Strategic Sourcing Executive Forum 2015

Strategy& recently hosted two forums that brought together senior sourcing and supply management executives across an array of industries to discuss important issues and opportunities facing sourcing and supply management today.

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Strategic Sourcing Executive Forum 2015
Getting it right: Building supply management capabilities aligned to strengthen your enterprise strategy for the future
Strategy& recently hosted two forums that brought together senior sourcing & supply management executives across an array of industries. Themes this year: • Bolstering capabilities needed for today while setting the stage for tomorrow • Moving to a next-generation value measurement model • Leveraging spend analytics for pragmatic and insightful understanding The daylong event combined Strategy&’s perspectives, pre-event survey highlights, and in-the-moment discussion among participants. Findings included: Capabilities: Bolster for today, build for tomorrow Developing Sourcing & Supply Management (SSM) capabilities that align with the corporate enterprise strategy is critical. Event findings indicated that SSM executives have a good understanding of long-term objectives for their companies, and more than 50% reported an opportunity to better align capabilities to deliver on the strategic agenda.

Requirements driven by the organization (Taken as inputs for sourcing strategy) Corporate Strategy: Differentiated value proposition

Strategy& framework to develop a sourcing capability system Sourcing ways to play
– Overarching approaches for sourcing to create value for the larger organization and meet each of the categories’ objectives – Sourcing’s ability to achieve a specific purpose or outcome – Capabilities fall into three categories: table stakes, advanced, and differentiating – Network of capabilities connected by processes, systems, skill sets, decision rights, and organization – The network itself can also be differentiating

Sourcing capabilities Sourcing capability systems

Category Strategies: Value proposition for each line of business

Furthermore, expectations are changing for the SSM function: • SSM is increasingly called upon to drive value beyond the cost agenda, enabling growth as well • Organizations are shifting from a “spend management” way of thinking to a “partnering for growth” mind-set • Companies are shifting their way to play in the evolving market – (re)building capability systems to deliver on their vision A frequently heard challenge: design career models that attract, grow, and retain the right capabilities and talent both for today’s requirements and to meet long-term strategic objectives. Nearly 80% of participants reported that existing talent meets basic SSM requirements but may not possess the higher-level capabilities needed in the future. • Existing capability building and career path options are lacking • Value proposition for top talent needs to be enhanced • Stronger retention strategies and advocacy are required Next-generation value measurement As expectations have shifted, the SSM organization must be a business partner and drive cross-functional engagement with stakeholders to enable value creation beyond simple cost savings. Most organizations have work to do – only 50% described having balanced, enterprise-level value measurement reporting capabilities today. In order for SSM organizations to deliver value, executives must meet the challenge to close this capability gap. Inadequate value measurement capabilities can shift the organizational focus away from the critical agenda. •  Stakeholders debate the amount of value created and jockey for allocation of credit • Incentives become misaligned and result in less-optimal actions • The credibility of and funding for the SSM organization may be challenged

Cost-to-cost bridge illustration
Total direct material (DM) cost 1.8% Market drivers -0.5% 5.8%
0.2%

-3.4% Procurement drivers

0.6%

0.6% 3.8% Business drivers 100%

109%

2013 realized DM cost

Volume effect

Mix effect

Design changes

Market price effect

F/X changes

Compliance Procurement Other effect initiatives

2014 realized DM cost

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Strategy&

To change the conversation, leading SSM organizations are developing more robust next-generation value measurement programs that focus on: • Institutionalizing strong foundational “hard” savings tracking, and tracking all drivers of total realized costs • Broadening the scorecard to cover all value-creating activities • Creating joint accountability for broader business metrics with other functions • Ensuring alignment and buy-in from stakeholders Participants identified the necessity of joint collaboration and accountability between SSM and stakeholders in setting and achieving value targets, but acknowledged that supporting practices were not in place in nearly half of all instances – leaving the door open for improvement. Harness the power of data, unlock spend insights Accuracy and visibility into spend data is a consistent challenge for organizations. Participants overwhelmingly (>85%) reported that spend analytics are important but, at the same time, not an area prioritized for investment by their organizations. The penalty for underinvestment can be significant – it consumes resources, masks inefficiency, and impedes performance. In our view, spend analytics capabilities, when built in an integrated and robust way, drive actionable insights.

– Clear vision & objectives – Executive sponsorship – Aligned priorities & scope – Defined KPIs

Spend analytics strategy

Organizational structure &

– Organizational maturity & capabilities – Investment in strategic resources – Integrated practices & governance

Actionable insights
– Information access availability – Data integrity & management – Information prioritization strategy Enabling tools – Capabilities-enabling technology – Cost-effective solutions – System integration strategy

Information

Source: Strategy& analysis

To meet the challenge, organizations are developing more robust programs by: • Defining spend analytics strategies focused on organizational enablement and aimed at maximizing ROI • Cultivating talent able to capture information, interpret findings, and derive actionable insights • Integrating pragmatic, fit-for-purpose technology - today, participants typically rely on multiple solutions to support requirements • Selectively choosing metrics to ensure that critical information is reported and less valuable detail muted • Adopting a philosophy of continuous improvement aligned with organizational requirements

Strategy&

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SSM functions have an opportunity to build organizations and capabilities that deliver on the strategic agenda. A pragmatic, results-focused approach is the first step to achieving this success. Please contact us for additional information on the event survey or forum content. http://www.strategyand.pwc.com/global/home/what_we_do/services/operations/ ops_service_areas/sourcing

Contacts

Chicago Eric Dustman Vice President +1 312 578-4740 eric.dustman @strategyand.pwc.com Reid Wilk Senior Executive Advisor +1 248-872-6792 reid.wilk @strategyand.pwc.com Cleveland K.B. Clausen Principal +1-216-696-1737 kb.clausen @strategyand.pwc.com

Detroit Sebastian W de Meel PwC | Principal +1 313 394 6025 sebastian.de.meel @us.pwc.com Florham Park Al Kent Vice President +1-973-410-7660 albert.kent @strategyand.pwc.com

Minneapolis Richard Sheinfeld PwC | Principal +1 (917) 806-5756 rich.sheinfeld @us.pwc.com New York Martha D. Turner Vice President +1 212 551 6731 martha.turner @strategyand.pwc.com

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