The Path To Procurement Excellence

THE PATH
to procurement
excellence
What sets mature, highly successful strategic sourcing organizations apart?
Which processes matter most for strategic sourcing and procurement? How
important is process maturity? How can procurement continuously make
positive contributions to corporate performance? This BOOK, with support
from a new joint study by Purchasing magazine and ZYCUS, sets out to answer
these questions.
It focuses in detail on the practices and processes that, when embedded,

appear to differentiate high performance organizations. The study tested 65
specific practices and processes often associated with strategic-sourcing
maturity and success. It also identifies practices that, while still emergent in
high performance procurement groups, are consistently associated with rising
performance levels over time.
There is something here for everybody. Learn how some of the most advanced
strategic sourcing and procurement management organizations are preparing
to meet the challenges of the coming decade.
THE PATH to ptocurement excellence

THE PATH
to procurement
excellence
A CPO’s complete reference guide
to sustainable performance improvement
through strategic sourcing
© 2007 Zycus Inc. All Rights reserved and procurement management
THE PATH
to procurement
excellence
and procurement management
procurement excellence
Prologue: The CPO’s Tale

Day One…
Picture this: You’re the new Chief Procurement Officer
(CPO) for a multidivisional international company. You
were hired by the Chief Executive Officer (CEO). You
report to the Chief Financial Officer (CFO). Your task is
to assemble an enterprise strategic sourcing and procure-
ment management team that will ultimately manage all
corporate spending. There’s a policy to make it official.
Your goal is to save five hundred million in five years.
Easy.
Six Months Later…

Okay, not so easy. People don’t like being told how to
spend (or not spend) their budgets. In fact, they hate it.
So, you install systems to monitor spend activities. Systems
cost money. Up goes your return-on-investment (ROI) bill.
And people are smart. They find workarounds for systems

they don’t like. Not seeing things from an enterprise per-
spective, they say: ‘I know my piece of the business better than
the execs making the rules; better to get my hand slapped—if I get
caught—than to suffer the consequences of rules I know to be bad
for my business.’
So, while never in outright rebellion, maybe they’re

less-than-diligent about implementing the new spend
policies and systems. It’s a big company, hard to control.
And while your CEO and CFO support you 100%, you
get about 3.4% of their attention. When you do get their
attention, you had better have your facts straight.
And facts, well, they’re hard to come by in a company that

spans the globe with 45 instances of Enterprise Resource
Planning (ERP) and 24 processes by which a person can
spend money. Spend analysis by your group is ad hoc, manual. And
even when you get the data together, you’re not certain you can
trust it, rely on it for making big, risky strategic sourcing and pro-
curement decisions.
But you’re ambitious, determined to succeed. You have nine, scary-

smart MBAs working for you who are more than willing to get their
hands dirty and pull some long hours for the cause of enterprise-
level strategic sourcing and procurement management.
ZYCUS_EBOOK_FINAL 7.01.08.indd 1 1/9/2008 10:43:28 AM

One Year Later…

Your team’s hard work is paying off. Cost savings are adding
up to real money—in the millions. You’re getting 9.7% of your
bosses’ attention and winning allies throughout the corpora-
tion—though, mostly in business units that are underperforming
on the revenue line.
The high flyers remain aloof; they perform well, so top manage-
ment gives them a pass. But, that’s okay because there are still
plenty of obvious opportunities for achieving corporate perfor-
mance improvements through strategic sourcing and procurement
management; so many, in fact, that your group is starting to get a
little stretched for time and resources.
Your processes for spend analysis, executing sourcing events, count-

ing and reporting performance improvements are faster now, but
still manual, still project-focused. Sourcing programs sometimes
progress at uneven speeds, deliver inconsistent results. Your team
members spend more time than expected working to achieve com-
pliance, turn contracted savings into something that can be counted.
And, still, cost savings don’t always materialize. Maybe demand

is poorly forecasted, so you don’t hit the volume levels that trig-
ger the biggest negotiated discounts. Or, your team moves on to
new sourcing projects, so are less-than-vigilant about ensuring the
company achieves the nonprice terms—early payment discounts or
service levels—they’ve negotiated with suppliers.
To feed your bosses’ steadily growing appetite for cost savings,

you add more people to your payroll; you outsource procurement
management for certain spend categories. You’re also looking at
systems for automating and managing sourcing processes, systems
for managing compliance. The savings and other performance
improvements are adding up, but, so too is your ROI bill.
Three Years Later…

Corporate spend is now organized into 42 top-level categories.
That doesn’t cover everything, but enough to be making a notice-
able impact on corporate financial performance. Each category
under management has gone through at least one major sourcing
round. You’ve renegotiated with all critical incumbent suppliers,
rationalized your remaining supply base by 65%.
Your processes for spend analysis,
executing sourcing events, counting Management is now paying very close attention to your activi-
and reporting performance ties; even high flyers are feeling the pressure, cooperating more
often than not. Sixty percent of money transactions worldwide go
improvements are faster now, but through a system you control. You’re looking to increase that per-
still manual, still project-focused. centage and branch into spend categories that were seen before as
too complex or difficult to approach.

By now, you’ve got a spend analysis solution; analysis is easier, faster than
it was three years ago, but still largely manual and project-focused. Fresh
sourcing opportunities are getting harder to find. When you do find
them, they’re in supply industries that have not typically dealt with pro-
curement, have no history of itemizing and codifying their pricing into
neat specifications that can be sourced competitively with ease.
You’re thinking the time has come for your organization to get more
aggressive about standardizing on product or service feature sets (to
minimize wasteful spending), managing total costs, and cutting total
consumption of goods and services.
At the same time, your initial enterprise supply contracts are starting
to expire. You’re more dependent on fewer suppliers whose margins
you’ve already squeezed to the breaking point. So, e-auctions, which
delivered so nicely in the first sourcing rounds, are no longer your
best option. Your category managers are heading into direct negotia-
tions with incumbent suppliers and they need to get more creative,
collaborate with suppliers to find new ways of reducing process- and
total supply chain costs.
But, they don’t really have all the information they need to execute
these next steps effectively. They’re craving better, more frequent,
more detailed insight into spend. The tools to get that visibility are out
there, but they cost money. Up goes your ROI bill—again.
Five Years Later…

Congratulations! Your team—now up to 80 people—has made its five
hundred million savings goal. Your CEO makes a big announcement
with great fanfare to all the major global financial markets. The stock
price moves up. Everybody celebrates. Then, back to reality.
And the reality is this: Your company has saved five hundred million in
five years, but it has also paid high salaries, plus benefits, plus expenses
to some 80 MBAs that you hired and sent traveling all over the world.
It has shelled out hundreds of thousands for needed IT systems and
process automation. Time has been spent documenting and validating
savings. And, in the end, maybe 30%, maybe more, of the five hundred
million you have saved never dropped to the bottom line, because
it was simply shifted to other budget line items and spent elsewhere.
There’s ROI here, but it’s not five hundred million—not even close.
And yet, your CEO and CFO feel confident that their big investment
in enterprise strategic sourcing and procurement management is a
sound one; so confident, in fact, that they’ve just asked you to produce
another five hundred million worth of savings. Only, this time they
want to see the savings in three years...
(…this story has no end…)

Introduction
If the CPO’s Tale, or any part of it, sounds familiar, then this BOOK
is for you. The CPO in our story does all the right things for a big,
diversified company that has never been in the habit of regularly com-
municating among its parts, distilling its information into competitive
knowledge, and taking advantage of its total buying power in the global
marketplace. But doing all the right things won’t be enough to get this
strategic sourcing and procurement management group through its
second, third, or fourth rounds of corporate improvement goals.
Look closely at mature, highly successful strategic sourcing organiza-

tions and you will quickly notice one thing: Processes matter—a lot.
Well-defined business processes are not only present in these organi-
zations, but also—
It’s no coincidence that
• Highly standardized,
famously successful • Consistently executed,
strategic procurement • Reliable at delivering expected outcomes, and
• Deeply embedded in daily workflows.
groups often emerge in
companies well known for It’s no coincidence that famously successful strategic procurement
groups often emerge in companies well known for their Six Sigma
their Six Sigma cultures, cultures, where variability in processes and process outcomes is not
well tolerated. Even where the specifics of a situation vary greatly,
where variability in these groups are adept at addressing the unique while keeping the
processes and process essence of a process intact.
outcomes is not well But which processes matter most for strategic sourcing and procure-
ment? And how important is process maturity—in terms of things
tolerated.
like standardization and consistency—to the organization’s ability to
continuously make positive contributions to corporate performance?
This BOOK, with support from a new joint study by Purchasing maga-
zine and ZYCUS, sets out to answer these questions.
In all, the study tested 65 specific practices and processes often asso-
ciated with strategic-sourcing maturity and success, relating to how
strategic sourcing and procurement groups—
 Identify opportunities
 Win stakeholder support
 Achieve compliance
 Develop sourcing strategies and make competitive markets
 Set goals and manage performance
 Make decisions and manage information and knowledge

Testing was for frequency of use—how well embedded best practices

and processes are in the daily workflows of a corporation—how long
it typically takes for a practice or process to transition from ad hoc to
embedded, and how achieving that transition relates to such popular
performance measures as total value delivery (cost savings) and percent
of spend under management by procurement.
This BOOK focuses in detail on the practices and processes that, when Learn how some of
embedded, appear to differentiate high-performance organizations. It the most advanced
also identifies practices that, while still emergent in high performance
procurement groups, are consistently associated with rising perfor-
strategic sourcing
mance levels over time. There is something here for everybody. and procurement
management
• Low performers: If you’re just starting with strategic sourcing
and procurement management or have been largely unsuccessful organizations are
with your efforts to this point, treat this BOOK as a process map preparing to meet
for accelerating your performance contributions. the challenges of the
• Intermediate performers: Identify practices and processes associ- coming decade.
ated with higher performance that may be underdeveloped or
underused in your organizations.
• High performers: Compare yourselves to other high performers

to understand where process refinements may be wanted and
learn how some of the most advanced strategic sourcing and pro-
curement management organizations are preparing to meet the
challenges of the coming decade.

NOTES ABOUT THE STUDY
Survey participants were qualified on the basis of (a) working in companies that
undertake enterprise-level strategic sourcing and (b) participating directly in those
efforts. Some 350 participants passed the qualification. They were asked to score 65
best processes or practices based on frequency of use in their organizations. A per-
fect score of three signifies that a practice or process is nearly always used; a score
of one means it is virtually nonexistent. With MEAN scores falling between 2.4 and
3.0 considered as embedded, 2.3 down to 1.6 as present but not embedded, and below 1.6
as rare or nonexistent, top line study results (Fig1) are as follows:
FIGURE 1
• High performers—groups that claim 500 million or more in total
Overall frequency of value delivery—have 57% of the 65 practices or processes embed-
ded, 43% present but not embedded, and 0% missing.
best-processes use versus
total value delivered to • Intermediate performers—groups that claim one to 500 million
the corporation in total value delivery—have 8% of the 65 practices or processes
100
embedded, 92% present but not embedded, and 0% missing.
80
• Low performers—groups that claim less than one million in total
value delivery—have 0% of the 65 practices or processes embedded,
60
92% present but not embedded, and 8% missing.
40 Tested against percent of spend under management, the study also

finds the presence of embedded
20 best processes to be significantly FIGURE 2
greater in procurement organiza- Overall frequency of
0
High Intermediate Low tions that have placed 75-100% best-processes use
of total spend under manage- versus percent of total
Nonexistent (1.5 or lower) ment (Fig2). spend under management
Present but not embedded (1.6-2.3)
100
Embedded (2.4 or higher) For sake of simplicity, study
results presented in this BOOK
80
reflect some data aggregation. For example,
two intermediate performance categories (1
60
million-100 million and 100 million-500 mil-
lion in total value delivery) were combined as
40
the differences in process profiles for the two
groups were negligible and not particularly
20
instructive.
With the objective of isolating specific practices 0

75-100 50-74 25-49 0-24
and processes that, when consistently executed,
Nonexistent (1.5 or lower)
differentiate high from intermediate and lower
performers, the following performance group- Present but not embedded (1.6-2.3)
ings, used throughout the BOOK, yield the Embedded (2.4 or higher)
most intriguing comparisons:

• High2: greater than 500 million in total value delivery and 75-100% of spend under
management
• High1: greater than 500 million in total value delivery
• Intermediate: 1 million to 500 million in total value delivery
• Low: less than 1 million in total value delivery
The researchers acknowledge that some precision has been lost in the grouping
of performance categories; it is quite possible, for example, that some relatively
high-performing strategic sourcing and procurement management groups
have been inadvertently classified into the intermediate category of performers
due to such factors as small company size or low gross spend levels.
Total value delivery is defined as cost savings plus any other improvements that have
been quantified in terms of currency (so, mostly cost savings).
The study also examines process consistency according to percent of spend under
management in four quartiles: 0-24%, 25-49%, 50-74% and 75-100% and time spent
doing (or trying to do) strategic sourcing and procurement management as a means
for understanding typical leadtimes for achieving process maturity.
To understand which practices and processes may influence performance positively but
are still underdeveloped in all procurement organizations, performance-efficacy (PE)
scores were generated by adding a point each time an increasingly embedded practice is
associated with an upward move across 10 performance transitions, for example, when
moving from low-to-intermediate in total value delivery, intermediate-to-high1, high1-to-
high2, first-to-second quartile in spend under management, second-to-third quartile, and
so forth. Fig 3 shows how the overall scoring breaks out for the 65 practices and processes
tested; zero scored below a seven while 50% scored nine or ten.
FIGURE 3
18% 31% 35% 15%
1-6 7 8 9 10
The APPENDIX at the end of this BOOK contains PE scores and visual analysis tables for
each of the practices and processes studied.

 Win stakeholder support Chapter 1

Identify opportunities
 Develop sourcing strategies and

make competitive markets
 Set goals and manage performance Well-defined processes for spend and opportunity analysis typically
 Make decisions, manage emerge at years 1-3 in the life a strategic sourcing organization, but
information and knowledge don’t usually show as embedded in daily workflow until 3-5 years or
even later. Translated into words, the Purchasing/ZYCUS study data
FIGURE 4 shows a typical evolution in spend and opportunity analysis looking
Categorize + classify something like this:
spend data
Year 1
{ Pick areas of spend where the organization thinks it may have big
Embedded
opportunities to save. Obtain accounts payable data, load it into

spreadsheets and spend many hours manually sorting, mapping,
aggregating, discarding, guesstimating to fill in holes, and so forth,
until a reasonably good picture of spend with suppliers emerges.
Score
Not perfect, but good enough to justify opening negotiations with large
incumbent suppliers.
High2 High1 Mid Low Years 1-3

Range of performance
Continue with intuitive, manual, ad hoc approach, but shift focus
Classification shifts the focus of spend data from from suppliers to spend categories. Begin to consistently classify
accounting to procurement. and categorize spend (Fig4) in ways that make sense for procure-
ment rather than accounting. Example: “This purchase I am autho-
rizing or making today is not just an ‘IT capital expense’, but rather, ‘a
desktop personal computer’.”
FIGURE 5
Normalize, clean, aggregate Still not perfect, but good enough to make a strong case that much can be
spend data saved by going from many to fewer suppliers of just about anything.
{ Implement front-end processes and systems for more frequently

Embedded
pulling, cleaning, normalizing, and classifying spend (Fig5) so the

procurement organization can move faster, identify strategic sourc-
ing opportunities as they arise versus waiting until categories come
up on a set cycle or it occurs to someone to take a look (or re-look)
Score
at the data.
Begin to rank and prioritize opportunities, select new sourcing

categories based on documented potential to deliver value versus
High2 High1 Mid Low intuition (Fig6).
Automation enables strategic procurement groups Expand the reach of spend analysis beyond accounts payable data;
to scale the work of data hygiene across the entire capture spend flowing through T&E accounts, check requests,
spectrum of spend. corporate credit cards, procurement cards, wire transfers, and so

forth. Build data warehouse to take feeds from multiple spend data FIGURE 6
sources—some of them third-party, like suppliers or payment tools Rank opportunities, allocate
providers (Fig7). resources accordingly
Also, begin to enrich, slice, and dice spend data at a detailed/item
{
Embedded
level (Fig 8).
Example: “This purchase I am authorizing or making today is not just ‘a

desktop personal computer’, but rather, ‘a desktop personal computer with
Score
X set of hardware specifications, Y set of applications functionality, for a
person with Z set of job responsibilities.’”
At this stage, the spend analysis capabilities get more sophisticated,

but are still largely manual and ad hoc versus embedded in daily High2 High1 Mid Low
workflow.
As momentum builds and goals get higher,
Years 3-5 procurement groups need better means for picking
Continue to refine spend analysis processes; transition from project- which opportunities they will pursue.
oriented to more frequent, systematic spend analysis. Start to tackle
spend categories that have been avoided until now, either because
the data is very difficult to capture or defies easy classification due to
lack of industry standards for describing products or services and/or
excessive bundling of products or services by suppliers.
FIGURE 7
While many manage, by this point, to centralize and structure their spend Capture spend data from
data, even mature, high-performing strategic sourcing organizations will
multiple/all possible points
often continue to allow the real work of spend and opportunity analysis to
{
remain widely distributed across the organization—in spreadsheets on people’s
Embedded
desktops and laptops, where it can not be easily accessed, interpreted, reverse
engineered, or repeated by subsequent—probably different—sourcing teams.
Year 5 and beyond

Score
Exhaust easy opportunities for leveraging spend at supplier and

category levels; begin second and third sourcing rounds for man-
aged categories. Continue to enrich, slice, and dice spend data at
detailed/item in order to—
High2 High1 Mid Low
• Cull out the more secretive cost savings opportunities—places Range of performance
where suppliers have made up margin they lost in initial
High-performing strategic sourcing groups follow
sourcing rounds, all the money flowing to suppliers.
• Undertake more demand management and standardization

activities, and
• Make spend data more easily relatable to things other than

suppliers and top-level spend categories.

The case for speed

Results from the study suggest that most strategic procurement organi-
zations can find a million, 10 million, even a hundred million worth of
cost savings without having particularly good or consistently executed
FIGURE 8 processes for spend and opportunity analysis. But systematic, embed-
Slice and dice spend data ded best processes become more important in the transitions from
at detailed/item level intermediate to high cost savings levels and in placing the final quar-
tile, from 75 to 100%, of spend under management.
{
Embedded
Of the five spend and opportunity analysis practices and processes

tested in the study, four score as embedded in daily workflow, the fifth
as nearly so among high performers on the value delivery metric. By
Score
contrast, intermediate level performers show only one of the processes

as embedded and low performers show none. On the spend under
management (SUM) metric, three of the processes score as embedded
among high performers and two as nearly so.
High2 High1 Mid Low
This suggests that enterprise strategic procurement groups have a real
opportunity to accelerate performance improvement if they refine and
Granular spend data may not be required in the embed these processes much earlier in their lifecycles, say in years 1-3
early days of strategic sourcing, but advance plan- versus 3-5 or beyond. And, given the long leadtimes typically associ-
ning and good architecture makes it less difficult ated with reaching full maturity in spend and opportunity analysis,
and less costly to add later on.
procurement organizations may be risking lengthy performance pla-
teaus if they wait too long to tackle the often difficult and sometimes
costly work involved in doing this. They also risk being unable to fully
develop and embed other critical best processes that rely upon having
a rigorous information management platform for procurement. (More
on this as we progress.)
If ad hoc, manual analysis
While still emergent among high performers, the study finds a clear
is daunting in years 0-3, it relationship between embedded capabilities for frequent, granular
becomes diabolical when spend visibility and performance. The slice-and-dice capability becomes
additional data complexity particularly important when strategic sourcing organizations start
looking to analyze and affect corporate performance levers that reach
is introduced and process beyond the costs of goods and services or costs associated with acquir-
frequency is raised. ing goods and services—things like total discretionary spending, asset
utilization, working capital performance, even revenue and global
competitiveness.
Some popular tactics for embedding consistent, reliable, and repeat-

able spend analysis and opportunity identification processes include:
• Adopt well-defined standard classification and categorization

taxonomy, such as UNSPSC.
• Use electronic procurement tools so classification and catego-

rization occurs automatically at point of purchase or shortly
thereafter.
10

• Where possible, map transactions directly to taxonomy so classifi-

cation is invisible to buyer. Where not possible to do this, ensure
correct classification by using either fully automated classification
tools or semi-automated systems to suggest short lists of possible
classifications.
• Use structured, central database to take automated feeds from mul-

tiple systems.
• Structure database also to ensure that spend data is easily relat-

able—not just to suppliers or spend categories—but also to things
like budget/cost center, procure-to-pay process, payment terms, sup-
plier performance, supplier risk profiles, and so forth.
• Structure database to allow for ongoing, long-term enrichment of

spend data to item and item-attribute levels of detail.
• Use either full automation tools (no human intervention) or semi-

automation tools (minimal human intervention for exceptions han-
dling only) to continually clean data and normalize for such vari-
ables as pricing units, lot sizes, currencies, languages, and so forth. Given the long
• Use IT dashboard to aggregate opportunity analyses and to solicit (5+ year) leadtime
and enrich with market and other intelligence. For example, ‘Is it a typically associated
good time to go to market in this category?’ ‘What is the risk associated with
with reaching
supply base rationalization in this category?’ ‘How much do we think we can
save by addressing this category?’ ‘How political or difficult is this category?’ full maturity
And, so forth. [in spend and
• Use IT dashboard to score, rank, prioritize, assign resources, aggre- opportunity analysis],
gate and monitor progress and performance delivery against identi- procurement
fied opportunities and goals. organizations may
be risking lengthy
performance plateaus
if they wait too
long to tackle the
often difficult and
sometimes costly
work involved in
doing this.
11

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Chapter 2  Win stakeholder support
Achieve buy-in

There is no question that strategic sourcing and procurement  Set goals and manage performance
management organizations must have strong, consistent backing  Make decisions, manage
from a company’s senior management team. But, CEOs and CFOs information and knowledge
don’t typically control operations at a level of detail that ensures
strategic sourcing groups always succeed; that bad sourcing and
spend behaviors change promptly and don’t revert when revenue
performance recovers or senior management shifts its attention to
other matters.
FIGURE 9
Executive mandates are good. Policies are better. But what often Populate sourcing teams
makes the difference over the long term for leading procurement with best mix of talent
groups are consistent, systematic approaches to how they engage
and collaborate with stakeholders—budget owners and suppliers, in
{
Embedded
particular.
For example, it is fairly standard practice—among all but the

lowest-level performers—for strategic sourcing and procurement
Score
groups to assemble cross-functional sourcing teams from many
corporate functions—procurement, finance, materials manage-
ment/supply chain, manufacturing, design, human resources,
and so forth. But top performers take more careful, methodical
approaches to how they combine personalities and populate their High2 High1 Mid Low
sourcing teams to achieve an optimum balance between spend Range of performance
category and procurement expertise (Fig9). Some successful tactics
Savvy procurement leaders achieve stakeholder
they cite relating to teams: buy-in by staffing sourcing teams with obvious
category expertise.
• Identify notoriously uncooperative stakeholders and pur-
posely include them on teams,
• Rely on facilitators to move teams through disagreements or
impasses, and
• Co-locate procurement professionals with spend stakeholders
(at least temporarily) so they can learn category fundamen-
tals by osmosis and become steeped in the daily activities and
rhythms associated with a spend category.
Interestingly, the use of cross-functional sourcing teams appears

to peak and become less frequent after years 3-5 in a typical stra-
tegic sourcing group’s lifecycle. This may coincide with a gradual
exhaustion of untapped strategic sourcing opportunities. But
anecdotal evidence suggests something different may be happen-
ing; that mature, high performing strategic sourcing organizations
are actually pushing beyond representative team-based models to
13

more grassroots approaches for engaging spend stakeholders more

directly and deeply in their evolving strategic sourcing and procure-
ment management cultures.
FIGURE 10
Breaking all barriers
Invite stakeholders to help
There’s other evidence that high performers win buy-in for stra-
write and validate specs tegic sourcing by engaging budget stakeholders more consistently
{
than their lower-performing counterparts. For example, strategic
Embedded
procurement organizations at all but the lowest performance tier

routinely ask budget stakeholders to forecast their demand for
goods and services. Comparatively few, however, invite stakeholders
to participate in writing and validating specifications for sourcing
Score
events. High performers, as a group, are at the cusp of doing this

systematically whereas intermediate-level performers are noticeably
inconsistent about doing it and low performers do it sporadically, if
at all (Fig10).
High2 High1 Mid Low
Range of performance Systematic, external validation of cost savings—whether by budget
stakeholders themselves or by objective finance personnel—is a
Involving stakeholders directly may consume more
third area where high performers set themselves apart (Fig11).
time, require more management, but it pays off
over time. This involves mapping savings identified or negotiated in sourcing
events—be they volume price reductions, rebates, discounts, favor-
able payment terms, etc—to accounting line items, quantifying how
savings, when realized, will accrue or be allocated to specific budget
owners, and asking budget owners to explicitly accept the estab-
FIGURE 11
lished processes and their outcomes as valid.
Validate savings through
finance or budget holders Some sourcing groups facilitate savings validation by hiring ex-
{
finance professionals into their organizations—people who have
Embedded
real insight into how sourcing savings can be related to the compa-
ny’s existing cost accounting structure. Others simply partner with
their existing finance organizations.
Score
Savings validation, however, does not typically show as embedded

until year five or later in the life of a strategic sourcing organiza-
tion, according to the study. That may be preventing another criti-
cal process—that of actively collaborating with budget stakeholders
High1 Low
to either take down budgets or reinvest savings—from gaining a
High2 Mid
Range of performance proper foothold. As Fig12 shows, strategic procurement organiza-
tions are typically trying to introduce processes that drive sourc-
Objective validation of cost savings and of the ing savings through to budgets in years 1-3 of their lifecycles, long
processes for tracking and booking cost savings before they achieve a corresponding maturity in external savings
goes a long way toward establishing credibility for
strategic procurement. validation.
While collaborating with stakeholders to take down budgets shows

a consistently positive relationship between frequency and perfor-
mance, it’s no surprise, then, that even the highest-level performers
14

are only at the edge of having systematic methods for doing this
while lower-level performers stand far behind the curve (Fig13).
Some tactics for embedding collaboration processes and achieving

greater stakeholder buy-in include: FIGURE 12
Timeline: Validating savings vs.
• Gain credibility by consistently choosing science over art. cutting or reallocating budgets
‘Didn’t realize how much you spent on X last year? Here’s the data.’
‘Don’t know how that stacks up against the market? Here’s the data.’ Drive
‘Think collaborating with procurement at an early stage in the buying savings to
cycle doesn’t matter? Here’s the data that proves it does.’ budgets
<1 yr 1-3 yrs 3-5 yrs 5+ yrs

• Embed procurement’s message in employee orientation and
Validate
management training programs. savings
• Document and actively market procurement success stories

and benefits; frame success stories in terms that are most FIGURE 13
likely to appeal to stakeholders. So, for example, instead of
Collaborate to take down
walking into manufacturing with a presentation about how
procurement is going to buy cheaper materials, walk into
or reinvest budgets
{
manufacturing with a presentation about how procurement
Embedded
is going to increase supplier quality performance and shrink
delivery times with no corresponding increase in cost. Instead
of walking into design engineering with a presentation about
how procurement is going to take costs out of design, walk in Score
to design engineering with a presentation about how procure-
ment is going to enhance product function with no corre-
sponding increase in cost.
• Make full use of all corporate communications tools avail- High2 High1 Mid Low
able—print newsletters, electronic newsletters, intranets, Range of performance
extranets, e-mail, collaborative online meeting tools, town
Without corresponding maturity in objective sav-
meetings, and so forth both for marketing and change man-
ings validation, procurement faces long difficult
agement. Control distribution of communications as closely as battles in the final steps of driving savings to the
possible (Do not rely on ‘please cascade’ requests.) company’s bottom line.
• Use technology tools to widen the net of stakeholder collabo-

ration—from representative team-based models to grassroots
models of taking and synthesizing frequent input from many
people who sit at the point of purchase, who deal directly with
suppliers, who know precisely what they need to complete
their daily jobs, and who are most directly affected by strategic
procurement decisions. For example, use Web/forms-based
systems for frequently prompting and collecting grassroots
data about things like supplier performance, customer satis-
faction or dissatisfaction, planned spend levels/demand fore-
casts, supplier criticality/risk, localized market intelligence,
15

external cost-savings validation and acknowledgement, input/

validation of specifications for products or services going out
to bid, input/validation of how contradictory factors—for
example, price versus quality—should be weighted in a total
cost of ownership (TCO) model, and information on product
High performers more or service feature-set utilization. For example, ‘Are there some
frequently approach features or functions we are paying for but not really using that might
suppliers about unbundling be unbundled and eliminated to reduce total cost?’
goods and services to
• Make it as easy as possible for grassroots collaboration part-
gain deeper insight into ners to provide consistent, accurate input; show prior data,
cost levers. prepopulate data fields, require verification and correction
only, constrain input fields to accept only valid data, etc. For
example, on a demand forecasting exercise, refrain from ask-
ing an open-ended question like: ‘Approximately how many new
computers will your department require in the coming year?’ Instead,
offer something like: ‘Last year, your department increased
headcount by four and purchased six computer systems; four new,
two replacements or upgrades, three desktops, three laptops. Do you
anticipate increasing headcount again this year? (Yes/No) If yes, by
how many? (#) For anticipated new employees, how many will require
desktops; how many will require laptops?’ And, so forth.
Getting buy-in from suppliers (the other significant stakeholders)

FIGURE 14 Most strategic procurement organizations interact frequently with
Ask suppliers to unbundle their suppliers in the following ways:
goods and services
• Ask them to standardize goods and services (so they can be
{ competitively sourced more easily)

Embedded
• Ask them to validate specifications for large demand

aggregations
• Pursue process-related savings or other value with preferred
suppliers
Score
Even among lowest-level performers, the study finds these practices

to be clearly present if not yet particularly consistent or well embed-
ded. High performers, meantime, distinguish themselves in several
High2 High1 Mid Low areas.
This practice supports such objectives as stan- First, they more frequently approach suppliers about unbundling
dardization and consumption management, so, goods and services to gain deeper insight into cost levers (Fig 14).
generally shows up later in the strategic sourcing Example: Instead of asking suppliers to quote on desktop PCs, they ask sup-
lifecycle. pliers to quote on each of the significant pieces; things like memory, process-
ing power, speed, storage, applications, tech support, and warranty. This
particular practice shows as embedded among high performers on
the value metric, but not typically until five years or later. That’s
16

probably because the ability to do these things well—to accurately

sense where subtle cost levers may be lurking and to manage and
process the information properly once received—relies on having a
capability to synthesize large quantities of data into optimal sourc-
ing decisions for the corporation. The practice also tends to support
procurement standardization and demand management—objectives FIGURE 15
typically reserved, due to difficulty, for much later in the life of a stra- Pursue design-related
tegic sourcing and procurement management organization. savings with suppliers
High performers also collaborate more frequently and consistently
{
Embedded
with suppliers on design-related savings, working closely to find and
eliminate or avoid built-in costs that can not be influenced through
competitive sourcing (Fig15). As a process, design collaboration with
suppliers takes less time to achieve maturity (3-5 years on average)
Score
mainly because it can be very beneficial to suppliers and is less reliant
on having other capabilities—such as granular spend analysis—well
established before it can be done well.
The way a strategic sourcing and procurement management organi- High2 High1 Mid Low
zation treats and manages suppliers through its sourcing events also
seems to pay off in terms of achieving supplier buy-in and, ultimately, Finding design-related savings with suppliers has
in delivering consistently good performance results especially on the large potential payoffs and is less reliant than
value delivery metric. For example, high performers are nearly twice some other processes on advanced spend analysis
as likely to be thoroughly training suppliers on how to use of their capabilities.
sourcing tools prior to conducting sourcing events. They also pay
more attention to:
• Structuring sourcing events to ensure suppliers can not make or

mistake key terms
• Defining specific rule sets for sourcing events and then comply-
ing strictly with those rules
And, while most procurement organizations make a fairly consistent

practice of committing, explicitly and up front, to transition busi-
ness when nonincumbent suppliers win sourcing events, only high-
level performers show embedded processes for mapping out specific
strategies for how they will actually do it. This means they dedicate
plenty of planning time to answering such questions as: ‘How will we
phase the transition? Is a pilot or test needed? How will we communicate with
budget stakeholders about the transition? Is there an opportunity to improve
or apply a best or low-cost procure-to-pay process? Is there ‘institutional knowl-
edge’ – that is, things our incumbent supplier’s people know about our people,
our products, our company that might help our new supplier to succeed? If yes,
how will we go about capturing and documenting that information? Is train-
ing needed? What will be our compliance policy? How will we monitor and
measure the transition?’ And, so forth.
17

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1/9/2008 10:43:37 AM

Get compliance

 Set goals and manage performance Compliance processes are usually introduced very early—within
 Make decisions, manage
years 1-3—in the typical life of a strategic sourcing and procure-
information and knowledge ment management organization, but do not become embedded in
daily workflow of the corporation until much later (if at all). That
may be due, in part, to the heavy emphasis on achieving stake-
holder buy-in. Or it may be just wishful thinking; ‘Do the buy-in part
really well and you can avoid assuming the unpopular and uncomfortable
role of spend police.’
But the study finds that high performers eventually do get around
to institutionalizing their compliance processes (somewhere beyond
year five), which suggests the importance of consistent processes
around compliance rises as new sourcing opportunities become
sparse and the work of strategic sourcing shifts either to,
• Spend categories where procurement has not traditionally

FIGURE 16 had a role, or
Report compliance • Being less about negotiating with suppliers and rationalizing
scorecards the supply base, more about changing stakeholders’ behav-
iors, standardizing product and service feature sets, and cut-
{ ting gross demand

Embedded
Most strategic procurement organizations are reasonably consistent

about tracking supplier compliance to contract terms and take
some pains to ensure that nonprice contract terms get consistently
Score
executed—both traditional domains of procurement. Differentia-

tion between high and lower-level performers increases substan-
tially as compliance processes turn inward to face budget holders
and their behaviors around spend.
High2 High1 Mid Low
For example, high performers more consistently use policies to
Tracking compliance is useful but reporting raises lock down spend. ‘Spend outside the corporate contract and you won’t
the stakes by exploiting competitiveness among be reimbursed on your T&E, or the supplier won’t be paid. Do it once, get
business leaders. your hand slapped; do it twice, get a nasty note from your boss; do it three
times, you could be fired.’ A useful tactic is to time procurement policy
moves to coincide with reports of poor results in financial mar-
kets or with senior management fiats relating to cost savings. For
example, ‘CEO announces a freeze on all unnecessary travel; good time
to introduce a new policy around compliance with preferred travel services
suppliers.’
20

High performers also often shore up their policy structures with

technology tools, for example, e-stores or virtual malls that are
either the only ways to buy goods and services or, by far, the easi-
est ways to buy. They succeed by paying very close attention to the
user interfaces, extensively testing and refining to simplify naviga-
tion, drive to the fewest number of clicks, ensure that data input
prompts are both intuitive and informative, ensure clear error mes-
saging, identify clear processes for troubleshooting, pre-populate
nuisance fields such as account numbers and classification codes,
automate and accelerate approval workflows, eliminate workflow
bottlenecks, and so forth. They also frequently integrate front-end
procurement with supplier payment technology platforms, creat-
ing closed looped procure-to-pay processes that are very difficult to
work around.
In addition to using policies and technology to make it impossible

(or at least very difficult) to spend outside of strategic contracts,
high performers also measure compliance more consistently than
their lower-performing counterparts. Measurement alone, based on
granular, frequent visibility into individual users’ spending activities
has power just in the knowledge that someone is watching spend
closely. But high performers will also often increase the power of
compliance measurement with systematic and frequent compliance
reporting (Fig16), that is, rolling up compliance scorecards to the
departmental or business-unit level and publishing to exploit peer
pressure and competition among business leaders.
The compliance story typically ends there, though. Compliance FIGURE 17

enforcement, whether by negative or positive means, is an appar-
Enforce compliance
ently underdeveloped process at all performance levels although
it does become more consistent as performance rises, suggesting
{
it is an emergent process versus one that is never likely to become
Embedded
well established (Fig17). Among the lowest performance tier, both

compliance reporting and compliance enforcement practices show
up as virtually nonexistent.
Score
From a timeline perspective, both compliance reporting and

enforcement practices typically appear in years 1-3 in the life of
a strategic sourcing group, then spend years 4-5 and beyond lan-
guishing in the ‘present but not embedded’ zone. Enterprise-level
strategic procurement groups typically have executive mandates or High2 High1 Mid Low
support, but often fall shy of having real authority to enforce. And Range of performance
it takes some time to build collaborative relationships with those
While high performers enforce compliance more
that do have enforcement authority—namely, accounts payable, often than lower-level performers, they still don’t
expense management, corporate finance, and human resources. do it very frequently. What’s not clear is whether
they avoid enforcement out of choice or necessity.
Likewise, effective compliance reporting and enforcement requires
21

� �
a light touch and the information behind it needs to be impeccable, so,
again, it may be that this particular set of processes can not be developed
realistically or reach maturity before the basic information infrastruc-
ture—in this case, frequent, granular spend analysis traceable to cost
center or individual spender—is firmly established.
500 �
Process Maturity Map � �
500 �
�
%$
Achieving compliance to enterprise strategic sourcing contracts and procurement management processes
�
%$
Processes
�
Performers
�
500
��
500
�
500
(500 million or more in total value delivery) �
500 Scores as nearly embedded among high performers
� �
�
Practice or process transitions Scores as embedded among high performers Scores as nearly embedded among high performers
%$ (75-100% of spend under management)
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Use technology tools to lock
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down
%$
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500
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Tie personal and business-level
500
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performance goals to strategic
�
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500 500 %$
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procurement
500 initiatives
��
500 %$
500 %$
500 % $
� �
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�
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�
achieved
% $ in contracts are
� � �
500
�
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� ��
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etc) 500 %$
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500 %$ 500
Measure internal
�
��
�
compliance to contracts
�� 500
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Report compliance scorecards 500

�
500 �
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%$ 500 % $
500 %$
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� %$ %$ %$
500
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�
stakeholders for compliance or

noncompliance
�
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500
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22
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1/9/2008 10:43:38 AM
Chapter 4  Win stakeholder support
Control sourcing process


It is a common practice for strategic sourcing and procurement man-  Set goals and manage performance
agement groups to employ some type of formalized, standard strate-  Make decisions, manage
gic sourcing process (Fig18). Even among the lowest performance information and knowledge
tier, standard strategic sourcing processes are classified as strongly
embedded for groups that have been doing (or trying to do) strate-
gic sourcing for at least three years. But this suggests that the mere FIGURE 18
act of deploying a formal strategic sourcing process does not signifi- Use standard strategic
cantly influence performance. sourcing process
A key question that strategic sourcing leaders need to ask is this: ‘If
{
Embedded
we were to take two similarly qualified but entirely different teams of people
and assign them to strategically source the same spend category using our
proscribed strategic sourcing process and all the resources and tools we have
put into place, would they come up with the same or very similar results?’ For
Score
example--
• Would their analyses of spend look similar?

• Would they aggregate demand in the same way?
• Would their competitive market analyses look similar? High2 High1 Mid Low
• Would they assess risks in the same way?
• Would they drive to the same short list of supplier candidates? It’s quite common to find formal, standard strate-
• Would they select the same sourcing event type, the same pro- gic sourcing processes...
cure-to-pay process?
• Would they make the same or similar decisions in how they
model total costs? FIGURE 19
• Would they achieve similar results in terms of cost savings? Manage teams’ compliance
• Would they complete the process in about the same amount of to standard process
time?
{
Embedded
If the answers are anything short of ‘probably’, then it’s likely there is
too much variation and not enough oversight and management in
the strategic sourcing process. That may not matter early on when
many years of egregious spend behaviors are ripe for the fixing, but
Score
consistency in process execution leads to repeatability in outcomes.

That becomes more important as cost savings and other perfor-
mance improvement goals rise, new opportunities become harder to
find and procurement looks to affect corporate performance levers
not directly associated with product or service costs. High2 High1 Mid Low
Procurement organizations at all performance levels are relatively ...substantially less common to find procurement
similar in how they rate their consistency on practices and processes organizations that watch closely to ensure their
that have been traditionally owned by procurement, according to the teams actually comply with standard processes.
23

FIGURE 20 study. Most, feel, for example, that their organizations are consistent
Cultivate internal process about making the best supplier selections and in approaches they
experts/consultants take to negotiating and writing contracts with suppliers.
{
Embedded
Small amounts of differentiation emerge between high and lower

performance tiers in less familiar activity areas, in how consistently
they do things like,
• Evaluate a spend category for things like importance, risk,

Score
market competitiveness, and so forth, and then match that

evaluation up to the best sourcing process be it collaboration,
negotiation, infrequent competitive market making, frequent
competitive market making, and so forth.
High2 High1 Mid Low
• Choose the correct sourcing technology tool be it, eRFx, e-auc-
A few highly trained internal process experts can tion, e-collaboration, etc.
help many teams get better at sourcing-process
execution, work through roadblocks and deliver An even bigger differentiator for high performers is consistent sourc-
results more reliably.
ing project management and compliance monitoring. The study
finds that high performers are much more likely to have embedded
processes for monitoring and managing strategic sourcing teams’
progress and compliance to standard strategic sourcing processes
than companies in the intermediate and low performance tiers
(Fig19) and they are more likely to cultivate internal process experts
FIGURE 21 who can jump in and help facilitate when compliance monitoring
Use standard procure-to- reveals that teams are getting into trouble or reaching some type of
pay processes impasse (Fig20).
{ There are also big gaps in how consistently procurement groups

Embedded
execute certain key strategic sourcing subprocesses. For example,

high performers are more likely to do the following:
• Have standardized procure-to-pay processes that map directly to

Score
spend classifications (Fig21). That is, ‘For a spend category clas-

sified as low value, low risk, high competition, the associated procure-
to-pay process is e-mail with manager-only or no approval workflow,
e-payment and automated account reconciliation. For a spend category
High2 High1 Mid Low classified as high value, high risk, low competition, the associated pro-
cure-to-pay process is single-source, direct order, with director-level or com-
Top performers make it easy for sourcing teams mittee approval workflow, accounts payable processing.’ And so forth.
to match spend categories to well-engineered,
standard procure-to-pay processes; that helps with • Consistently conduct deep-dive market analyses prior to execut-
strategic contract execution and also helps to ensure ing sourcing events and routinely identify risk exposures for
compliance.
strategic sourcing. So, ‘Here is the total universe of suppliers who can
meet our needs. Here’s how they rank competitively and here’s where they
stand financially at this time. Here’s a good estimate of total industry
capacity worldwide. Here’s what we’ve been able to learn about capacity
24

expansion and reduction plans at this time. Here’s a historical look FIGURE 22
at pricing and price volatility in this market. Here’s a historical look Benchmark total spend
at supply conditions in this market. Here is a look at current supply levels against market
conditions in this market. Here is what we know about how suppliers
Embedded
price their products. Here is what we know about supplier profitability.
Here’s how the total universe of suppliers ranks in terms of innovation
or planned innovation; here’s how that maps to our own innovation
roadmap.’ And, so forth.
Score
• Rethink business models for specific spend categories, rather
than simply sourcing within the traditional parameters of
doing business. So, ‘We’ve always used distributors for this spend
category because we don’t want to do X, Y, and Z processes in house.
High2 High1 Mid Low
But we no longer want to pay distributors’ big product cost markups,
so we’re going to ask them to separate the services from the products.’
It’s a difficult excercise to figure out how much
• Benchmark total spend levels (Fig22). So, asking, ‘For a best-in- a company should be spending in a particular
class organization of X size and type, how much of Y good or service category, but top-level performers clearly see the
should we be consuming?’ While this kind of intelligence can be practice as worthwhile.
very difficult (and/or expensive) to obtain, high performing
sourcing organizations find ways to do this, either by iden-
tifying and partnering up with noncompetitive, best-in-class
companies to trade benchmarking data or, if they’re large and
diverse enough, at least comparing similarly sized internal
business units or departments to figure out where gross spend High performers are
levels may be higher than is absolutely necessary.
more likely to rethink
Some other popular tactics for embedding and ensuring process business models
consistency in strategic sourcing include: for specific spend
• Build out process-step details and validation/approval work- catagories, rather
flows that sourcing teams must complete before they can than simply sourcing
progress in the strategic sourcing process. For example, build
in a process gate at which a team’s market research is vali-
within the traditional
dated for completeness, accuracy, etc, before they can pro- parameters of doing
ceed to the strategy or TCO modeling phase. business.
• Develop and/or deploy existing knowledge models or deci-
sion trees to help sourcing teams step through critical deci-
sion processes, for example, ‘Based on the market intelligence we
have collected, how should we classify this category of spend? And
which processes for sourcing, procure-to-pay, etc should be applied?’
• At the same time, embed sufficient flexibility; allow defined

process steps, documentation requirements or decision
processes to be overridden or done differently, but insist that
reasons for doing so be documented (if only to inform future
25

teams why something was or was not done at the time).

FIGURE 23
Build total cost of • Appoint senior-level board or steering committee to oversee
ownership (TCO) models teams’ work and progress. Galvanizes buy-in at a critical level of
corporate management.
{
Embedded
Missing: Embedded processes for modeling TCO

Procurement leaders pay a great deal of lip service to total cost of
ownership (TCO)—understanding and making critical procurement
decisions based, not just on price, but all the costs associated with
Score
doing business: executing transactions, moving goods, storing goods,

servicing and supporting goods, and so forth.
But, for all the talk about TCO, the study shows surprisingly low
High2 High1 Mid Low scores for both frequency (Fig23) of total-cost modeling and con-
Range of performance sistency with which TCO-modeling is executed in strategic sourcing
Even the best have yet to really master the art of processes. Looking at the trend line alone, TCO modeling appears
true TCO modeling. Those who do will likely to be an emergent process, meaning both frequency and consistency
enjoy a competitive advantage for many years to increase alongside performance over time, but this is another case
come. where the sequencing of process introduction versus maturity appears
to be all wrong.
For example, strategic procurement groups typically introduce TCO

modeling at 1-3 years, but fail to progress any further toward maturity
because there is no supporting maturity in how they conduct and/or
validate market research, benchmark or understand global lowest
costs (should costs), or even engage suppliers in helping to build or
validate a category TCO model.
26

�
� 500
�
� �
500
Process Maturity Map
%$ results
Managing the strategic sourcing process for high performance and repeatable �
� %$
Processes
�
Performers
�
�
500
��
500
�
500
(500 million or more in total value delivery) � 500 Scores as nearly embedded among high performers
�
� Scores as embedded among high performers Scores as nearly embedded among high performers
�
%$ %$ (75-100% of spend under management)
�
�
%$ %$
�
�
�
� �
�
500
� 500
�
For more detailed information, 500
500
�
500
�
�
�
�
Use standard strategic
� �� 500
�
sourcing process 500 %$

� %$
% $standard set of
%$
� �
�
�
Use
%$
�
500
�
�
procure-to-pay processes
��500 %$
� 500
500 %$
500
� 500 and manage strategic
Monitor
��
500 teams’ progress
sourcing
�
�
�
�
and compliance to standard %$
500 500
%$ 500
�
processes
�
� %$
500 %$
500
�
%$ %$
�
��
�
�
Use expert facilitators to
�
% $ slow-moving sourcing
accelerate
� 500
�� 500 500
�
%$ %$ 500
��
programs
500 %$
%$ 500 %$
�
�
500
Indentify risk exposures
� � ��
�
��
from strategic sourcing 500 %$
500 %$
�
%$
Use senior-level strategic �
500 � %$
��
500 500
%$ %$
�
procurement steering committee
�
� %$
�� 500
500 500
%$
%$
500
�
500 500
� 500
Conduct/validate deep-dive
%$ %$
�
market research
%$
� �
�� 500 %$
%$ %$
Rethink traditional business
� 500
� �
�
models 500
%$ %$ 500
500 %$
%$
� �
��
500
Benchmark global lowest
� %$
�
500
‘should cost’
�
�
%$
%$
500 � 500 500
500 %$
%$
� 500
�
Benchmark total spend levels
Use formal decison trees for

�
%$
�
�� 500 %$
%$
� 500
500
� %$
�
things like selecting sourcing or %$

procure-to-pay processes %$
%$ 500
Build total cost models �

� 500
500 � %$
��
�
for spend categories %$

%$
<1 Yr �
� 500
1-3 yrs
%$
%$
3-5 Yrs 5+ Yrs
500 %$
Longer
�
�
500
500
%$
Typical Leadtime
� %$
�
� 500
500
%$
� 500
�
� %$
%$
500 27
� %$
�
� 500
%$ 1/9/2008 10:43:40 AM

Manage procurement pipeline

 Set goals and manage performance In The CPO’s Tale, the enterprise strategic procurement organiza-
 Make decisions, manage tion reaches its 500-million-in-five-years savings goal through a com-
information and knowledge bination of enthusiasm, intelligence, perseverance and hard work.
But they also benefit from what might be called ‘the newness factor’
—they’re choosing from a seemingly endless array of new strategic
FIGURE 24 sourcing opportunities, repeatedly scoring big savings hits with
Track savings identified never-before-used electronic auction or other e-sourcing technolo-
by strategic sourcing gies. And, because senior management is cheering them on, they’re
{
getting away with counting savings that never really materialize,
Embedded
never affect profitability or competitiveness.
Unfortunately, the newness factor wears off over time. New strategic
sourcing opportunities get more difficult to find. Savings from com-
Score
petitive sourcing of goods and services transition from monumental

to incremental. Management and budget stakeholders become less
willing to accept things like ‘identified’ savings or ‘cost avoidance’.
And, yet, savings goals for procurement stay high or progress even
higher over time.
High2 High1 Mid Low
So, one might expect high performers—those in the high value
Nearly every strategic sourcing organization makes delivery or high spend under management categories—to experi-
a habit of tracking the savings it identifies through ence diminishing returns over time. But the study finds this isn’t
sourcing processess... often the case. Ten percent of very high-level performers do report
declines in performance contributions and 14% say their trend
FIGURE 25 is flattening out. But that leaves 76% still on the upswing. What’s
Track savings realized more, fully 38% of high performers say their trend in value delivery
by strategic sourcing is ‘rising rapidly’, compared to 26% for intermediate and just 13%
among low performers.
{
Embedded
What are high performers doing differently to sustain—even accel-

erate their performance contributions over time? The study finds
they distinguish themselves in three major ways; the first being what
they measure. Rates at which procurement organizations measure
Score
product and service cost savings or reductions in cost of goods sold

are fairly consistent across all performance levels, but compared to
low-level performers, high performers are—
High2 High1 Mid Low • Nearly twice as likely to be trying to comprehend their global
competitiveness, so looking to answer questions like: ‘Are we
...but only higher-level performers have estab- achieving the global lowest cost versus merely beating our own year-ago
lished systematic methods for understanding how performance?’ ‘Are we choosing suppliers that are best global perform-
their activities convert to real savings for budget ers on things like product quality or delivery speed?’
stakeholders.
28

• Twice as likely to broaden their perspectives on cost savings to FIGURE 26

look across the total supply chain, which means paying atten- Forecast ROI from strategic
tion and working to avoid merely shifting cost burdens from sourcing process
themselves onto suppliers.
Embedded
• Four times as likely to be looking at how their activities affect
gross demand for goods and services. ‘Not only are we paying
less for the computers we buy, but we’re making fewer unnecessary
computer purchases or buying only functionality that will be highly
Score
utilized by the existing workforce.’
When high performers look at cost savings, they are also more
thorough in their approaches. For example, while intermediate
and low performers show reasonably embedded processes for track- High2 High1 Mid Low
ing savings identified by sourcing teams (Fig24), high performers Range of performance
are more likely to be measuring to ensure that identified savings are If nothing else, frequent performance forecasting
actually being realized by budget holders (Fig25). exercises help a strategic procurement organization
to become competent at setting realistic expecta-
The other major way in which high performers distinguish is by tions and managing performance to objective.
taking systematic approaches to how they manage the performance
pipeline, meaning they draw precise strategies for how they will
reach their goals, ensure that sourcing and individuals’ objectives
are tied to organizational goals, that sourcing teams and spend
category managers understand clearly how they are expected to
contribute to the total goal, then manage and monitor closely to FIGURE 27
ensure the organization as a whole is on track to meet its objectives. Report procurement
High performers, according to the study,
performance scorecards
{
• More frequently forecast cost savings or other ROI expected
Embedded
from strategic sourcing (Fig26).

• Routinely track and report performance scorecards on them-
selves (Fig27).
• And, have embedded processes for being consistently aware of
Score
where they stand on performance to goal and how it all rolls

up to the organization’s top line goal (Fig28).
Some tactics for embedding and ensuring process consistency

include: High2 High1 Mid Low
• Add multiple forecasting exercises into the strategic sourc-
Keeping honest performance-to-forecast track
ing process. For example: in the very beginning, ask sourcing records aids the organization in finding and elimi-
teams or category managers to predict: ‘How much cost savings nating variability in sourcing processes execution.
or other value do we think we can deliver in this category?’ And how Over time, that leads to more repeatable results.
much time is it likely to take?’ As they progress through the steps,
ask teams to repeatedly revisit and revise their forecasts if only
to develop organizational competencies for setting realistic
29

performance expectations. In the end, ask sourcing teams

to conduct a postmortem process to understand and report
FIGURE 28 on why they met, did not meet, or exceeded their original
Aggregate and monitor forecast.
teams’ progress to goals
• Look outside the organization, conduct external benchmark-
{ ing exercises with like (but noncompetitive) companies to

Embedded
facilitate in both new opportunity identification and in set-

ting realistic performance improvement expectations and
timelines.
Score
• Use process experts/facilitators to challenge teams to set

stretch goals.
• Recruit at least one professional into the organization who

High2 High1 Mid Low is adept at designing effective metrics (for example, look to
operations management, quality control and/or finance orga-
Top performers are consistently aware of where nizations as talent pools).
they stand as an organization relative to total
goal; this enables them to allocate resources effec- • Focus objectives narrowly, then pick two or three well
tively and be proactive about managing risks to designed metrics that everybody pursues; embed the metrics
performance as they arise. as KPIs in individual contributors’ professional development
plans.
• Use IT dashboard to monitor progress and performance

delivery against identified opportunities and goals. Use red
flag system to understand when goal attainment may be fall-
ing into jeopardy, requiring action by process experts or other
management team members.
30

� �
�
� 500
�
� �
500
�
Managing the strategic procurement pipeline and performance to goal �
�
%$
� � %$ 500
Processes
� Performers
�
�
500
��
500
� ��
�
Practice or product is introduced Scores as embedded among high performers Scores as nearly embedded among high performers
500 (500 million or more in total value delivery) 500 500 %$
�
%$ �
� %$
(75-100% of spend under management) 500
�
� ��
�
%$ %$
�
%$ 500
��
�
�
� 500
�
Link total organization’s value 500
� ��
500 %$
�
500
�
delivery/ROI goals to corporate 500
� ��
�
financial metrics 500 500 %$
� � �� %$
�
500
� � � ��
%Link
$ procurement teams’ goals to %$
��
�
total organization goal %$
% $ 500 500 %$
�
%$
� �
�
Forecast value delivery/ROI 500

�
�
�
�
expected from specific initiatives
500
� ��
500 %$
�
500 %$ 500
500 500
�
%$
Track savings or other value
� � ��
500
�
identified by teams
500 %$
� � � 500 %$
�
� %Track
$ savings or other value
� �� 500
� %$ %$ � 500
�
500
% $ by budget stakeholders
�� %$
realized
500 %$ 500
� � ��
500 %$ 500
�
500 500
Track teams’ value achieved
� �
%$
� ��
�
relative to forecast
� �
%$
500 � 500
500 %$
%$ 500
500 %$
%$
Aggregate and monitor teams’ 500
��
%$
%$ %$
�
collective progress against total 500 500 %$

goal
�
� � �
500 %$
500
� ��
500
500 %$ 500
<1 Yr 1-3 yrs
%$ %$ 3-5 Yrs 5+ Yrs Longer
500 %$
�
%$
� �� 500 %$

500
500
%$
500
Typical Leadtime
%$ 500
%$
500 %$
%$
%$
� �� 500
�� %$ 500
500 %$
�
� � ��
%$
%$
%$
500 %$
500 %$
� �the organization%$
500
��who is adept
%$
%$
�
Recruit at least one professional into
effective metrics (for example, look�
�
500
%$
at designing
to operations management, quality control and/or
500 %$
%$
�
� �
finance organizations as talent pools). 500
%$
%$
� %$
31

 Win stakeholder support

Chapter 6
Manage knowledge

 Set goals and manage performance Knowledge management is a final area tested in the study where
 Make decisions and manage high performers are substantially more likely to show embedded
information and knowledge best processes. For example, high performers spend more time
grouping spend categories in creative ways, so they can leverage
what they know and learn from one category or subcategory to the
next (Fig29).
Some examples of how they do this—
FIGURE 29 • Group spend categories by risk or market competitiveness

Group spend categories to profile as means for consistently and correctly choosing the
leverage acquired knowledge most appropriate sourcing process.
{
• Group spend categories by buying channel—say, buys from
Embedded
distributors, buys made directly from manufacturers, service

buys based on statements of work, and so forth—so process or
other cost efficiencies can be established globally at the chan-
nel level, then leveraged down to specific categories.
Score
• Group spend categories by procure-to-pay workflow, again so

that process efficiencies can be established at a global level
and driven down to specific categories.
Another well-embedded practice among high-performers is to run

High2 High1 Mid Low
debriefing or post-mortem sessions on all sourcing events, captur-
ing, codifying and publishing lessons learned so the entire orga-
Top strategic sourcing and procurement manage- nization can learn and improve over time. This acknowledges that
ment groups avoid squandering precious resources suppliers will consistently learn and improve their approaches to
by attacking problems at an enterprise level and sourcing events; that savvy sourcing organizations can never afford
leveraging solutions across similar spend categories.
to stop learning and refining their tactics for going to market.
It’s altogether too common for documents and information

relating to strategic sourcing activities to be widely distributed
throughout an organization on multiple people’s computers and
in many formats (word processing files, spreadsheets, databases).
But this poses serious threats to the repeatability and sustainabil-
ity of total value delivery over time. High performers are more
likely to be operating from a centralized structure for information
management, structuring not just their spend data, but all sourc-
ing program data—for example, market intelligence gathered,
assumptions made, team decision-making, TCO weights, drawings,
specifications, contract documents, and so forth—into a single,
centralized database that all authorized personnel can access easily
(Fig30).
32

And, while many will recognize the wisdom of keeping a central FIGURE 30
repository of information, data, documents, and so forth, high Keep sourcing program data
performers often take this a step further, parsing and structuring and docs in structured database
{
strategic procurement data in ways that can dramatically increase
Embedded
their capabilities for manipulating, combining with other informa-
tion, and leveraging accumulated sourcing knowledge for many
years into the future.
Score
Some tactics for embedding and ensuring process consistency
include:
• Centralize information platform; all users work off a single

instance of information; ensure that information flows easily
High2 High1 Mid Low
and automatically from one process step to the next. Range of performance
• Identify talent and provide them with incentives through
personal performance plans to become process and project It’s a good idea to centralize procurement informa-
management experts (may require outside education). tion; it’s a great idea to structure procurement data
• Carve out time for sourcing professionals to assess what they so it can be manipulated and used innovatively
by future sourcing professionals–in ways, perhaps,
learn, and to continually build, refine, and enrich knowledge that have yet to be imagined.
models/structured decision trees that can be embedded into
strategic sourcing workflow.
• Cultivate experts/power users of technology tools such as
e-sourcing events, decision optimization engines, and sophisti-
cated spend analytics platforms; make it their jobs to push the
limits of the technology then teach the larger organization
FIGURE 31
how to do it.
Use complex optimization
Simple decision support tools—largely intuitive and often subjec- engines for decision support
{
tive weighting systems for balancing factors like price against qual-
Embedded
ity, leadtime and other factors—are fairly ubiquitous in strategic

sourcing and procurement management organizations at all levels
of performance.
Score
An emergent practice for higher-level performers is to use sophis-

ticated optimization engines for modeling and testing different
constraints and ‘what if’ scenarios to optimize business award and
other supply chain processes (Fig31). So, for example, ‘Here are
specifications we have defined for this particular line item of spend: X High2 High1 Mid Low
feature set, Y set of supplier performance terms, and Z set of contract terms. Range of performance
Here’s the RFP data we have collected from the marketplace in response to
the specifications we have set. Now, what is the best number of suppliers to Strategic procurement groups have yet to make
full use of the sophisticated decision-support tools
use? Which suppliers should we choose based on their responses? What hap- available on the market. As with TCO model-
pens if we make our supplier performance values just a tiny bit less rigor- ing, there may be an opportunity for significant
ous or alter our feature set in some small way? Can we get a bigger impact competitive advantage if the correct skill sets can
on cost by adjusting what was probably an arbitrary set of specifications to be established.
begin with?’
33

� �
This type of complex decision-support analysis is still quite rare, but the
study finds it to be clearly present among highest-performing strategic
sourcing and procurement management organizations on the value deliv-
ery metric.
�500
�
� �
500
Decision support and knowledge management for strategic sourcing and%$
procurement management �
�
�
%$
�
� �
�
Processes Performers
500
��
500
� 500
(500 million or more in total value delivery) �500 Scores as nearly embedded among high performers
�
� �
�
�
Practice or process transitions Scores as embedded among high performers Scores as nearly embedded among high performers
%$ %$ (75-100% of spend under management)
�
500
� � %$ %$
�
�
500
� �
500
� 500
� 500 %$
�
500simple decision support
Use
� ��
�
tools to evaluate sourcing results 500 500 %$

��
�
�
� % $optimization engines/test
Use
��
500 %$
��
%$ 500
� ��
different ‘what if’ scenarios for
% $ decisions
�
sourcing
%$ 500 %$ 500
��
�
%$
�Cultivate internal process
��
500
�
� 500
�
� �� %$
experts/consultants 500
500
Cultivate internal technolgy
500 %$
500 %$
��
� �
�
500
�
�
�
experts/power users
%$
� ��
��
500
500 %$
500
�
%$
�
%$ sourcing program data in

Keep
%$
� 500
�
structured database
�
500 %$
��
500
%$
%$
500
��
��
�
Group spend categories to %$ 500

� ��
�
leverage acquired knowledge %$ 500

500 %$
500 %$
500 �500 %$ 500
Analyze strategic sourcing
� �
��
�
programs, codify, share lessons

learned
Transfer acquired strategic

� �
500
%$
%$
%$
�
��
�
500
500
%$
500 %$
500 %$
%$ 500
500 %$
sourcing expertise into budget-
� � ��
�
holding organizations
Outsource strategic sourcing � �

500
%$
500
�
��
�
500
%$ %$ 500
%$
500 %$
500 %$
where category expertise is
lacking or unwanted
� � 500
500 �
��%$
%$
� �
<1 Yr
500
%$
1-3 yrs 3-5 Yrs 5+ Yrs
�� %$
500 %$
500Longer
%$
� � %$ Typical Leadtime
�
��
500
�
�
500
%$
%$ 500 %$
%$
� � � �
500 %$
%$
%$
� � %$ 34500
ZYCUS_EBOOK_FINAL 7.01.08.indd 34 � %$ 1/9/2008 10:43:43 AM

Epilogue: Supernova
or strategic force for change?
The Purchasing/ZYCUS study finds a small cadre of enterprise-level
strategic sourcing organizations claiming very high performance
results with little or no corresponding evidence of best-process
maturity or consistency. Clearly, these organizations are riding a
crest of raw CEO and/or CFO support that views strategic sourcing
only as a short-term—say, 3-5 year—fix for the balance sheet, rather
than a long-term approach to sustaining profitability and improving
global competitiveness by making wise sourcing and spend
behaviors an ingrained part of the larger corporate culture.
Fortunately, this is a small minority. It’s far more common to find

enterprise-level strategic sourcing organizations evolving slowly
toward maturity, mainly because they are introducing and embed-
ding best practices and processes by trial and error rather than by
plan or design.
Let the remainder of this BOOK serve

as a process reference guide intended
to confer the benefits of experimenta-
tion already undertaken by trail-blaz-
ing, high-performance procurement
groups. Use it to plot and, perhaps,
speed up your path to strategic sourc-
ing and procurement management
maturity, to position your organiza-
tion for long-term survival and sus-
tainable delivery of corporate perfor-
mance improvements that reach far
beyond the delivery of cost savings.
35

APPENDIX
PROCESS

Capture spend data from multiple points (ERP, AP, p-card, check requests, T&E, etc) RETURN TO TABLE
All
High
Total value
Med
delivery/savings
Low
Process
EMBEDDED PRESENT BUT NOT EMBEDDED RARE OR NONEXISTENT
consistency scale
0-
24%
25-
Percent of spend 49%
under management 50-
74%
75-
100%
PE SCORE: 7/10. Typical timeline: Emerges at 1-3 years, becomes embedded at 5+ years. Strongest performance impacts: Value delivery, all transitions; spend
under management, first to second and third to fourth quartiles.
PROCESS

Normalize, clean, aggregate spend data RETURN TO TABLE
All
High
Total value
Med
delivery/savings
Low
Process
consistency scale
0-
24%
25-
74%
75-
100%
PE SCORE: 8/10. Typical timeline: Emerges at 1-3 years, becomes embedded at 3-5 years. Strongest performance impacts: Value delivery, all transitions; spend
under management, third to fourth quartile.
PROCESS

Categorize, classify spend data RETURN TO TABLE
All
High
Total value
Med
delivery/savings
Low
Process
consistency scale
0-
24%
25-
74%
75-
100%
PE SCORE: 9/10. Typical timeline: Emerges at year one, becomes embedded at 1-3 years. Strongest performance impacts: Value delivery, all transitions; spend
under management, second to third and third to fourth quartiles.
36

APPENDIX
PROCESS

Slice and dice spend data at detailed item level RETURN TO TABLE
All
High
Total value
Med
delivery/savings
Low
Process
consistency scale
0-
24%
25-
74%
75-
100%
PE SCORE: 9/10. Typical timeline: Emerges at 1-3 years, becomes embedded at 3-5 years. Strongest performance impacts: Value delivery, all transitions, spend
under management: second to third and third to fourth quartiles.
PROCESS

Rank potential initiatives: allocate resources according to value delivery potential RETURN TO TABLE
All
High
Total value
Med
delivery/savings
Low
Process
consistency scale
0-
24%
25-
74%
75-
100%
PE SCORE: 8/10. Typical timeline: Emerges at 1-3 years, becomes embedded at 3-5 years. Strongest performance impacts: Value delivery, all transitions; spend
under management, second to third quartile.
PROCESS

Document and actively market procurement success stories and benefits RETURN TO TABLE
All
High
Total value
Med
delivery/savings
Low
Process
consistency scale
0-
24%
25-
74%
75-
100%
PE SCORE: 8/10. Typical timeline: Emerges at 1-3 years, becomes embedded after year five. Strongest performance impacts: Value delivery, all transitions;
spend under management, second to third and third to fourth quartiles.
37

APPENDIX
PROCESS

Frame success stories in terms that appeal to spend stakeholders RETURN TO TABLE
All
High
Total value
Med
delivery/savings
Low
Process
consistency scale
0-
24%
25-
74%
75-
100%
PE SCORE: 7/10. Typical timeline: Emerges at 1-3 years, does not become embedded. Strongest performance impacts: Value delivery, all transitions; spend
under management, third to fourth quartile.
PROCESS

Use cross-functional/divisional teams RETURN TO TABLE
All
High
Total value
Med
delivery/savings
Low
Process
consistency scale
0-
24%
25-
74%
75-
100%
PE SCORE: 9/10. Typical timeline: Emerges in year one; becomes embedded at 1-3 years; loses frequency in years 3-5 as groups transition to more grassroots
collaboration. Strongest performance impacts: Value delivery, low to intermediate transition; spend under management, from second to third/fourth quartiles.
PROCESS

Populate teams with best mix of procurement, cross-functional, and category expertise RETURN TO TABLE
All
High
Total value Med
delivery/savings
Low
Process
consistency scale
0-
24%
25-
74%
75-
100%
PE SCORE: 9/10. Typical timeframe: Emerges in years 1-3, becomes embedded after year five. Strongest performance impacts: Value delivery, all transitions;
spend under management, from second to third and third to fourth quartiles.
38

APPENDIX
PROCESS

Co-locate procurement team members with spend stakeholders RETURN TO TABLE
All
High
Total value
Med
delivery/savings
Low
Process
consistency scale
0-
24%
25-
74%
75-
100%
PE SCORE: 9/10. Typical timeline: Emerges at 3-5 years; does not become embedded. Strongest performance impacts: Value delivery, all transitions; spend
PROCESS

Validate savings or other value through finance and/or budget holding organizations RETURN TO TABLE
All
High
Total value
Med
delivery/savings
Low
Process
consistency scale
0-
24%
25-
74%
75-
100%
PE SCORE: 7/10. Typical timeline: Emerges at 1-3 years; becomes embedded after year five. Strongest performance impacts: Value delivery, all transitions;
spend under management, first to second quartile.
PROCESS

Ask budget stakeholders to participate in writing and validating specifications RETURN TO TABLE
All
High
Total value
Med
delivery/savings
Low
Process
consistency scale
0-
24%
25-
74%
75-
100%
PE SCORE: 8/10. Typical timeline: Emerges at 1-3 years, becomes embedded after year five. Strongest performance impacts: Value delivery, low to
intermediate; spend under management, first to second and third to fourth quartiles.
39

APPENDIX
PROCESS

Ask budget stakeholders to forecast their demand RETURN TO TABLE
All
High
Total value
Med
delivery/savings
Low
Process
consistency scale
0-
24%
25-
74%
75-
100%
PE SCORE: 8/10. Typical timeframe: Emerges in year one, becomes embedded in years 1-3. Strongest performance impacts: Value delivery, low to intermediate
transition; spend under management, from first to second quartile.
PROCESS

Ask budget stakeholders for commitments to participate in strategic contracts RETURN TO TABLE
All
High
Total value
Med
delivery/savings
Low
Process
consistency scale
0-
24%
25-
74%
75-
100%
spend under management, from first to second and third to fourth quartiles.
PROCESS

Collaborate with budget stakeholders to either take down budgets or reinvest savings RETURN TO TABLE
All
High
Total value
Med
delivery/savings
Low
Process
consistency scale
0-
24%
25-
74%
75-
100%
PE SCORE: 9/10. Typical timeframe: Emerges in years 1-3, does not typically become embedded. Strongest performance impacts: Value delivery, low to
intermediate; spend under management, from third to fourth quartile.
40

APPENDIX
PROCESS

Use policies to lock down spend RETURN TO TABLE
All
High
Total value
Med
delivery/savings
Low
Process
consistency scale
0-
24%
25-
74%
75-
100%
spend under management, from third to fourth quartile.
PROCESS

Use technology tools to lock down spend RETURN TO TABLE
All
High
Total value
Med
delivery/savings
Low
Process
consistency scale
0-
24%
25-
74%
75-
100%
PROCESS

Tie personal and business-level performance goals to strategic procurement initiatives RETURN TO TABLE
All
High
Total value
Med
delivery/savings
Low
Process
consistency scale
0-
24%
25-
74%
75-
100%
PE SCORE: 8/10. Typical timeframe: Emerges in years 1-3, becomes embedded in year five or after. Strongest performance impacts: Value delivery all
transitions; spend under management, from first to second and third to fourth quartiles.
41

APPENDIX
PROCESS

Ensure that all nonprice terms achieved in contracts are executed (discounts, rebates, etc) RETURN TO TABLE
All
High
Total value
Med
delivery/savings
Low
Process
consistency scale
0-
24%
25-
74%
75-
100%
PE SCORE: 8/10. Typical timeframe: Emerges in year one, becomes embedded in years 1-3. Strongest performance impacts: Value delivery low to intermediate;
PROCESS

Measure internal compliance to contracts RETURN TO TABLE
All
High
Total value
Med
delivery/savings
Low
Process
consistency scale
0-
24%
25-
74%
75-
100%
PROCESS

Report compliance scorecards RETURN TO TABLE
All
High
Total value
Med
delivery/savings
Low
Process
consistency scale
0-
24%
25-
74%
75-
100%
42

APPENDIX
PROCESS

Reward/penalize budget stakeholders for compliance/noncompliance RETURN TO TABLE
All
High
Total value
Med
delivery/savings
Low
Process
consistency scale
0-
24%
25-
74%
75-
100%
PE SCORE: 8/10. Typical timeframe: Emerges in years 1-3, does not typically become embedded. Strongest performance impacts: Value delivery, all transitions;
PROCESS

Measure supplier compliance to performance terms spelled out in contracts RETURN TO TABLE
All
High
Total value
Med
delivery/savings
Low
Process
consistency scale
0-
24%
25-
74%
75-
100%
PROCESS

Use standard strategic sourcing process RETURN TO TABLE
All
High
Total value
Med
delivery/savings
Low
Process
consistency scale
0-
24%
25-
74%
75-
100%
PE SCORE: 8/10. Typical timeframe: Emerges in year one, becomes embedded in years 3-5. Strongest performance impacts: Value delivery, all transitions;
43

APPENDIX
PROCESS

Use standard set of procure-to-pay processes RETURN TO TABLE
All
High
Total value
Med
delivery/savings
Low
Process
consistency scale
0-
24%
25-
74%
75-
100%
PE SCORE: 9/10. Typical timeframe: Emerges in years 1-3, becomes embedded in year five or after. Strongest performance impacts: Value delivery, all
transitions; spend under management, from second to third and third to fourth quartiles.
PROCESS

Monitor and manage teams’ progress and compliance to standard sourcing process RETURN TO TABLE
All
High
Total value
Med
delivery/savings
Low
Process
consistency scale
0-
24%
25-
74%
75-
100%
transitions; spend under management, all transitions.
PROCESS

Use expert facilitators to accelerate slow-moving strategic sourcing programs RETURN TO TABLE
All
High
Total value
Med
delivery/savings
Low
Process
consistency scale
0-
24%
25-
74%
75-
100%
PE SCORE: 7/10. Typical timeframe: Emerges in years 1-3, does not become embedded. Strongest performance impacts: Value delivery, low to intermediate
transition; spend under management, from first to second quartile.
44

APPENDIX
PROCESS

Use senior-level management board to champion work and monitor teams’ progress RETURN TO TABLE
All
High
Total value
Med
delivery/savings
Low
Process
consistency scale
0-
24%
25-
74%
75-
100%
spend under management, all transitions.
PROCESS

Use formal decision tree for selecting best sourcing/e-sourcing processes RETURN TO TABLE
All
High
Total value
Med
delivery/savings
Low
Process
consistency scale
0-
24%
25-
74%
75-
100%
PE SCORE: 8/10. Typical timeframe: Emerges in years 1-3, does not become embedded. Strongest performance impacts: Value delivery, all transitions; spend
under management, from first to second and second to third quartiles.
PROCESS

Use formal decision tree for selecting best procure-to-pay process RETURN TO TABLE
All
High
Total value
Med
delivery/savings
Low
Process
consistency scale
0-
24%
25-
74%
75-
100%
under management, from first to second and second to third quartiles.
45

APPENDIX
PROCESS

Link organization’s value delivery/ROI goals to corporate financial metrics RETURN TO TABLE
All
High
Total value
Med
delivery/savings
Low
Process
consistency scale
0-
24%
25-
74%
75-
100%
PROCESS

Link procurement teams’ goals to total organization goal RETURN TO TABLE
All
High
Total value
Med
delivery/savings
Low
Process
consistency scale
0-
24%
25-
74%
75-
100%
PE SCORE: 10/10. Typical timeframe: Emerges in years 1-3, becomes embedded in years 3-5. Strongest performance impacts: Value delivery, all transitions;
PROCESS

Forecast value delivery/ROI expected from specific initiatives RETURN TO TABLE
All
High
Total value
Med
delivery/savings
Low
Process
consistency scale
0-
24%
25-
74%
75-
100%
46

APPENDIX
PROCESS

Track savings or other value identified by teams RETURN TO TABLE
All
High
Total value
Med
delivery/savings
Low
Process
consistency scale
0-
24%
25-
74%
75-
100%
PROCESS

Track savings or other value realized by budget stakeholders RETURN TO TABLE
All
High
Total value
Med
delivery/savings
Low
Process
consistency scale
0-
24%
25-
74%
75-
100%
PROCESS

Track teams’ value achieved relative to forecast RETURN TO TABLE
All
High
Total value
Med
delivery/savings
Low
Process
consistency scale
0-
24%
25-
74%
75-
100%
transitions; spend under management, all transitions.
47

APPENDIX
PROCESS

Aggregate and monitor procurement teams’ collective progress against total goal RETURN TO TABLE
All
High
Total value
Med
delivery/savings
Low
Process
consistency scale
0-
24%
25-
74%
75-
100%
PROCESS

Research markets/competitive supplier landscapes (deep dive) RETURN TO TABLE
All
High
Total value
Med
delivery/savings
Low
Process
consistency scale
0-
24%
25-
74%
75-
100%
under management, from first to second and third to fourth quartiles.
PROCESS

Validate market research RETURN TO TABLE
All
High
Total value
Med
delivery/savings
Low
Process
consistency scale
0-
24%
25-
74%
75-
100%
under management, from third to fourth quartile.
48

APPENDIX
PROCESS

Build total cost model encompassing all potential cost levers for spend category RETURN TO TABLE
All
High
Total value
Med
delivery/savings
Low
Process
consistency scale
0-
24%
25-
74%
75-
100%
PROCESS

Benchmark global lowest cost (should cost) RETURN TO TABLE
All
High
Total value
Med
delivery/savings
Low
Process
consistency scale
0-
24%
25-
74%
75-
100%
PROCESS

Benchmark total spend against best-in-class RETURN TO TABLE
All
High
Total value
Med
delivery/savings
Low
Process
consistency scale
0-
24%
25-
74%
75-
100%
49

APPENDIX
PROCESS

Rethink traditional business models for specific spend categories RETURN TO TABLE
All
High
Total value
Med
delivery/savings
Low
Process
consistency scale
0-
24%
25-
74%
75-
100%
PE SCORE: 7/10. Typical timeframe: Emerges in years 1-3, becomes embedded after year five. Strongest performance impacts: Value delivery, intermediate to
high; spend under management, from second to third and third to fourth quartiles.
PROCESS

Identify and plan for risk exposures associated with strategic procurement management RETURN TO TABLE
All
High
Total value
Med
delivery/savings
Low
Process
consistency scale
0-
24%
25-
74%
75-
100%
PROCESS

Ask suppliers to help build/validate category total cost model RETURN TO TABLE
All
High
Total value
Med
delivery/savings
Low
Process
consistency scale
0-
24%
25-
74%
75-
100%
under management, none.
50

APPENDIX
PROCESS

Ask suppliers to unbundle goods or services to gain deeper insight into cost levers RETURN TO TABLE
All
High
Total value
Med
delivery/savings
Low
Process
consistency scale
0-
24%
25-
74%
75-
100%
PROCESS

Ask suppliers to standardize goods and services RETURN TO TABLE
All
High
Total value
Med
delivery/savings
Low
Process
consistency scale
0-
24%
25-
74%
75-
100%
spend under management, from first to second and second to third quartiles.
PROCESS

Ask suppliers to validate specifications RETURN TO TABLE
All
High
Total value
Med
delivery/savings
Low
Process
consistency scale
0-
24%
25-
74%
75-
100%
spend under management, from second to third quartile.
51

APPENDIX
PROCESS

Pursue process-related savings or other value with preferred suppliers RETURN TO TABLE
All
High
Total value
Med
delivery/savings
Low
Process
consistency scale
0-
24%
25-
74%
75-
100%
PROCESS

Pursue design-related savings or other value with preferred suppliers RETURN TO TABLE
All
High
Total value
Med
delivery/savings
Low
Process
consistency scale
0-
24%
25-
74%
75-
100%
spend under management, first to second and second to third quartiles.
PROCESS

Ensure suppliers are fully trained in use of sourcing technologies RETURN TO TABLE
All
High
Total value
Med
delivery/savings
Low
Process
consistency scale
0-
24%
25-
74%
75-
100%
PE SCORE: 8/10. Typical timeframe: Emerges in years 1-3, becomes embedded after year five. Strongest performance impacts: Value delivery, intermediate to
high; spend under management, first to second and third to fourth quartiles.
52

APPENDIX
PROCESS

Structure sourcing events to ensure suppliers can not make mistakes key terms RETURN TO TABLE
All
High
Total value
Med
delivery/savings
Low
Process
consistency scale
0-
24%
25-
74%
75-
100%
PROCESS

Define specific rules for sourcing events prior to executing RETURN TO TABLE
All
High
Total value
Med
delivery/savings
Low
Process
consistency scale
0-
24%
25-
74%
75-
100%
spend under management, second to third quartiles.
PROCESS

Comply with specific rules set for sourcing events RETURN TO TABLE
All
High
Total value
Med
delivery/savings
Low
Process
consistency scale
0-
24%
25-
74%
75-
100%
PE SCORE: 7/10. Typical timeframe: Emerges in years 1-3, becomes embedded in year five. Strongest performance impacts: Value delivery, all transitions;
53

APPENDIX
PROCESS

Commit to moving business should nonincumbent suppliers win sourcing events RETURN TO TABLE
All
High
Total value
Med
delivery/savings
Low
Process
consistency scale
0-
24%
25-
74%
75-
100%
spend under management, none.
PROCESS

Map strategies for executing business transfers should nonincumbent suppliers win RETURN TO TABLE
All
High
Total value
Med
delivery/savings
Low
Process
consistency scale
0-
24%
25-
74%
75-
100%
PROCESS

Use simple decision support tools to evaluate sourcing results RETURN TO TABLE
All
High
Total value
Med
delivery/savings
Low
Process
consistency scale
0-
24%
25-
74%
75-
100%
spend under management, second to third quartile.
54

APPENDIX
PROCESS

Use optimization engines/test different ‘what if’ scenarios for sourcing decisions RETURN TO TABLE
All
High
Total value Med
delivery/savings
Low
Process
consistency scale
0-
24%
25-
74%
75-
100%
PE SCORE: 9/10. Typical timeframe: Emerges after year five. Strongest performance impacts: Value delivery, all transitions; spend under management, first to
second and second to third quartiles.
PROCESS

Cultivate internal process experts/consultants RETURN TO TABLE
All
High
Total value
Med
delivery/savings
Low
Process
consistency scale
0-
24%
25-
74%
75-
100%
spend under management, third to fourth quartile.
PROCESS

Cultivate technology experts/power users RETURN TO TABLE
All
High
Total value
Med
delivery/savings
Low
Process
consistency scale
0-
24%
25-
74%
75-
100%
PE SCORE: 9/10. Typical timeframe: Emerges in years 1-3, does not become embedded. Strongest performance impacts: Value delivery, low to intermediate;
spend under management, first to second and third to fourth quartiles.
55

APPENDIX
PROCESS

Keep sourcing program data and documents in structured database RETURN TO TABLE
All
High
Total value
Med
delivery/savings
Low
Process
consistency scale
0-
24%
25-
74%
75-
100%
PE SCORE: 9/10. Typical timeframe: Emerges in year one, becomes embedded after year five. Strongest performance impacts: Value delivery, all transitions;
spend under management, all transitions
PROCESS

Group spend categories to leverage acquired knowledge RETURN TO TABLE
All
High
Total value
Med
delivery/savings
Low
Process
consistency scale
0-
24%
25-
74%
75-
100%
PE SCORE: 9/10. Typical timeframe: Emerges in year one, becomes embedded after year five. Strongest performance impacts: Value delivery, all transitions;
spend under management, first to second and second to third quartiles.
PROCESS

Analyze strategic sourcing programs, codify, share lessons learned RETURN TO TABLE
All
High
Total value
Med
delivery/savings
Low
Process
consistency scale
0-
24%
25-
74%
75-
100%
56

APPENDIX
PROCESS

Transfer acquired strategic sourcing expertise into budget-holding organizations RETURN TO TABLE
All
High
Total value
Med
delivery/savings
Low
Process
consistency scale
0-
24%
25-
74%
75-
100%
under management, second to third and third to fourth quartiles.
PROCESS

Outsource strategic sourcing where category expertise is lacking or unwanted RETURN TO TABLE
All
High
Total value
Med
delivery/savings
Low
Process
consistency scale
0-
24%
25-
74%
75-
100%
PE SCORE: 8/10. Typical timeframe: Does not emerge. Strongest performance impacts: Value delivery, all transitions; spend under management, first to second
and third to fourth quartiles.
57

THE PATH
to procurement
excellence
What sets mature, highly successful strategic sourcing organizations apart?
Which processes matter most for strategic sourcing and procurement? How
important is process maturity? How can procurement continuously make
positive contributions to corporate performance? This BOOK, with support
from a new joint study by Purchasing magazine and ZYCUS, sets out to answer
these questions.
It focuses in detail on the practices and processes that, when embedded,

appear to differentiate high performance organizations. The study tested 65
specific practices and processes often associated with strategic-sourcing
maturity and success. It also identifies practices that, while still emergent in
high performance procurement groups, are consistently associated with rising
performance levels over time.
There is something here for everybody. Learn how some of the most advanced
strategic sourcing and procurement management organizations are preparing
to meet the challenges of the coming decade.
THE PATH to ptocurement excellence

THE PATH
to procurement
excellence
© 2007 Zycus Inc. All Rights reserved and procurement management

The Path To Procurement Excellence

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The Path To Procurement Excellence

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THE PATH

It focuses in detail on the practices and processes that, when embedded,

THE PATH to ptocurement excellence

Prologue: The CPO’s Tale

Six Months Later…

And people are smart. They find workarounds for systems

So, while never in outright rebellion, maybe they’re

And facts, well, they’re hard to come by in a company that

But you’re ambitious, determined to succeed. You have nine, scary-

ZYCUS_EBOOK_FINAL 7.01.08.indd 1 1/9/2008 10:43:28 AM

One Year Later…

Your processes for spend analysis, executing sourcing events, count-

And, still, cost savings don’t always materialize. Maybe demand

To feed your bosses’ steadily growing appetite for cost savings,

Three Years Later…

ZYCUS_EBOOK_FINAL 7.01.08.indd 2 1/9/2008 10:43:28 AM

Five Years Later…

(…this story has no end…)

ZYCUS_EBOOK_FINAL 7.01.08.indd 3 1/9/2008 10:43:30 AM

Look closely at mature, highly successful strategic sourcing organiza-

ZYCUS_EBOOK_FINAL 7.01.08.indd 4 1/9/2008 10:43:30 AM

Testing was for frequency of use—how well embedded best practices

• High performers: Compare yourselves to other high performers

ZYCUS_EBOOK_FINAL 7.01.08.indd 5 1/9/2008 10:43:31 AM

NOTES ABOUT THE STUDY

40 Tested against percent of spend under management, the study also

With the objective of isolating specific practices 0

ZYCUS_EBOOK_FINAL 7.01.08.indd 6 1/9/2008 10:43:32 AM

18% 31% 35% 15%

ZYCUS_EBOOK_FINAL 7.01.08.indd 7 1/9/2008 10:43:32 AM

 Win stakeholder support Chapter 1

 Develop sourcing strategies and

opportunities to save. Obtain accounts payable data, load it into

High2 High1 Mid Low Years 1-3

{ Implement front-end processes and systems for more frequently

pulling, cleaning, normalizing, and classifying spend (Fig5) so the

Begin to rank and prioritize opportunities, select new sourcing

ZYCUS_EBOOK_FINAL 7.01.08.indd 8 1/9/2008 10:43:32 AM

Example: “This purchase I am authorizing or making today is not just ‘a

At this stage, the spend analysis capabilities get more sophisticated,

Year 5 and beyond

Exhaust easy opportunities for leveraging spend at supplier and

• Undertake more demand management and standardization

• Make spend data more easily relatable to things other than

ZYCUS_EBOOK_FINAL 7.01.08.indd 9 1/9/2008 10:43:32 AM

The case for speed

Of the five spend and opportunity analysis practices and processes

contrast, intermediate level performers show only one of the processes

Some popular tactics for embedding consistent, reliable, and repeat-

• Adopt well-defined standard classification and categorization

• Use electronic procurement tools so classification and catego-

ZYCUS_EBOOK_FINAL 7.01.08.indd 10 1/9/2008 10:43:33 AM

• Where possible, map transactions directly to taxonomy so classifi-

• Use structured, central database to take automated feeds from mul-

• Structure database also to ensure that spend data is easily relat-

• Structure database to allow for ongoing, long-term enrichment of

• Use either full automation tools (no human intervention) or semi-

ZYCUS_EBOOK_FINAL 7.01.08.indd 11 1/9/2008 10:43:33 AM

Rank opportunities and

Categorize and classify

���� 500 %$%$ 500 Typical Leadtime 500 %$

ZYCUS_EBOOK_FINAL 7.01.08.indd 12 1/9/2008 10:43:35 AM

• High performers: Compare yourselves to other high performers

• Undertake more demand management and standardization

• Make spend data more easily relatable to things other than

• Adopt well-defined standard classification and categorization

• Use electronic procurement tools so classification and catego-

• Where possible, map transactions directly to taxonomy so classifi-

• Use structured, central database to take automated feeds from mul-

• Structure database also to ensure that spend data is easily relat-

• Structure database to allow for ongoing, long-term enrichment of

• Use either full automation tools (no human intervention) or semi-

�� 500 %$%$ 500 Typical Leadtime 500 %$

• Document and actively market procurement success stories

• Use technology tools to widen the net of stakeholder collabo-

• Ask them to validate specifications for large demand

• Structuring sourcing events to ensure suppliers can not make or

• Spend categories where procurement has not traditionally

• Evaluate a spend category for things like importance, risk,

• Have standardized procure-to-pay processes that map directly to