure 4).

Survey Demographics

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Figure 1. National Procurement Survey Size of Enterprise by Headcount

Figure 2. Respondents to the first National Procurement Survey came from diverse industries and represented both public and private sectors

Figure 3. Local Spend of National Procurement Survey Respondents. 40% of respondents to the first National Procurement Survey sourced more than 60% of spend locally

Figure 4. Imports by region of respondents to the National Procurement Survey shows UK and Europe remaining as main trading partners

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The National Procurement Survey leveraged the Accenture High Performance (HPP) database to benchmark procurement performance in Ireland against global norms. The process began with Accenture’s definition of four procurement processes (strategy, sourcing and category management, requisition to pay, and supplier relationship management) and two key enablers (workforce & organization and technology). These were then grouped into the six characteristics of procurement profiled later in the report and illustrated in Figure 5. All together, 21measurable queries were logged for each of the survey’s 77 executive participants. Average values for respondents scores (on a scale from 1-7) were measured for

each dimension of procurement. Masters were classified as those which performance was 1 standard deviation or more above the mean, while low performers were 1 standard deviation or more below the mean. Those in the rage of + or – 1 standard deviation from the mean value were classified as mid-range performers (Figure6). Procurement masters were those whose performance was more than 1 standard deviation above the mean across all dimensions of procurement mastery.

Survey Insights

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1. Procurement strategy• Vision, mission, core values

• Operating model

• Performance management

• Category strategic planning

2. Sourcing and category management• Strategic sourcing

• Category policy setting

• Category management framework

• Compliance monitoring

3. Requisition to pay• Transaction processing

• Assisted buying

• Master data management

• Fulfillment

4. Supplier relationship management• Supplier performance management

• Contract management• Supplier development and

integration

5. Workforce & Organization• Having the right network of

competent people• Organization that facilitates

working together

6. Technology• Technology that delivers the right

information• Systems cover all functions:

strategy to operations

Figure 5. The six procurement characteristics assessed for Accenture’s Procurement Mastery research and benchmarked with the National Procurement Survey

Figure 6. Research-based distinctions among participants.

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Most striking about the results of the National Procurement Survey is the level of savings delivered by Procurement functions to their organizations over the past 12 months in Ireland. 85% of procurement organizations delivered 6% or more in savings on addressable spend to their organizations in the past 12 months (Figure 7.).

Bottom Line Impact

Figure 7. Annualised savings delivered by National Procurement Survey Respondents in the past year

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The Survey explored the decision drivers of the procurement function; respondents were asked “what are the primary and secondary drivers for their procurement decisions?” Traditionally procurement’s function was seen to provide the lowest total cost of ownership with highest quality. It is not surprising therefore to see that Cost is the single largest driver of procurement decisions, closely followed by Service. However, Sustainability and Green Procurement is now top of mind for CPOs and is the leading secondary driver of procurement decisions; driven by regulatory, competitive and corporate citizenship requirements to comply and differentiate in the market place.

Procurement Decision Drivers

Figure 8. Decision drivers for Procurement functions in Ireland: primary and secondary.

After sustainability, Risk Management was reported as the next highest “secondary” driver of procurement decisions. The National Procurement Survey found that 34% of companies in Ireland had revised their risk management strategy to anticipate, monitor and mitigate risk in the past year (Figure 9.). A further 25% implemented a risk management strategy for the first time in the past year, indicating the increasing recognition of Risk Management as an indispensible way to protect business from the prevailing turbulent economic conditions. However, 41% of survey respondents are still dealing in an adhoc manner with the impact from price volatility due to currency exchange rate fluctuations, raw material fluctuations, supplier quality problems, supply chain disruptions

and supplier bankruptcy. 43% of those who have no Risk management plan indicated that they sourced most of their purchases within Ireland. This means that they have no currency risk from their suppliers, but they are clearly still vulnerable to the 4 other types of procurement risk cited. Risk management is often viewed as the responsibility of the finance function, instead of a cross functional capability. A cross-functional approach to risk management is needed to fully quantify the far reaching impact of volatility in procurement. A recent Accenture survey of Risk Management** found that 64% of market price increases cannot be passed on to the end user: these must instead be absorbed by the corporate buyer or supplier.

Figure 9. Risk planning activity in the past 12 months by National Procurement Survey respondent

**High Performance in Risk Management- Research & insights in collaboration with Massachusetts Institute of Technology

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The National Procurement Survey demonstrated that Irish procurement practice compares strongly with international best practice across all dimensions of procurement. Irish Procurement functions are, as expected delivering strategic direction to their organizations and bottom line savings. In order to remain competitive and to continue to identify and deliver value in challenging and volatile markets there is a need to constantly innovate and identify new trends in the market. There are a number of areas where Irish companies are identifying and expanding their procurement capability.

In terms of strategy Collaborative Procurement for effective sourcing and category management was highlighted by a number of respondents as a way of delivering value to their organisations either

through centralising procurement process, rationalising suppliers and negotiating contracts across business units and geographies. A number of public sector responses highlighted inter departmental collaboration to increase value for money.

At the heart of executing strategy is defining an operating model which recognises the mandate and strategic importance of the procurement function and sets key objectives and documents responsibilities for delivering on key performance indicators for the organisation. Many respondents reported that their organisations were realigning to meet their organisations strategic objectives by centralising process, developing procurement capability in their workforce through training, technology and through process standardisation.

Sustainable procurement was highlighted by a number of respondents citing regulatory and corporate citizenship objectives. This highlights the developing nature of this capability from both a compliance and differentiation in the market place as customers are increasingly citing Green credentials as a deciding factor in their choice of providers of goods and services.

Technology is a key enabler for procurement performance by automating manual tasks, improving visibility of spend and standardising process. In support of sourcing a number of respondents highlighted the use of eProcurement including Procure to Pay implementation, eAuctions as well as Supplier Portals and the use of eRFx as initiatives which they were investigating or implementing over the past 12

Trends and Innovations in Irish Procurement

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months. But as well as investing in the latest trends in technology there respondents were also looking to their current ERP systems to improve performance through enablement of existing functionality not previously deployed. This is especially relevant in terms of real time reporting of benefits and highlighting of potential issues.

Supplier Relationship Management trends indicated by respondents include supplier segmentation. Proactive management of contracts and where possible aggregation of spend and centralising contract negotiation. The National Procurement Survey identified low cost country sourcing from Asia as well as areas within Europe as a way to source competitive inputs for their value add goods and services. Make versus

buy decisions are key contributors to competitive advantage and need to be constantly evaluated, monitored and reassessed with an appropriate risk management framework.

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Procurement masters are different. They approach the function more strategically and holistically. They engage more fully with suppliers and frequently work to partner rather than bargain. Perhaps most importantly,

procurement masters are technology leaders. They use processing power to increase efficiency; make better or faster decisions. They also leverage and focus internal skills; and connect with suppliers and third parties.

The Dimensions of Procurement Mastery

Procurement masters excel across all six of the functional components to form an integrated value chain. Accenture’s has shown through research that companies excelling in procurement operate more efficiently and effectively than companies that do not.

The National Procurement Survey showed that procurement in Ireland performs well across all six dimensions of the Accenture High Performance Procurement model. This is encouraging as we are clearly adopting and practicing best global procurement practice. However, as can be seen in Figure 10 there is still opportunity to enhance performance and as a result increase effectiveness through procurement mastery.

Figure 10. Overall Mastery Scores from National Procurement Survey show Ireland’s performance relative to Accenture Global database

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Consider the following illustration of procurement mastery’s performance improvement potential. In previous Accenture research it was determined that procurement masters achieve significantly higher savings than the balance of the survey population. Based on controlled normalized spend from one year to the next, masters save almost 10 times as much as it costs them to operate their procurement organizations. According to our experience, the very best companies deliver a ratio of eight to 10 times the cost of running their procurement organizations. Ineffective organizations, on the other hand,

deliver a ratio of about three to four times. In effect, masters spend half as much as low performers, yet they save 30 percent more.

Example: For a company with US$1 billion in controlled spend, this means a procurement master would incur costs of US$8 million and savings of US$82 million, while a procurement low performer would incur costs of US$16 million and savings of only US$63 million (Figure 11).

Case Study* How procurement masters cost less and contribute more to their organizations

Figure 11*. On US$1 billion of controlled, normalized spend, procurement masters achieve 30 percent higher savings with costs that are 50 percent lower.

*Source “High Performance through procurement: Accenture research and insights into procurement performance mastery,” 2007

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Compared to midrange performers and low performers, procurement masters think, plan, operate and interact more strategically. For example, they look and think three to five years out when planning purchases for critical business categories. By closely examining future business needs and market trends, masters are better positioned to acquire the right items at the right cost at the right time. Procurement masters also have a clear mandate from top management. Masters’ strategies enjoy boardroom awareness and support. In return, they frequently implement mechanisms (for example, shared services or outsourcing business models) that promote accountability across the purchasing cycle and in relationships with related business areas such as engineering, manufacturing and field service.

Lastly, procurement masters do a better and often more innovative job of measuring procurement performance. Most use a balanced scorecard approach and apply a clear definition of value across the company.

The National Procurement Survey compared the Strategic importance of Procurement to enterprises in Ireland by benchmarking the responses to 3 questions regarding their mandate within the organization, strategic focus and how they proactively seek value add for their organizations to global norms.• Clear mandate means that

procurement is supported by a formal operating model that allows the organization to implement meaningful and lasting change.

• Strategic focus refers to the ability to drive a formal process in collaboration with key business owners for all primary spend

areas. Strategic planning is typically executed every three to five years and revised yearly.

• Proactive planning of Value Add indicates the level to which Procurement proactively seeks to add value to the organization rather than being reactive to requests external to procurement.

One clear trend identified in the National Procurement Survey was Collaborative Procurement. Respondents indicated that they were pooling spend and collaborating across public sector departments and across business units and geography in the private sector. Supplier segmentation and risk management are also strategies highlighted in the survey; proactively targeting and engaging with suppliers to create savings and to minimize supplier and price volatility, particularly with key suppliers and raw materials.

Strategy

Figure 12. National Procurement Survey Strategic performance: relative to global norms

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From the HPP Research Accenture demonstrated that many procurement organizations achieve more strategic focus through contracting or outsourcing more transactional activity. Figure 13 shows that procurement masters are 3 times more likely to contract or outsource transactional activity compared to low performers. Figure 9 shows in detail which operational processes are typically contracted or outsourced.

Figure 13*. Operational Processes typically outsourced or contracted out by Procurement masters.

* Source: High Performance through Procurement: Accenture research and insights into procurement performance mastery

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All companies classified as procurement masters have implemented a centrally guided category management structure that cuts across organizational entities. Almost all masters have a “leading practice” strategic sourcing process and structure in place— one that emphasizes:• Common processes across the

company.• Widespread use of cross-functional

sourcing teams for managing projects, formulating strategies, managing supplier selection and implementing contracts.

• Activities that are formally tracked.• A tight focus on total cost of

ownership.• An end-to-end, supply chain-

wide orientation, with top-down administration from a procurement or category board.

The National procurement survey showed that 36% of Irish enterprises had a centrally led category management structure which compared favorably to the global survey responses. For masters, global sourcing is an ongoing, flexible and constantly shifting activity. But it is guided by a formal mechanism whose mission is to constantly seek new opportunities to reduce total cost of ownership. Investing in and using e-sourcing tools is a key enabler to reduce total cost of ownership for masters in sourcing and category management. Ireland again compared favorably to the global database with 33% citing master’s level.

Masters review their complete spend profile in a systematic way, making sure they understand the cost structure of each of their key

categories. Masters reengineer processes, cutting the lead times for switching suppliers and ensuring that logistics, quality, purchasing and engineering all cooperate effectively. They work closely with the new suppliers to make them fully aware of requirements and how to fulfill them and, when necessary, they invest in supplier development programs. Companies must therefore take a more integrated view, bringing together their processes and practices, combining cultures and skills with well-defined roles and responsibilities. Clearly, what separates the masters from the rest is their ability to do so by executing a global sourcing plan. By using a network of international procurement offices in key low-cost country markets, masters are able to implement and maintain local supplier relationships and achieve excellence in execution.

Sourcing and Category Management

Figure 14. Best Practice in Sourcing and Category Management

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Requisition to pay is shorthand for an integrated procurement process. Defined and practiced by procurement masters, it implies an end-to-end perspective, with activities bound to each other by transparency, common goals and common metrics. Requisition to pay is all about integration, visibility and standardization. Superior practitioners in requisition to pay were found to share numerous characteristics. First and foremost, 83 percent of procurement masters and only 8 percent of procurement low performers excel at providing clear and documented buying channels to the end user. In the National Procurement Survey Ireland showed almost half of the respondents operated at

best practice level. 56% of Irish respondents also cited masters level in the efficiency and transparency of their procurement approval processes.

Requisition to Pay

Figure 15. Best Practice in Requisition to pay

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Accenture research has shown that procurement masters are three times more likely than low performers to have a formal program for managing their supply base. In no other category are the disparities between master and low performer greater than in supplier relationship management. In fact, the simple size of the gap suggests that supplier relationship management is a leading practice in itself—that the intelligent, aggressive practice of supplier relationship management is readily indicative of high performance through procurement. Masters excel by using a supply base segmentation strategy that aligns approaches and types of relationships with specific supply

markets and supplier characteristics—including relevant strengths and weaknesses, product complexities, and geographies. It is this proficiency that enables other capabilities, such as forging deeper relationships with key suppliers, establishing long-term partnering agreements, and even developing joint operations based on knowledge sharing, seamless processes and mutually beneficial product improvements. 43% of Irish respondents to the National Procurement Survey segment their supply base and 40% are collaborating to continuously innovate process and products for mutual gain.

Supplier Relationship Management

Figure 16: Supplier Relationship Management of masters means segmenting suppliers and partnering with key suppliers

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According to Accenture research, procurement masters excel at building results-focused procurement processes, as well as results-oriented procurement organizations. The clearest evidence is the first item in Figure 17, which shows that 100 percent of masters follow a management-by-objective approach, compared to only 15 percent of low performers. 53% of respondents to the National Procurement Survey manage their procurement workforce by objectives; assigning clear targets and responsibilities for procurement function performance. Clearly, procurement masters are more committed than most to improving communication and visibility, and to helping employees understand

company goals and the contributions they make to those goals. One hundred percent of procurement masters have implemented a structure of centrally led category management. In procurement, buyer skills are particularly important. Recognizing this fact, Accenture researchers looked closely at the principals of competency development. As Figure 17 shows, we found that 78 percent of masters but only 3 percent of low performers excel in this area by:

• Objectively measuring existing competencies.

• Making frequent adjustments to organizational skills so that they always align with procurement strategy.

• Emphasizing ongoing training and linking it to performance metrics.

• Blanketing competency development strategies across the procurement network of users, technical people, suppliers and partners.

Workforce & Organization

Figure 17. Masters manage exclusively by objective to give value to their organizations and add value to the workforce through competency development

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Procurement technologies have progressed considerably. New Web-based tools are adding significant capability and productivity enhancements in gathering, interpreting and sharing procurement-related information; purchasing services; and connecting with other parts of the business, to name just a few. Even more than before, the name of the game is about integration. Consistent with other principles of mastery, huge disparities exist in the degree to which leaders leverage tools. As shown in Figure 18, the use of technology to support sourcing programs is most prevalent among masters. Given the rewards associated with regularly rationalizing and

enhancing supplier relationships, this is a logical spot for procurement masters to focus their efforts. Almost as common is masters’ use of common technologies to support their requisition to pay processes, followed by tools for harmonizing master data— creating a central corporate repository to ensure that information about materials, products, customers, suppliers and assets is current, consistent and accurate. More than 1/3 of National Procurement survey respondents have implemented technology to better integrate with their suppliers and harmonize procurement master data at the level of Master. However, only 17% are using technology to drive a

common and automated Requisition to Pay platform. Developing user-friendly ad-hoc reporting capabilities is, in Accenture’s view, one of the most fundamental ways to increase buy-in, raise entity-wide transparency, and capture the information needed to discover and drive improvement opportunities.

Technology

Figure 18. Percentage of survey respondents (masters versus low performers) that leverage various technology-based capabilities.

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In the first National Procurement Survey we have shown that levels of Procurement Mastery in Ireland compare well with global norms. Mastery in Procurement is a key indicator of high performing companies in terms of key efficiency metrics such as savings on addressable spend. We found in the research, that trends in Procurement in Ireland show a move away from transactional activity to a more strategic focus which adds value. Using the “High Performance through Procurement” framework we have identified where on the Mastery continuum Ireland resides as a country. It is key to maintain the momentum of Procurement Mastery and Procurement Innovation as reported in the first National Procurement Survey as a means to increase the competitiveness of individual enterprises and of the country in general.

Summary

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About Accenture

Accenture is a global management consulting, technology services and outsourcing company, with more than 176,000 people serving clients in more than 120 countries. Combining unparalleled experience, comprehensive capabilities across all industries and business functions, and extensive research on the world’s most successful companies, Accenture collaborates with clients to help them become high-performance businesses and governments. The company generated net revenues of US$21.58 billion for the fiscal year ended Aug. 31, 2009. Its home page is www.accenture.com.

ContactsIreland

Armin Samali1 Grand Canal SquareDublin 2IrelandPhone:+353 1 6462333armin.samali@accenture.com

Justin Hayes1 Grand Canal SquareDublin 2IrelandPhone:+353 87 8239981justin.hayes@accenture.com