New Book By McKinsey Experts Highlights Increasing Importance Of Procurement In Setting Business Strategy

Authors Show Why Procurement Is Uniquely Positioned To Help Lead During The Next Decade

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Feb 12, 2014, 02:18 ET

NEW YORK, Feb. 12, 2014 /PRNewswire/ -- Across industries, leaders and managers may be missing a critical piece of the big picture: the increasing importance of procurement to the bottom line success or failure of their companies. In fact, 80% of a typical company's expenditures go toward procured goods and services, and procurement is often the single function that makes decisions around all external costs. Therefore, it is uniquely positioned to help lead in taking advantage of the global opportunities that will occur in the next decade, say McKinsey & Company experts Peter Spiller, Nicolas Reinecke, Drew Ungerman, and Henrique Teixeira in PROCUREMENT 20/20: Supply Entrepreneurship In a Changing World (Wiley).

Based on McKinsey research - including more than 1,500 global procurement studies and in-depth examinations of more than 700 organizations - the authors show that best-practice procurement consistently lowers costs, identifies growth opportunities, and helps insulate companies from a variety of hazards - including weather events, price shifts, and the complexities of environmental and regulatory issues.

At the heart of PROCUREMENT 20/20 is the authors' in-depth analysis of five global megatrends that will transform business over the next decade, and how a company's procurement team can take advantage of them to create even more value.

The Great Global Rebalancing: Sourcing will take place across the entire world; regional "white spaces" that exist today will disappear. The future of the sourcing organization therefore is global and multicultural. Sourcing footprint considerations will become increasingly multidimensional and dynamic. Sourcing decisions will have to be made against the backdrop of an integrated company footprint including manufacturing, sales, and R&D. Procurement is in a prime position to lead these integrated company-footprint considerations given its deep cross-functional nature and thorough understanding of global and local markets.

The Productivity Imperative: Integrated companies will increasingly turn to external functional specialists that provide individual slivers of the company's value chain at superior performance - the result of economies of skill and scale. The management of a company's end-to-end value chain will cross more company perimeters, requiring new management principles and attention to control value creation. Procurement is best positioned to assume the role of "orchestrating" the end-to-end chain since CPOs control the supplier relationship and are deeply embedded with their cross-functional value chain partners.

Big Data and the Global Grid: Available data and communication bandwidth will continue to increase by orders of magnitude in the next few years. Big data and the global grid will have a profound impact on businesses by enabling new insights, collaboration at scale, and superior, data-driven decision making. Already, procurement uses internal and external data for decision making and communication bandwidth for supplier integration and management. The advent of even more data and bandwidth will strengthen and expand procurement's role.

The Volatile New Normal: Procurement will have to manage not only the increasing scarcity of raw materials but also substantially greater volatility that will have a significant impact on a company's profitability and ability to do business. Defensive strategies, such as hedging or recovery plans, will be part of the solution, but not all of it. Agile procurement will allow CPOs to cope with risks; doing this well will also allow them to capture opportunities and create a competitive advantage by better managing sourcing risks.

The New Economic Drivers: Environmental, social, and regulatory (ESR) issues will become increasingly important, presenting procurement with new costs, risks, and opportunities. Governments and consumers will make fast and significant decisions on ESR; as a result, functions including procurement will have to anticipate and prepare. To incorporate ESR into sourcing decisions sustainably, procurement must define a comprehensive approach based on "total impact of ownership" considerations.

"In the decade ahead, procurement's role will be more important than ever in maintaining constant supply, best cost, reduced volatility, faster and improved innovation, and positive corporate brand-image," explain the authors. Insightful and forward-thinking about the role of procurement, PROCUREMENT 20/20 lights the way.

About the authors of PROCUREMENT 20/20: Peter Spiller is an Expert Principal in McKinsey's Frankfurt office and leader of the firm's European, Middle East, and Africa Purchasing and Supply Management practice. Nicolas Reinecke is an Expert Principal in McKinsey's Hamburg office. Drew Ungerman is a Director in McKinsey's Dallas office and a leader of the firm's Americas Purchasing and Supply Management practice. Henrique Teixeira is an Expert Principal in McKinsey's S‹o Paulo office.

PROCUREMENT 20/20: Supply Entrepreneurship In A Changing World is published by Wiley and is available at most booksellers or at
http://www.amazon.com/Procurement-20-Supply-Entrepreneurship-Changing/dp/1118800087

For further information, please contact Felicia Sinusas at 212-620-4080 or  [email protected]. Visit www.wesmanpr.com.

SOURCE McKinsey & Company