HOW VALUE-ORIENTED IS YOUR PROCUREMENT?

FINDINGS OF THE 2012 SURVEY OF TOP MANAGERS

Highlights

• Procurement:Drivingtrillions

• Value-orientedprocurement –morethanjustsavings

• Procurementbenchmark astheideallaunchpadfor definingfuturefieldsof action

• Evaluationofprocurement:Internalandexternalper- ception

• Tried-and-testedsuccess factorsleadingtovalue-orientedprocurement

• Benchmarktemplatefor eightindustryclusters

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Page 3PREFACE

Page 4-26HOWVALUE-ORIENTEDISYOURPROCUREMENT?–

2012SURVEYOFTOPMANAGERSExecutiveSummary–CoreFindingsProcurementasacompetitiveFactor–DrivingTrillionsValue-orientedProcurement–MorethanjustSavingsStudyDesign–ParticipantsandIndustrialStructureFindings–StatusQuoinProcurementSuccessFactors–LearningfromProcurementInnovatorsAppendix–IndustrialBenchmarkTemplate

Page 27AUTHORS

Page 28 CONMOTO Value-orientedProcurement OurCompany YourContacts

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Yourssincerely,

AndreasR.VoegeleJörgBleckerThomasFortmeier

Over16trilli-oneurosandmore than70 percentof revenue:theseareat-tention-grab-bing figures.Thenumbersin questionrefer to the

volume of goods and services purchased withintheEU27.Phenomenal figureswhich reflect thesignificanceofprocurementingeneralanditsim-portanceforcorporatesuccessinparticular.

Numerous conversations with decision-makershave revealed that, aboveall, the valuepropositi-on that procurement delivers to the success of acompany isa frequentandhotly-disputedguidingprinciple. Many know from their own experiencethat procurement can contribute significantly to acompany’svalue.Othersonlysuspectthatitdoes.Onlyasmallhandful,however,haveactuallybeenableto“grasp”itsactualvalue.

As simple as it may sound, the question “Howvalue-oriented is your procurement?” needs tobeansweredinconcretetermsandbackedupbyfacts, figuresanddata.Onlybydoingsocan theperformance,the“addedvalue”ofpurchasing,be-come tangible and assessable. But what exactlydoesvalue-orientedprocurementmean?

Ontheonehand,weperceiveittobethecontributi-onitmakestowardsloweringmaterial/non-person-nelandprocesscosts,reducingtheamountofca-pitalrequired,andminimizingprocurementrisksbypursuingactivesuppliermanagement.Ontheotherhandvalue-orientedprocurementcreatesconnec-tionsanddrivesforwardprocesses,thushelpingtoentrench innovation, ecology and sustainability in

everydayactsanddeeds.Inthiscontext,ofallthefactorsinvolved,excellentemployeesacrossallle-velsofthepurchasingandprocurementsystemarepivotalcornerstonesthatsecuresupply,buildbene-ficialrelationswithsuppliersandserviceproviders,andnegotiatethebest-possibleprices.

Onethingisclear:thepressureisincreasing.Decli-ningverticalintegration,shorterproductlifecycles,increasedproductandprocesscomplexity,shortertime-to-market and consequently shorter reactiontimescallforpurchasingdepartmentstoadaptrea-dilyandswiftly,findcreativeresponsestothechan-ging general conditions, and carve out innovativesolutions.

Workinginpartnershipwithinthevalue-addednet-work is also gaining in importance in the light ofintensive debates surrounding corporate gover-nance, risksandcompliance.Theneed for indivi-dual, holistic and, aboveall, sustainable solutionsisheighteningthedemandsfacedbyfuture-orien-tatedpurchasers.Asanessentialvaluedriverwithinthecompany,procurementmusthaveanabsolutecommandofthreekeyareas:“StrategyandInnova-tion”,“Networks,CooperationandIntegration”plus“Processes,TechnologyandStandards”.

Onthissubject,our2012surveyoftopmanagersholdsamirroruptothosewithresponsibility,high-lightingthesituationasitstandswithregardtopro-curement.Thefindingsprovideyouwith the idealbasisforcontinuingtoworktowardsvalue-orientedprocurementandfordefiningfuturetasksandfieldsof action using the best in the industry as yourbenchmark.

With this inmind,wewishyouall thespeedandenduranceyouwillneedasyoucompetetoremainsustainably competitive and, of course, also theverybestofsuccess!

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Preface

Drivenbyvolatilemarketsandfiercercompetition,theclimateisbecomingincreasinglyharsher.Com-paniesareforeverbeingforcedtoadapttonewcir-cumstancesiftheywanttoachievesuccessandnotbeleftbehind.

Asacompany’svalueaddedandvertical integra-tion falls, the significance of procurement incre-ases in inverseproportion.Forseveralyearsnow,materialandnon-personnelcostshaveaccountedforasteadilyrisingshareofrevenue,which,intheautomotive sector, for example, already stands ataround70percent.Procurementisresponsibleforamajorportionofthecostsincurredinvirtuallyeverysector.Asaresult,ithassignificantleverageonthevalueofabusiness.

First-ratevalue-orientedprocurementmanagementinvolves farmore than the procurement of goodsandservicesatthelowestpossibleprices.Thena-tureof theworkingpartnershipbetweensuppliersand internal requisitioners is of prime importance:notjustintermsofsupplyguaranteesbutalsowithregard to innovation and product development.Here,theearlyinclusionofprocurementhastodaybecomethestateoftheart.Ultimately,allactivitiesneedtobeseeninthecontextofanoverridingpro-curementstrategywhichinturnisderivedfromthecompany‘sstrategy.

“Howvalue-oriented is yourprocurement?” is thequestionwhichtopmanagersfrom111companieshaveansweredbasedonelevencorestatements.In this study, theConMotoConsultingGroup hassummarizedthefindingsaswellasfuturefieldsofactionandthesuccessfactorswhichleadtovalue-orientedprocurement.

Acrossallcompaniesandindustryclusters,theove-rallgradeawardedwasa“C”,althoughtheindivi-dualgradesawardeddivergedsignificantly.Toppingthelististheautomotiveindustry,withthe“woodenspoon” going to the construction industry. Somecompanieslagfarbehindandstillhaveagreatdealof groundwork aheadof them,whilst others havealready adopted a highly professional approach.However,eveninthesecompanies,thereisstillsig-nificantroomforimprovementinvariousareas,i.e.theycanstillconsiderablyincreasetheirresultsandliquidity.

Asimportantassupplymanagementmaybe,itwasratedpoorlybythemanagersthatweresurveyed,finishingbottomofthetable,evenbehindtheswayfactors “Intensifying Competition” and “Risk Ma-

nagement”. Only four percent of all companiessurveyed stated that they made full use of theirsuppliers’ innovation potential and value-addedreserves. Even the “model industry”, the automo-tive sector, has significant room for improvement.Whenitcomestoensuringfuturecompetitiveness,thisleavesthemverymuchopenforattack.Otherstrikingrevelations:closetoonethirdof thecom-panieshaveeithernooronlyapatchyprocurementstrategyinplace.

Issuessuchas“EmployeeQualifications”,“Decisi-onEfficiency”,“OrganizationandProcurementPro-cess”receivedmid-tablerankings:notbad,butstillaclearsignthattheycouldalsodofarbetter.

Theswayfactorthatreceivedthebestscorebyfarwas“PerformanceManagement”.Thetop25per-cent of the companies in all the industry clustersincludedinthesamplemeasureandreportontheirpurchasingperformanceeverymonthonaregularbasis.

Another finding of the study: the internal versusthe external perception of procurement divergemarkedly.Thisreflectstheall-too-naturaltendencyfor people to give their own area of responsibilityahigherrating(internalperception)thantheratinggivenbysomeonewhoisfurtherremoved(externalperception).Accordingly,boardmembersandma-nagingdirectorsconsiderpurchasingless“mature”thanprocurementmanagersdotheirarea.Onlyonthequestionofdevelopmentpotentialdothedeci-sion-makersmoreor lesssharethesameopinion:theyallbelievethatthereisstillmuchtobedone.

This leavesuswiththequestionofwhatneedstooccur for such potential to be tapped as swiftlyandsustainablyaspossible.Thestudywasabletoconfirmtheformulaforsuccessappliedbyprocure-mentinnovatorsasakindof“value-orientedDNA”.The twelve core building blocks which guaranteecompanies operative excellence in procurementhavebeenextractedfromtheyear-longprojectandmanagement experience of ConMoto‘s procure-mentexperts.Inadditiontothesebuildingblocks,e.g.“DecisionEfficiency”or“HumanResourceMa-nagement”,thestudyalsohighlightsaselectionofimplementationexamples.

It can be said that the value-added potential ofprocurementhasalongwaytogobeforeitisfullyrealized.Morethanever,afirst-ratevalue-orientedprocurementmanagementsystemholdsthekeytoacompany‘ssuccess.

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HOW VaLUe-OrIeNTeD IS YOUr PrOcUreMeNT? – 2012 SUrVeY Of TOP MaNaGerS

executive Summary – core findings

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conMoto Maturity Model for Value-oriented Procurement

In order to better categorize the current situationthatprevailsinthecompaniesthatweresurveyed,ConMotohasdevelopedamaturitymodelforvalue-orientedprocurement.

Theclassificationsareshowninfigure16andillust-

ratethestatusquoasregardslevelsofprocurementmaturity.Example:if,acrossallninecoreswayfac-tors,theaveragegradeofacompanyis3.8,itwillbeclassifiedasaLevelIII“Active”companyinthematuritymodel.Theindividualdevelopmentstagesfoundinthemodelarelistedasbulletpointsbelow.

Level ILevel III

Level IVLevel V

ReactiveActive

NetworkedMover and

Shaker

Performer

InnovativeValue

Provider

Disorganized

Level VI

6.0 - 5.5 5.5 - 4.5 4.5 - 3.5 1.5 - 1.02.5 - 1.53.5 - 2.5

Level III

Level of Procurement Maturity

© ConMoto Consulting Group GmbH

Worst Case First-rate Value-oriented Procurement

Bringing up the Rear Midtable Leading Group

Level I „Disorganized“• Procurements are made by the requisitioner and are disorganized• The procurement processes are not clearly defined

Level II „Reactive“• Reactive procurement; order handling takes centre stage• Sourcing decisions are pre-empted by the requisitioner• Insufficient market research is conducted

Level III „Active“• Proactive procurement with defined procurement structures• Required volumes are not bundled through projects and/or throughout the group• Procurement invites bids for required scope

Level IV „Networked Mover and Shaker“• Procurement department is accepted as an internal partner of equal standing• The requisitioners involve procurement early on and of their own volition• The procurement processes are documented and are part of everyday company life• The required volume is bundled through projects and/or throughout the group• Procurement is the main point of contact for suppliers

Level V „Performer“• Procurement department is a process driver• Professional procurement processes lead to good procurement performance • A systematic, universal, coordinated and hands-on procurement strategy is in place• A decision-making body (sourcing committee) has been established• Sourcing decisions are coordinated internally with the process partners and reached by consensus

Level VI „Innovative Value Provider“• Procurement department is a process shaper• Highest possible decision efficiency in all procurement processes• The procurement strategy is refined on an ongoing basis; procurement is a learning organization• Suppliers are systematically included in the innovation process• As a successful value-added manager, procurement is both an innovator and value driver at the same time

Figure 16: Conmoto maturity model for value-oriented procurement

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Value-oriented Procure- ment

Our achievements over the past two years

• Manageddouble-digit,multi-billion procurement volume

• Over1.3billioneurosinsavings

• Over3,000individualmeasures implemented

• Decisionefficiencyinprocurement lastingly improved

• Leanstructuresandprocesses created

• Specificemployeequalifications

Our achievements – Your value added

Our company

For more than 20 years, Conmoto Con-sulting Group, which, since 2011, has also included Agamus Consult, has been supporting companies to secure and improve their competitiveness and sustainability. Around 80 consultants, distributed across our offices in mu-nich, Stuttgart, Vienna, Bratislava, St. Gallen and Shanghai, work competent-ly and with commitment to realize the best possible benefits for our clients. We create advantage!This is the guiding approach of our consultancy.

Our consultants with managerial ex-perience and entrepreneurial thinking realize sustainable enhancements in value for our customers. Using innova-tive methods and working hand in hand with you, we systematically implement strategies and change structures and processes effectively for the success of your company.

ConMoto Consulting Group GmbH, MunichBoschetsrieder Str. 69

D-81379 Munich

Tel.: +49 (0)89 78066-0

Fax: +49 (0)89 78066-101

ConMoto Consulting Group

GmbH, Stuttgart

Gerokstr. 11

D-70184 Stuttgart

Tel.: +49 (0)711 76779-0

Fax: +49 (0)711 76779-205

ConMoto Consulting Group

Ges.m.b.H, Vienna

Schottenring 16

A-1010 Vienna

Tel.: +43 (0)1 5850274-0

Fax: +43 (0)1 5850274-11

ConMoto Consulting Group

GmbH, St. Gallen

Notkerstr. 10

CH-9000 St. Gallen

Tel.: +41 (0)71 2440871

Fax: +41 (0)71 2431881

ConMoto Consulting Group

GmbH, Shanghai

Unit 1606, Time Square

93 Huai Hai Zhong Rd.

CHN-200021 Shanghai

Tel.: +86 (0)21 614152-75

Fax: +86 (0)21 614152-76

Agamus Consult s.r.o.,

Bratislava

Na vršku 8

SK-811 01 Bratislava

Tel.: +421 (0)2 54413304

Fax: +421 (0)2 54410635

E-mail: info@conmoto.de

Web: www.conmoto.de

www.conmoto-consulting.com

Thomas FortmeierPartner

Tel.:+49(0)71176779-233Fax:+49(0)71176779-205fortmeier@conmoto.de

Prof. Dr.-Ing. Andreas R. VoegeleManagingDirector

Tel.:+49(0)71176779-100Fax:+49(0)71176779-101voegele@conmoto.de

Jörg Blecker SeniorPartner

Tel.:+49(0)8978066-153Fax:+49(0)8978066-101blecker@conmoto.de

Your contacts

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