Optimizing Procurement Management: Structuring for Growth

Industries Profiled:
Energy; Computer Hardware; Manufacturing; High Tech; Medical Device; Telecommunications


Companies Profiled:
Allegheny Energy; Apple Computer; Cogentrix; Deere; Entergy; Halliburton; IBM; Medtronic; Mirant; Qualcomm

Study Snapshot

This Best Practices Benchmarking^® Report profiles a highly-regarded group of companies that have proven procurement organizational excellence in place. These companies have not only demonstrated effective operating principles and winning strategies in procurement management, but they have also enabled their procurement organizations to contribute hard-dollar cost savings that positively affect bottom-line profitability.

By studying other organizations’ best practices in procurement management, your company can better understand how to allocate budget and staffing resources, as well as predict growth needs and improve technological capabilities.

Key Findings

The procurement management research uncovered general trends affecting corporate and business unit procurement organizations across multiple industries. Best Practices, LLC was able to identify and profile many of the tactics and most effective practices embedded in these companies winning procurement management strategies. Survey data and best practices interviews reveal the following key lessons learned:

• Companies are shifting to centralization. Benchmark data indicates that companies are shifting to more centralized procurement functions to curb maverick spending and redundant efforts.  Centralized procurement organizations can more easily leverage supplier relationships and facilitate bulk purchases to create economies of scale. Companies with a decentralized corporate culture can centralize some activities, such as drafting policies and setting overall cost reduction goals.
• Buyers are becoming portfolio managers. – As the Internet facilitates easier purchasing opportunities, buyers in corporate procurement roles are taking more control over the entire buying process.  Self-serve procurement programs allow buyers to manage the whole supply chain for certain contracts, from order to delivery. 
• Central procurement organizations help reduce staffing and budget needs. – In comparison with benchmark partners with decentralized procurement functions, centralized procurement organizations require smaller staffs and budgets to operate. The main reason is that in a decentralized company, each business unit is responsible for similar functions.
• Tracking upcoming projects helps predict procurement needs. – Benchmark companies overwhelmingly agree that the number one indicator to predict growth needs is the number of upcoming projects planned for the year. Once projects gain final approval, procurement organizations can set timetables with key purchasing dates.
• Coordinated Procurement Activities – Benchmark partners observe the critical importance of coordinating procurement activities under a common strategy to drive procurement success.  Top companies establish procurement strategies, standards and regulations centrally to maintain company-wide procurement consistency. 
• Business Partner Insights – Benchmark findings suggest that top organizations recognize that business unit needs are always changing.  To offer just-in-time procurement assistance to the company, top corporate procurement organizations create open lines of communication with business unit leaders and procurement professionals. 
• Procurement Leadership Skills – To understand and meet business needs, procurement professionals in top organizations have a set of key leadership skills.  Benchmark partners observe the importance of identifying critical leadership skills and developing hiring and development plans to meet the company’s procurement needs. 

Survey Analysis 
• Coordinating Procurement Activities with Company Needs 
• Managing Procurement Staffing and Budgets
• Consolidating Procurement Spend with Technology
• Measuring Procurement Performance

Best Practices in Procurement Staffing, Roles and Budgets 
• Clarifying Ownership and Responsibilities
• Predicting Staffing and Budgets
• Consolidating Spend through Technology
• Building Leadership Skills
• Enhancing Supplier Diversity Diversity Programs

List of Charts & Exhibits

Centralization vs. Decentralization
Assigning Procurement Responsibilities
Purchase Card Usage
Corporate Spending Limits
Business Unit Spending Limits
Companies with Self-Serve Procurement
Companies without Self-Serve Procurement
Centralized and Hybrid Procurement Staff
Decentralized Procurement Staff
Supplier Diversity Staff
Supplier Diversity Staff vs. Revenue
Centralized and Hybrid Budgets
Decentralized Budgets
Centralized Outsourcing Budgets
Decentralized Outsourcing Budgets
Benchmark Companies’ Supplier Diversity Budgets
Supplier Diversity Budgets
Purchasing Technologies (by percent of companies using technology)
Self Serve Procurement Tools
Procurement Organization Performance Metrics
Tracking Metrics to Measure Success
Predictive Growth Leading Indicators
Tracking Leading Indicators to Predict Growth Needs
Sample Three-Year Plan
Company 7’s Procurement Leadership Skills