Dr. Hole has contributed to build a successful Procurement Strategy for several major Norwegian companies the last 15 years.
To build a successful procurement strategy one need to look at the Strategy Definition first:
– A method or plan chosen to bring about a desired future, such as achievement of a goal or solution to a problem
– The art and science of planning and marshaling resources for their most efficient and effective use
Procurement Strategy Defines a plan for:
– Optimizing external spend, procurement operations and other value contributions
– In a manner that supports the overall corporate agenda
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.
Procurement Strategy Components:
What’s in a Procurement Strategy?
Steps for Creating an Effective Procurement Strategy
– Understand where your procurement operations are today
– Identify what’s important — to the procurement organization as well as to the overall company.
– Define what success looks like.
– Develop measurable targets that define success.
– Implement and measure your strategy.
How would you describe your organization’s approach to Procurement Strategy
– We do not utilize one
– We informally have a strategy, but it’s not documented
– We have a simple documented strategy, but it’s not very comprehensive, more of a vision statement
– We develop a procurement strategy annually, using a formal approach and it is documented and distributed throughout the organization
Understanding Your Current Baseline
Value: Understand how your procurement organization is currently adding or creating value
Efficiency: Understand your organization’s current operational efficiency and effectiveness
Determining Where You Are Today
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
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
Determining What’s Important – Linking Corporate & Procurement Objectives
Linking Corporate and Procurement Objectives
Important Questions:
How well do you link corporate and procurement objectives?
– Not formal process for linking the two
– 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
Defining Success
When defining success, be holistic. It’s not just about savings. Consider all dimensions of Procurement in defining success.
Hunnebeck Norways Dimensions of Procurement Effectiveness
Define success through actionable implementation planks
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
Sourcing Dashboard Metrics
Examples of Sourcing Dashboard Information
Managing Implementation of the Procurement Strategy
