Strategy Definition

strat·e·gy : Procurement Strategy

1)  A method or plan chosen to bring
Defines a plan for
about a desired future, such as
•  Optimizing external spend,
achievement of a goal or solution
procurement operations and
to a problem;
other value contributions
2)  The art and science of planning
•  In a manner that supports
and marshaling resources for
the overall corporate agenda
their most efficient and effective
use.”

Without a comprehensive Procurement Strategy in place, it’s impossible to know

whether or not your procurement organization is aligned with the corporate
strategy, and whether or not progress is being made

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Procurement Strategy Components

INPUTS
Business Unit Data Market/Economic Data Corporate Financial Data
•  Strategic Plans •  Regional Economic Forecasts •  Earnings Projections
•  Budget •  Major Commodity Indices •  Tax Treatments
•  Capital Projects •  International Monetary Trends •  Cash Flow Projections
•  Supplier M&A Activity •  Growth Projections
•  Category Market Intelligence •  Cost of Capital

STRATEGY

Procurement Strategy
- Category Strategies - Operational Strategies

OUTPUTS
Operations
Earnings / Budget Impact
Spend Forecast Data •  Cost of Procurement
•  Capital
•  Cash Flow/Savings Forecasts •  Efficiency Metrics
•  O&M
•  Demand Forecast •  Quality & Service Metrics

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 What’s in a Procurement Strategy?

Examples of
Gap Analysis of Current Procurement Strategy Resource
State Plans
Components

Vision

Opportunity Strategic Plank

Analysis Roadmaps

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Five Steps For Creating an Effective Procurement Strategy

1.  Understand where your procurement operations are today.

2.  Identify what’s important — to the procurement organization
as well as to the overall company.
3.  Define what success looks like.
4.  Develop measurable targets that define success.
5.  Implement and measure your strategy.

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Polling Question

How would you describe your organization’s approach to

Procurement Strategy

A.  We do not utilize one

B.  We informally have a strategy, but it’s not documented
C.  We have a simple documented strategy, but it’s not very
comprehensive, more of a vision statement
D.  We develop a procurement strategy annually, using a formal
approach and it is documented and distributed throughout the
organization

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Understanding Your Current Baseline

Value Efficiency

Understand how your

Understand your
procurement
organization’s current
organization is
operational efficiency
currently adding or
and effectiveness
creating value

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Determining Where You Are Today

Gather current Get feedback from

performance data stakeholders and suppliers

Benchmark against
industry peers
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Developing your “Value” baseline

TYPICAL VALUE BENCHMARKS & DATA

•  Percentage of spend under management
•  Percentage of contract compliance
•  Total savings and savings as a percentage of spend
•  Return on procurement investment
•  Category coverage
•  Supplier counts; Suppliers with 80 percent spend
•  Savings breakdown by source
•  Opportunity estimates by category

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Developing your “Efficiency” baseline

TYPICAL EFFICIENCY BENCHMARKS & DATA

•  Procurement cost-per-dollar spend
•  Procurement spend per employee
•  Procurement cycle time
•  Organizational size
•  Budget cost per employee
•  Turnover percentage
•  Number of sourcing events
•  Technology utilization
•  Payment terms

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Determining What’s Important – Linking Corporate &
Procurement Objectives

•  Growth targets
•  Profitability
•  Mix of efficiency and effectiveness
targets •  Corporate budgets
•  High level cost, quality and service •  Product mixes
metrics •  Outreach & diversity
Corporate
•  Metrics rolled up to the overall Level
combined supply chain/procurement A B C
level

•  Process oriented metrics Operational Level A

Supply Chain
•  Efficiency and effectiveness
•  “Point and click” drill down
capability
•  Direct roll-up of portfolio Department Levels
metrics Sourcing Logistics A
A/P

Portfolio/Supplier/Individual A A A A A A A A
Level

• Cost/Quality and Service

metrics
•  By Category
•  By Supplier
•  By Buyer

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Linking Corporate and Procurement Objectives

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Polling Question

How well do you link corporate and procurement objectives?

A.  Not formal process for linking the two

B.  They’re linked, but mostly as it relates to corporate cost savings
targets
C.  We formally link corporate and procurement objectives, and have
regular dialogue to ensure that we stay consistent

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Defining Success

When defining success, be holistic. It’s not just about savings. Consider all
dimensions of Procurement in defining success.

ProcureAbility’s Dimensions of Procurement Effectiveness

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Define success through actionable implementation planks

EXAMPLE

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Developing Measurable Targets

PROCUREMENT DASHBOARD EXAMPLE

•  Helps to ensure linkage of

corporate objectives to category-
specific savings targets
•  Allows for visibility of key cost, quality
and service performance at various
levels
•  Provides a consistent tool to
track key metrics linked to the
Procurement strategy
•  Ensures the Procurement organization
is focussed on mutually-agreed upon,
consistent performance metrics
•  Provides the basis for a formal
continuous improvement approach to
Procurement

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 Sourcing Dashboard Metrics

Examples of Sourcing Dashboard Information

Cost Metrics Quality Metrics Service Metrics
Cost of Materials/Services •  % Order Completeness •  % On-Time Delivery
•  Total Supply Chain Cost •  % Returns •  % On-Time Job
•  Annual Savings •  % Defects Completion
•  Market Basket Indices •  % Rework •  PO Cycle Time
•  Cost per Unit (Category •  # Complaints •  Response Time
Specific) •  Report Card Scores
•  $ Spend Under Management
•  Contract Compliance Operational Metrics / Information
•  Inventory Levels
•  Transportation Cost •  Open Sourcing Projects
•  # of Suppliers •  % of Spend Managed
•  % of Spend Sourced
Cost of Sourcing/Procurement •  Schedule vs. Actual By Project
•  Procurement Cost per $ Spent •  Personnel Assignments & Status
•  $ Sourced per Procurement •  Market Trends
Professional
•  Procurement Cost vs. Budget

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Managing Implementation of the Procurement Strategy

KEY STAKEHOLDERS EXAMPLE

Plank Teams
Category
Procurement Executive Steering Management
Council
Client Skills
Departments Development

Support Technology
Functions Implementation
Project Management
Team Service
Suppliers Excellence

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Thank You

JOHN EVANS DON DOUGHERTY

President and CEO Executive Vice President
ProcureAbility ProcureAbility
530.550.8306 614.220.9090
[email protected] [email protected]

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