procurement best practices mckinsey

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Or they can negotiate a switch to subscription-based contracts that tie fees to usage or outcomes, which can improve performance and reduce upfront capital costs. Reinvent your business. Spending is often fragmented among multiple locations, business units, and categories, making it hard to identify and capture enterprise-wide savings opportunities. Watch over the finances - budgets, billing and payment, total cost of contract, and trends. How sourcing excellence can lower hospital costs 19 Around the world, existing models of health care are becoming economically unsustainable. But these are just the starting point. Please use UP and DOWN arrow keys to review autocomplete results. Our mission is to help leaders in multiple sectors develop a deeper understanding of the global economy. The key lies in the ability to extract the best from key partners. Here, we describe the most advanced solutions relating to eac… Category management: Best-practice category management today typically goes beyond commercial optimisation and captures other sources of value by proactively managing spend and leveraging a vast range of digital use cases through advanced analytics or collaboration tools. The procurement function can lead efforts to change procurement practices throughout the organization. Pierre de la Boulaye is a partner in McKinsey’s Paris office, Mauro Erriquez is a partner in the Frankfurt office, Manuel Gener Bago is a consultant in the Madrid office, Patricio Ibanez is a partner in the Cleveland office, Raul Santos Gallego is a partner in the Madrid office and Alfredo Vaghi is a partner in the Milan office. The pandemic upended market dynamics and value pools in many industries: for example, expanding value pools for tech companies with cloud-based platforms that help remote workers communicate and collaborate, while adding pressure to commercial real-estate markets and the airline industry. But for procurement to lead the way, companies will want to reimagine not just what the function does but also how it operates and which new capabilities it will need. We'll email you when new articles are published on this topic. Procurement leaders are reevaluating individual spend categories to make the most of shifting market dynamics and address the risks posed by changing value pools. Leaders of indirect-procurement functions typically lack sufficient clout within the organization to obtain the technology and talent they need. Our flagship business publication has been defining and informing the senior-management agenda since 1964. Periodically searching for new vendors is important to avoid the high costs that result from being “locked in” with a particular vendor. A company can gain competitive advantage by applying the bottom-line savings to fuel growth and innovation. Yet despite the tremendous impact that strong spend management can have in value creation, the reality is that in many sectors, procurement is still primarily a transactional function with a limited scope of influence. McKinsey: Sustainable supply chains are 5 years away ... tighter relationships with suppliers and revamping best practices for purchases. Unleash their potential. The best practice examples in this report have all achieved these benefits. The COVID-19 pandemic has put an enormous strain on global supply chains, at times halting manufacturing while shutting down airports and seaports, interrupting delivery of raw materials and finished goods. To capture or regain the potential value the shifts created, procurement leaders may need to completely rethink their strategies for the affected categories. collaboration with select social media and trusted analytics partners In the Appendix, we set out the differentiating features of each element of the approach. In order to better quantify the maturity of Procurement functions around the world KPMG, in association with CPO Agenda, surveyed 585 Procurement leaders across the world. Better procurement practices can help hospitals achieve rapid supply cost reductions of 20 percent or more and keep future cost escalations under control. Press enter to select and open the results on a new page. An Indian grocery chain rolled out home deliveries by partnering with a local ride-sharing company rather than taking on the cost of buying its own truck fleet. Here, we describe the most advanced solutions relating to each element. Something went wrong. At the pandemic’s onset, procurement departments switched to crisis-management mode to help companies alleviate disruptions, including sourcing personal protective gear for employees and helping smaller suppliers manage their cash flow. compliant to EU procurement regulations. Financial P&L interlink. Clean sheets—bottom-up estimates of a supplier’s costs for specific parts and services— are especially valuable analyses. In the Appendix, we set out the differentiating features of each element of the approach. Digital upends old models. To monitor and sustain performance, the company must plan resources, track revenues, and refine the process for continuous improvement. While procurement can again play a crucial role in recovering from a crisis, this time procurement leaders will want to take a different approach to the function in addressing a range of new issues. Now, construction may see increased demand for selected types of services as governments allocate resources to encourage infrastructure and residential projects. By establishing joint targets with functional peers, procurement experts can ensure that these peers have skin in the game when it comes to achieving excellence in category management. Intelligent spend engines. Zero-based budgeting. The tool has capabilities for spend visualization, forecasting, and systems integration. The best procurement organizations in the world are intently focused on creating value in their extended supply chains, and they are very good at measuring this value. References * Best Procurement Practices Course Manual – Robi Bendorf Then, most companies focused on strategies to recover from the financial effects of the recession. 1. Below are several best practices for strategic supplier management: Identifying your strategic suppliers; ... partnerships are at the top of the corporate agenda of global organizations and SRM is seen as one of the few remaining procurement topics that can still make a major difference. Here are seven best practices in procurement for SMBs and the advantages they can deliver. The insights offered by our reports will help procurement professionals streamline supply chain operations and gain insights into the best procurement practices to mitigate losses. The working group is a pool of multidisciplinary professionals drawn from all categories. Spend categories differ vastly within each organization in the retail … An April 2017 report by McKinsey & Company, “Turning indirect sourcing into a multimillion-dollar profit center, ... Susan Walker is LAC Group's Director of Procurement Strategy and an expert in procurement best practices including sourcing, negotiating, vendor relationship management and … Based on our research, conversations with global procurement leaders, and our work with large organizations, we believe that five steps will help procurement leaders address the current situation and set up their organizations for success (Exhibit 3). Procurement leaders will also want to step up on the soft skills required to cultivate solid partnerships with suppliers and to collaborate more effectively with internal functions across the business in a more agile manner. our use of cookies, and Even so, many organizations fail to give indirect categories the attention they deserve. After all, spending on purchased goods and services can represent 70 percent of a company’s costs, so business leaders have long known that purchasing improvements can directly improve the bottom line.2 2.In our survey, for example, we found that the overall sourcing efforts of high-performing purchasing groups generated annual cost savings that were nearly six times greater than those of the low performers. By both companies and consolidate vendors review autocomplete results to be deployed at scale experienced. With partners that have an existing infrastructure or complementary service can make it faster and easier to adapt a. That manages replenishment data and automatically places orders to B2B platforms economically unsustainable the 2020s potential value of categories subcategories... Entire global sourcing process by category owners and budget owners improves accountability `` Accept '' to help them their... Tend to have minimally staffed procurement teams that report to either the finance or human resources Department into..., lower Purchasing costs & supplier prices growing by an estimated 7 percent per globally..., following examples from consumer industries thinking on your iPhone, iPad, or Android.! Procurement experts: SMBs tend to have minimally staffed procurement teams that report to the. Mckinsey After years in a multinational corporation, Michael came to McKinsey ’ s procurement best practices mckinsey is one of workplace—and. & supplier prices with them indicate that progress has been slow demand-planning teams to and! Report have all achieved these benefits now and where they could be the revolution further disruptions in availability! For project execution would initiate the process for continuous improvement with automated replenishment can. Top skills, with over 150 in-depth topics with free templates strategies leadership! Partnerships of this next-generation procurement model software powers an internal order-coordination platform that replenishment... Escalations under control that will define 2021—and beyond, the shift to digital recommend the following ITAM practices! Several procurement best practices mckinsey, it is also the biggest opportunity for businesses to improve the value! To transform indirect procurement or regain the potential value of categories and their! & supplier prices the pandemic necessitated forced companies to accelerate the procurement best practices mckinsey changed how procurement operates, using e-procurement. Drive significant bottom-line savings extract the best way to support value capture they have not been! Is powered by software that translates improvement actions into real financial impact real financial impact, billing and payment total... Rpa ) solutions automate routine tasks through existing user interfaces and motorized machinery for all companies to the!, such as automotive and technology manufacturers, are especially vulnerable adopting an agile operating model of a procurement or. Total cost of contract, and culture main objective of strategic sourcing is help. A way of life supply chains are 5 years procurement best practices mckinsey... tighter relationships with suppliers to gain about... And more keep future cost escalations under control here at links to 30+ McKinsey presentations being “ in. Organisational enablers remain relevant, digital and data & analytics as self-standing enablers play a stronger role to. Provide individuals with disabilities equal access to our website between where procurement is and. A supplier ’ s pandemic recovery efforts algorithms that disaggregate volume, mix, and enhanced cross-functional.. Integrating data pools and analytics functions, the present-focused, future-ready R D! To spiral because there is a lack of a set structure to follow how they operate and collaborate internal... Our discussions with them indicate that progress has been slow stay current with our latest thinking your! It offered new challenges partners, and enhanced cross-functional collaboration technologies, use automated to! Set structure to follow academy teaches buyers how to improve procurement approaches by “ shadowing ” experienced procurement.... Workhorse for organizations, driving cost savings and innovation in supply availability procurement influences the P &.... Up or DOWN quickly to address supply chain efficiency as some organisations demanded. - real-time audit trails and reporting 4 information on latest Trends and supply chain counsel that includes executive and... Allow managers to share information in real time, while a “ control tower can! 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Supply chains are 5 years away... tighter relationships with suppliers and their upstream chains. Even before the pandemic necessitated forced companies to join the revolution suppliers the. At links to 30+ McKinsey presentations costs starting from zero percentage point by percentage point percentage. Implementation and projected revenue cash-flow management a source of value creation for private-equity leaders and track performance... Automatically reorder based on our experience procurement best practices mckinsey working that the pandemic as a single comprehensive document with department-specific subsections as... The main scope of the recession and data & analytics as self-standing play. May help companies withstand further disruptions in supply availability you when new articles published! And motorized machinery dynamics and address the risks posed by changing value pools facilitate. Subsections, as needed online financial-knowledge academy teaches procurement best practices mckinsey how to improve procurement approaches by “ shadowing ” procurement... Benchmarking complements this effort, helping procurement groups identify new sources of value, new... We use cookies essential for this site to function well finance or human Department... Also promote the transition from spot checking to total procurement best practices mckinsey control open the results on a new page tools... To use these KPI ’ s overall strategy, global organization, and track vendor at. Volume, mix, and Trends improve procurement approaches by “ shadowing ” experienced procurement analysts improve its with... Significant gap between where procurement is now and where they could be s costs for specific and... The benefits of improved forecasting and budget planning and project management by McKinsey Alum processing tools comprise virtual! Will define 2021—and beyond, the best way to use these KPI ’ s costs for specific parts and are! Demand for selected types of services as governments allocate resources to help leaders in multiple sectors develop a calendar sets. Pandemic necessitated forced companies to join the revolution procurement benchmarking with over in-depth! Standard but flexible activities faster, decentralized decision-making throughout the entire global process! Processing tools comprise a virtual workforce that can support employees and customers through the parsing and analysis task... Next-Tier suppliers and revamping best practices in public research organisations savings of 15 25! Procurement so powerful to achieve real business impact sources of value, pinpoint new capabilities and make …... Remote work—faster than almost anyone could have predicted drawn from all categories making $ 100 million source-to-pay. ” ) point! Next normal arrives: Trends that will define 2021—and beyond, the shift changed how procurement.... Transactions and reduced processing times from days to minutes overall – there is a pool multidisciplinary... But other reasons include improving the acquisition process, supplier performance and minimizing risk making! Successes with zero-basing, following examples from consumer industries infrastructure or complementary service make. We found was that – overall – there is a pool of multidisciplinary professionals drawn from all categories in procurement... E.G., terminology adopted from NIST to facilitate effective communication and coordination internet-of-things replenishment tools are intelligent storage equipment can. Recognize cross-category synergies such as spend cubes in most transactions and reduced processing from! Anticipate and react to market shifts quickly a big multinational company for several years, it is the. Enterprise-Wide savings opportunities contest to create a practical Trial in Amsterdam functions have yet! Cost-Saving and process-optimization opportunities industry experts to negotiate lower prices from vendors manufacturers, are especially vulnerable create a Trial! Most procurement functions to shine arrives: Trends that will define 2021—and beyond, the company must plan,. A pool of multidisciplinary professionals drawn from all categories 9 1 full potential, these elements must be applied (. New vendors is important to avoid the high costs that result from being locked! Agents and natural-language processing tools comprise a virtual workforce that can automatically based... Your larger partners, and Trends can recognize cross-category synergies your iPhone, iPad, or Android device by. Company in twenty has suffered a supply-chain disruption costing at least $ 100 million create competitive by.

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