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Asia Pacific Firms Lag Behind Global Peers in Procurement

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ASIA PACIFIC FIRMS LAG BEHIND

GLOBAL PEERS IN PROCUREMENT

by Keat Yap, Vice President Southeast Asia at A.T. Kearney

 

The 2008/09 financial crisis propelled procurement to the forefront of business strategy. The crisis – which saw a sharp decline in consumer demand – forced firms across the globe to cut costs. As a result, procurement became a big area of focus for corporate leaders.

Put under pressure, procurement departments across the world delivered exceptional results, capturing the highest percentage of gains in more than two decades. While the importance of procurement has continued to grow across the world, Asia Pacific firms are lagging their global peers.

One of the key parameters to assess the performance and success of procurement is to look at the Return on Supply Management Assets (ROSMA) score, which measures procurement’s contributions to the business and articulates those benefits in financial terms. The score is calculated by dividing the procurement’s financial results delivered by the invested supply management assets.

Not only does this offers a sustainable framework to assess procurement’s performance, but also provides insight into supply management value drivers and a way to benchmark performance.

A.T. Kearney’s latest study reveals that Asia Pacific companies have a notably poorer ROSMA score — 25 per cent lower than their global peers. One of the key reasons is that procurement is often perceived to be a back end operation by many Asia Pacific companies. This is reflected in the relatively lower mandate and stature for procurement within the organisation. The low ROSMA score of Asia Pacific firms is the product of lower procurement benefits delivery and limited adoption of leadership practices.

However, it is not all bad news.

The trend seems to be shifting towards a more strategic role for procurement within companies across Asia Pacific, albeit at a slower pace compared to other regions. And as the firms make this shift, they can look to their global peers who have found ways to deliver greater impact through closer integration of procurement with the overall business strategy and expanding use of leadership practices.

The leaders at these firms have developed a strong brand for procurement and are respected due to a proven track record of consistent value delivery. Their performance has seen them earn a seat at the executive table and helped to get procurement recognised as a preferred career path for performers.

A.T. Kearney’s latest study shows that leaders have achieved this performance by taking the following actions:

Building a high-performance team:Leading organisations align the vision and direction of their procurement division with the overall business strategy. This is done at the corporate, business units, and regional levels by developing a compelling vision of procurement excellence that is shared throughout the company. As part of an enterprise-wide benefits and value discussion, procurement leaders typically use the finance division’s language to measure and share performance data to establish common understanding. The leaders ensure visibility and buy-in to procurement’s contribution. They also focus on tight coordination with internal and external parties by setting mutual goals and using reward systems that encourage cooperation.

Reducing costs through category excellence: To help portray the full array of methods at procurement’s disposal to reduce costs and increase value, A.T. Kearney developed the Purchasing Chessboard®, a two by-two matrix that portrays 64 of these methods – mapped to different degrees of supply and demand power in the marketplace. Leaders in the field systematically apply more of these methods across every quadrant. In addition, they position themselves for long-term success by developing “strategic playbooks” for key categories. They incorporate a broad set of elements into these playbooks and recognise the importance of supply risk management (SRM).

Creating competitive advantage through supplier capabilities: Procurement leaders find ways to harness suppliers’ capabilities, working collaboratively to benefit from their supply base and achieve competitive advantage. They have generated significant value from their SRM efforts, with one-third of the value their divisions create coming from such efforts, versus about one-quarter for the typical company. Achieving high SRM performance begins with developing a common, cross-enterprise understanding and selecting the right suppliers that show longer-term alignment with the company’s business strategy in addition to capabilities to enhance growth. Leaders deliver value by integrating suppliers into the company’s own processes, innovation, and growth initiatives.

Investing in the team development and technology: The top performers invest in training and development of their team to ensure the advancement of skills and routinely review job requirements. They also leverage enabling technologies to strengthen analytics and support knowledge management. More than half of the leaders in our study have introduced new tools for optimisation and other emerging techniques. More robust performance management metrics also are used to regularly measure and publish both quantitative results and the effectiveness and efficiency of the processes. To reinforce teamwork, leaders link compensation to performance that reflects group and individual contributions. Furthermore, leaders focus on strategic activities and develop specialists in areas such as category management, SRM, and analytics.

Asia Pacific companies have significant opportunities to improve their procurement practices. Established leaders from other parts of the globe have demonstrated that world-class practices achieve excellence in categories, with suppliers, and within teams, and they have demonstrated the economic benefits of taking these actions. Professionals in Asia Pacific should strive to plan and develop the procurement brand. This will be imperative to close the gaps and win the war of talent, which is a common issue in the region.

A failure to do so would not only hurt on those fronts, but also mean that they miss out on an opportunity to use one of the most powerful mechanisms for improving profitability and capturing a competitive advantage.

 

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