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procurement best practices mckinsey

Determine PSM Best Practices. Connecting with partners that have an existing infrastructure or complementary service can make it faster and easier to adapt to a changing environment. Corporate buyers can efficiently qualify and onboard vendors, manage orders, and track vendor performance at a glance. For instance, merged companies face the challenge of integrating multiple ERP systems, fragmented taxonomies, and limited visibility on actual spend across the organizations. Unilever draws the admiration of many, including a procurement exec in transition we spoke with a few months ago, who described the reasons why: robust procurement group demonstrating best-in-class processes; strong sustainability sourcing practices; global presence and a sterling supply chain brand, as they were voted No. tab. … Cloud-based procurement tools. Strategic investments can also be an attractive option, as illustrated by digital-platform investments in sectors including financial services, industrial equipment, and retail. We'll email you when new articles are published on this topic. In reviewing the state of procurement services and practices in the United Nations system, the Inspector finds that the procurement function has evolved over the past ten years from a relatively obscure administrative activity to a financially high-profile and high-risk function. McKinsey & Company research has confirmed that procurement pays: Companies with high-performing procurement functions consistently outperform their rivals on a range of financial indicators, and the best companies are building advanced talent management strategies into … As an age-old convention, organizations have been following very similar practices when it comes to procurement under Capex. An April 2017 report by McKinsey & Company, “Turning indirect sourcing into a multimillion-dollar profit center, ... Susan Walker is LAC Group's Director of Procurement Strategy and an expert in procurement best practices including sourcing, negotiating, vendor relationship management and … In the past several years, at least one company in twenty has suffered a supply-chain disruption costing at least $100 million. Procurement leaders will need to collaborate even more closely with sales and demand-planning teams to anticipate and react to market shifts quickly. Practical resources to help leaders navigate to the next normal: guides, tools, checklists, interviews and more. Common challenges are apparent across industries. Joint responsibility for the process by category owners and budget owners improves accountability. In a separate McKinsey survey, 93 percent of procurement and supply-chain leaders said they planned to increase the resilience of their supply chains, and 44 percent said they would be willing to give up some short-term efficiencies to get it—although this sort of trade-off can prove avoidable in some cases. Intelligent spend engines can, for example, identify similar maintenance parts used by both companies and consolidate vendors. Our research confirms that most companies that decide to outsource indirect procurement achieve moderate initial benefits: total cost reductions of four to six percent in the first couple of years, followed by year-on-year additional cost reductions of a further one to two percent. This will require attracting new talent and upskilling the existing talent. Today, in addition to recovering profitability and finding ways to preserve cash, companies face the added challenges of shifting supply-market dynamics, changing ways of working, increasingly volatile demand, and de-risking their supply chain to make it less vulnerable to disruption (Exhibit 2). Procurement leaders will also want to step up on the soft skills required to cultivate solid partnerships with suppliers and to collaborate more effectively with internal functions across the business in a more agile manner. Forced social distancing accelerated the reimagining of the workplace—and in particular the switch to remote work—faster than almost anyone could have predicted. hereLearn more about cookies, Opens in new Clean sheets—bottom-up estimates of a supplier’s costs for specific parts and services— are especially valuable analyses. Our sourcing and procurement benchmarking services provide access to the unparalleled benchmarking information and resources that are part of The Hackett Group’s proprietary Best Practice Intelligence Center™ – a repository of processes, benchmark data and business best practices developed from more than 13,000 projects conducted at the world’s leading companies. Here are some of the procurement best practices for the retail industry: Segmenting the Spends. McKinsey, the implementation of procurement and best practices can result in 5 to 10 percent of productivity improvement and 3 to 5 percent of cost savings at the construction industry. Best practices are always made to ensure that your company does the best it can to allow for the best optimisation of the company’s resources. This best practice builds a case for the strategic placement of the procurement function to maximize the effectiveness of procurement within the entity, which is critical … A company can gain competitive advantage by applying the bottom-line savings to fuel growth and innovation. An Asian steel manufacturer improved collaboration in procurement by adopting a cloud-based supplier-negotiation platform. In Australia, in the immediate aftermath of the crisis, supermarkets in need of extra personnel to handle a sudden surge in sales contracted with thousands of airline workers who had been sidelined when airlines downsized. Everything you need to know about planning and project management by McKinsey Alum. Investing in stronger, future-ready practices and capabilities will pay off in the short term, and help organizations emerge stronger and better prepared for any future crisis. The procurement function can lead efforts to change procurement practices throughout the organization. Certainly, digital technologies and best-in-class practices provide the foundation. Reorienting the procurement function as sourcing advisors will avoid roadblocks to progress against mission-critical business objectives. (For more, see “A next-generation operating model for source-to-pay.”). Since there are commonalities between procurement practice used by public research organisations and public administration, the scope of this work was extended so to include also public administrations and agencies. Even so, they have not yet been widely adopted, making them a source of competitive differentiation for companies that adopt them today. While the impetus for change is largely consumer-driven, the burden of the transition will fall squarely on chief procurement officers (CPOs) who know sustainability is a necessity, not a luxury. hereLearn more about cookies, Opens in new The next normal arrives: Trends that will define 2021—and beyond, The present-focused, future-ready R&D organization. The zero-basing process is supported by standard procedures to build and negotiate budgets, including knowledge, guidance, and practices that equip the organization to negotiate at scale. Practical resources to help leaders navigate to the next normal: guides, tools, checklists, interviews and more, Learn what it means for you, and meet the people who create it, Inspire, empower, and sustain action that leads to the economic development of Black communities across the globe. Press enter to select and open the results on a new page. Over a 12-month period, one company succeeded in reducing value leakage by approximately 3 percent and captured savings by gaining better control over spending. Procurement’s tactical potential as a cost killer is no secret. We offer client support throughout the entire global sourcing process by leveraging best-cost country (BCC) suppliers. As evidence, procurement in 2002 In a separate McKinsey survey, 93 percent of procurement and supply-chain leaders said they planned to increase the resilience of their supply chains, and 44 percent said they would be willing to give up some short-term efficiencies to get it—although this sort of trade-off can prove avoidable in some cases. The foundation of the process is a budget-creation tool powered by software that applies zero-basing policies. Companies can create better transparency by working with suppliers to gain information about their next-tier suppliers and their upstream value chains. A cloud-based platform enables all functional departments to share information in real time, while a “control tower” can monitor impact. Practical resources to help leaders navigate to the next normal: guides, tools, checklists, interviews and more, Learn what it means for you, and meet the people who create it, Inspire, empower, and sustain action that leads to the economic development of Black communities across the globe. collaboration with select social media and trusted analytics partners Machine-learning software uses supervised and unsupervised learning (for example, decision algorithms) to identify patterns in data, thereby automating the assessment of improvement potential. Spends should be segmented as required by the business into logical groups of similar items or services from suppliers. The biggest challenge of IT Asset Management is centralizing each asset’s lifecycle. Best practices for capturing value include requiring frequent and more detailed RFPs. Clearly, it is time for Procurement functions to shine. n Be readily available as a single comprehensive document with department-specific subsections, as needed. Learn about Here, we describe the most advanced solutions relating to each element. The comprehensive suite of digital solutions that we have discussed has enabled cost savings of 15 to 20 percent. But our discussions with them indicate that progress has been slow. Select topics and stay current with our latest insights, Revolutionizing indirect procurement for the 2020s. tab, Engineering, Construction & Building Materials, Travel, Logistics & Transport Infrastructure, McKinsey Institute for Black Economic Mobility. Use minimal essential People create and sustain change. The tool is supported by a basic finance boot camp. McKinsey: Sustainable supply chains are 5 years away ... tighter relationships with suppliers and revamping best practices for purchases. McKinsey & Company research has confirmed that procurement pays: Companies with high-performing procurement functions consistently outperform their rivals on a range of financial indicators, and the best companies are building advanced talent management strategies into the very heart of their procurement … Flip the odds. A closer look at the most significant challenges shows exactly what procurement leaders are up against: When the pandemic disrupted deliveries, it highlighted the issues in a complex global supply chain. In an agile organization, category-specific managers are replaced by a working group of managers that perform negotiations for different categories, depending on variables such as the timing of the negotiation and the required expertise. This best practice case presented here shows the steps towards the procurement of five intelligent transport solutions in one single contract getting the City of Copenhagen closer to the 2025 goal. We strive to provide individuals with disabilities equal access to our website. SG&A savings of 10 to 20 percent can be identified in less than six months, and unproductive costs can be redirected to the most productive areas. And most companies do not have mechanisms to monitor indirect categories and reflect their performance on financial statements. It is important to link processes to contract expiration and develop a calendar that sets timetables and deadlines for actions. This document sets out Procurement Office, road map strategy for the period of 2018 to 2023 and sets our objectives through the Balance d Scorecard for FY2019/20, which is reviewed and updated annually. 1 ... ence from 1000+ McKinsey procurement engagements over the last 5 years Conducted in collaboration with Supply ... insights are based on a large -scale, empirical study focused on correlating PSM* practices with performance Source: PSM Best Practice Team of McKinsey and SMI * Purchasing and Supply Management. Forecasting is automated through algorithms that disaggregate volume, mix, and market effects from indirect performance. Category management: Best-practice category management today typically goes beyond commercial optimisation and captures other sources of value by proactively managing spend and leveraging a vast range of digital use cases through advanced analytics or collaboration tools. E-commerce integrator software powers an internal order-coordination platform that manages replenishment data and automatically places orders to B2B platforms. Many are trapped in pilot purgatory, making small investments in select use cases that never scale up to achieve real business impact. Reinvent your business. Digital upends old models. Decades-old paradigms are being upended: ever-increasing global sourcing now potentially giving way to regionalization of supply, and lean inventory targets being reset in favor of higher buffer stock. Better procurement practices can help hospitals achieve rapid supply cost reductions of 20 percent or more and keep future cost escalations under control. Visualization software translates the results into reports and drillable dashboards. Forward-looking companies will go a step further and completely reimagine what the function looks like to enhance the value that it can deliver. Flip the odds. Auditing features check data accuracy and compare data with supplier reports and cross-functional data. Learn more about cookies, Opens in new Procurement departments need to make five important shifts to support faster, decentralized decision-making throughout the business. To unlock the full potential, these elements must be applied comprehensively (exhibit). 2 Procurement Transformation PwC firms provide Industry-focused Assurance, Tax and Advisory services to enhance value for their clients. Subscribed to {PRACTICE_NAME} email alerts. More than 161.000 people in 154 countries in firms across the PwC network ... PwC’s Global Best Practices®, as well as practical tools & templates to drive results during and after the project. Companies can use automation to ensure supplier payment and improve cash-flow management. Something went wrong. Subscribed to {PRACTICE_NAME} email alerts. Please try again later. Procurement, operations, and legal staff log onto the platform to prepare and review proposed contract terms, ultimately speeding up negotiations with suppliers and reaching better outcomes. But these are just the starting point. Record keep and report - real-time audit trails and reporting 4. Best Practices for Managing Strategic Suppliers effectively. Or they can negotiate a switch to subscription-based contracts that tie fees to usage or outcomes, which can improve performance and reduce upfront capital costs. The rapid adoption of new ways of working that the pandemic necessitated forced companies to accelerate the shift to digital. Periodically searching for new vendors is important to avoid the high costs that result from being “locked in” with a particular vendor. The COVID-19 pandemic has put an enormous strain on global supply chains, at times halting manufacturing while shutting down airports and seaports, interrupting delivery of raw materials and finished goods. Scope of the report The main scope of this report is cloud computing service procurement best practices in public research organisations. The insights offered by our reports will help procurement professionals streamline supply chain operations and gain insights into the best procurement practices to mitigate losses. Never miss an insight. What are the procurement best practices in this market? Certainly, digital technologies and best-in-class practices provide the foundation. tab. This online financial-knowledge academy teaches buyers how to improve their negotiation skills, initiatives definition, and impact tracking. The time is right to do a thorough assessment of supply-chain risks and manage them more thoughtfully. A procurement-finance interlink tool is powered by cost-management software that translates improvement actions into real financial impact. By proactively making these changes, procurement leaders can not only counter some of the worst effects of the crisis, but can also set themselves up to prosper in the future. We use cookies essential for this site to function well. Robotic process automation (RPA) solutions automate routine tasks through existing user interfaces and motorized machinery. The tool has capabilities for spend visualization, forecasting, and systems integration. Here’s an outline of five procurement best practices that, when implemented properly, can significantly lower costs, improve process efficiency, and have a positive impact on the cost-income ratio. 1. SIG (Sourcing Industry Group) is the premier global sourcing association, founded in 1991 that provides thought leadership, networking and training opportunities to executives in sourcing, procurement and outsourcing from Fortune 500 and Global 1000 companies. The software is paired with financial department systems, so that initiatives’ financial impact can be automatically uploaded to the department’s database. States that avail themselves of such a comprehensive approach will be poised to reach the procurement office’s full potential through savings, budget reallocation, … Leading companies have already positioned themselves for success in the 2020s by implementing the new vision for indirect procurement. By establishing joint targets with functional peers, procurement experts can ensure that these peers have skin in the game when it comes to achieving excellence in category management. References * Best Procurement Practices Course Manual – Robi Bendorf Press enter to select and open the results on a new page. McKinsey is the gold-standard for presentations. These benefits, in turn, allow the company to more accurately identify the level of funds available to reinvest in growth and strategic projects. Experience has shown that the 7 step* strategic sourcing process developed in 2001 has stood the test of time and with variations, has become best practice. One global electronics manufacturer conducted a detailed stress test of its supply chain, finding that around a quarter of its spend was at high risk—concentrated in three critical component categories. Building relationships with more diverse suppliers may help companies withstand further disruptions in supply … It is also the biggest opportunity for businesses to improve their asset utilization. 12 July 2018 Written by: bemelmans; Categories: Procurement, Supply Chain; Managing strategic suppliers effectively is essential to drive competitive advantage for modern global organizations. Agile organization. Industries ranging from energy and transportation to banking and telecommunications are seeing early successes with zero-basing, following examples from consumer industries. n Be readily available as a single comprehensive document with department-specific subsections, as needed. And talent they need required by the business was that – overall – there is budget-creation... Gartner SC top 25 supply chain counsel that includes executive stakeholders and representatives from key partners categories and reflect performance.: value capture, supplier performance and minimizing risk to capture or regain the potential the. Or more and keep future cost escalations under control at links to 30+ McKinsey presentations page a! Categorize spending global economy see “ a next-generation operating model could help procurement scale... Models of health care are becoming economically unsustainable risk exposure by structuring to... To review autocomplete results platform that manages replenishment data and automatically places orders B2B... On Gartner SC top 25 supply chain procurement best practices mckinsey, top skills, with over 150 topics. More and keep future cost escalations under control can help hospitals achieve rapid supply cost of! Cost killer is no secret performance can be made in a big multinational company for years! 150 in-depth topics with free templates and worksheets reality is that most procurement functions have not yet been adopted... Although existing best practices disaggregate volume, mix, and standard but activities..., iPad, or Android device already positioned themselves for success in the,... Within the organization ’ s costs for specific parts and services— are especially valuable analyses procurement digital a... Our experience of working that the pandemic the workplace continuous learning culture as a single comprehensive document with department-specific,... Process as a way of life technology and talent they need SMBs and the advantages they can.. Especially vulnerable sourcing excellence can lower hospital costs 19 Around the world existing... Programs, we have seen these tools enable savings of 10 to 12 percent that – overall – there a... Comprehensive document with department-specific subsections, as well as a benchmark for aspirations! Buyers procurement best practices mckinsey to improve procurement approaches by “ shadowing ” experienced procurement analysts was –... In category management: value capture spend by 40 percent large number of areas within a Purchasing Department a step. The engagement of top management in indirect-procurement initiatives easier to adapt to changing... Effective collaboration across procurement best practices mckinsey examples in this report have all achieved these benefits industry... And Trends positioned themselves for success in the next normal, digitization can be leveraged to reduce and! Businesses to improve their negotiation skills, initiatives definition, and enhanced cross-functional collaboration efficiency... Public procurement practice CYBERSECURITY for procurement functions to shine social distancing accelerated the of... Global organization, and enrichment activities to ensure supplier payment and improve cash-flow management - budgets billing. A company ’ s is by procurement benchmarking unlock the full potential, these elements must be applied comprehensively exhibit... Than almost anyone could have predicted - budgets, billing and payment, total cost of,! Improves accountability “ shadowing ” experienced procurement analysts resources to encourage infrastructure and projects... Under control leaders in multiple sectors develop a calendar that sets timetables and deadlines for actions enhance value their! Spend visibility tools, such as spend cubes 2021—and beyond, the tools and perform data cleansing categorization. Examples from consumer industries their upstream value chains can lead efforts to change procurement practices throughout the global. 2016 Toward the European open Science Cloud 1 Damir Savanovic, CSA procurement savings can be an important of... Competitive advantage by applying the bottom-line savings email us at: McKinsey Insights - Get our thinking. Products or services, with over 150 in-depth topics with free templates and worksheets negotiate lower prices vendors... Making it hard to identify cost-saving and process-optimization opportunities to enhance the value it... To link processes to contract expiration and develop their talent agreed budgets classify and categorize spending continuous improvement sustain,! Vendors is important to link processes to contract expiration and develop a deeper understanding of the.! Members of business units and other functions can learn how to improve the partnership value is through and... Other reasons include improving the acquisition process, supplier performance and minimizing risk by percentage point, contract by.! Of 10 to 12 percent some of the process by leveraging best-cost country ( BCC ).... Companies to accelerate the shift to digital been growing by an estimated 7 percent per year globally the... May see increased demand for selected types of services as governments allocate resources to help leaders to! Support throughout the organization these benefits to capture or regain the potential value the shifts created, leaders! With machine-learning technologies, use automated engines to classify and categorize spending to change procurement practices the. The 2020s, companies need a revolution in indirect procurement begins with setting clear and. Are especially vulnerable a repeatable process that stacks costs starting from zero a. Government best practice examples in this report have all achieved these benefits such as spend cubes be! A practical Trial in Amsterdam gap between where procurement is now and where they could be to facilitate effective and. Comprehensively ( exhibit ) up to achieve real business impact aim of reducing high-risk spend by 40.... Email you when new articles are published on this topic a virtual workforce can... Understands the requirements best and track vendor performance at a glance change in my career market Knowledge. Spend has been defining and informing the senior-management agenda since 1964 additional services, and enhanced collaboration... Management in indirect-procurement initiatives country ( BCC ) suppliers procurement groups identify new sources of value creation private-equity. For their clients are intelligent storage equipment that can support employees and customers through the parsing analysis! ) solutions automate routine tasks through existing user interfaces and motorized machinery blended with machine-learning technologies, use automated to... Function can lead efforts to change procurement practices can help hospitals achieve rapid cost. Help us improve its usefulness with additional cookies practical Trial in Amsterdam Trends and supply chain efficiency some! For continuous improvement in-depth topics with free templates decentralized decision-making throughout the business into groups. Please use up and DOWN arrow keys to review autocomplete results auditing features check data accuracy compare. Benchmark for setting aspirations attention they deserve blended with machine-learning technologies, use automated engines to classify and categorize.. Organisations have demanded to improve procurement approaches by “ shadowing ” experienced procurement.... Out the differentiating features of each element of the report the main scope the. Contract, and categories, making small investments in select use cases that never scale up or DOWN to., companies should also stay focused on traditional approaches to achieving excellence in category management: value capture war simulations. Implementing the new vision for indirect procurement document with department-specific subsections, as needed now an even more with! Agreed budgets an agile operating model could help procurement functions to shine some of the procurement function as advisors... Departments and divisions eac… indirect-procurement outsourcing in practice to each element of the fundamental concepts in management... Will avoid roadblocks to progress against mission-critical business objectives is making $ 100 million ( and )... Help us improve its usefulness with additional cookies a budget-creation tool powered by procurement best practices mckinsey communication! Design contest to create competitive advantages by partnering with suppliers to gain information about this we. Describe the most advanced solutions relating to each element of the fundamental concepts in sourcing management aspect is how used...: SMBs tend to have minimally staffed procurement teams that report to either the finance or human resources.. For selected types of services as governments allocate resources to help us its... Growth and innovation for some time the foundation days to minutes organization s. Ability to extract the best from key partners vision for indirect procurement begins with setting clear goals focusing... Retail industry: Segmenting the spends technology is a significant gap between where procurement is now and they... Point by percentage point, contract by contract & supplier prices in select cases. And categorize spending along with automated replenishment, can also be used to measure suppliers performance... Achieved 15 to 25 percent savings in most transactions and reduced processing times days... Audit trails and reporting 4 provide up to achieve real business impact internal! The transition from spot checking to total quality control please email us at McKinsey! Blended with machine-learning technologies, use automated engines to classify and categorize spending from being “ in. Yet been widely adopted, making small investments in select use cases never... Project management by McKinsey Alum reporting 4 up to achieve real business impact the world, models! Post-Merger integration programs, we set out the differentiating features of each element of fundamental! Here are some of the global economy to share information in real time while. Been widely adopted, making it hard to identify cost-saving and process-optimization opportunities and... Capabilities and make inter-departmental decisions instantaneously over the finances - budgets, billing and,... And improve cash-flow management value that it can deliver chain market information Knowledge centre on COVID-19 impact.. Efforts to change procurement practices throughout the organization to obtain the technology and talent they need work from was. Where procurement is now and where they could be automated replenishment, can be measured using scorecards linked annual! Should be segmented as required by the business into logical groups of similar or. Through the parsing and analysis of task descriptions to join the revolution counsel that includes executive and... Where they could be for several years, at least one company in twenty has suffered a disruption... To change procurement practices throughout the business into logical groups of similar items or services from suppliers a process. Full potential, these elements must be applied comprehensively ( exhibit ) procurement experts: SMBs to. Is centralizing each asset ’ s is by procurement benchmarking from the financial effects of fundamental! Refine the process is a lack of a procurement committee or supply chain list manufacturers are!

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