What challenge(s) do our clients face?
In addition to the constant challenges of reducing external spend costs, Procurement organizations are increasingly being held accountable to support innovation, risk management and sustainability
Procurement organizations are being increasingly challenged to provide additional value to their companies. CEOs recognize that a large proportion of their cost structure (up to 2/3 in Consumer Goods) is represented by external spend and continue to look at Procurement for ways to reduce these costs. Moreover, companies are looking to Procurement, not just as a driver for cost reduction, but also as an important source of innovation, supply risk management and sustainability.
However, transforming the Procurement area from one which just carries out transactional activities into a BU that drives competitive advantage and undertakes strategic activities is not simple. Under this new mandate, we see our clients’ procurement organizations under pressure to balance and realize competing needs; from reducing procurement costs and lead times, to improving service level to other business areas, managing risks of disruption and developing innovative and sustainable solutions hand in hand with suppliers. All this whilst carrying out numerous operational tasks which absorb resource, time and effort.
To achieve this transformation to become a ‘best-in-class’ Procurement organization, multiple changes must be realized; bringing together strategy, governance, roles, processes, methodologies (such as Supplier Relationship Management, Strategic Sourcing etc.), technologies and analytical capabilities.
How do we help?
We help our clients develop a best-in-class Procurement model through a pragmatic approach which is sensitive to their context, goals and starting point.
Integration has supported many companies in their journey to becoming best-in-class. Depending on our clients starting point, moment or context, different challenges or ambitions with relation to the Procurement area may occur. We adapt our approach based on their needs in these varied instances, for example:
- When our clients need to lower their costs base, Strategic Sourcing is a powerful tool, which directly impacts the bottom line. We shape this tool to match the specificities of their industry all the way from screening suppliers to the RFP and negotiation process.
- When there is the need to increase suppliers’ service level or to reduce the procure-to-pay process lead time, we support our clients with a complete revision of their procurement processes and systems, comparing against best-practices and benchmarks to identify important efficiency gains.
- In moments of higher uncertainty due to climate, operational or market pressures, companies may face business and operational disruption in their supply chains, supporting the case to revise their procurement strategy, assumptions, policies and reinforce risk management. We help our clients identify their sources of risk and determine where / how they should develop alternative sourcing to make their supply chains more resilient.
- As resource pressures mount and access to natural resources becomes more restricted, organizations must implement sustainability actions along the supply chain following organizational guidelines. Alongside our Sustainability Competence Center, we make sure our clients processes and policies are designed to be responsible, avoiding sourcing from unsustainable suppliers and being in compliance with organizational or statutory sustainability standards.
- During Mergers and Acquisitions there are often triggers to transform the procurement strategy or the sourcing area due to scale gains, more negotiation power, exchanges in best practices and the possibility to capture synergies. We design and implement an optimized procurement strategy considering the changes of the new business and guaranteeing a comprehensive analysis of internal and external benchmarks.
- When procurement needs to play a more strategic role and become a relevant party in business decisions, we help our clients identify the impacts in culture, leadership, technical and non-technical competences to sustain the desired role and create a coherent roadmap for this evolutionary journey.
Our experience acting in different contexts, sectors and countries, enables us to help across these scenarios through bringing both an ‘internal and external vision’.
We can challenge your internal operation through our proprietary methodologies and analytical tools which give you greater visibility of costs of opportunities; and we help you apply the most adequate sourcing strategies and techniques for different categories based on our knowledge of the external market.
What are the benefits?
- Reduction in total purchasing costs, with a historical average of 7% to 12%. (Savings vary between categories and can be up to 30% in a given category);
- Improvement in internal service levels and reduction of on average 10% to 30% in the lead times of the purchasing processes;
- Visibility of total costs and not just raw material purchasing costs;
- Traceability and visibility of purchasing processes, increasing transparency and compliance;
- Higher resilience in the supplier’s chain through better risk management;
- Improvement in integration between Sourcing and other client areas and interface improvements;
- Promotion of Sourcing to be an enabler for sustainability actions along the supply chain;
- Higher quality of purchased products and hired services through adopting clearer metrics in contracts / SLAs.
How does it work?
Integration’s framework for Procurement Strategy & Transformation considers 6 pillars:
Depending on your need we may act in some or all of the above pillars. For example, if our client wishes to undergo:
- Complete revision of the sourcing model: here we act in all 6 pillars. This is usually when the organization wishes to undergo a transformation in the Sourcing department to turn it from a more transactional to a more strategic area.
- Strategic Sourcing our focus is on total cost reduction, and thus our work is linked to the pillars of Strategic Sourcing of Categories, Performance Management and, if necessary, Structure and Competences. In this case, it is common that we support our client not only in developing purchasing strategies, but also during negotiations and signing contracts.
- Process revision and automation: here the focus is on the pillars of Efficient Processes and Systems, improving the department’s internal service levels, gaining efficiency and improving compliance. Often, this is also connected to the pillar of Structure and Competences as more efficient processes and systems may lead to a different organizational structure and sizing.
- New supplier management model: acting in the Supplier Relationship Management pillar, we focus on improving relationships with suppliers, increasing resilience and implementing sustainability actions along the supply chain.
Across every project, we aim to leave a positive heritage. For us, this means firstly preparing you for the future through on the job training of the Sourcing team throughout the project. This involves training sessions, joint action in defining purchasing strategies, as well as supporting negotiations up until signing – which guarantees the permanence of this knowledge in the company. Secondly, it means building together across the business, through involvement and action alongside the main stakeholders from top management and from the client areas, ensuring integration and implementation of joint actions.
A global business specialized in health insurance with >US$200 billion in revenue contacted Integration to help them in redesigning their purchasing area and associated processes.
The main challenges to overcome included:
- A Supply team under prepared to carry out the transformation intended and having low credibility with user groups and top management.
- A lack of structure in the Supply Chain area with key functions fragmented throughout the company (e.g. planning and logistic executed by user areas).
- Strategic sourcing applied to a few categories and knowledge centralized in just a few people.
- Scarce application of advanced sourcing techniques and methodologies.
We worked closely with the client team and C-level sponsors to address their needs through both capability development and technical solutions. From a human side, this involved empowering the procurement team, training more than 20 people throughout the project with on-the-job coaching and also helping with the selection and hiring of key people for the new Supply Chain area (going above and beyond our agreed scope).
Technically, we achieved a complete restructure of the supply chain areas (supplies, planning and logistics) coupled with development of a new organization model to increase centralization and thereby improve visibility, governance, standardization and planning. With this new architecture in place, we were then able to implement several strategic sourcing projects (for more than 20 categories), shifting the role of the purchasing area from being transactional to strategic.
The procurement area was able to significantly expand its role with +95% of purchases being centralized. Furthermore, we saw important efficiency savings, with a 15% reduction in costs for categories targeted by the project and reduction of inventory levels by more than 5 days for pilot hospitals (17%), whilst maintaining the same service level.
A large international Agribusiness client (with >US$ 14 billion in revenue) asked for Integration’s support in capturing savings targets set by the global leadership and, consequently, to effectively reduce sourcing costs.
The existing client procurement area was heavily focused on operational activities having few strategic initiatives and not leveraging synergies between different business units; whilst purchases were completely decentralized between the countries without a transparent policy adherence or cost control governance.
Working with their team which spanned 10 countries, we supported the company in undertaking a complete review of their sourcing strategy, structure, processes, policies and governance.
From a structure perspective, we concentrated on achieving a balance between centralization/standardization, to be in accordance with company’s global rules whilst respecting the particularities and differences which had to be accounted for in the differing regions. This led to the redesign of the team structure to create regional category management cells and local structures for the deployment of contracts.
Simultaneously, from a Strategic Sourcing perspective, we defined a purchasing strategy for categories and redesigned and implemented an operational purchasing process which was aligned with all teams and stakeholders, enabling the execution of additional initiatives in the company that would bring immediate and incremental savings.
A successful implementation with a strong focus on embedding the numerous changes led to:
- Reaching the top-down savings targets in sourcing (>10% of total spends)
- Reduction of purchasing lead time and centralization of purchases
- Improvement in service levels from suppliers
- 95% PO compliance
Our client, a large technology company, needed to go through a process of general restructuring of the purchasing area. They had identified that the role and scope of the area was insufficient to drive the savings and control they required, and they lacked robust purchasing policies, processes and systems to support the operation.
A strong driver for our work was giving the organization control. With this in mind, we worked with management and key stakeholders to define a set of clear purchasing policies which would apply going forward and implementing Strategic Sourcing techniques which would optimize performance across the main categories.
Furthermore, working across IT, Procurement and Finance areas we also supported on all stages of a system definition to facilitate the areas work: from the selection of the new system to the closing of negotiations and start of the implementation.
By project completion, we had reviewed and defined all purchasing policies and processes (across S2C, P2P, Contract Management etc.) and supported with their implementation, alongside the new purchasing system. This led to a total saving of 12% across the categories addressed.
A packing manufacturer with operations distributed across four countries in Latin America, required our support in centralizing its procurement organization to capture economies of scale. With >US $6.8 billion in revenue, the business had the size to achieve significant gains, but was struggling to deal with the fragmented nature of the operations, with different maturity levels between countries and few categories being purchased on a global scale.
They key to this challenge was building a deep understanding of the regional operations and maintaining ongoing contact and alignment to ensure transitions or changes were handled in a respectful and collaborative manner.
The project defined which categories would be negotiated at a global scale versus regional. A new structure was put in place to carry out these strategic regional purchases backed by new processes, governance and KPIs, all aligned with each operation’s individual needs and the requirements of the company as a whole. These were informed by benchmarks of other regional and global companies Integration was able to bring through its expert network.
The project led to increased standardization across the regions and an increase in the efficiency of the teams. Through adopting better processes more unilaterally, it led to a total saving of 8% for categories which were part of the project scope.
OUR INDUSTRY EXPERIENCE
We have built an extensive track record across different sectors helping companies to achieve historic savings as well transforming the role Procurement plays in their business. We have worked with leading regional brands in the Services industry, in sectors such as Education, Construction and Media and Entertainment, as well as with multiple Consumer Goods, Packaging, High Tech and Agribusiness businesses.
We also have particularly significant expertise in the Healthcare/Pharmaceuticals sector, with deep knowledge in all its specific categories and with different industry players, including hospitals, health insurance providers and centers of diagnosis.