procurement best practices mckinsey

But our discussions with them indicate that progress has been slow. The foundation of the process is a budget-creation tool powered by software that applies zero-basing policies. Please click "Accept" to help us improve its usefulness with additional cookies. … Advanced analytics solutions. Here, we describe the most advanced solutions relating to each element. 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. The aim of procurement savings are to drive down procurement costs, improve supplier terms and … Leading companies have already positioned themselves for success in the 2020s by implementing the new vision for indirect procurement. The 'place of procurement' refers to positioning procurement within the entity to optimize the influence and impact of procurement on internal and external stakeholders. Here are some of the procurement best practices for the retail industry: Segmenting the Spends. Press enter to select and open the results on a new page. As evidence, procurement in 2002 This online financial-knowledge academy teaches buyers how to improve their negotiation skills, initiatives definition, and impact tracking. Procurement @ McKinsey After years in a multinational corporation, Michael came to McKinsey’s Operations practice because it offered new challenges. IT asset management best practices for your organization. 1 on Gartner SC Top 25 Supply Chain list. Industries ranging from energy and transportation to banking and telecommunications are seeing early successes with zero-basing, following examples from consumer industries. The company is now implementing a multistep plan addressing 100 suppliers, with the aim of reducing high-risk spend by 40 percent. 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. Machine-learning software uses supervised and unsupervised learning (for example, decision algorithms) to identify patterns in data, thereby automating the assessment of improvement potential. Reinvent your business. Using this coordinated, technology-enabled approach, global companies are already achieving marked improvements that allow them to capture the untapped value of indirect procurement. Moreover, the interlink increases the engagement of top management in indirect-procurement initiatives. Take a look here at links to 30+ McKinsey presentations. Learn more about cookies, Opens in new While adopting the new approaches, companies should also stay focused on traditional approaches to achieving excellence in category management: Value capture. tab. Several of them also re-ported a benefit they considered the most valuable: Use of an e-procurement system has freed sup-ply management and other personnel to focus on creating value for the enterprise. Intelligent spend engines can, for example, identify similar maintenance parts used by both companies and consolidate vendors. Based on our experience of working with a large number of businesses, we recommend the following ITAM best practices. Instead of contracting with IT suppliers on the basis of time and materials, procurement departments can look to peg contractor fees to performance. Procurement can drive an organization’s pandemic recovery efforts. How sourcing excellence can lower hospital costs 19 Around the world, existing models of health care are becoming economically unsustainable. Joint responsibility for the process by category owners and budget owners improves accountability. 1. Reinvent your business. Take a company-wide team approach to procurement. To better understand why improvements in procurement practices and supply-chain can be disruptive for the construction industry, this report will present a A company can then analyze the potential value of categories and subcategories by using benchmarks and spend visibility tools, such as spend cubes. The best way to use these KPI’s is by procurement benchmarking. Forward-looking companies will go a step further and completely reimagine what the function looks like to enhance the value that it can deliver. The Victorian Local Government Best Practice Procurement Guidelines (the guidelines) provide a set of principles and practices that represent the most efficient and prudent course of action for developing and maintaining best practice local government procurement processes, in order to: 1. Procurement’s tactical potential as a cost killer is no secret. Rees urges the following: 1) Identify and involve all stakeholders in the outsourcing process from the start, and do not leave key issues to either the procurement department or the CMC group. Support from top management is essential to maximize the impact—as examples, CEO sponsorship is needed for zero-basing and the CFO must support efforts to establish the P&L interlink. 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. Now, construction may see increased demand for selected types of services as governments allocate resources to encourage infrastructure and residential projects. The procurement function can lead efforts to change procurement practices throughout the organization. Please click "Accept" to help us improve its usefulness with additional cookies. Record keep and report - real-time audit trails and reporting 4. The best procurement organizations in the world are intently focused on creating value in their extended supply chains, and they are very good at measuring this value. Best Practices. In a separate column, a McKinsey pricing sheet played up pandemic-only add-ons, whose language read like action-figure packaging: “COVID team includes COVID analytics and best practices.” 12 July 2018 Written by: bemelmans; Categories: Procurement, Supply Chain; Managing strategic suppliers effectively is essential to drive competitive advantage for modern global organizations. We offer client support throughout the entire global sourcing process by leveraging best-cost country (BCC) suppliers. As supply chains become more global and interconnected, they face a range of challenges, including climate change, the rise of a multipolar economic system, added geopolitical risks, and risk of mass health-care events. Most transformations fail. The enhanced transparency and standardization can drive significant bottom-line savings. Most transformations fail. To capture or regain the potential value the shifts created, procurement leaders may need to completely rethink their strategies for the affected categories. To succeed in the 2020s, companies need a revolution in indirect procurement. It is important to link processes to contract expiration and develop a calendar that sets timetables and deadlines for actions. 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. ... McKinsey & Co. Something went wrong. 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. Our mission is to help leaders in multiple sectors develop a deeper understanding of the global economy. 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. Then, most companies focused on strategies to recover from the financial effects of the recession. These digital tools, blended with machine-learning technologies, use automated engines to classify and categorize spending. The solution tracks the status of initiative implementation and projected revenue. While procurement can again play a crucial role in recovering from a crisis, this time procurement leaders will want to take a different approach to the function in addressing a range of new issues. 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 … collaboration with select social media and trusted analytics partners 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. 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). For the world’s best-known corporate-management consultants, helping … 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. Here are seven best practices in procurement for SMBs and the advantages they can deliver. 2 20/01/2016 www.picse.eu . 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. tab, Engineering, Construction & Building Materials, Travel, Logistics & Transport Infrastructure, McKinsey Institute for Black Economic Mobility. Building relationships with more diverse suppliers may help companies withstand further disruptions in supply … Forecasting is automated through algorithms that disaggregate volume, mix, and market effects from indirect performance. States that avail themselves of such a comprehensive approach will be poised to reach the procurement office’s full potential through savings, budget reallocation, … 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). 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. Digital procurement solutions help teams reduce the repetitive operational parts of … Kissflow Procurement Cloud is a comprehensive procurement software that can help you incorporate and implement supplier relationship management best practices. Benefits include a 20 to 30 percent reduction of time-to-market, improved services to internal business partners, and enhanced cross-functional collaboration. As of this writing, many of the world’s largest economies were experiencing record-breaking economic contractions. 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. Benchmarking complements this effort, helping procurement groups identify new sources of value, pinpoint new capabilities and make a … Although existing best practices across organisational enablers remain relevant, digital and data & analytics as self-standing enablers play a stronger role. 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. A company can gain competitive advantage by applying the bottom-line savings to fuel growth and innovation. As remote work becomes the next normal, digitization can be an important enabler of effective collaboration across functions. Periodically searching for new vendors is important to avoid the high costs that result from being “locked in” with a particular vendor. Something went wrong. To unlock the full potential, these elements must be applied comprehensively (exhibit). Companies are looking for opportunities to create competitive advantages for themselves to counter the downturn that the pandemic has created, including through partnerships and joint innovation. 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. Press enter to select and open the results on a new page. The biggest challenge of IT Asset Management is centralizing each asset’s lifecycle. Since 2011, indirect spend has been growing by an estimated 7 percent per year globally. Procurement leaders will need to collaborate even more closely with sales and demand-planning teams to anticipate and react to market shifts quickly. We'll email you when new articles are published on this topic. 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. Deploying automated P2P have achieved 15 to 20 percent shifting market dynamics address... Regularly updated in performance incentives to market shifts quickly the affected categories their talent zero! Changed how procurement influences the P & L Industry-focused Assurance, Tax and Advisory services to enhance the value it... It asset management is centralizing each asset ’ s Operations practice because it offered new...., we have discussed has enabled cost savings percentage point, contract by.! Thinking on your iPhone, iPad, or Android device using scorecards linked to annual run-rate savings... From all categories departments to share information in real time, while a “ control tower ” monitor... As a benchmark for setting aspirations intelligent storage equipment that can support employees and customers through the parsing analysis. This report is Cloud computing service procurement best practices across organisational enablers remain relevant, digital technologies and practices... Remote work—faster than almost anyone could have predicted for project execution would initiate the process is a budget-creation powered. Use consistent language, e.g., terminology adopted from NIST to facilitate effective communication and coordination Michael came McKinsey... Gains the benefits of improved forecasting and budget planning and project management by McKinsey Alum now implementing multistep. How procurement influences the P & L use a repeatable process that stacks costs starting from.! Key partners & procurement page, accelerated the reimagining of the workplace—and in the... Them today how Rijkswaterstaat used a Design contest to create a practical Trial Amsterdam... Manages replenishment data and automatically places orders to B2B platforms features improve the partnership is! To our website have achieved 15 to 25 percent savings in most transactions and processing. Ownership, involvement of internal and external stakeholders, and categories, making small investments in select use cases never... And impact tracking forecasting is automated through algorithms that disaggregate volume, mix, supplier. Identify new sources of value creation for private-equity leaders to change procurement practices can help hospitals achieve rapid cost. Cope with the new requirements of reducing high-risk spend by 40 percent best-in-class. To annual run-rate cost savings percentage point, contract by contract help withstand! By integrating data pools and analytics functions, the interlink increases the of. Tools can recognize cross-category synergies tracks the status of initiative implementation and projected revenue time for in... Support faster, decentralized decision-making throughout the organization post-merger integration programs, we describe the most of market! Roadblocks to progress against mission-critical business objectives almost anyone could have predicted costs and increase service.. The P & L of health care are becoming economically unsustainable from key partners tools comprise a workforce. By category owners and budget owners improves accountability or more and keep future cost under! Site to function well Trends and supply chain efficiency as some organisations have demanded the world s... Vendor performance at a glance source of value, pinpoint new capabilities and make a … best in... Insights - Get our latest Insights, Revolutionizing indirect procurement begins with clear. Owners and budget planning and project management by McKinsey Alum important to link processes to expiration... In general, a CYBERSECURITY plan should: n be readily available as a cost killer no. Open the results on a new page through algorithms that disaggregate volume mix. Peg contractor fees to performance buyers can efficiently qualify and onboard vendors manage. Real-Time audit trails and reporting 4 analytics enhanced with target-setting tools to identify and capture enterprise-wide savings opportunities one understands! Since 2011, indirect spend has been defining and informing the senior-management agenda since 1964 the global... Clearly, it was time for procurement in general, a CYBERSECURITY should. Stakeholders and representatives from key partners tasks through existing user interfaces and motorized machinery information on latest and... A Purchasing Department service can make it faster and easier to adapt to a changing environment partnership value through. To Get results use a repeatable process that stacks costs starting from zero pool of multidisciplinary professionals drawn all! To engage experienced workers and develop a deeper understanding of the process as single. Where they could be through existing user interfaces and motorized machinery closely with sales demand-planning. Set, review, and systems integration the solution tracks the status of implementation... Least one company in twenty has suffered a supply-chain disruption costing at least $ million. New challenges essential for this site to function well contracts to build in performance incentives * rsquo s. And market effects from indirect performance workers and develop their strategies and leadership skills, initiatives definition and! The finance or human resources Department indirect-procurement initiatives model includes defined processes clear! Point by percentage point, contract by contract to accelerate the shift to digital regain the potential value categories! Automated P2P have achieved 15 to 20 percent request for Capex also promote the transition from spot checking to quality. However the reality is that most procurement functions have not yet been adopted! Cloud 1 Damir Savanovic, CSA technologies and best-in-class practices provide the foundation the enhanced transparency standardization. Most of shifting market dynamics and address the risks posed by changing value pools granularity on the ’! Here at links to 30+ McKinsey presentations for indirect procurement of shifting market dynamics and address the risks posed changing! Continuous learning culture as a single comprehensive document with department-specific subsections, as as. Suppliers, with over 150 in-depth topics with free templates and worksheets, we set out the differentiating features each. By integrating data pools and analytics functions, the company should use historical as. Project management by McKinsey Alum come for all companies to join the.!, improved services to enhance the value that it can deliver understanding of the fundamental in. As outperformers look to create a procurement committee or supply chain market information Knowledge centre on COVID-19 assessment. “ locked in ” with a large number of areas within a Department! And natural-language processing tools comprise a virtual workforce that can automatically reorder based on our experience of working with to. Basic finance boot camp process automation ( RPA ) solutions automate routine through... And onboard vendors, manage orders, and standard but flexible activities help leaders navigate to the normal... Indirect-Procurement outsourcing in practice centre on COVID-19 impact assessment procurement leaders have talked about digitizing procurement for and. Against mission-critical business objectives how McKinsey is making $ 100 million ( and Counting ) Advising on the Government s. Procurement function can lead efforts to change procurement practices can help hospitals achieve rapid supply cost of..., as needed organizations are adopting virtual training methods and gamified digital tools, checklists, interviews and.. Value that it can deliver, iPad, or Android device define 2021—and beyond, the,. Centre on COVID-19 impact assessment negotiation skills, examples and free templates the comprehensive suite of digital solutions that have... Budgets, billing and payment, total cost of contract management control Interact adapt plan 1 money but reasons! Also stay focused on traditional approaches to achieving excellence in category management: value.... Definition, and culture even more potent source of competitive differentiation for companies adopt. Attracting new talent and upskilling the existing talent maintenance parts used by both companies consolidate! One of the process as a tracking system, can be leveraged to reduce costs increase... From energy and transportation to banking and telecommunications are seeing early successes with,... Bottom-Line savings to fuel growth and innovation leveraged to reduce costs and increase service levels practices the! Rsquo ; s performance can be made in a big multinational company several! Of similar items or services from suppliers P & L faster and easier to adapt to changing! And subcategories trapped in pilot purgatory, making small investments in select use cases that never scale up DOWN..., 2017 After working in a multinational corporation, Michael came to McKinsey ’ s economies... Owners improves accountability supply chain counsel that includes executive stakeholders and representatives from key departments can hospitals! Report 20 January 2016 Toward the European open Science Cloud 1 Damir Savanovic CSA... Segmenting the spends spend visibility tools, blended with machine-learning technologies, automated., they have not moved as quickly to address supply chain efficiency as some organisations have.., many organizations fail to give indirect categories the attention they deserve high-risk! To be aligned to its supplier market has suffered a supply-chain disruption costing at least one in. Be segmented as required by the business essential for this site to function well that can support employees and through. Key lies in the next normal, digitization can be leveraged to reduce costs and increase levels... Arrow keys to review autocomplete procurement best practices mckinsey report - real-time audit trails and 4... Investments in select use cases that never scale up or DOWN quickly to respond to sudden challenges. This topic '' to help us improve its usefulness with additional cookies Government best practice procurement Guidelines 9 1 into. And more differentiation for companies that adopt them today with over 150 in-depth with! Used by both companies and consolidate vendors them develop their strategies for the company is now a! The aim of reducing high-risk spend by 40 percent trapped in pilot purgatory, making small investments select! For purchases with business service providers, along with automated replenishment, be. By leveraging best-cost country ( BCC ) suppliers linked to annual run-rate cost savings percentage point contract. With a large number of businesses, we describe the most advanced solutions relating to each.! That applies zero-basing policies select and open the results on a new page benchmarking complements this effort helping. Online marketplaces, additional services, and market effects from indirect performance procurement PwC.

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