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Wie fit ist Ihr Einkauf?

In a series of ten regular posts published by the Procurement Leaders Global Intelligence Network I looked at the different facets to transform procurement to a partner of choice

Part 4 - bespoke procurement organization

2012-12-11 16:21

December 2012

Thought Leaders is a series of regular posts from experts from across industries and regions, looking at the issues procurement faces today. This is the forth in a sequence of posts by former Deutsche Post DHL CPO, Hugo Eckseler looking at new and innovative solutions to pave the way to the next performance level in procurement.

In my last blog I discussed the importance of performance management and new tools to support spend analytics, professional category management and the budgeting and forecasting process. Today I want to share some thoughts on the organization and the operating model of procurement as one of the top ten levers to drive procurement toward a new value proposition.

At the first glance there seems to be little doubt about the optimal organizational structure: the majority of organizations around the world now subscribe to a more centralized operating model enabling businesses to leverage their buying power across the globe, gain greater control of their spend and build core standard business processes to drive greater consistency and value from Procurement (KPMG survey 2012, The Power of Procurement). But despite the expected shift to an even higher level of centralization, another study (The Deloitte CPO Survey 2012) underlines the need to have a closer look at the subject: in evaluating the optimal model, 63% of CPOs were in agreement that whether a function was centralized is entirely determined by circumstances. Success and failure obviously depend on the right choice of a number of decisive factors.

Business Partner Relationship Management
The consolidation of procurement (and other non-customer facing functions) in centralized Global Business Services fundamentally changes the relations and communication channels between the procurement staff and their internal customers. It requires a professional business partner relationship management and new skills in procurement (see blog of Sammy Rashed http://bit.ly/NDK0LE).
What is the best solution – training of every buyer to become a ‘salesman’ for procurement or assigning designated professional relationship managers? More thoughts and my personal view you will find in my next blog.

Management in a matrix structure
The typical structure of a center-led organization is a matrix of global category managers and central experts versus de-central procurement departments spread across geographical regions or business units. The roles of the protagonists and their authorities within such a complex network will differ depending on the business structure, the regional footprint of the company as well as on the nature of the spend categories. For notebooks e.g. the emphasis is clearly on central management of corporate contracts with a few global suppliers, whereas the procurement of utilities and facility management services needs much more local/regional involvement.
What does this mean for the job description of a category manager? Should there be a ‘solid’ reporting line to the members of his global team including responsibilities for target setting and performance appraisal? Or does he/she better play the role of a coordinator trying to harmonize strategies, procedures and tools across the globe?
Are category managers (in many cases highly specialized procurement experts focused on their special subjects) prepared to ‘live’ the matrix and what kind of training and coaching do they need to cope with the new task?

Information & Knowledge Management
The pace of change in the global economy and the volatility of supply markets have been paramount over the last few years. In turn, access to market data and trends, the ability to analyze them systematically and to draw the right conclusions have never been more important for procurement than today. Modern information & knowledge management must make use of the Internet, specialized information brokers and internal business warehouse systems; it needs new skills in Procurement to unearth the treasure.
Is that best organized by category due to their different natures and needs or in a center of excellence with a few smart people specialized on data analysis and market research?

Robust and efficient purchasing operations
The standardization and automation of transactional purchasing processes is a proven concept in industry to reduce cost and improve compliance. There is unanimity among the experts that the consolidation of such operations in Shared Service Centers is the best solution, but there are different routes to get there - from a merely internal solution all the way down to complete outsourcing/offshoring to external service providers. Important to keep in my mind how poor performance in day-to-day operations can annoy the company’s entire user community and damage procurement’s reputation …
There is a wide range of e-tools available today designed to support the purchase-to-pay process. The choices companies have include the set-up and maintenance of own electronic product catalogs or the use of a full-service package from external providers. One of the key qualifiers from my point of view is the user-friendliness of the chosen solution (see my blog http://bit.ly/XFHaiv)

Alignment of operating model and business strategy
There are a few fundamental questions that need clear direction from the C-level executives, e.g. whether to set up procurement as a cost center or as a profit center. In case of a cost center the options deployed in industry include central budgeting and allocation of cost to the business units via simple KPIs (e.g. share of spend) or more sophisticated models with stronger involvement of regions/business units in the budgeting process and cost allocation based on individual Service Level Agreements.
Profit center models seem to be increasingly on the radar screen of CFOs of international companies what includes the option of a separate legal procurement entity and the a spin-off to a low tax country. Needless to say that such a decision requires a thorough evaluation by internal and external tax experts.

Conclusion
The choice of the right procurement organization is far from being trivial and needs a thorough evaluation of all relevant options to ensure that procurement is integrated into the business and partner of choice for risk management and value creation.
In every case there is no ‚one-size-fits-all solution‘, every transformation is unique. In order to avoid costly detours and frustrated business partners it is smart to learn from other companies or senior advisors who have gone through the exercise already.

Hugo Eckseler has been working more than thirty years as CPO and manager in manufacturing, logistics and quality management at Deutsche Post DHL, 3M, WELLA and other multi-national companies. Today he works as senior consultant looking for innovative solutions in procurement and supply chain management.

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