It should be operationally distinct from other departments and divisions. Yet despite the tremendous impact that strong spend management can have in value creation, the reality is that in many sectors, procurement is still primarily a transactional function with a limited scope of influence. A company can then analyze the potential value of categories and subcategories by using benchmarks and spend visibility tools, such as spend cubes. Incorporate these five best practices into your business to get results. 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. The time is right to do a thorough assessment of supply-chain risks and manage them more thoughtfully. Internet-of-things replenishment tools are intelligent storage equipment that can automatically reorder based on stock levels. Joint responsibility for the process by category owners and budget owners improves accountability. 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. Connecting with partners that have an existing infrastructure or complementary service can make it faster and easier to adapt to a changing environment. Spends should be segmented as required by the business into logical groups of similar items or services from suppliers. At the onset of the pandemic, some of the most dramatic value-pool shifts occurred in commercial real estate and oil and gas, which were among the sectors most affected by forced shutdowns. E-commerce integrator software powers an internal order-coordination platform that manages replenishment data and automatically places orders to B2B platforms. cookies, McKinsey_Website_Accessibility@mckinsey.com, Visit our Product Development & Procurement page, A next-generation operating model for source-to-pay. Spend categories differ vastly within each organization in the retail … 1. Digital upends old models. The standard needs to set out how sustainability objectives of an organisation are addressed at the early stage of the procurement process through strategic procurement techniques such as market analysis, forward commitment, life cycle assessment, risk management, whole-life costing, scenario modelling, social return on investment and more. 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. 1. 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. Agile organization. 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. 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. In the Appendix, we set out the differentiating features of each element of the approach. The tool has capabilities for spend visualization, forecasting, and systems integration. Select topics and stay current with our latest insights, By Tarandeep Singh Ahuja, Yen Ngai, Sukrut Kharia, and Harkanwal Singh Sidhu, Reimagining procurement for the next normal. Even so, they have not yet been widely adopted, making them a source of competitive differentiation for companies that adopt them today. compliant to EU procurement regulations. Never miss an insight. The pandemic upended market dynamics and value pools in many industries: for example, expanding value pools for tech companies with cloud-based platforms that help remote workers communicate and collaborate, while adding pressure to commercial real-estate markets and the airline industry. Machine-learning software uses supervised and unsupervised learning (for example, decision algorithms) to identify patterns in data, thereby automating the assessment of improvement potential. 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. The agile operating model includes defined processes with clear ownership, involvement of internal and external stakeholders, and standard but flexible activities. This will require attracting new talent and upskilling the existing talent. The solution tracks the status of initiative implementation and projected revenue. Best practices for capturing value include requiring frequent and more detailed RFPs. Even so, many organizations fail to give indirect categories the attention they deserve. 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. Digital upends old models. To successfully deploy the new approach, a company must create the right culture and bring new digital and analytics skills to the procurement team. A program to transform indirect procurement begins with setting clear goals and focusing on categories and subcategories. Reinvent your business. In the Appendix, we set out the differentiating features of each element of the approach. Our analysis suggests that procurement could gain the most by focusing its strategic initiatives in five key areas: strengthening supply-chain resilience, zero-basing the design of category value-creation strategies, investing in supplier partnerships and innovation, accelerating adoption of digital and analytics, and transforming to an agile operating model. tab. Work from home was becoming popular even before the pandemic. 2 20/01/2016 www.picse.eu . But these are just the starting point. The foundation of the process is a budget-creation tool powered by software that applies zero-basing policies. Public Procurement Practice CYBERSECURITY FOR PROCUREMENT In general, a cybersecurity plan should: n Be regularly updated. 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. tab, Engineering, Construction & Building Materials, Travel, Logistics & Transport Infrastructure, McKinsey Institute for Black Economic Mobility. To succeed in the 2020s, companies need a revolution in indirect procurement. The software is paired with financial department systems, so that initiatives’ financial impact can be automatically uploaded to the department’s database. Members of business units and other functions can learn how to improve procurement approaches by “shadowing” experienced procurement analysts. A company can gain competitive advantage by applying the bottom-line savings to fuel growth and innovation. Use minimal essential agement of procurement. 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