Examining Trends in World-class Procurement

Thought leadership discussions series in Europe focuses on procurement excellence, LCCS strategies, locating savings and the role of enabling technologies

London and Burlington, MA — August 2, 2007 — Emptoris, a provider of enterprise supply and contract management solutions, and CPO Agenda, a global business magazine for procurement professionals, today summarized the findings of the first half of the CPO Agenda Executive Debate roundtable sessions, sponsored by Emptoris and Accenture, which focused on examining key trends and practices in achieving world-class procurement at Fortune 1000 and Global 2000 organizations across Europe.

The thought leadership discussions were designed to investigate the trends, strategies and challenges experienced by procurement organizations within global organizations. The sessions saw chief procurement officers and senior procurement executives from more than 100 leading companies come together across the past three months in London, Amsterdam, Stockholm, with subsequent events planned in Milan, Paris and Frankfurt.

"World-class procurement is a term that is often used rather glibly," said Geraint John, editor-in-chief of CPO Agenda. "This series of discussions, and our subsequent coverage of them, aims to draw out and develop the meaning behind that statement, to identify the vision, policies and practices that truly define world-class procurement — and its resulting impact on the bottom line of global organizations."

What is World-class Procurement?

The first thought leadership discussion, held in London, focused on the overarching theme of the series, "world-class procurement." As CPO Agenda stated, "Everybody in business these days, it seems, wants to be 'world class,' but what does this actually mean in practice?" The panel of procurement professionals assembled for the discussions with the following key themes emerging:

Need for Clear, Communicated Strategy: The consensus among participants was that a clear strategic vision is critical. Participating CPOs strongly emphasized the need for successful organizations to match procurement's agenda to the company's overall business goals.

Operational Execution and Benchmarking: However, the CPOs cautioned that execution is as important as strategy, and that leaders often emphasize strategy at the cost of effective execution. Throughout the series of debates, leading CPOs continuously emphasized the need to engage in quality benchmarking to ensure and quantify success; the need to "measure operational activities against a set of calibrated standards" was a clear theme of discussion. However, a few CPOs cautioned that over reliance on benchmarking can result in a company becoming a "follower not a leader."

Supplier Collaboration & Partnership: The assembled CPOs encouraged their peers to ensure suppliers are treated as partners not just vendors — and to ensure that supplier partners deliver advantage to the business that support core objectives, not just deliver cost savings. Also, they urged organizations to ensure suppliers are given room to be "creative." Buyers who don't listen to suppliers and instead just follow defined processes miss out on opportunities brought about by supplier creativity which can reduce costs and improve products.

People Power: World-class procurement requires people skills rather than just technical proficiency. Leaders expressed belief that the emphasis on systems has some times come at the cost of under-using peoples' creativity and instincts.

"Procurement organizations need to position themselves to ensure they're integral to the overall business strategy," said Heather Rodgers, head of general procurement and supplier management at Centrica, the parent company of British Gas. "To me, that's one of the key characteristics that can differentiate procurement departments today."

Executing Global Sourcing Quickly and Effectively

The second thought leadership debate focused on the challenges of executing global sourcing strategies quickly and effectively. With low-cost country sourcing (LCCS) initiatives so prominent in global procurement in 2007, the industry consensus is that many issues and challenges exist that are hampering the movement of required volumes to emerging markets.

Challenges and Slow Down: Although there seems to be logic in moving as much spend as possible to LCCS to stay competitive, there are a variety of complex issues that need to be addressed in order to be successful in this area. The consensus of leading CPOs seems to be that LCCS is moving slower in most Fortune 1000 organizations than leaders anticipated.

China, India and Beyond: The majority of CPOs discussed the importance of establishing suppliers first in China and India given the size and importance of those markets. However, key CPOs noted the importance of establishing a broader global presence in other emerging economies such as Mexico along with focusing on building supplier relationships in markets where there is a current or future sales market.

Corporate Social Responsibility (CSR): Corporate social responsibility policies in procurement is an important strategic objective for most Fortune 1000 and Global 2000 companies; however, CSR has become both a goal and a limiting factor in sourcing decision making for the procurement organization.

Just Labor?: Several CPOs recommended placing strong emphasis on focusing LCCS efforts on direct materials purchases and on components with high-labor content. However, a few CPOs also discussed the value of sourcing "functional brain power" from emerging markets.

Low Cost Does Not Equate to Low Value: The "low cost" association with emerging market sourcing efforts sometimes gives the impression that these are "low-value" supplier relationships. This isn't the case with most companies and most LCCS relationships, CPOs find these suppliers truly want to collaborate and develop, "not just provide cheap goods."

Developing Supplier Relationships: Several CPOs commented how LCCS was challenging their views on supplier relationships, noting that companies need to be attractive customers to these suppliers as well, and that relationship building was perhaps more important in emerging markets than it is in the economies they have traditionally operated in.

"Scaling of low-cost country sourcing activities, and coping with the day-to-day management of the resulting global supply base, is the key current challenge we see across our customer base. Technology's role is to overcome some of the added complexity that is inherent in the definition and execution of an LCCS initiative. By improving coordination among different buyers and suppliers, industrializing the sourcing process, and acting as a central knowledge base to store and share all supply-related data, supply management platforms should add a dimension of stability and certainty to LCCS that is often lacking today," said Philippe Courregelongue, Emptoris' director of Consulting Services for Europe (EMEA), for Emptoris.

Where is the Next Wave of Savings?

In the third session of the series, held in Amsterdam, Netherlands, the assembled CPOs focused on identifying trends and opportunities for the next wave of sourcing savings:

LCCS and Beyond: The assembled CPOs agreed that LCCS is the current high priority in their cost savings strategy; followed closely by the implementation of enabling technologies. A tone of caution ran throughout the discussions urging procurement peers to balance the drive for savings with a vigilance for quality and sustainability of supply.

Security & Assurance of Supply: A key area of focus in bringing added value through the supply chain was in the area of security. In light of the tainted supplies of pet food and toothpaste that made headlines globally, CPOs were keen to discuss their increased focus on ensuring the security and quality of their supply chain. Pressure from the CEOs suite has shifted slightly from cost savings to security of supply and quality in the wake of recent events.

Leveraging Technology: The CPOs discussed the value and savings they had received with the implementation of sourcing technologies, and how to maximize the value of those technologies. For instance, one CPO discussed how his company had been very successful with auctions, but was focused on adopting a wider e-RFX process to support a more holistic approach to sourcing. The CPOs also discussed the impact of technology on his company's processes and vice-versa.

Traditional Skills coupled with Leading-edge Strategies: In terms of what areas companies will focus on beyond LCCS and technology to ensure continued value and savings, the CPOs discussed dozens of topics, including process outsourcing; increased supplier collaboration; value engineering; and the continued relevancy and importance of "old fashioned" skills of negotiation.

Some of the companies participating in the discussion series included: AstraZeneca, the global pharmaceutical firm; BP, the global petroleum company; Barclays, the international banking group; InBev, the world's largest brewer; Novo Nordisk, a world leader in diabetes care; and Wyeth, the global pharmaceutical company.