What is in this article?:
- Demystifying the Five Levers of Procurement Transformation
- 1. Understand the End-to-End Process View
- 2. Focus on Metrics to Reveal Interdependencies
- 3. Phase and Prioritize Transformation Initiatives
- 4. Engage in Detailed Organizational Effectiveness Analysis
- 5. Prudent Technology Intervention Speeds Transformation
- Proven Path to Success
Many global businesses have achieved impressive savings and efficiencies through procurement outsourcing, leveraging labor arbitrage and the ability of service providers to "do more with less." However, this approach no longer gives intelligent enterprises the edge they desire. The procurement outsourcing market is now focused on process effectiveness issues as the next wave of growth more than ever with rising SG&A expenses and shrinking margins across buyers and vendors and growing complexities in the realms of supplier management risks and quality.
In order to gain that much-desired edge, finance and procurement leaders are increasingly looking to fundamentally transform the procurement function. After all, compared to your average continuous improvement initiative, transformation can produce significant impact and returns.
In fact, true transformation programs can deliver a three- to four-fold return on investment and can reduce total cost of ownership (TCO) by five to six percent of addressable spend. This is a major improvement over continuous improvement and productivity initiatives alone, which yield reductions in the range of a mere 0.5 to 1 percent.
And while no single aspect of process or technology can achieve an impact as profound as one that transformation can deliver, achieving true transformation can be easier said than done. In light of this, following are five levers that any effective procurement transformation program will need to incorporate: