Bargain hunter to business partner:
The monumental opportunity
facing Procurement
Highlights of Q1 2014 Procurement Advisory
Pulse Survey
Monday, July 14, 2014
© 2014 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International.
KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does
KPMG International have any such authority to obligate or bind any member firm. All rights reserved.
1
The research
First edition of semi-annual KPMG
Procurement Advisory Pulse survey
We polled 217 KPMG Procurement
Advisory consultants globally
The survey was facilitated by KPMG’s
Global Procurement Advisory Center
of Excellence
This recurring research enables us to
provide KPMG Procurement
practitioners’ point of view to advance
industry-leading thinking and insights
on the market globally
Other 9%
Singapore 2%
France 2%
Australia 3%
Thailand 3%
China 3%
Brazil 7%
Germany 12%
Canada 13%
UK 16%
USA 30%
Source: KPMG International, Procurement Advisory Pulse Survey, 2014
© 2014 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International.
KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does
KPMG International have any such authority to obligate or bind any member firm. All rights reserved.
2
We asked:
What are companies’ priorities for improvement of the procurement function?
How are companies measuring procurement’s contribution to value?
Are qualitative and quantitative performance metrics being used?
What are companies doing to manage risk and preserve value across their
supply chains?
What steps are companies taking to improve their procurement operating
models?
The research
© 2014 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International.
KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does
KPMG International have any such authority to obligate or bind any member firm. All rights reserved.
3
Key themes and trends
Appetite for Procurement change is increasing:
66% say operational change is more of a priority in next 12-24 months than previously
59% say strategic change (transformation) is more of a priority in next 12-24 months than
previously
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Not a priority Somewhat less of a priority No Change Somewhat of a priority Priority
3% 7% 32% 45% 13%
15%51%27%5%2%
Operational
Change
Strategic
Change
Prioritization to Improve/Overhaul Procurement
Source: KPMG International, Procurement Advisory Pulse Survey, 2014
© 2014 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International.
KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does
KPMG International have any such authority to obligate or bind any member firm. All rights reserved.
4
Key themes and trends
Appetite for change is increasing – but procurement priorities are often misaligned with
objectives for change/transformation
1. It’s no surprise that the top 5 priorities directly affect ability to deliver value:
1. Improve performance
2. Align closer to business functions
3. Improve governance & compliance capabilities
4. Drive costs out of organizational indirect spend
5. Improve supplier management with tier 1 suppliers
Delivering on the top 5 priorities can be effected by:
Targeted tactical initiatives to tackle each priority separately
Changing/transforming the procurement operating model to tackle multiple priorities
The appetite for procurement operating model change is relatively low.
© 2014 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International.
KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does
KPMG International have any such authority to obligate or bind any member firm. All rights reserved.
5
Key themes and trends
Although the top priorities directly affect ability to
deliver value, it’s more surprising that value
contribution is not being tracked
58% want to improve performance – but a full
range of performance metrics are not being used
42% want closer alignment – but metrics to
track alignment are not being used
40% aim to improve governance – but metrics
continue to emphasize quantitative measures (cost)
over qualitative measures
Setting and monitoring metrics on procurement’s
performance in priority areas is key to realizing
performance
Changing the current procurement operating model
(POM) typically helps to achieve the top 3 value-related
priorities – and more.
Source: KPMG International, Procurement Advisory Pulse Survey, 2014
© 2014 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International.
KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does
KPMG International have any such authority to obligate or bind any member firm. All rights reserved.
6
Improving procurement performance
& value delivery continue to be
consistent priorities, yet:
Realizing procurement’s value
Few companies benchmark
the role of procurement
against other strategic
business functions
Most companies still focus
primarily on the traditional,
quantitative metrics
Because qualitative measures
are not tracked, the full extent
of procurement value delivery
is often overlooked0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Measure QuantitativeValue
Measure qualitative value
9%15%
18%
32%
40%
40%
19%
11%13%
2%
Never Rarely Sometimes Frequently Always
Source: KPMG International, Procurement Advisory Pulse Survey, 2014
© 2014 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International.
KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does
KPMG International have any such authority to obligate or bind any member firm. All rights reserved.
7
Qualitative vs. quantitative measures
Direct costs are much more likely
to be measured quantitatively
Qualitative measures can do more
to capture and demonstrate value
delivery
For example, the value of supplier
relationships is rarely tracked (2.3)
yet the ability of suppliers to
contribute innovation and
continuous improvement is widely
recognized as having enormous
potential to enhance value
Source: KPMG International, Procurement Advisory Pulse Survey, 2014
1=Rarely/Never, 3=Sometimes, 5=Frequently/Almost always
© 2014 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International.
KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does
KPMG International have any such authority to obligate or bind any member firm. All rights reserved.
8
Keys to increasing procurement value realization
1. Implement qualitative measures and a Return on Procurement measurement & assessment model to
evaluate the full scope and value of the procurement function
2. Focus on execution to drive up value across the full scope of variables procurement can impact
Show s
what you
can do
and we will
invest
Customer and
market needs
and impactsTraditional
focus on unit
cost from
suppliers
Process
efficiency and
organizational
effectiveness
Supplier
innovation and
continuous
improvement Enhanced
design
collaboration
and
optimization
Comprehensive
supply risk
management
Driving down cost Driving up value
A single-minded focus on driving down input costs is not enough. Leading organizations focus
more on driving up value from end-to-end across the business.
© 2014 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International.
KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does
KPMG International have any such authority to obligate or bind any member firm. All rights reserved.
9
Procurement’s impact on risk management
1.002.00
3.004.00
5.00
Sales market risks
Fraud/loss of intellectual property
Currency risks
Raw material price risks
Organizational/process risk
Supplier/supply chain risks
Regulatory compliance risks
2.57
2.66
2.70
2.77
3.16
Risk Management Program Comprehensiveness
Risk management is
recognized as a key to
preserving and building value
Typically a minimal focus on
Tier 2+ suppliers
Generally lacking in
systematic breakdown of
risk exposure
Respondents indicate current
risk management capabilities
and comprehensiveness are
moderate at best:
2.59
2.74
1=Limited/Weak, 3=Moderate, 5=Comprehensive/Strong
Source: KPMG International, Procurement Advisory Pulse Survey, 2014
© 2014 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International.
KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does
KPMG International have any such authority to obligate or bind any member firm. All rights reserved.
10
Realizing procurement’s value – managing risk
Few companies report a
comprehensive Risk
Management program which
facilitates:
Assessment of risk in terms of
probability and potential
damage
Segmentation of supply base
by potential risk types
Evaluation beyond Tier 1 or
strategic suppliers
Source: KPMG International, Procurement Advisory Pulse Survey, 2014
1=Rarely/Never, 3=Sometimes, 5=Frequently/Almost always
© 2014 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International.
KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does
KPMG International have any such authority to obligate or bind any member firm. All rights reserved.
11
“Leading companies are harnessing data analytics & predicative
modeling to manage potential impacts of short & long term risk
trends.”John Tros,
Head of Procurement Advisory practice, KPMG in the Netherlands
Keys to managing Procurement Risk
1. Expand capability by creating a comprehensive risk management program
Monitor and actively manage procurement and supply chain risks as diligently as
other financial and operating risks
Prepare a systematic breakdown of risk exposures
Segment supply base by risk types
Leverage newer (cloud-based) technologies to enable real-time compliance
monitoring
Focus on people – to acquire, develop and retain the best resources to manage risk &
compliance
2. Extend mitigation across Indirect supply and Tier 2+ suppliers
3. Monitor and actively manage procurement and supply chain risks as diligently as other operating
units
© 2014 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International.
KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does
KPMG International have any such authority to obligate or bind any member firm. All rights reserved.
12
11%
15%
44%
22%
8%
None Few Some Most All
Procurement Operating Model
Client Accounts Planning or Actively Undertaking
Formal Efforts to Significantly Change Procurement
Operating Models A majority of companies are indicating
an appetite for strategic
change/transformation initiatives
Interest in transformation of the
Procurement Operating Model (POM)
exists, however, most Procurement
functions focus on tactical
adjustments, ignoring the multi-
dimensional enhancements that can
be achieved through a POM
transformation.
Those companies that are actively
considering change/transformation
appear to be trending toward adoption
of more centralized or hybrid models
Source: KPMG International, Procurement Advisory Pulse Survey, 2014
© 2014 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International.
KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does
KPMG International have any such authority to obligate or bind any member firm. All rights reserved.
13
Optimizing the Procurement Operating Model
1.002.00
3.004.00
5.00
Greater tax efficiencies for the organizationoverall
Higher revenue for the organization overall
Overhaul/re-invigorate/transform the overallprocurement function
Higher profits for the organization overall
Reduce/better manage risk as it relates to theprocurement function
Greater alignment with procurement functionstakeholder needs
Increase the measurable value thatprocurement brings to the organization
Higher levels of procurement functionoperational efficiency
1=Rarely/Never, 3=Sometimes, 5=Frequently/Almost always
Sought
Achieved
Benefits sought and achieved from changing
the model
Companies that do transform
their operating model are
realizing the benefits – across
many of the value dimensions
sought
In fact, increasing
measurable value is the #2
benefit sought, and in most
cases achieved
Enhanced Risk management
also ranks highly as benefit
sought (and achieved) via
POM transformation
Source: KPMG International, Procurement Advisory Pulse Survey, 2014
© 2014 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International.
KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does
KPMG International have any such authority to obligate or bind any member firm. All rights reserved.
14
Current/future Procurement Operating Models
• Most indicate a shift toward
centralized or center-led models
• Hybrid and outsourced models are
also gaining traction
We asked what type of procurement operating model do clients have in place
– now and in 24 months?
“A hybrid procurement operating model
may offer the best results, by balancing
business proximity with purchasing
power leverage.”Samir Khushalani
Americas Practice Leader for
Procurement Advisory
Source: KPMG International, Procurement Advisory Pulse Survey, 2014
© 2014 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International.
KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does
KPMG International have any such authority to obligate or bind any member firm. All rights reserved.
15
Keys to Procurement Operating Model value delivery
To achieve maximum value, align the POM
to key factors including the company’s
unique strategic goals, operating
environment and purchasing power
levers. Multi-dimensional procurement
performance improvements can be
achieved via Procurement Operating Model
transformation.
POM transformation has been shown
to drive value in the 3 top-ranked
priority areas: performance, business
alignment and governance
As organizations transform, the
benefits of past models are retained
as procurement evolves into its new
structure.
1.
2.
3.
Hybrid operating models are enabling
leading-edge organizations to unlock even
further value from the procurement
function.
No single model can deliver its particular
benefits indefinitely. Continuously monitor
and adjust the model to ensure
procurement function delivers sustained
value.
Three key findings:
Takeaway…
Now is the time to focus
less on driving down
supplier’ prices and
more on driving up
value.
KPMG.com/ValueofProcurement
Christian RastKPMG in Germany
T: +49 69 95870
Samir KhushalaniKPMG in the US
T: +1 713 319 3570
Jon TrosKPMG in the Netherlands
T: +31206 564056
www.kpmg.com/pulse
© 2014 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG
International. KPMG International provides no client services.
The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour
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