The PASA Procurement Transformation Benchmarking Report 2018 · The PASA Procurement Transformation...

The PASA Procurement Transformation Benchmarking Report 2018

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T H E P A S A P R O C U R E M E N T T R A N S F O R M AT I O N B E N C H M A R K I N G R E P O R T 2 0 1 7

W W W. P R O C U R E M E N TA N D S U P P LY. C O M P A G E 2

F O R WA R D

The Procurement Transformation Benchmarking Report 2018 measures the pulse of the Australian and New Zealand Chief Procurement Officer. The days where the value of procurement was seen as just a function that helped drive costs out of a business has in many instances now passed. Rather today, CPO’s are increasingly being asked by CEO’s to be more strategic and help generate real value within the organisation. Boardrooms are now investing in procurement and CPO’s are having to review their strategies and business processes to ensure that they implement and integrate best practices around innovation and analytics while broadening their existing supply chain network.

CEO’s are starting to elevate CPO’s to the C suite and are expecting them to make a greater contribution to the business. There is no surprise that procurement as a business function is being reviewed by the CFO and CEO more than ever before. Through this report we will explore the business processes being undertaken and provide insight into the maturity of the procurement reporting being undertaken and adoption of digital technologies, both of which are assisting CPO’s to gain greater insight into their business while leveraging modern technologies to provide a competitive advantage.

Within this report we will provide the survey findings on the following areas while enrichening these with industry insights and further specialist commentary:

• Audience participation• Procurement function• Digital procurement• Analytics & reporting• Measurement of the CPO

CPO’s are increasingly being asked by CEO’s to be more strategic and help generate real value within the organisation


I N T R O D U C T I O N

The PASA Procurement Transformation Report has been developed to provide a benchmark for CPO’s and teams to be able to compare their existing procurement business process to their peers. The responses to the survey focus on specific operating practices and business processes and PASA aims to provide practical and useful research findings that can assist CPO’s in everyday decision making.

PASA would like to take this opportunity to thank those procurement professionals who participated in the first CPO Procurement Benchmarking Survey and for sharing their opinions, insights and areas of planned activity for without their time and cooperation, this research would not have been possible.

PASA would also like to thank our research partner Oracle who we have worked with to identify further industry insights and assisted in providing commentary on the survey findings.

This report has been published by and is copyright:

BTTB Marketing T/as PASA ABN 11 088 536 903 PO Box 361 Upper Coomera QLD 4209



AUD IE N C E PA R T I C IPAT I O N

PASA would like to thank all the senior procurement professionals that took the time to participate within this survey. In total, 201 people participated across a wide selection of industries with a relatively even spread between organisation size from small business to enterprise.

C O MPA N Y S I Z E

S EC T O R S

Company size of participants (number of employers)

0 – 250 18%

251 – 2000 41%

2001 – 5000 16%

5001 21%

Sectors Represented

Banking & Finance services 5%

Consumer 5%

Engineering & Construction 4%

Government & Public sector 30%

Healthcare & Life sciences 13%

Manufacturing, Energy & resources 17%

Other 13%

Professional services 8%

Technology & Media & Telco 4%

Banking & Finance services

Consumer

Engineering & Construction

Government & Public sector

Healthcare & Life sciences

Manufacturing, Energy & resources

Other

Professional services

Technology & Media & Telco

0 - 250

5001251 - 2000

2001 - 5000



T HE P R O C UR E ME N T F UN C T I O N

P R O C UR E ME N T M O D E L

C H A N GE O F P R O C UR E ME N T M O D E L

Centralised 29%

Decentralised 16%

Hybrid of Centralised & Decentralised 48%

Outsourced 2%

Shared Services 5%

No change 59%

Centralised 10%

Decentralised 4%

Hybrid of Centralised & Decentralised 22%

Outsourced 1%

Shared Services 4%

Decentralised

Centralised

Hybrid of Centralised and Decentralised

Outsourced

Shared Services

No Chnage

Centralised

Decentralised

Hybrid of Centralised and Decentralised

Outsourced

Shared Services

The prevalence of hybrid models, being a hybrid of centralised and decentralised, suggests more sophisticated organisation of the procurement function to meet stakeholder needs. Furthermore, the fact that most organisations that do think they will change their procurement model in the next 12-18 months intend to also move to a hybrid model suggests that this model is increasingly being recognised as the most successful.

Which of the following models best describes the structure of your procurement function?



P UR C H A S E O R D E R S

% A F T E R T HE FA C T S P E ND

Less than 10% 30%

11-20% 20%

21-30% 10%

31-40% 5%

More than 41% 19%

Don’t know 16%

D O YO U K N O W C O S T O F R A I S I N G A P O ?

Yes

No

Have you quantified the cost of processing a purchase order to payments transaction?

The fact that 71% of respondents had not quantified the cost of processing a P2P transaction may go some way to explaining why many procurement functions have been struggling with making the business case for adoption of full P2P technology.

What % of spend is after the fact? (Purchase Order is generated after an Order is placed or Invoice is received)

While half of the organisations surveyed are tracking quite well with less than 20% of their spend being conducted without an up-front purchase order, the fact that 35% either have over 40% of their spend being after the fact, or worse still, no idea how much spend is being conducted this way, is somewhat alarming.

Yes 29%

No 71%

Less than 10%

11-20%

21-30%

31-40%

More than 41%

Don’t know



% O F N O N - P O S P E ND

What % of your spend is non PO spend?

With almost half of organisations have less than 20% of spend not under PO, what is surprising is that 24% of responders are aware that 31% plus of their purchases are made outside of having a PO. What is even more surprising is that 14% communicated they don’t know how much spend occurs without having a PO.

From the insights gathered, CPO’s need to increase their spend visibility and seek new solutions to assist them deliver a more effective and responsive procurement process. The business benefits here are obvious being; a reduction in maverick spending, increased economies of scale and increased process efficiencies

With this being said, CFO’s are most interested in spend management processes being that a reduction in operational costs can result in an increase in working capital or an increase in earnings per share delivered to shareholders.

The reasons why this is would be worth investigating further in future studies.

1-20% 48%

21-30% 14%

31-40% 10%

More than 41% 14%

Don’t know 14%

1-20%

21-30%

31-40%

More than 41%

Don’t know



D I G I TA L P R O C UR E ME N T

The procurement process has been relatively unchanged over many years and one of the most common challenges for CPO’s is that their team spends too much time on administrative tasks rather than growth enhancing activities.

For many organisations today, a traditional manual procurement process is no longer able to satisfy and meet the requirements of a dynamic and changing business. With greater digitalisation awareness now with CFO’s and CEO’s, procurement managers need to ensure that they are proactively investigating into ways that they can not only improve efficiencies within their function, but to be able to add real value to the business.

Procurement leaders are having to increase collaboration, improve analytics and provide a greater customer experience through planning and sourcing, contract negotiations, order delivery, payment and supplier management. Companies are reviewing and considering how digital innovation will disrupt not only the way organisations work, but their entire value proposition of procurement to their suppliers, customers and partners.

D O YO U H AV E A F UL LY AU T O M AT E D P 2 P S Y S T E M ?

Yes 25%

No 75%

I N T E N T I O N S T O AU T O M AT E

Automation Underway 13%

No, not sure 22%

Yes 65%

Would you be interested in fully automating the procurement process?

While 25% of organisations currently have a fully automated procurement system, 65% of those who don’t leverage automation indicated that automation was something in which they would be interested in the future. From the research undertaken, there are only a relative few organisations that have implemented a fully automated procurement process. Out of those that haven’t implemented a fully automated procurement process, 13% communicated that automation was underway while 65% communicated that they would be interested in automation.

Automation Underway

No, not sure

Yes

Do you have a fully automated Procurement system (from Purchasing to Payments)?



P R I O R I T IE S F O R AU T O M AT I O N

Yes

No

With the ability to automate a number of procurement functions, we wished to gain an understanding of the prioritisation of these and identify what would be the top priorities of importance for procurement.

% of people who had one of the below automated functions within their top three priorities

YES NO

Contract compliance 57% 43%

Spend visibility 52% 48%

Vendor selection 45% 55%

Category Management 38% 62%

Compliance related process 37% 63%

Supplier Collaboration 26% 74%

Savings report 27% 73%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Cont

ract

co

mpl

ianc

e

Spen

d vi

sibi

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Vend

or

sele

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Cate

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M

anag

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Supp

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Colla

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Savi

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repo

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Com

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rela

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proc

ess


W W W. P R O C U R E M E N TA N D S U P P LY. C O M P A G E 1 0

There is no surprise that contract compliance at 57%, was identified as the process in which people would most likely look at automating. The global online economy now allows purchasing to be an efficient and cost effective process, however this has introduced some compliance challenges due to the vast supply network which is now available. To help overcome compliance challenges, advanced analytics is being leveraged to scan data and identify any noncompliant transactions. Organisations are identifying efficiencies by digitalising contract management and placing all contracts in one central repository allowing procurement to more efficiently analyse and identify any possible risks at any point in time across the contract portfolio. Procurement leaders are reviewing risk not only as a standalone process, but are starting to adopt a more holistic strategy which includes ‘risk exposure’ and ‘risk mitigation’ to help proactively identify any compliance threats.

As procurement are reviewing processes to look at ways to reduce costs and improve efficiencies within the business, procurement needs to ensure that they comply against any changes in new regulatory requirements and contracts that may surface. With the ability to be able to proactively identify and manage risk, automation is providing insights via analytics which will improve contractual processes and satisfy and ensure compliance. Implementing best practices around visibility provides CPO’s the ability to better understand whether organisations and its suppliers are meeting or exceeding expectations. A CPO can’t fix what they can’t see, therefore automation is being leveraged to provide CPO’s the opportunity to take action when required to ensure compliance.

With spend data critical for budgeting and planning, inventory management, product development, compliance and spending pattern identification, procurement needs to be able to easily access, organise and analyse this information to identify business insights to increase operational performance. With common challenges around disparate data sources, incomplete or accurate data, inconsistent vendor naming conventions, inconsistent product name or service conventions, labour intensive cleaning and classification and limited analytics capabilities, there is no surprise that procurement is not able to accurately capture and record all spend. Therefore the question must be asked, if you can’t see the information, how can you report on it and what’s the actual cost to the organisation of this invisible spend?

To help identify invisible spend, automation is assisting organisations extract, sort and cleanse data from multiple applications such as ERP, AP, GL and sources such as POs and invoices and accurately classifying it by supplier, product category and employee using algorithms, rules and other analytical processes. Being able to increase spend visibility will ultimately allow procurement to collect, classify, and analyse their supplier spend data more accurately while obtaining actionable insights on their buying data and related spend activities.



A N A LY T I C S & R E P O R T I N G

Ad hoc reporting 12%

Basic reporting 38%

Dashboards 35%

Basic modelling 5%

Advanced analytics 10%

W HE R E D O YO U S E E YO UR O R G A N I S AT I O N S C UR R E N T L E V E L O F R E P O R T I N G ?

Ad hoc reporting

Basic reporting

Dashboards

Basic modelling

Advanced analytics

With more and more digital technologies being implemented by organisations such as social media, machine learning, IoT, cognitive computing, analytics and cloud technologies, organisations are now collecting more data than ever before. Data is also being collected within the source to pay function, user experience, materials management and risk analysis however the question must be asked, are we really leveraging off this data as best we can to gain actionable insights?

Many organisations are still challenged on how to collect and interpret the data to help drive more meaningful business discussions around the customer experience and the development of new products and services. Although we all recognise that data insight is critical, taking the next step and effectively leveraging the data isn’t as straight forward as it sounds. Being able to compute the data and having the skillset required to identify and extract value are some of the challenges facing procurement leaders.

Procurements value within the organisation is growing and now can be seen as a strategic business function. Advanced analytics is allowing CPO’s to leverage supplier information and their markets as well as provide a deeper understanding of the goods and services procured and alternatives on offer. With IoT and big data, procurement can now provide insight into transportation flows, warehouse requirements and the supply chain. This now allows procurement to provide insight into business operations which can help the organisation better understand and help deliver a greater supplier and customer experience.

Machine learning is assisting in reporting and driving analytics and providing insights within the procurement function. It is being leveraged to identify key patterns from previous experiences and takes millions of examples and uses layers to build on itself to eventually interpret something without a human first identifying it. Machine learning is then able to predict and understand procurements needs event before procurement does.

Empowering procurement professionals with the best tools to be able to easily develop reports across the procurement process in a timely manner is becoming more and more business critical. However, 50% of procurement professionals don’t even have access to reporting dashboards, perhaps it’s fair to say that the adoption of reporting technologies lags well behind business functions such as finance, sales, marketing and even supply chain.



W HE R E D O YO U S E E A N A LY T I C S P R OV ID I N G GR E AT E S T VA L UE ?

W H Y H A S N’ T YO UR C O MPA N Y M OV E D T O A D VA N C E D A N A LY T I C S ?

Compliance & Risk 35

Supplier Performance 42

Category Management 50

Cost Management 52

Market Trends 22

Legacy infrastructure and systems 33%

Lacking internal skills 23%

Lacking access to data 24%

No perceived value 7%

Other 13%

0

10

20

30

40

50

60

Com

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& Ri

sk

Supp

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Perf

orm

ance

Cate

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M

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Cost

M

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Mar

ket

Tren

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Legacy infrastructure and systems

Lacking internal skills

Lacking access to data

No perceived value

Other



There is no surprise that lacking access to data is one of the main reasons why companies are not leveraging advanced analytics.

Procurement is generally seen as one of the last business functions in which CFOs and CEOs have invested in modernising behind finance, sales & marketing and even human resources. Legacy procurement infrastructure and systems traditionally were often set up by IT many years ago to satisfy a relatively basic procurement function. However, as business procurement processes are redefined due to a changing business environment and implementation of digital technologies, legacy infrastructure and systems are now struggling to allow procurement managers to undertake actions to now meet the growing business demands. As procurement moves to a more automated process and with the opportunity to leverage big data and IoT, reporting functionality is now having to change in order to collect data and therefore benefit from advanced analytics and business insights.

There is no surprise that lacking access to data is one of the main reasons why companies are not leveraging advanced analytics. With 24% of people communicating this, there is little doubt that there is a correlation between legacy systems and easy access to data. Some of the typical challenges procurement experience in accessing data include numerous siloed data sources and data being saved in multiple formats and locations.

With IoT and digitalisation, advanced analytics will become vital to convert big data from these sources into smart data for a smart procurement function. IoT will ultimately provide visibility into consumption patterns of what is purchased and how it is used, creating feedback loops and changing how demand is managed.

Data analytics will ultimately be the most important procurement enabler allowing organisations to better understand suppliers, markets and customers while providing the opportunity to better predict market trends. Being able to report on financial and operational data, supply availability, cost structures, lead times, risk and service & quality metrics all provide procurement the opportunity to proactively identify and make relevant changes to negotiate price or switch suppliers based on product or service availability.



ME A S UR E ME N T O F C P O ’ S

Supplier consolidation 13%

Cost reduction 41%

Customer satisfaction 29%

Spend under contract 27%

W H AT I S P R O C UR E ME N T P R I M A R ILY ME A S UR E D O N I N YO UR O R G A N I S AT I O N ?

What is procurement primarily measured on in your organisation?

Supplier consolidation

Cost reduction

Customer satisfaction

Spend under contract

The connected digital world is providing CPO’s and organisations the opportunity to report on more than ever before. Where typically procurement was measured on cost reduction and spend under contract, greater importance is being placed on more non-tangible measures such as quality, reliability and in particular, customer experience.

Being able to measure and accurately report on activity is helping procurement provide greater insight to the wider business on the value in which procurement is contributing. With an increase in focus by organisations to deliver a greater customer experience both internally and externally, CPO’s need to look into how best develop and deliver a customer centric business model. However, it may be seen that many companies are yet to invest in the core capabilities, processes and systems necessary to maximise this opportunity through the limited adoption of digital technologies in which we have been identified in this report.

As procurement rises up the corporate agenda, it’s increasingly beginning to take a role in product innovation and brand management. Leading companies are now starting to realise that a large part of their relationship with their end customers is in fact, defined by their own suppliers.

It is no longer just about consolidating the supplier base, establishing long-term contracts and leveraging spend potential, it’s about new product development, collaboration, innovation, total quality management and ultimately customer satisfaction.



W H AT D O YO U T HI NK YO U W IL L B E ME A S UR E D O N I N T HE F U T UR E ?

Yes

What will procurement leaders be measured on in the future?

Reduce carbon footprint 12%

Reduce paper based transactions 42%

True elimination of paper based processes 26%

Integrate suppliers into new products and services 35%

Reduce time to market for new products and services 29%

Create new revenue streams from suppliers 25%

With a reduction of paper based transactions comes reduced operating costs, increased efficiencies, error reduction, improved compliance and greener operations. There really is no surprise that this was recorded as a future key measurement. Although easier said than done, a cultural, structural and business process change needs to be undertaken in order to automate and eliminate this manual processes. This activity in itself can be seen as the starting point of procurement digitalisation.

With an ever changing environment, supplier integration is a playing an important role in developing a competitive advantage. Focus is growing upon ensuring a greater supplier integration within the early stages of the new product development process while successful supplier integration requires substantial management effort on the part of the buying company. The decision to integrate a supplier must be made carefully and ensure that the potential benefits justify the effort. Furthermore, the decision to integrate a supplier must be made in the context of the firm’s strategic business priorities and its core competencies.

0

5

10

15

20

25

30

35

40

45

Reduce carbon footprint

Reduce paper based transactions

True elimination of paper based

processes

Integrate suppliers into new products

and services

Reduce time to market for new products and

services

Create new revenue streams from

suppliers



C O N C L U S I O N

To leverage the digital world, CPO’s need to identify and prioritise where they see the greatest opportunity is to add additional value within the business and to elevate their position within the C suite. Whether it be increasing efficiencies per transaction, generating insights leading to improved business processes or implementing advanced analytics to help better mitigate risk, CPO’s have the opportunity to position themselves as a strategic advisor within the business.

Implementing digital technologies alone simply won’t deliver the planned business benefits. Digital brings with it a whole new way of thinking and working and people will be required to change the way they have traditionally undertaken activities in order to continue to be successful in this new world.

Change is imminent within the procurement function as CEO’s and CFO’s see procurement as a key area which has a great opportunity to add additional value to the business and move away from just be seen a s a cost centre.

Although there are many challenges for CPO’s in reviewing and changing existing business processes to meet expectations of the digital world, simply outsourcing procurement and asking service providers to do more with less is just no longer enough. Procurement needs to position itself as a department which provides real strategic business and supplier actionable insights and move away from being just tactical and aspire to be strategic leaders. It’s now up to CPO’s to change their status quo and position themselves within the executive table.

We hope you have found some of the findings of this survey useful and would welcome input from you as to issues that you would like to see addressed in our planned benchmarking survey in 2019.

Nigel Wardropper Managing Director PASA E. [email protected]

The PASA Procurement Transformation Benchmarking Report 2018 · The PASA Procurement Transformation...

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