Introduction and methodology The master plan: Why top-performing CPOs must become masters of complexity
3 minute read
22 October 2019
To tackle complexity at all fronts, CPOs need to change their lens on improving core value chains and organizational resources, tap transformational digital capabilities to revolutionize procurement, and become “complexity masters” to turn challenges into opportunities.
Trade wars. Climate change. Digital disruption. Talent shortages. Regulations.
Procurement organizations today are facing increasing complexity on all fronts. This complexity has only increased challenges for chief procurement officers (CPOs), who, in addition to delivering sourcing-centric cost savings, are also expected to enhance their influence with C-level peers and extend their business impact into strategic areas such as risk management, corporate development, and innovation. Yet more often than not, CPOs are asked to do all of this with fewer resources and thinner budgets.
“Complexity will only increase and creating value will only become more and more difficult over time ... better to be ready!”— Anonymous CPO respondent
While many CPOs may feel like they’re ready to drown in a sea of complexity, they can still find ways to stay afloat—or even identify new opportunities to move their organizations forward. This report explores how CPOs can change their lens on improving core value chains and organizational resources, tap transformational digital capabilities to revolutionize procurement, and become “complexity masters” able to turn the risks apparent in complex business scenarios into value creation opportunities. Specifically, we examine procurement complexity in four areas:
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- External complexity: Everything outside the four walls of the organization that procurement must acquire and manage to serve its internal stakeholders
- Internal complexity: The challenges of managing interfunctional relationships and aligning procurement with broader business objectives
- Talent complexity: People, organizational models, and how procurement teams execute on their business plans
- Digital complexity: Technology and processes issues that both mediate the other three complexity areas and fuel digital transformation efforts
At the end of each section, we offer three key action items for CPOs as they consider how to tackle complexity within their own organizations, including a recommendation for “going digital” as part of a larger transformation effort.
About the survey
Since 2011, the Deloitte Global Chief Procurement Officer (CPO) survey has been providing exclusive insights into the key challenges and opportunities shaping the course of procurement, serving as a global benchmark of sentiment about the function. These insights have, over the years, helped members of the C-suite, procurement leaders, business partners, suppliers, and supporting technology providers in furthering their ambition, strategies, and performance.
The 2019 survey was conducted in association with procurement market intelligence firm Spend Matters and Odgers Berndtson. In this year’s survey, 481 procurement leaders from 38 countries took part, representing organizations with a combined annual turnover of US$5 trillion.
“Complexity masters” methodology
In previous editions of the survey, we used a “high performer” methodology based on achieving savings targets and business partnering effectiveness, and then applied that metric to all firms in the report. In this year’s edition, we wanted to expand the performance measurement by making it more comprehensive and then applying it in the context of this year’s theme of complexity management. The “complexity masters” group is considered a set of procurement organizations that delivers:
- Top quartile procurement performance. We assessed this on a balanced scorecard split between stakeholder influence/alignment (based on sourcing influence and early business alignment/involvement across nine enterprise-level strategic decision-making areas) and a combination of savings attainment against plan and a business partnering index that measures estimated stakeholder impact/satisfaction.
- Performance in the face of high complexity. We developed a complexity index to winnow the high performers down to those who had the highest quartile complexity based on a calculated complexity index. The rationale is to learn from those high performers who had to outperform in the face of high complexity. This complexity index was derived primarily from the following elements:
- Industry complexity: Industries such as oil & gas, life sciences, and consumer goods are examples of higher complexity industries. Public sector, not-for-profit, and real estate are examples of lower complexity industries.1
- Spend size: Greater total spend is considered a typical indicator of higher complexity for an organization.
- Supply risk: We based this upon CPO-cited trailing 12-month increase in procurement-related risks (pricing, disruptions, bankruptcies, etc.).
- Business strategy complexity: This is derived from the number and criticality of enterprise business priorities cited by CPOs in the survey. While this is actually “good complexity” (i.e., more opportunity for procurement to get aligned), it’s complexity nonetheless.
Supply Chain & Network Operations
Deloitte Consulting LLP’s Supply Management & Digital Procurement practice marries cutting-edge digital tools with market-leading consulting services to drive insight around spend management and deliver increased cost savings at a faster pace. Aim for the best return on investment on your third-party procurement spending through Deloitte’s cloud-based solutions and services, driving category management, supplier management, and sourcing of indirect and direct materials.
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Get in touch
- Brian Umbenhauer
- Principal, Global Sourcing and Procurement Practice
- Deloitte Consulting LLP
- bumbenhauer@deloitte.com
- +1 312 486 4301
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