Products and services represent a large part of the cost base of an organisation and therefore are of prime focus in any transformation program.
Many organisations have evolved their sourcing function over time resulting in decentralised models that may not effectively serve the whole organisation. The maturity of the sourcing function dictates the challenges faced by management. Organisations that have more mature operating models benefit two fold by:
- Effectively engaging the organisation to understand their sourcing requirements; and
- Sourcing efficiently to meet business requirements at a competitive price.
We approach sourcing transformation along two distinct and related streams.
Procurement Operating Model Design
In our experience an organisation with an immature operating model can potentially save 20% – 25% in procurement spend by moving to an improved operating model.
We start with an assessment of the current procurement operating model and then develop a target operating model that addresses the following:
- Sourcing Strategy – the characteristics of the organisation’s basic sourcing situation by understanding the strategic importance of the products and services and the complexity of the supply market. This feeds into sourcing strategies for commodity groups. See Procurement Cost Improvement below.
- Structure – a new target procurement organisation that addresses both centralised and decentralised structures.
- Systems & Processes – the processes and systems to support the core activities related to supply management, purchasing management and materials management.
- Skills – the competencies in terms of strategic, commercial, technical, executional and operational skills.
Procurement Cost Improvement
Essentially a Performance Improvement Diagnostic, however, with a strong focus on understanding supplier economics and developing appropriate sourcing strategies. Our approach focuses on the following:
- Researching and understanding the economics and dynamics of the supply industry.
- Evaluating sourcing strategies for commodity groups and assessing supplier capability to deliver against them.
- Structuring supply relationships jointly with suppliers and developing implementation plans.
- Working with the procurement function to implement the plans, usually in conjunction with making improvements to the procurement operating model.