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A next-generation operating model for source-to-pay

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A next-generation procurement operating model that capitalizes on advances in digital, data, and analytics delivers new levels of performance across the value-creation lifecycle.;

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Effective procurement has long been recognized as a source of a competitive advantage (Exhibit 1). But achieving excellence requires a concerted effort to align a variety of capabilities, insights, and activities in an integrated manner across the whole organization.

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Procurement pays: Procurement health shows a strong correlation to corporate performance.;
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Achieving the level of performance and cross-functional integration required for procurement excellence has never been easy. And the big trends that are reshaping so many aspects of modern business are only adding to the complexity of the challenge. Today’s procurement function must navigate new markets and new sources of supply. It must balance the benefits of global sourcing and standardization against the risks associated with complex logistics, and the need to tailor products and supply chains to suit the requirements of local markets. It must develop the agility to manage price volatility, shortages, and supply interruptions. Increasingly, it must cope with political uncertainty and global trade tensions.

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Then there is the proliferation of data and the rise of the Internet of Things, coupled with advances in automation, analytics, and digital technologies. These developments create many new opportunities for procurement, such as allowing companies to learn more about supplier capabilities and customer requirements, and helping accelerate, streamline, and improve the effectiveness of internal processes.

Together, these factors create a business imperative for the C-suite to reexamine, rethink, and reimagine the procurement function. Capturing the opportunities offered by this fast-changing technological and commercial landscape will call for deeper and more interconnected capabilities.

Reimagining procurement

To maximize the impact and potential of the procurement function, companies need to develop and coordinate a comprehensive set of capabilities that encapsulate recent advances in technology, analytics, and management practice. We describe these requirements in a next-generation procurement operating model

We define the remit of the procurement function expansively, recognizing the interconnections between different activities needed to drive value across the end-to-end source-to-pay lifecycle. For example, insights gained through business partnering will influence specification definition, demand management, and sourcing decisions; decisions made during the contracting will have implications for payment-optimization strategies; the efficacy of the vendor-onboarding process will influence the quality of data obtained for subsequent vendor performance management and spend analytics.

This end-to-end remit is shown as in the honeycomb at the center of Exhibit 2. At the heart of the honeycomb is the procurement strategy. Given the strategic nature of procurement—and its impact on the bottom line—the design of the operating model must start with an understanding of the overall business strategy and how to align specific procurement practices with desired outcomes. For example, if a company is in growth mode, its procurement strategy may emphasize supplier management, development, and innovation. If, however, the company is focused on profitability, more attention will be directed towards traditional sourcing activities aimed at reducing the cost of supply.

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A successful procurement operating model coordinates multiple capabilities to enable, capture, and sustain value.;
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The six elements surrounding the procurement strategy represent a comprehensive set of activities needed to capture and to sustain value. The difference is important. To deliver value, the procurement function must do more than develop appropriate sources of supply. It must ensure transactional and compliance-driven activities are performed correctly, to sustain performance and avoid potential value leakage—which can be substantial.

The seamless execution of these components requires close coordination and synchronization between procurement and its stakeholders, both internal (business operations as well as corporate functions such as finance, IT, internal audit, HR, and legal) and external (the supplier community).

To enable the efficient and effective execution of these six elements, companies must achieve excellence in six enabling components of the operating model—processes, digital, organization,…

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