Some procurement functions have risen to the challenges of COVID-19. Others have struggled to adapt. What separates the leaders from the pack?
Prior to 2020, much of the discussion was focused on procurement’s need to become more agile, but the continued impact of COVID-19 has created a real imperative. It’s been a catalyst for change - rapidly evolving market conditions and changing demands on procurement on top of the ongoing relentless march on the digitalisation journey. This has increased the urgency for procurement to fundamentally change its ways of working – with some organisations adapting quickly and successfully, while others struggle to make the crucial changes needed for success.
As our economy changes and businesses adapt to the new normal, the winners will be those that have reimagined the procurement function as a means of helping organisations to unlock greater value and shape recovery efforts further down the road.
Rigid procurement operating models were once seen as a strength – a way of establishing strong controls and robust spend management. These legacy models are looking increasingly out of kilter with accelerating business change – hampering organisations’ ability to grow rather than aiding it. We frequently see the traditional procurement sourcing engine failing to satisfy stakeholders’ demands – for example in supply base innovation and risk management. Proponents of these rigid models might argue that the operating models were not designed to deliver value in these areas – that they could be adapted to these ends. But that is not the point. Demands on businesses are changing rapidly, businesses need a procurement operating model than can adapt rapidly to deliver value where it’s needed.
To drive continued value in the digital age and build resilience against market disruptions, procurement needs to reimagine itself. This requires moving away from being a largely rigid, cost focussed and often siloed function toward a more flexible, collaborative, and lean capability. Critically, this more agile way of working sees procurement integrated with the business and therein better able to anticipate business and market demands. What is more, this agility enables procurement to better respond to those business demands through enabling adaptive processes, empowered teams, and flexible resources models.
What does an agile procurement function look like?
But what does an operating model need to look like to be truly agile and support the future ways of working? KPMG has identified 5 core attributes of an agile procurement operating model:
o Human centric:
- Processes are intuitive and simple – built around people
- Design is informed and continually evolved with insight from internal and external sentiment analysis
- People and career paths are at the heart of the design
- Function is flexible, able to pivot to changing market and business priorities at pace
- Specialist internal and external resources ramp up and ramp down to support projects
- Teams are self-organised with accountability cascaded
- Cross-functional and cross capability teams are the norm
- Seamless internal and external interactions, blurring functional and business lines
- Information and insights flow through the network, transparency through the business and supply chain
o Forward Focused:
- Core procurement processes are highly automated / low touch
- Function is focussed on change and continuous improvement
- Innovation and competitive advantage are priorities
o Purpose driven:
- Aligned and shaping business objectives and strategy
- Focussed on value and purpose rather than savings
- Skewed toward value creation rather than process execution
What do organisations need to prioritise to succeed?
While the benefits of an agile operating model may be accepted, many organisations struggle to get the implementation right. It’s important to call out that to successfully implement an agile approach, the implementation should extend beyond functional boundaries and consider all aspects of the operating model. For example:
- Service delivery model: People can work from anywhere reducing the need for a physical procurement hub. Instead, procurement is embedded in the business and a flexible category team model allows resources to pivot to high-value business-critical projects where needed.
- Processes: Processes are calibrated and adjusted based on risk/opportunity assessment e.g. on-boarding and due diligence processes differ for supplier start-ups versus established corporates. There are no “procurement” processes, but rather an end-to-end customer-centric journey that cuts across functional areas. This means that everything starts and ends with the customer..
- People: In the future model, there are natural cross functional teams with porous boundaries between procurement and the business, making secondments in and out of procurement common and further embedding procurement in the business. Skills in business partnering and performance improvement are core, cementing procurement’s focus on innovation to support growth
- Technology: A core digital platform provides end-to-end S2P consistency augmented by an ecosystem of connected best of breed solutions that enables reach to extend beyond the organisation’s boundaries
- Data and Insight: Data and insight is at the heart of the function and considered a core asset. Procurement data is business data – recognised and used across functions to support key decision making across the business.
- Governance: Governance is lean and agile with decision making devolved to working teams. Cross functional teams are accountable for business outcomes and not just functional Key performance indicator (KPIs).
What are the tangible benefits of getting agile procurement right?
When agile procurement is implemented holistically across all layers of the operating model, there is potential to deliver tangible step-change benefits. For example:
- Increased customer satisfaction: Intuitive self-service enables frictionless procurement for requesters, enabled by processes that are built around people and sentiment.
- Enhanced value: Procurement resources are focussed on high value and business-critical tasks drawing, and leveraging. insight from across functions.
- Doing more with less: Reduced effort on transactional and operational processes, enabled by automation as well as quick access to the right expertise at the right time because of a wider internal and external resource pool.
- Improved responsiveness and speed: Increased connectivity and collaboration both across functions and externally reduce handoff delays. Flexible organisational construct enables greater responsiveness to business demands and reduced cycle times.
- Better business alignment: Procurement and the business are tightly aligned and move toward common business goals, enabled by procurement’s embedment in the business and common data and insights.
As business recovery becomes the priority and organisations adapt to the new normal, procurement must play an integral role in unlocking value and driving resilience. To do so, procurement will need to re-imagine the operating model and move toward more agile ways of working. While COVID-19 has created a burning platform for agile procurement, those who implement quickly and effectively are set to unlock cross-functional benefits for years to come.
To discuss how you can drive an agile procurement operating model, please contact me