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DEFINING AND DEFENDING THE VALUE OF PROCUREMENT The 2015 Indirect Procurement Report

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EXECUTIVE SUMMARY Formerly regarded as a more technical, secondary department within a company, the value of centralized and strengthened procurement has been established over the past decade as many organizations have come to rely upon the value of savings. Procurement continues to mature, and today it is increasingly viewed as a strategic partner at the executive management level. This increasing influence is reflected in the shift of procurement models from their former decentralization to centralized, and now center led models. The goals of these new structures are to allow a Center of Excellence (COE) to hand down core policy while retaining the ability for individual teams to operate at peak effectiveness.

As procurement gains ground in jurisdiction and perceived value, the amount of spend going through it allows progressively richer data insights to be applied towards further optimizing spend. Long used by the majority of procurement teams, p-cards are an example of technologies that can capture data and provide controls which are now being used more in response to growing categories of spend.

As volume going through procurement increases, processes that may have once been manually supported or managed using spreadsheets must be brought into the present and updated. A strong contract management system complemented by up to date compliance and understanding with legal departments will greatly expedite turnaround and allow teams to handle greater responsibility, critical in making the case for more jurisdiction.

Ultimately, attracting the talent that will allow for effective operation on a centralized basis means hiring for communication ability as well as case specific expertise in order to build the case for procurement’s involvement across departments. As the role procurement plays continues to mature, so too do the requirements for knowledge within teams, and the ability to share that knowledge to fully benefit the organization.

TABLE OF CONTENTSExecutive Summary ............2

Additional Contributors ....3

Key Findings ...........................4

Research Findings

Increasing influence in the C-Suite by unlocking value .. 5

P-card usage and the value of improved transparency in reporting and compliance ..........................7

Faster contracts, improved compliance result from agile digital practices ...............................8

Key Recommendations ....11

Appendices .......................13

Appendix A: Who Responded to the Survey

Appendix B: Methodology

Appendix C: Related Research

ProcureCon Indirect ........ 14

Adobe .................................... 14

Mastercard ...........................15

WBR .........................................15

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ADDITIONAL CONTRIBUTORSIn addition to the benchmark data and analysis contained in this report, several procurement executives and industry experts have contributed their insight via interviews. Selected quotations have been used to add context and color to the statistical information contained in this document. Interviews centered on benchmark findings as well as key trends identified by research.

Jeff SmithSourcing Director Dupont

Elisabeth Schlag-LawrenceFormer Director, Global Indirect Procurement, Managing PartnerGodiva ChocolatierIndirectSourcing.com

Keith WoodyDirector, Indirect Procurement and LogisticsNexeo Solutions, LLC

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KEY FINDINGSProcurement teams are increasingly proving their value, but still have room to grow influence at the C-Suite round table. Procurement teams in many organizations have proven that they are able to create significant savings for their companies, and thus are increasing their responsibilities and their value in the eyes of top management. That said, as procurement is increasingly involved with departments that may have formerly held sway over their own buying operations, continuing to build relationships and demonstrate value is of paramount importance, as well as attracting talent that can bridge the gaps between all areas within a company.

In some cases, p-cards are being used to handle more expenses, increasing the value going through procurement and providing more data.Most companies already have p-card programs in place, with 38% of executives planning to continue expanding their programs within the next five years. The same percentage also plans on increasing their spending through p-cards. As more purchasing goes through p-cards, procurement teams are more effectively able to use them as channels through which to measure savings and strategize future spend.

Companies are searching for ways to build a stronger contract lifecycle management process. Improved document processes can lead to faster, more accurate procurement practices, freeing time for an even more strategic approach to driving business value at all levels of the organization.More process automation as well as increased focus on up to date compliance will allow procurement teams to greatly expedite their contract turnaround. Fewer compliance problems, and greater accountability will allow teams to justify shifts to mandated procurement and allow procurement professionals to spend more time on strategy and less on administrative process.

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3

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RESEARCH ANALYSIS

The role of procurement within many organizations continues to grow, as C-suite officers progressively awaken to the savings potential that teams are able to create. However, as procurement has matured, much of low-hanging fruit in terms of savings have now been obtained, and focus is growing on unlocking added value as well as adapting to changing models in procurement designed to maximize operational efficiency.

The shift in procurement models over time can be seen in large abandonment of the decentralized model, with only 12% of executives reporting that their organizations used a decentralized procurement structure. Almost 50% of organizations use a centralized procurement model, although it is interesting to note that the newer center-led model is behind by a relatively small margin, with 39% of organizations using this model. Center-led models have been shown by Aberdeen studies to provide benefits to larger organizations, and are designed to allow a procurement center of excellence (COE) to manage big picture strategy and dictate standards, while smaller execution teams are able to maneuver within the sphere of their daily operations.

Increasing influence in the C-Suite by unlocking value

Is your procurement operation...

“Procurement requires a certain amount of centralization, but lately some thought leaders are really starting to release their requirement for absolute centralization a little bit and become more central led. In some case examples, you might have a spend category that is managed on a global scale out of different regions. Some spend categories can be managed on a global scale, but others become much more difficult unless the center of excellence allows for some more autonomy. Even though some categories can’t be managed centrally on a global scale, at least you have thought leadership on a centralized basis. But strategy doesn’t necessarily have to be central led in the sense that one the procurements roles dictates all strategy and vision. The center becoming the center of that excellence is what central led procurement really means.”

Elisabeth Schlag-Lawrence

49% Centralized 39% Center-lead 12% Decentralized

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As procurement models have shifted, so have the attitudes of the C-suite in relation to procurement in general. With growing centralization comes increased alignment with the goals of the organization at large, yet 39% of executives still felt that they were only half of the way to total alignment with their business as a whole. An almost equal number, 36%, rated their alignment at 4 out of 5, with total alignment being boasted by only 14% of the response.

In terms of how valued procurement feels within their organizations, there is also room for improvement. While the majority of respondents felt that they were mostly valued, with 41% of the response, only 8% reported feeling fully valued. Thirty-nine percent fell into the middle ground, rating the value placed on their contributions as a 3.

What is clear from these responses is that although procurement has come a long way towards a more centralized and influential role – it still has a ways to go in order to become fully integrated and valued. In order to continue moving towards the paradigm of total alignment and appreciation, quantifying soft savings and managing spend via analytics will be essential to prove effectiveness. In addition, strategic understanding with other departments must be achieved, especially those who may resent what they feel is an incursion into their jurisdiction from centralized or center-led procurement.

On a scale of 1-5, how aligned are procurement’s goals with the business?

On a scale of 1-5, how much value does management place on procurement?

“What we’re seeing more commonly today is, instead of procurement asking to have a seat at the table, we’re expected to have a seat at the table to be able to deliver value and meet objectives for the year. We are being invited at the executive table much more now, and if we’re not there, we’re being asked, where are we? That shows that procurement is beginning to assume the part of a trusted business partner within organizations, and beginning to be integrated further to deliver the results that we have.”

Jeff Smith

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2

3

4

5

1

2

3

4

5

5%

1%

6%

11%

39%

39%

36%

41%

14%

8%

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Forty-eight percent of respondents reported that their purchasing card programs have been in place for over five years, with an additional 31% of respondents having had their programs in place for between one to five years. Twelve percent of respondents did not have any p-card program in place, and only 9% had implemented their programs within the past six months to a year. This indicates that the majority of businesses are effectively using p-cards, and despite the maturity of the technology, 39% of executives are also planning on expanding their programs within the next five years. This expansion is mostly based on new categories of spend being managed through p-card programs in order to capture greater insight through increasingly centralized procurement operations.

P-card programs have been widely adopted in large part because of the transparency and control they afford procurement teams around spending, allowing them to capture and measure data that is critical to a more strategic budgeting approach. Fifty percent of survey respondents valued the ability to gain greater spending controls that their p-card programs afforded them, the most popular out of the possible responses. Forty-eight percent valued the greater transparency reporting gave them into policy compliance, reflecting the potential benefit of p-card programs both in terms of internal analytics and external reporting.

How long has your current P-card program been in place?

When do you plan on expanding your P-card program?

“There is some real value presented by P-cards in the way of behavioral management, and managing, instilling, and enforcing policy, which can be extremely helpful. P-cards also have beautiful rebates because you get money back from the bank in the end if you’ve generated a certain amount of purchasing volume. That said, they are another tool that must be managed, and you need to think about who you are going to grant P-cards, because they come with a lot of responsibility and power.”

Elisabeth Schlag-Lawrence

I do not have a P-Card Program

<6 months

6 mo-1 year

1-5 years

>5 years

I do not have plans

<6 months

6 mo-1 year

1-5 years

>5 years

12%

61%

5%

14%

4%

12%

31%

11%

48%

2%

P-card usage and the value of improved transparency in reporting and compliance

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Approximately 76% of procurement teams require more than a week to deliver a fully-executed contract, while almost half (43%) require multiple weeks. Very often, these long cycles arise due to overreliance on manual, paper-based processes, or a disconnect between those manual processes and more digital processes, such as those hosted in a procurement-specific system of record. These delays not only reflect negatively on procurement, but they can cause vendor and pricing issues, as well, in addition to posing potential compliance and audit risks. Moreover, they detract from procurement’s core focus, and from procurement executives’ focus on creating and communicating overarching value.

What benefits do you receive from your Purchasing Card Program?

How long on average does it take for your procurement team to deliver a fully executed contract?

“The role of procurement definitely has evolved over time. As companies and businesses mature within high growth stages, where we’re really helpful is in keeping up with and sustaining that growth. When you get into the sustainability piece of a company’s lifecycle, procurement takes what I would call the ‘balcony view’, looking down on everything that is going on in the company. We get to see all that information funneled through the COE, enabling us to look at leveragability and simplification while driving for standardization.”

Jeff Smith

Gain greater spending controls

Reporting that provides greater transparency into policy compliance

Reporting that provides improved reconciliation

Reporting that provides better data to leverage in strategic sourcing

2-4 days

5-7 days

> 7 days

Multiple Weeks

50%

1%

48%

23%

41%

33%

43%

35%

Faster contracts, improved compliance result from agile digital practices

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Eighty-five percent of respondents say there are specific issues that routinely stall their procurement activities. Most of the specific issues—missing signatures, dates, legal language—not only present very high risk to procurement lines of business and their businesses, but are easily addressed by adopting more efficient digital document management processes that automate many of the contract creation, editing, tracking, and signing functions.

Over half report that missing critical language, including legal and compliance language, regularly disrupts their process. Changing rules and regulations, as well as varying vendor requirements, often necessitate the rework of existing contracts, even after initial reviews. Furthermore, unless legal departments are regularly and efficiently incorporated into contract review cycles, delays and compliance problems are likely results.

Which contract management issues stall your procurement team on a regular basis?

“Rule number one with good contract lifecycle management is that you get involved at the very front end and initial brainstorming of the actual project. This is the requirements gathering stage. If you do a good job on requirements gathering and actually capture what you are truly looking for in the front end, your complexity on the back end won’t be as bad. If you really know what you’re buying down to the granular level, you’ll capture more savings later and your contract will be a lot better the whole way through. Secondly, you need a certain amount of standardized process, and templates in place to speed things up from there. ”

Elisabeth Schlag- Lawrence

We don’t face contract management issues

Other

Lost/misplaced

Missing one or more signatures

Out of date

Missing critical language

15%

25%

27%

30%

37%

52%

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Nearly 50% of respondents say it would take over an hour simply to find accurate and updated documents, with 19% reporting it would take at least a whole business day. Internal disorganization can create the possibility of having to reach out to a supplier to see if they have the contract in question. If both parties are missing the documentation, the process has to completely restart, adding hours or days to the contract lifecycle. This is especially significant when a contract is up for renewal: if agreements that companies make in the negotiation process are lost, then both companies must essentially initiate negotiations all over again, adding weeks and tens of thousands of dollars of cost into the re-process. If a past agreement was used -and is easily, quickly located- both companies can largely defer to the previous agreements from legal, risk and other functions.  These delays significantly affect a team’s opportunity to be strategic they are focused on the deal at hand, and not on nurturing the vendor relationship.

How much time does it take for your team to find accurate and updated stored documents for a given contract?

“Whether it’s a twenty-five page template, or a six to nine page document that’s more appropriate for a smaller or less critical relationship, we are actively looking for ways to simplify our contracts. We’re trying to keep the language current instead of letting it get out of date, and to make that easier, when we do renewals we update everything so that we’re complying with the latest laws in all the regions and countries we do business in. Our goal is to drive faster turnaround from where we are today. We are creating processes with fewer touches, implementing more standardization, and trying to use the right paper, whether it’s our paper or supplier paper, and in the latter case perhaps trying to expedite that. This process involves a lot of effort and continuous work.”

Jeff Smith

<1 hour

2-3 hours

4-5 hours

>1 business day

51%

19%

11%

19%

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KEY RECOMMENDATIONS Create buy in from the top down so that procurement and business goals align. While procurement has moved increasingly from a sidelined role into a more integrated and fundamental department within businesses, there is still room for procurement executives to create a stronger alignment with overall business goals. In order to do this, change needs to come from the top down with full buy-in from senior management. By getting involved at the start of projects, procurement is able to create the fullest impact in terms of savings and creating value, which should be stressed as a leading reason for greater integration.

“Procurement needs to become more of a thought leader function that is truly aligned with the top executive team. I think there is still lot of room for greater integration within a lot of companies, where procurement is being brought in as an afterthought, and to truly make that a sustainable shift, you have to pull core commitments all the way through the entire organization end to end, otherwise you’re not providing the full possible value.”

Elisabeth Schlag-Lawrence

This process can be made easier through identifying key talent acquisitions, as well as implementing stronger digital tools that allow teams to focus on the deal. Digitization is the key to moving toward a set of best practices within the procurement organization, across the business, and between procurement and its external clientele. Traditional procurement systems of record (such as CLM) are a powerful platform, but do not completely eliminate the delays inherent in a paper-and-pen-based workflow. Procurement organizations are increasingly supplementing their procurement systems with turnkey document solutions with functionality that includes sending, reviewing, tracking, managing, e-signing and storing agreements, with secure, mobile access available to internal constituents (e.g., legal departments) and vendors alike. Adopting a more digitized “procurement document workflow” not only allows a better focus on the deal—as opposed to the paperwork—but can free time for procurement teams to uplevel their strategic game and pioneer improved, high-ROI practices across their organization.

“I think the biggest thing to look out for in 2015 from procurement’s perspective is getting the right talent, and it’s going to different poles of expertise. You really need to find people that are salespeople internally, who have good social and influencing skills. Data will guide you to a point, but you have to have good relationship skills towards managing your business partners to back that data up. I think that tends to be a gap in a lot of organizations for procurement. We’ve got to stretch our talent search to people that are broader than only possessing tactical sorts of skill sets.”

Keith Woody

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Use P-cards and other tools to control spending without limiting productivity.P-cards are an example of tools that enable spending without relinquishing key controls or the visibility of spend. It is important for procurement teams to enable relative autonomy in certain cases, all while retaining a high degree of visibility and reporting. While most businesses are already using these types of tools and programs, they may have room to expand their programs or explore new technologies in an effort to retain control while expanding, particularly in the case of center led organizations.

“The visibility we have on people that use our procurement card allows us to do multi-reporting on everything that’s been spent and where is it going. Because we have a global program, we can also manage based on everything being spent around the globe, and that allows us to look at the spending trends and do analysis. We are always looking for value even further beyond what we have already created by using that tool.”

Jeff Smith

Standardize processes from the COE while allowing for adaptation. Stronger contract management systems will play a lead role in this process.In order to increase the effectiveness of procurement, standardized processes handed down from a policy-making center are needed. Contract templates and processes require regular updates from legal and subject matter experts in order to remain current. The changes to accommodate these updates are generally well worth it in productivity regained through dramatically reduced response time to incoming requests.

“What you really want is to get the right contract repository and to have the right smart techs, finding capability -- a system that will tell you what’s up and what to do in a probative manner. Most people are trying to manage this through Excel spreadsheets. So I think the biggest priority is creating stronger contract management systems that have repository capabilities. After you do that, you can go forward -- developing more of a routing and approval aspect of the tool.”

Keith Woody

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APPENDICESAppendix A: Who Responded to the Survey

Appendix B: Methodology

Appendix C: Related Research

See It Here

The results analyzed in this report were gathered from responses to an on-site benchmarking survey delivered at ProcureCon Indirect East 2015, and prepared by event producer Frank Musero. 84 procurement executives responded to the survey, with representation from a wide range of industries. Interviews with sources were conducted after survey data was compiled, and centered on discussion of ProcureCon East benchmark report results.

“Establishing a Center Led Procurement Model”, Aberdeen Group

What is your annual procurement spend?

<$200 million

$200-$500M

$500M-$1B

$1B-$5B

>$5B

15%

16%

36%

25%

8%

Is your procurement operation... What industry does your company represent?

49% Centralized 39% Center-lead 12% Decentralized

15% Telecom, Electronics, Hi-Tech 14% Other 14% Manufactured Goods 13% Consumer Products 7% Industrial Manufacturing 6% Pharmaceutical 6% Retail 6% Entertainment 5% Financial 5% Energy, Oil & Gas 5% Chemicals, Plastic, Polymers 2% Medical Devices 1% Automotive 1% Aerospace/Defence

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PROCURECON INDIRECT EAST

ADOBE

Since it’s inception in 2007, ProcureCon Indirect East has grown not only in size, but also in the caliber of speakers and hands on learning opportunities that define the event. With representation from procurement executives across over 13 unique industries, the ProcureCon event series has become the premier venue for thought leadership and collaborative innovation in the procurement industry.

Adobe is changing the world through digital experiences. For more than two decades, Adobe has been at the heart of making engaging experiences happen, and we fuel the content creation and delivery ecosystem in a way no other technology company can.

Whether it’s a smartphone or tablet app, a game, a video, a digital magazine, a website, or an online experience, chances are that it was touched by Adobe technology. Our tools and services enable our customers to create groundbreaking digital content, deploy it across media and devices, and then continually measure and optimize it based on user data. By providing complete solutions that combine digital media creation with data-driven marketing, we help businesses improve their communications, strengthen their brands, and ultimately achieve greater business success.

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MASTERCARD

WORLDWIDE BUSINESS RESEARCH

As a technology company in the global payments business, we operate the world’s fastest payments processing network, connecting consumers, financial institutions, merchants, governments and businesses in more than 210 countries and territories. MasterCard’s products and solutions make everyday commerce activities – such as shopping, traveling, running a business and managing finances – easier, more secure and more efficient for everyone.

WBR is the world’s most dynamic large-scale conference company and part of the PLS group, one of the world’s leading providers of strategic business intelligence with 16 offices worldwide. Every year, over 10,000 senior executives from Fortune 1,000 companies attend over 100 of our annual conferences – a true “Who’s Who” of today’s corporate world. With a deep commitment to building lasting relationships and delivering quality content and networking, WBR inspires your career.

In addition to our industry leading conferences, our professional services marketing division, WBR Digital, connects solution providers to their target audiences with year-round online branding and engagement lead generation campaigns. We are a team of content specialists, marketers, and advisors with a passion for powerful marketing. We believe in demand generation with a creative twist. We believe in the power of content to engage audiences. And we believe in campaigns that deliver results.