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Disrupting procurement with digital

Former best practices are just the starting point in the new eProCo world

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Jean-Luc Renevot

Senior Director, Value Chain Transformation

July 11, 2018 - In recent years, several multinational corporations have formed separate procurement companies to centralize the function. Commonly referred to as "ProCos," these companies often manage much of the corporate P&L through third-party spend – a strategy driving many benefits. The question now: Can today's digital solutions help create a digital ProCo – or "eProCo" – that challenges the traditional ProCo set-up?

The digital procurement company

Given the rapid development of digital tools, I believe that any ProCo strategy should have digital at its core. Designing with a digital mindset is what distinguishes companies with a digital-first perspective. This approach makes global sourcing more efficient while securing decision-making at the eProCo level. The eProCo can then apply sourcing recommendations to amend supplier contracts instantly, freeing it to focus on pure value generation and hire employees who drive strategic deals globally. In that environment, staff are positioned to unearth new value and revenue opportunities by leading category, sourcing, and supplier management.

How to get there?

Building an eProCo should start with five key accelerators:

  • Have clear objectives that support business strategy and that key company stakeholders can get behind
  • Set a goal of creating design thinking workshops to reimagine the procurement operating model – and establish a technology roadmap to help you get where you want to go
  • Make full use of digital technologies to integrate and standardize end-to-end-processes and consistently promote speed
  • Build collaborative business relationships with internal and external parties and secure managerial sponsorship
  • Embed a culture of change by starting with a pilot, then progressing to the end design

Once the accelerators are doing their job, you can start in earnest to create your new eProCo. As you do so, however, focus on what's possible – not what's considered best in class. Reimagine the relationship that procurement has with your business. How do you want it to perform? What do you want it to deliver?

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Immediate measurable benefits

Here's how one of our clients benefited by establishing a ProCo. After creating a global procurement company in Luxembourg, the company secured incremental and predictable net income of $150 million over a three-year horizon. In addition, the procurement leadership immediately became global, bringing category and regional knowledge as well as complementary skills under one roof, thus making the supply base progressively more competitive. What's more, because of its location, the procurement management team now interacts with the entire world in a single day – beginning with Asia in the morning and ending with the Americas in the afternoon. That had been hard to do when the team was based in the US.

Setting up an eProCo can truly transform your entire operation – and doing so will likely deliver performance surpassing that of traditional procurement company models. The time to make the change is now.