What are the challenges facing the sourcing and procurement organizations today?

April 28th, 2008 |
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Join BearingPoint senior manager Bill Stotzer in exploring the challenges facing the sourcing and procurement organizations today. Many financial institutions have identified procurement cost savings and made an attempt at cost reduction. Some have achieved greater success than others. We see two primary factors contributing to the low success rate in cost reduction. First, due to favorable market conditions in the Financial Services sector over the past five years, minimal attention was paid to cost effective Sourcing and Procurement. Second, the financial services industry has also experienced a significant amount of merger & acquisition activity over the last 5 years. Although a fair amount of integration activities have occurred, the combination of these institutions has created another set of challenges.

Sourcing and procurement cost takeout is very easy to understand at the strategic level. One needs to identify where an organization can consolidate spend, use enterprise leverage to negotiate lower unit cost, and then direct the users to purchase from the new enterprise contract. However, in a large global institution, with a fair degree of autonomy in the business units, these tasks can be very difficult to implement. Many companies use leading practices in isolated pockets throughout the enterprise. We look at Sourcing and Procurement across 11 different attributes using an enterprise maturity model to help clients understand their position relative to leading industry practices, determine the maturity level goals of the client and develop a multi-year roadmap to achieve those goals.

For those who want to reduce cost and improved performance, there is some solid advice that we can offer. Sourcing and procurement cost takeout is very easy to understand at the strategic level, but very difficult to implement in a large global institution, with a fair degree of autonomy in the business. BearingPoint informs their clients to focus on four key areas, if they want to achieve their cost takeout goals. The four areas are to develop a case for change, align executive management around the case, create a multi-year roadmap and possibly the most important, make sure the project has a disciplined benefits realization process in place. The users and stakeholders must see the financial benefit of the transformation, because everyone will ask themselves, “Is the pain worth the gain.” Executives need to see the quantitative analysis to say “yes” – the pain is worth the gain.

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