Sym14 03C

Best Practices in Procurement
U.S. Symposium/ITxpo Andy Kyte
17–22 October 2004

Walt Disney World
Lake Buena Vista, Florida
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Why Procurement Matters

2001 Fortune 500
Sales Profit Avg. Purchase $
Industry ($ in millions) % of Sales % of Sales
Aerospace/Defense 202,683 2.45 40.77
Beverage 94,002 9.35 42.39
Chemical 153,973 4.16 49.47
Electronics 67,449 3.78 56.14
Engineering/Construction 38,752 14.30 51.03
Mining 57,109 8.25 47.26
Petroleum 442,111 5.56 26.20
Pharmaceutical 215,098 17.54 34.76
Semiconductor 114,754 -0.99 48.34
Telecommunication Service 339,749 1.44 40.46
Transportation 6,875 1.73 31.81
Utilities 308,479 5.53 22.13
"Revenue Is Vanity, Profit Is Sanity." The mantra of the post-"e-boom" markets is heard in corporate board
rooms around the world. During the 1990s, the markets wanted growth, growth and more growth. Margins
were irrelevant and profit disdained, in favor of the rush to grow revenue as fast as the market. So in a
tough, competitive economy, how can an enterprise grow margin? There are two mechanisms available to
the management team: increase prices or decrease costs. In a recession, increasing prices is unlikely to be
an option — in fact, winning sales often means being willing to cut prices in order to beat the competition.
This means that the road to improved margins is through cutting costs — improving the productivity of the
enterprise and spending more effectively.
When the CFO looks at the cost base of the enterprise, what options does he or she see for cutting costs? If
a business is already comparatively lean, there is little fat to cut from internal costs, meaning that further
cuts would be removing muscle, not fat. So the CFO is increasingly looking at the external spending of the
company as the source of margin. More-effective procurement can be translated straight to the bottom line.
The problem for many enterprises is that they have underinvested in procurement for many years. The
organization, processes, systems and information were oriented toward a unit that was seen as an
administrative function rather than a strategic unit. This cannot remain the case: smart companies have
started the process of transitioning procurement from the basement to the board room.
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Andy Kyte
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03C, SYM14, 10/04, AE Page 1
Gartner Forecasts
By 2008, at least half of all Global 2000

firms will have a chief procurement
officer reporting directly to the CEO or
CFO.
By the end of the decade, more than 10
percent of senior operational managers
will be supplier account managers.
Revitalizing the procurement function will involve significant organizational changes. In too many
enterprises, the procurement function is at too low a level to be able to execute an effective strategic
sourcing strategy. Procurement is frequently perceived as an administrative overhead and has little ability to
influence or moderate business unit behavior. Outside of the retail sector, where procurement is a critical
core competence, it is rare to find the head of procurement on the senior executive team. But as CEOs see
more of their costs being incurred outside the company, they are changing the structure of their inner circle
to admit the head of procurement. The role of chief procurement officer existed in about 7 percent of the
Global 2000 (excluding retail) at the end of 2002, but every month, new appointments are being made that
show an inexorable and irreversible trend. At the same time as the head of procurement is being moved into
a position that reflects the strategic importance of the role, a change is beginning in the way in which
businesses manage their relationships with suppliers. Gartner is seeing the emergence of an important new
function — the supplier account manager. These managers are tasked with maximizing the effectiveness of
the spending with a supplier, acting as the focus for the commercial relationship in exactly the same way
that a sales account manager relates to customers. These are very different from "executive sponsors,"
because they will be measured and rewarded on the basis of the value derived from the supplier. The task
moves from being a hobby to being a well-regarded and well-rewarded job.
Andy Kyte
03C, SYM14, 10/04, AE Page 2
Procurement: Not Just ‘Buying’

Spot
Trading Contracting
Purchasing
Bulk Commodities Strategic Sourcing Goods and
Services
Futures Options Shared Capital
Derivatives Planning Employee
Self-Service
Well-Regulated Suppliers Invest
Marketplaces for Innovation Service-Level
Driven
Direct Report Collaborative
to CFO Commerce Administrative
Efficiency
Managing Financial Managing Sourcing
Control and
Risk and Benefit Risk and Benefit
Visibility
Localization
of Suppliers
Procurement is not just about buying tangible goods. Enterprises need to acquire many classes of assets in
the course of normal business activity, and there are many ways in which enterprises can move from the
state of not having an asset to having an asset. Each class of asset presents a unique set of problems that
have to be addressed during the procurement process. These problems include organizational issues, such as
"Who has the right to acquire an asset like this?" or "What liabilities are acquired when the asset is
acquired?" For example, certain pharmaceutical products may only be acquired by a qualified medical
practitioner; once he or she has acquired the product, the practitioner may be legally obliged to secure the
medication against misuse using specific measures. Each class of asset also carries with it certain fiscal
properties, such as whether the asset needs to be valued on the company books, depreciated or written off
against tax. Even when no money is exchanged, the procurement may still require formal processing. For
example, a user may download a chart from a news site on the Internet. If the user later wants to use the
chart in a publication of his or her own, he or she will need to identify the copyright owner to acquire
republication rights.
Action Item: Enterprises evaluating procurement process improvement initiatives must categorize their
assets and evaluate the procurement processes separately to prioritize their activities.
Andy Kyte
03C, SYM14, 10/04, AE Page 3
E-Marketplaces
Say “Goodbye” to E-Marketplaces
e-Marketplace
Say “Hello” to Industry Services
E-marketplaces sprang into existence in the brief but heady days of the e-business boom. At a time when
the world believed that "e" would somehow magically transform business models overnight, the e-
marketplace promise was to use the Internet to cause radical change in supply chains, driving efficiency
into buying organizations in return for revenue for the e-marketplaces. It is probably true that, in the future,
many of the models that were put forward by the proponents of e-marketplaces will come to fruition in one
form or another. However, the original players massively underestimated the complexity of the
relationships that they sought to mediate and, consequently, burnt themselves out attempting to achieve
impossible goals in too short a time.
Most of the e-marketplaces that attracted serious investment in 1999 and 2000 have now disappeared
completely. The remaining players are nearly all "industry-sponsored exchanges," such as Covisint
(automotive), Exostar (aerospace) or Trade Ranger (energy). The survivors now have a value proposition
that bears almost no relationship to their launch press releases. Now, instead of seeking to dominate their
industry sectors through bluster and muscle, they seek to identify and offer a portfolio of business and
technology services that are attractive to buyers and suppliers. As they develop these services, we see
business clients moving away from the language of the e-business boom — "joining marketplaces" —
toward the language of good business sense — "buying services."
Andy Kyte
03C, SYM14, 10/04, AE Page 4
Industry Services (Services Previously

Known as E-Marketplaces)
Discussion
Forum Useful,
but not
Low margin, revenue-
unless generating
industry-specific
Business IT Technical
Services Services
Potential
shared-service
center
Where enterprises interact, they do so using services. Examples of these services are sourcing services
(such as RFP preparation and publication), catalogue services or message-passing services. The services
may be designed and developed by the buying enterprise, they may be designed and developed by the
selling enterprise or they may be provided by a third-party organization. As e-marketplaces struggle to find
a mechanism for survival, they are changing their business value proposition from "join" to "buy" — they
are selling services. Each marketplace is creating its own portfolio mix of services. As they become more
market-focused, many of the services are proving to be attractive to service buyers outside the initial
industry focus of the marketplace. For example, the e-sourcing services offered by many marketplaces can
be used by buying organizations from multiple industry sectors. In fact, many such offerings are starting to
focus on procurement categories (for example, nonferrous metals, contract manufacturing services) where
the unifying factor is not the industry of the buying enterprise, but the category of goods or services
acquired. It is in the area of IT technical services that these industry service providers have their greatest
challenges and their best opportunities. The challenges are great because the technology is complex and
expensive to provide. However, this also creates some of the best opportunities because the same technical
challenges also exist for all the potential users of such services if they seek to create them themselves. The
shared service center model allows the buyers to share the costs and risks.
Andy Kyte
03C, SYM14, 10/04, AE Page 5
Strategic Planning Assumption: Through year-end 2006, e-sourcing will become

increasingly important. Electronic tendering will be used as part of the procurement cycle
for at least half of the materials expenditure of Global 2000 enterprises (0.8 probability).
E-Sourcing Delivers Real-Time Benefits

Identify Specify the Decide the
the Need Requirements Sourcing
Strategy
Contract
Accept
Order
Delivery
Negotiate Define the
Evaluation
Receive Criteria
Pay
Evaluate Invoice
Repeat as Required
Identify
Obtain Solicit Supplier Potential
Quotations Involvement Suppliers
As CEOs seek ways to respond to changing market demands, they need both the product development
process and the "order to cash" process to be as efficient as possible. The procurement team has a role in
both activities. However, in many enterprises, the main emphasis for procurement has been on the
transaction management for purchase orders working on the "order to cash" cycle, but not really helping
accelerate the new product development. In a competitive world, there is a real advantage to being able to
bring innovative products and services to market quickly. The procurement function is frequently on the
critical path for product development, since new products will frequently require early engagement with
suppliers.
The traditional mechanisms for supplier engagement have been paper-intensive and time-consuming. The
preparation of "request for" documents (RFI, RFP, RFQ) takes a lot of time inside the enterprise, delaying
the flow of information to prospective suppliers. Then, the management of information flow to the suppliers
is also slow, frequently involving photocopying large documents and distribution through "snail mail."
Finally, the procurement team is faced with a major task in receiving and comparing the responses from the
different suppliers. These inefficiencies are addressed by the deployment of e-sourcing technologies and
services.
Andy Kyte
03C, SYM14, 10/04, AE Page 6
Smart E-Sourcing Users Look Beyond

Reverse Auctions
RFx Preparation
– Collaborative, Audited, Agreed
RFx Publication
– Web Published
– Agreement to Terms and Conditions of Tender
Query Management
– Funnels All Queries Through Standard Workflow
– Auditable “Level Playing Field”
Response Management
– Eliminates Manual Processes
Enterprises must analyze their sourcing requirements to ensure that they pick the right tool(s) for the job.
Although strategic sourcing applications are becoming more popular, the term belies the variety of
functionality and fragmentation in this market. Five functions are associated with this sector: sourcing
strategy development; spending and supplier analytics; supply and market discovery; requirements
specification and negotiation management; and supplier selection, allocation and award. Each of these
functional areas reflects groupings of emerging vendors’ application products. These applications can
provide benefits to enterprises, and they show a variety of functional, architectural and delivery modes.
This will provide opportunities for users.
The strategic sourcing market is fragmented as vendors of diverse heritage continue to draw battle lines
around functional islands. Each segment carries a unique value proposition, as well as unique functional,
architectural and delivery modes. Enterprises seeking broad opportunities for sourcing automation should
anticipate using a combination of several tools and services. Although the value proposition of eRFX tools
is compelling, they tend to be tactical and are subject to commoditization and vendor attrition. Despite this
uncertainty, enterprises should consider adopting these tools, but they should take a conservative
implementation approach.
Andy Kyte
03C, SYM14, 10/04, AE Page 7
Strategic Planning Assumption: Though 2006, fewer than two vendors will achieve
“leadership” status in the strategic sourcing applications market (0.6 probability).
Strategic Sourcing Application Magic

Quadrant: No Leaders Yet
Challengers Leaders
Leaders Will Have:
$20M Sourcing
License Revenue
More than 20 Percent
Market Share
System of Partners
Credible Data
Ability FreeMarkets Quality Strategy
SAS i2
to Credible Integration
Institute SAP Technologies
Execute A.T. Kearney Oracle Strategy
Ariba Project Capabilities
B2e Markets
Frictionless Emptoris Analytics/Optimization
Informatica
Strong Financials
Procuri PeopleSoft
Verticalnet Mindflow (From "Strategic
Sourcing Applications
As of March 2003 Magic Quadrant, 1Q03,"
Niche Players Visionaries 17 March 2003)
Completeness of Vision
Client Issue: What will be the trends driving the evolution of SRM technologies?
Gartner’s Strategic Sourcing Applications Magic Quadrant provides relative positioning for vendors in this
segment. However, the market for strategic sourcing applications continues to shift from its roots in Web-
based structured negotiation toward broader capabilities that reflect the persistent nature of strategic
sourcing. To reflect underlying market shifts, Gartner is establishing specific criteria in the evaluation of
application vendors. The Strategic Sourcing Applications Magic Quadrant looks beyond structured
negotiation (for example, electronic request for proposal, electronic request for quotation, reverse auction)
into diverse application capabilities and vendor offerings. This sometimes creates an "apples to oranges"
comparison of vendors. These comparisons are healthy, setting the stage for subsequent market
consolidation and confirming the need for careful selection. Enterprises should consider the breadth of
application types and the range of strategic sourcing application requirements during their selections. The
Magic Quadrant plots vendors as an aggregate, as opposed to any of their individual application offerings.
We are including ERP II vendors. We also are including "solution" providers, reflecting the high value of
services in strategic sourcing application deployments and usage.
Action Item: When selecting vendors for strategic sourcing, evaluate a broad array of functionality,
including spending analysis and contract generation. Enterprises should also evaluate vendor viability,
technical architecture, service and support, and a vendor's vision.
Andy Kyte
03C, SYM14, 10/04, AE Page 8
E-Sourcing Service Framework

High
Internal Category
External Broker
Expertise
“Efficient Market”
“Trading” Contracts
Commoditization
Cost of Product
Financial Risk
Internal Process External Category

Expertise Expertise
“Efficient Buyers” “Partner Development”

Cost of Procurement Sourcing Risk
Low Importance High

(Risk, Profit Contribution, Competitive Advantage)
The maturity of the procurement function will involve the transition from a purely "process"-based view of
procurement toward a portfolio of services chosen according to the category of goods or services. The
underlying transition is from a process-dominated procurement function to one where market knowledge
and relationship management take their place alongside process as important contributors to enterprise
efficiency in procurement. In particular, the transition will see the emergence of category management as a
key part of the procurement organization in most large enterprises.
Process-based procurement has always recognized the need for knowledge about the market, and buyers
have developed mechanisms for investigation of a new commodity to acquire such knowledge. Where the
goods or services being acquired have a low impact on the business model, such ad hoc market discovery is
generally adequate. However, where the goods or services being acquired are important to the business —
because of the impact on profitability, risk or competitive advantage — then a greater degree of market
knowledge is required. This is particularly true where new products are being developed, since using ad hoc
market discovery will be slow and inefficient. Category teams for procurements where time to decide is
mission-critical will value data collection as a persistent part of the business, not just at the point that a new
decision is made. Where markets are difficult to track, they will buy in the category expertise when new
decisions are required.
Andy Kyte
03C, SYM14, 10/04, AE Page 9
E-Sourcing Center of Excellence
Procurement
Sales
Engineering
Legal
Information
Technology
Economist
While e-sourcing is a powerful set of tools and processes, it is also an emerging discipline that has a long
way to go before maturity is reached. What started out in 1999 and 2000 as a rush to use "reverse auctions"
has matured into a portfolio of tools. The rapid pace of innovation means that the team should not be
focused on implementation, but rather on the development of a culture of continuous learning.
The focus of this culture should be a multidisciplinary center of excellence that frequently brings together
participants from all the participating business units to share experiences and plan future strategy. Where
the enterprise’s own customers are using e-sourcing to buy from the enterprise, the center should
encompass sales and procurement. This will help to create a 360-degree vision of developments in the
space.
Centers of excellence should ensure that they keep pace with developments happening in other enterprises.
They can achieve this through subscriptions to journals, participation in conferences and user groups, and
judicious use of external participants. Suppliers and failed bidders should be regularly surveyed to gauge
their reaction to systems and processes.
Andy Kyte
03C, SYM14, 10/04, AE Page 10
Spending Analysis Is Good —

Analysis Paralysis Is Bad
Answer this question first: “What will we do

when we have the analysis?”
The problems are known; there are few
surprises.
Don’t get obsessed about data
normalization — focus on the
organizational issues.
Use a category management approach to
start — a data warehouse can come later.
It is clear that many large companies that have grown through mergers and acquisitions over the years have
not invested sufficient time and attention to the possibility of procurement synergies across multiple
business units and geographies. As the recession grinds on, CFOs in multinational businesses are looking
for savings from procurement and, particularly, counting on being able to drive substantial savings by
consolidating purchasing power across the group. To understand where to prioritize their activities, they
start to ask for data — and find an impossible situation. Most large companies have multiple instances of
ERP systems and have not rationalized their supplier codes, product categories or commodity codes. This
has created the market for "spending analysis" solutions. Spending analysis in a business with a single
instance of an ERP system is comparatively simple, although it is often the case that a data-normalization
exercise is required. In a multi-ERP system company, the task is considerably more complex. The
procurement team should ensure that they have thought through the full process of deriving value from the
spending analysis, especially the organizational implications, before embarking on a complex technical
exercise. In many instances, it may be more effective to empower the category management teams first and
then provide these teams with the tactical tools that they need to do their job.
Andy Kyte
03C, SYM14, 10/04, AE Page 11
Portal Approach to E-Procurement
Travel Stationery Computers
Building
Lab Equipment Catering
Services
Employee Self-Service Is the Key
The hype surrounding e-procurement in 1999 and 2000, and the subsequent fall from grace of many of the
key players in the space, does not mean that there is no value in engaging with this technology.
Unfortunately, many large enterprises made significant investments at the peak of the hype which then
failed to deliver, and this means that many managers are now reluctant to countenance any discussions on
the topic. In fact, there is still considerable inefficiency in how enterprises procure indirect goods and
services, and it is worthwhile investing in an appropriate manner to eliminate these inefficiencies.
As e-procurement techniques develop, it is clear that the old idea of a single system and a single catalogue
is not the most appropriate way to manage the diverse range of goods and services in indirect procurement.
Rather, enterprises are seeing that specific categories require specific features. Some categories demand
"buy-side" applications with requisition and purchase order conversion and approval mechanisms. Other
categories may be best suited to simple browser-based links to an external supplier’s Web site, with
invoicing controlled by procurement cards. These techniques can coexist in the same enterprise because end
users prefer to have systems that have functions and features that are tailored to specific problems, rather
than having a bland generic interface that is tailored to no specific category’s needs.
Andy Kyte
03C, SYM14, 10/04, AE Page 12
Dealing With Suppliers
Manage
Source Transact Monitor
With internal functions, there is clear ownership, accountability and responsibility for the effectiveness of
the operation. Business unit managers are visible on the organization chart: their unit may well have several
service points on the corporate intranet, they can be found in the internal telephone directory and thus, they
are, in short, identifiable. The contrast with external functions is marked. It may be known that a particular
supplier is delivering a function, but it can be difficult to establish who inside the business actually "owns"
the relationship with the supplier. For example, consider the case of a supplier of ERP or CRM software.
Does the CIO own the relationship? What is the role of the IT procurement team? What is the role of the
business unit managers who are critically dependent on the function of the software? What is the role of the
implementation program manager? All too often, the enterprise will not have identified how a particular
supplier (or category of suppliers) is to be managed. This tends to place the buying enterprise in a position
of comparative weakness compared to the supplier, who will generally have much more clear lines of
ownership through the sales account manager. Each of the critical elements of the relationship with
suppliers — sourcing, transacting, monitoring and managing — requires a multidisciplinary team drawn
from many business units. This makes it all too possible for each business unit to make assumptions about
their liability (or lack of it). Such ambiguity has a significant negative impact on the effectiveness of the
relationship. Smart enterprises are developing mechanisms to replace confusion with clarity.
Andy Kyte
03C, SYM14, 10/04, AE Page 13
Vendor Management: The Frontier

Application
High
Strategic Relationship
Impact
Strategic Supply
Demands
Vendor Management
Easy Ease to Switch Hard

Business
Tactical Supply Tactical Relationship
Low
Client Issue: What could be the enterprise "killer applications" of 2010?

The competitive demands of the global economy are forcing companies across all industry sectors to ask
serious questions about their sourcing strategies. What should the business concentrate on to perfect itself,
and what should be done by others? The result in most cases is that the level of dependence on suppliers for
elements of the final customer value proposition is increased. However, most business management
structures have not been modified to recognize the importance of vendor management, and there are no
consistent applications dedicated to supporting the activity.
The demand for strong vendor management is particularly high where the cost and time to switch to an
alternative supplier would be high. The growth in business process outsourcing will mean that there are
more relationships that have the characteristic of being high value to the company value proposition and
where the difficulty of changing from the incumbent supplier is also very high.
The critical emergent management role of vendor manager (or account manager or delivery manager, as
these are being named in some companies) requires support from a sophisticated application suite. The
application will need to prompt for activity, to record activity and to be able to provide the audit trail of all
interactions and transactions necessary for smooth transfer of ownership from one vendor manager to the
successor.
Andy Kyte
03C, SYM14, 10/04, AE Page 14
Vendor Management
The buying company needs to invest in people,

processes and systems to optimize the value of
the relationship.
The supplier account manager is not an
“executive sponsor.”
Important suppliers need dedicated, visible and
strong account managers.
For the next five years, this will be a
“discovery” discipline.
– Use "reflective practitioners."
Whereas every selling business expects to have a "cost of sale" associated with managing its customer
relationships, on the other side of the equation there is less willingness to concede that it costs money to
manage suppliers effectively. It is not unusual to find large companies spending millions of dollars with a
supplier and yet discover that there is nobody responsible for the relationship.
This clearly must change for businesses to be able to manage the risks and rewards in their relationships
more effectively. Implementing a single coherent view of key suppliers across the business is not primarily
a system or process problem — it is an organizational issue. One key problem that must be addressed is that
there is a cost associated with putting in place an individual who will devote time and effort to managing
the relationship with a supplier across the whole life cycle. Making the right decisions about the funding
and reporting structures for vendor account managers will be a crucial part of the success in this venture.
At present, there is no ready-made job description for a "vendor manager." There is little management
training available, since the business schools focus most of their attention on sales and marketing. This
means that in the immediate future, the discipline of vendor management will be being invented by the
practitioners. It will require a reflective practitioner implementation model.
Andy Kyte
03C, SYM14, 10/04, AE Page 15
Six Keys to Better Procurement Contract

Management
Procurement Office Planning
Performance
Collaborative Terms and
Contract and
Contract Conditions
Configurator Compliance
Development Reconciliation
Management
Document Management
In the past, many procurement teams were seen as administrative cost centers. The primary activity in these
teams often was to be progress chasers and order managers, with the purchase order and delivery as the key
documents and processes. Although these activities will remain important, they cannot be the primary
activity of the procurement team in the future. Procurement must add strategic value, not just administrative
efficiency. This transition to a strategic contributor will be matched by a transition to contract-centric
procurement activities. For too long, contracts have been undervalued as corporate assets and,
consequently, little money has been spent on managing them effectively. Now, driven by the joint needs of
driving more value from suppliers while demonstrating compliance with complex new legislation such as
the U.S. Sarbanes-Oxley Act, procurement teams are adopting formal contract life cycle management as the
unifying theory of all stages of the supplier relationship. This move to contract-centric procurement means
that contracts start to become real corporate assets, available to all participants online via secure
connections. The processes for developing new contracts, requiring the full participation of players from
many disciplines, will increasingly be supported by tools that will provide the visibility and manageability
that will allow for continuous improvements.
Andy Kyte
03C, SYM14, 10/04, AE Page 16
Procurement Process Improvement ROI
Accounts Payable
– Start with a review of process efficiency
– Target significant savings in head count
– Target measurable improvement in performance
Buyer Productivity
– Contracts per buyer
– “On contract” procurement — eliminate rollovers
Employee Self-Service
Real-Time Enterprise
– Supplier relationships must work at the speed of the business
Despite the evident good sense in improving the capability of the procurement team, there is still the "post
e-hype" demand for visible return on investment from any proposed project. This is understandable, but
sometimes such demands are used to mask a lack of willingness to lead the company to a new vision and
capability. The reality for most businesses is that they have no alternative but to improve the way that they
select and work with suppliers because the existing relationship model is patently failing to support the
business. However, after four years of initiatives such as e-marketplaces, e-procurement and e-sourcing, a
number of areas have emerged where there is clear possibility for highly measurable "hard cash" return on
investment. Top of the list for many enterprises has been the accounts payable (AP) group or groups. These
unsung heroes of the procurement process are often struggling under the burden of underinvestment in
systems, while expected to maintain the highest standards so as to satisfy the needs of the auditors to see
tight control on supplier payments. The AP function’s problems generally start a long time before the
invoice hits the company, with undisciplined procurement, especially with indirect procurement. Many of
the initiatives that can take place under the banner of a "procurement process improvement program" will
make a positive contribution to better data and create more simplicity in AP, which can be translated to
tangible savings.
Andy Kyte
03C, SYM14, 10/04, AE Page 17
Procurement in Transition
Administration Strategy
Isolation Integration
Transaction Interaction
Cost Value
Cost Center Profit Center
The transformation of the procurement function that is necessary to support the efficient value network
demands leadership from the business management team and from the procurement team. The CEO and
CFO must demonstrate the change in role by ensuring that they constantly validate the strategic role of
procurement. This does not remove the requirement for efficient administration, but places the
administration in the context of a strategic activity. The procurement function cannot be seen as being
isolated from the core business: in every customer-facing value proposition, the procurement team must be
integrated into the total process, making an active contribution to sales success and competitive advantage.
Although managing the transactions (such as purchase orders and invoices) remains important, an
increasing number of suppliers will be delivering much of their value through unstructured interactions via
services as diverse as call centers or design collaboration, and the procurement team must play an active
role in defining, monitoring and managing these interaction services. The real manifestation of the
transformation of the procurement team occurs when the organization fully understands that the goal of the
procurement team is to deliver the best value for the cost, not just the lowest price for the goods or services
acquired. This demands that the procurement team develop the language of value, manage suppliers to
deliver the maximum value and constantly explain to their clients inside the enterprise the importance of
the total value achieved from the supplier relationships. Eventually the enterprise will understand that profit
comes from procurement.
Andy Kyte
03C, SYM14, 10/04, AE Page 18
Recommendations
• The major challenges in procurement are organizational.
Use organization design and change management as the leading tools.
• The goal is better business, not systems implementation.
Use a program management approach.
• Knowledge-driven procurement demands a category management structure. Appoint and
support category masters.
• External resources can support category masters with category and market expertise. Learn to
use external specialists where appropriate.
• It will be a long journey. Use a learning business approach.
The business of the future will not be able to deliver value without adopting a positive view of the need to
invest in managing supplier relationships. The procurement and vendor management functions of the future
will be different from those of today. However, the journey should not be seen as a series of
implementations of IT systems, but rather as a managed transition of the business model. This will require
leadership and vision. The prize is worth fighting for: enterprises that learn how to manage the most
positive relationships with strategic suppliers will be able to satisfy their own customers more effectively
and will be better competitors in whatever they choose to do.
Since the models for best behavior in this area are not nicely laid out, but will actually need to be
discovered through experience, it will be important to adopt a "learning enterprise" approach to the voyage
of discovery. In a learning enterprise, all lessons are valuable, even if they are painful. The willingness to
try new approaches must be tempered with the ability to forgive failures and to learn as much from
mistakes as from successes.
Andy Kyte
03C, SYM14, 10/04, AE Page 19
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Sym14 03C

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Best Practices in Procurement

U.S. Symposium/ITxpo Andy Kyte

17–22 October 2004

Why Procurement Matters

By 2008, at least half of all Global 2000

Procurement: Not Just ‘Buying’

Say “Goodbye” to E-Marketplaces

Say “Hello” to Industry Services

Industry Services (Services Previously

Strategic Planning Assumption: Through year-end 2006, e-sourcing will become

E-Sourcing Delivers Real-Time Benefits

Smart E-Sourcing Users Look Beyond

Strategic Sourcing Application Magic

E-Sourcing Service Framework

Internal Process External Category

“Efficient Buyers” “Partner Development”

Low Importance High

E-Sourcing Center of Excellence

Spending Analysis Is Good —

Answer this question first: “What will we do

Portal Approach to E-Procurement

Travel Stationery Computers

Employee Self-Service Is the Key

Dealing With Suppliers

Source Transact Monitor

Vendor Management: The Frontier

Easy Ease to Switch Hard

Tactical Supply Tactical Relationship

Client Issue: What could be the enterprise "killer applications" of 2010?

The buying company needs to invest in people,

Six Keys to Better Procurement Contract

Procurement Office Planning

Procurement Process Improvement ROI

Cost Center Profit Center

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