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. The project manager responsible for project execution would initiate the process as a request for Capex. Automated procure to pay (P2P). Use minimal essential It is important to link processes to contract expiration and develop a calendar that sets timetables and deadlines for actions. Traditionally, procurement has been the efficient workhorse for organizations, driving cost savings percentage point by percentage point, contract by contract. It also needs to be aligned to its supplier market. Best practice is to set up periodic (quarterly, semi-annually) meetings to problem solve a partner scorecard, future initiatives, needs, etc. As remote work becomes the next normal, digitization can be an important enabler of effective collaboration across functions. After all, spending on purchased goods and services can represent 70 percent of a company’s costs, so business leaders have long known that purchasing improvements can directly improve the bottom line.2 2.In our survey, for example, we found that the overall sourcing efforts of high-performing purchasing groups generated annual cost savings that were nearly six times greater than those of the low performers. Intelligent spend engines. tab, Engineering, Construction & Building Materials, Travel, Logistics & Transport Infrastructure, McKinsey Institute for Black Economic Mobility. Please email us at: McKinsey Insights - Get our latest thinking on your iPhone, iPad, or Android device. Clean sheets—bottom-up estimates of a supplier’s costs for specific parts and services— are especially valuable analyses. To counter crisis-induced margin pressures and increased volatility, spend analytics can provide a rich source of new insights and opportunities that together create new forms of competitive advantage. Categorizing the organization’s spends is one of the fundamental concepts in sourcing management. To unlock the full potential, these elements must be applied comprehensively (exhibit). We strive to provide individuals with disabilities equal access to our website. n Be readily available as a single comprehensive document with department-specific subsections, as needed. Team meetings, supplier site visits, negotiations, and other face-to-face interactions that procurement professionals took for granted went virtual, or went away—all calling for a new ways of working. Please use UP and DOWN arrow keys to review autocomplete results. The agile operating model includes defined processes with clear ownership, involvement of internal and external stakeholders, and standard but flexible activities. Procurement leaders have talked about digitizing procurement for some time. 2) McKinsey Global Institute Report - A labor market that works: Connecting talent and opportunity in the digital age This consulting slide deck is thoughtful because if you look at slides 30 - 33, it gives an actionable plan and recommendations for each unique stakeholder. Our mission is to help leaders in multiple sectors develop a deeper understanding of the global economy. Flip the odds. To unlock the full potential, these elements must be applied comprehensively (exhibit). Building relationships with more diverse suppliers may help companies withstand further disruptions in supply availability. Common challenges are apparent across industries. Procurement savings can be made in a number of areas within a Purchasing Department. Cognitive agents and natural-language processing tools comprise a virtual workforce that can support employees and customers through the parsing and analysis of task descriptions. 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. Learn about The time has come for all companies to join the revolution. 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. Partnerships of this type are likely to continue as outperformers look to create competitive advantages by partnering with suppliers for new products or services. AMSTERDAM: IN-CAR TRAFFIC MANAGEMENT SERVICES. Scope of the report The main scope of this report is cloud computing service procurement best practices in public research organisations. Spending is often fragmented among multiple locations, business units, and categories, making it hard to identify and capture enterprise-wide savings opportunities. 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 best approach, he says, is to view outsourcing as a specific case of procurement, and to remember that it is a strategic, organizational func-tion. 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. According to our research, in the five years immediately following the 2008 global financial crisis (GFC), total return to shareholders (TRS) for companies with top-quartile procurement capabilities was 42 percent higher than for companies whose procurement operations were in the bottom quartile (Exhibit 1). Companies can use automation to ensure supplier payment and improve cash-flow management. Most transformations fail. How sourcing excellence can lower hospital costs 19 Around the world, existing models of health care are becoming economically unsustainable. Procurement leaders are reevaluating individual spend categories to make the most of shifting market dynamics and address the risks posed by changing value pools. Here are some of the procurement best practices for the retail industry: Segmenting the Spends. To rigorously challenge every dollar in the annual budget, many companies use a repeatable process that stacks costs starting from zero. We'll email you when new articles are published on this topic. 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. Our flagship business publication has been defining and informing the senior-management agenda since 1964. We also found that companies with top-performing procurement functions saw valuations return to pre-GFC levels an average of three years faster, and were able to lower costs of goods sold (COGS) as a percentage of revenue, thus improving EBITDA by 3 percentage points more than bottom performers. To create value in commercial real estate, for example, instead of simply renegotiating leases, a procurement leader can consider how the organization’s work practices will likely evolve in the future as flexible and remote working grow. Please click "Accept" to help us improve its usefulness with additional cookies. The best way to use these KPI’s is by procurement benchmarking. Business-continuity planning has taken on a new meaning, designing contingencies not just for a single supplier plant to go offline, but for entire countries to be inaccessible. Subscribed to {PRACTICE_NAME} email alerts. Use minimal essential 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. By integrating data pools and analytics functions, the tools can recognize cross-category synergies. 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 … agement of procurement. Incorporate these five best practices into your business to get results. The enhanced transparency and standardization can drive significant bottom-line savings. Procurement departments need to make five important shifts to support faster, decentralized decision-making throughout the business. The best practice examples in this report have all achieved these benefits. D3.2 Procurement Best Practices Interim Report 20 January 2016 Toward the European Open Science Cloud 1 Damir Savanovic, CSA. Please click "Accept" to help us improve its usefulness with additional cookies. collaboration with select social media and trusted analytics partners Strategic investments can also be an attractive option, as illustrated by digital-platform investments in sectors including financial services, industrial equipment, and retail. Companies with complex supply-chain networks, such as automotive and technology manufacturers, are especially vulnerable. While adopting the new approaches, companies should also stay focused on traditional approaches to achieving excellence in category management: Value capture. Never miss an insight. hereLearn more about cookies, Opens in new 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. But these are just the starting point. Internet-of-things replenishment tools are intelligent storage equipment that can automatically reorder based on stock levels. Leading companies have already positioned themselves for success in the 2020s by implementing the new vision for indirect procurement. As an age-old convention, organizations have been following very similar practices when it comes to procurement under Capex. 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. What we found was that – overall – there is a significant gap between where Procurement is now and where they could be. 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. Spend categories differ vastly within each organization in the retail … IT asset management best practices for your organization. n Use consistent language, e.g., terminology adopted from NIST to facilitate effective communication and coordination. Determine PSM Best Practices. Machine-learning software uses supervised and unsupervised learning (for example, decision algorithms) to identify patterns in data, thereby automating the assessment of improvement potential. Yet procurement has helped companies weather global crises before. Digital procurement solutions help teams reduce the repetitive operational parts of … Procurement Best Practices (1) Procurement Talent Management (69) Procurement Technology (438) Accounts Payable (4) Procurement Transformers (1) Source to Contract (1) Source-to-Pay (3) Spend Analysis (67) Strategic Sourcing (126) Supplier Management (146) Sustainable Procurement … Kissflow Procurement Cloud is a comprehensive procurement software that can help you incorporate and implement supplier relationship management best practices. 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. Online B2B platforms—such as Alibaba, Amazon Business, and ThomasNet—are e-marketplaces that are used for supplier evaluation and selection, cross-category orders, and financial traceability. Visualization software translates the results into reports and drillable dashboards. Best practices for capturing value include requiring frequent and more detailed RFPs. Information on Latest Trends and Supply Chain Market Information Knowledge centre on COVID-19 impact assessment The rapid adoption of new ways of working that the pandemic necessitated forced companies to accelerate the shift to digital. Companies can use advanced analytics enhanced with target-setting tools to identify cost-saving and process-optimization opportunities. DESIGNING THE PERFECT PROCUREMENT OPERATING MODEL When it comes to defining the most efficient and effective operating model for procurement functions there are, unfortunately, no easy answers. 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. Learn about To overcome the challenges, companies need a new vision for indirect procurement that combines cutting-edge tools and practices, as well as traditional approaches to category management, to address fundamental issues relating to processes, capabilities, and data. Members of business units and other functions can learn how to improve procurement approaches by “shadowing” experienced procurement analysts. The purpose is to identify industry-specific best practices and trends in the Procurement space, as well as to quantify key operational metrics for comparison of participants We gathered and evaluated 53 quantitative benchmarks* and qualitative practice points Most metrics and practices were organized along three primary themes: VALUE CREATION To succeed in the 2020s, companies need a revolution in indirect procurement. Here are seven best practices in procurement for SMBs and the advantages they can deliver. These benefits, in turn, allow the company to more accurately identify the level of funds available to reinvest in growth and strategic projects. … Indirect-procurement outsourcing in practice. Based on our research and feedback from global procurement leaders, we believe that companies can continue to rely on procurement to recover from the current crisis, in much the same way that they used the function to recover from past crises. 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. Supply cost reductions of 20 percent or more and keep future cost escalations under control came McKinsey. New vision for indirect procurement completely reimagine what the function looks like to enhance the value that can... Enterprise-Wide savings opportunities spiral because there is a significant gap between where procurement is now an even more with. 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