In some industries, procurement spend can account for as much as 80% of total costs. IndustrialCo* found itself close to this threshold, devoting the majority of the firm's costs each year to procurement. But it wasn't getting full value for its money. Each operating company handled its own purchasing independently with little regard for the synergies that might exist across units and geographies and the global purchasing group lacked mandate and authority.
This siloed approach came with a number of costs, the most tangible of which was missed opportunities to consolidate volumes and negotiate discounts with key suppliers. Without effective global oversight, local procurement groups also lacked visibility into best practices or total ownership costs, adding another challenge to assessing the waste associated with the spend.
While many parts of procurement were murky, one thing was clear: re-building the organization with a more collaborative structure, clear mandate and global mindset was the only way to create sustainable savings.
Elements of a successful procurement organization transformation
The journey to a more collaborative and strategic purchasing organization started with a fact-based approach to determine the right level of management—global, regional or local—for different categories. Leaving emotions and internal politics aside, Bain helped the company pinpoint common purchases across business units and geographies that could be pooled or bundled to generate savings. We then assisted with external research on supplier market structures to clarify the feasibility of such synergies in light of the supplier structure: local, regional or global.
The next move was to create a laser-sharp definition of responsibilities across the purchasing organization and the necessary functions involved. Bain used a proven framework named RAPID® (a loose acronym for Input, Recommend, Agree, Decide and Perform) to assign accountability for the key elements of the decision-making process.
Finally, we developed a systematic approach to skill-building that trained and strengthened the procurement staff. With the help of external experts, the existing procurement talent pool was assessed with well-defined criteria, including standardized tests, and then individual and group programs were devised to bring the organization's skills to the next level.
A combination of internal and external analyses laid the groundwork for determining whether different categories should be managed locally, regionally or globally
Our work focused around three main pillars:
- Defining full potential savings to make the case for change: In our experience, high initial savings followed by ongoing, sustainable results are the best way to sell a procurement transformation. We held workshops with key employees in each country to estimate full potential savings, develop roadmaps and outline which changes would enable them. Ultimately, the stakeholders agreed to a goal backed by 1500 specific initiatives.
- Joint planning involving corporate and business units: We interviewed executives from a representative sample of regions and business units to develop a blueprint for viable change. This became the basis of workshops with additional executives to further refine the plan. Within five weeks, this process established buy-in across global operations for a major transformation plan.
- Execution that spotlights change management: Plans and promises are important, but most transformation efforts are doomed to fail without a solid plan for change management at the regional and local levels. We used our proven Results Delivery® approach to make implementation risks measurable, manageable and predictable. With our approach, local and global teams are encouraged to communicate regularly about risks and issues in order to develop plans to mitigate them.
- Developed a multi-year blueprint within three months, delivered visible results in the first six months of implementation
- Mobilized hundreds of stakeholders across 20 pilot countries in EMEA, APAC and Americas during implementation to work together in completely new ways; laid the foundation for successful roll-out in more than 50 countries
- Enabled significant capability-building by launching development assessments and skills-building programs
- Developed a repeatable model for driving global change that the client can draw upon for transformation efforts of other functions
- Built the organization, processes and capabilities to deliver full potential savings of more than $500 million sustainably across the world
* We take our clients' confidentiality seriously. While we've changed their names, the results are real.