Jakarta Post
This article originally appeared in The Jakarta Post.
Procurement is often a company's biggest cost item, in some industries accounting for as much as 80 percent of total costs. And it is often one of the first areas companies target for cost savings. However, when companies set out to gain those benefits, they often find themselves face to face with a daunting obstacle: Global procurement organizations often are not optimized to make the most of the opportunities.
What are the challenges? Business unit leaders may hold sway over how to organize procurement and may design it for their own needs, not for global performance. Separate organizations may work toward different objectives, giving the global procurement function less power than it needs—operating without a clear mandate and struggling to convince countries to participate. In fact, when Bain polled 75 North American executives about their procurement capabilities, nearly all readily admitted that organizational hurdles made it difficult to reach full savings potential.
Thankfully, companies are discovering a way out of this quagmire, building highly skilled global organizations that seamlessly connect across dozens of countries, efficiently managing categories at the global, regional and local levels. These companies have learned that transforming a global procurement organization takes time and careful planning, but it pays off. Consider the case of a financial services company operating in more than 40 countries. A year after starting its transformation, the company is on target to save 8 percent of its total spending and is positioned to make those savings stick year after year.
Winning companies start the process of building a world-class procurement organization by assembling a group of the most senior leaders for a steering committee. With the right approach, a company can devise a robust, globally accepted blueprint within two or three months.
Then after four to six months of fast-paced implementation, it can typically see and lock in tangible savings. By properly linking the project to savings initiatives, a company can amortize project costs after only a few months. For example, at the financial services company, savings began accruing four months into implementation.