This article originally appeared in the Bangkok Post.
Procurement is often a company's biggest cost item, in some industries accounting for up to 80% of costs. And it is often one of the first areas companies target for cost savings. However, many global procurement organisations are not optimised to make the most of such opportunities.
What are the challenges? Business unit leaders may organise and design procurement for their own needs, not for global performance. Separate organisations may work towards different objectives, so the global procurement function lacks a clear mandate and struggles to convince all countries to participate. In fact, when Bain polled 75 North American executives about their procurement capabilities, nearly all admitted organisational hurdles made it difficult to reach full savings potential.
Our work with hundreds of clients has helped us to pinpoint areas where companies fall short—mandate and buy-in, roles and responsibilities, skills and capabilities and a lack of effective key enablers such as properly defined systems, standards, spending transparency and performance tracking.
Based on our work with clients, initial project savings typically range from 8-12% of total purchasing costs, with savings of 3-4% reaped annually after the transformation journey ends.
Klaus Neuhaus is a Bain & Co partner based in Duesseldorf, Germany, and leader of the firm's global procurement practice. Alexander Schmitz is a partner based in Duesseldorf and a leader in the performance improvement and private equity practices in Germany. Tobias Umbeck is a partner based in Munich and a leader with the organisational and results delivery practices in Germany. Francesco Cigala is a partner based in Malaysia and Southeast Asian head of the performance improvement practice.