Tapping into full value your procurement organization

A potential recession. Inflation. Increased interest rates. Rising labor costs. Continued supply chain disruptions.

Faced with these and other factors, many companies are now looking for new and better ways to cut costs and drive more savings through procurement transformation. We believe that companies with a proactive, strategic approach to procurement excellence today will likely outperform their competitors in the months and years ahead.

Key areas for increased value and savings

Procurement organizations have many tools to capture value at their disposal, including tax optimization, increased controls and improved data management. While these are important elements of a comprehensive procurement strategy, they may not provide the near-term payback that the C-suite is expecting in the current business climate. To tap into more immediate returns, procurement organizations should turn their focus to include innovative thinking around value generation in the following areas:

Cost of Goods Sold (COGS) directly affects the bottom line of any company. Typical approaches include using digital tools to consolidate spend and drive sourcing events, but more and more companies are looking to lower their costs by redefining their overall procurement operating model.

There is no “one size fits all,” but several different strategies can be leveraged to future-proof your procurement organization. This includes using suppliers in low-cost countries, outsourcing business processes, centralizing certain tasks within a Center of Excellence (COE), or engaging in managed services deals. Companies need to look at the tasks performed throughout their procure-to-pay (P2P) process and assess where tasks can be optimally performed to ensure that the cost to serve is commensurate with the return in value for COGS.

Selling, General & Administration (SG&A) expenses can be reduced through technology that provides more return on each invested dollar. Digital tools like robotic process automation (RPA) artificial intelligence (AI), and cognitive innovation are expanding the horizon for automating tasks and creating opportunities for employees to focus on more productive tasks. Blockchain and the use of smart contracts holds tremendous potential. Touchless processes are being deployed to ensure the frictionless flow of commerce.

We should also note that while automation is a key lever in reducing SG&A costs, the human side of sourcing and procurement will always play a critical role. Successful companies recognize the importance of recruiting top talent and providing career development tracks that empower and retain valuable employees. Category innovation and supplier relationships are more important than ever, and companies need to ensure that all employees have the tools they need to keep up to date with the latest innovations that help them expand and develop their capabilities.

Working Capital is another area where procurement can help unlock value. Extending payment terms is a typical lever to help improve cash flow, but other related activities can also provide significant value. Payment trigger dates and payment run optimization can support flexibility in the payment process. Supply chain financing can also be an attractive approach for companies that can take advantage of their credit position with their banks or corporate card providers, helping these companies to improve their working capital position while still paying their suppliers within the agreed-upon terms.

Risk Mitigation has increased in importance since the onset of the pandemic since many companies saw their supply chains suddenly run into numerous obstacles that directly impacted their operating ability. Third-party risk, data risk, information risk, supply risk, and IT security risk must now operate in lockstep to safeguard a company’s supply chain and ensure its resilience. Risks are constantly changing, and procurement organizations need to have a seat at the table and be proactive in monitoring supplier risk and driving actions that maintain the flow of supplies.

Case in point: procurement transformation on display in full color

KPMG LLP (KPMG) helped a leading paint and coatings company transform to a centralized global indirect procurement function, enabled by leading digital technology. Leveraging our deep experience and tested methodology, KPMG helped stand up a global indirect procurement function to deliver millions in savings.

The client was experiencing rapid growth based on a number of major acquisitions. That led to an extremely complex global landscape of plants, offices, stores, and other sites using disparate back-end systems. The integrated company needed a way to embed controls, improve compliance, increase spend visibility, and drive savings on a global scale. The focus was on unlocking overlooked value within indirect procurement in a controlled manner, without disrupting day-to-day operations.

The company chose KPMG as their transformation advisor. A multi-year roadmap and associated business case was developed to help guide the transformation and validate a compelling return on investment for the program.

Unbiased guidance from KPMG helped the company select Coupa—a cloud-based business spend management technology platform—as the foundation for their transformation.

KPMG worked closely with the client to develop a self-funded transformation program based on the following elements:

Sourcing execution; KPMG developed a stage-gate approach to sourcing to enable contracting, manage risk, and capture savings. Our team leveraged Coupa’s Sourcing module to show how spend categories would be optimized, how our client’s complex business requirements would be incorporated, and ultimately identify commercially optimal solutions.

Coupa Procure to Pay (P2P): Following our Powered Enterprise implementation approach, more than 200 certified KPMG professionals worked to enable Coupa’s procurement technology. A multiyear roadmap across multiple regions was established to quickly scale up the deployment. This planning helped to drive more efficient transactions, improve process efficiencies, and create a simplified Source-to-Pay process.

Talent and organization: To enable the transformation and sustain long-term benefits, a Center of Excellence was created to develop process standards, establish policies, drive compliance, and enable better organization across the Source-to-Pay process.

Policy and governance: The KPMG team helped align tools to policies and develop a change-management approach tailored to each of the deployments. This approach helped lower implementation costs and enable faster decision-making, ultimately delivering greater speed-to-value.

Reporting and analytics: To scale across the enterprise, it was imperative to develop spend visibility, create reports, and standardize process governance. These reports also drove accountability and were published on a regular basis.

Vendor management office: The transformation also focused on supplier enablement by making it possible for vendors to manage their own order flow, purchase order, and invoice processes within the Coupa interface to help ensure accurate and efficient payment processing.

KPMG closely supported the company as it deployed Coupa’s technology to serve 22,000 users at more than 200 locations in 20 countries. By connecting employees, suppliers, and contingent workers across the globe, the company transformed their indirect procurement operations to get to the next level of maturity.

The shift to the new procurement operating model enabled by a digital platform produced immediate and substantial benefits including:

96 percent of invoices backed by purchase orders due to the adoption of new buying channels
50 percent decrease in average requisition approval cycle times through optimized approval flows that meet the requisite controls
14,000 strategic suppliers enabled on the Coupa Supplier Portal

As originally planned, these savings and improvements were enough to make the program self-funding, but the supply chain disruptions caused by the COVID-19 pandemic revealed an additional benefit: synergizing the supply base and having real-time access to data that made it easier to lock in the most reliable and consistent sources of supply.