Organizational Redesign – Setting up / strengthening a new function

Organizational Redesign – Setting up / strengthening a new function

A Global manufacturing enterprise with presence over 15 Countries and a procurement spend more than USD 3Bn was operating their procurement function in a very decentralized manner with the geographical regions making most of the procurement decisions except for Capex spending. The organization had a variety of procurement activities / spend covering – Capex, Direct & Indirect material, contracted services, and high value commodity purchases. There was no central procurement organization, which resulted in huge savings and efficiency opportunities.

The strategic efforts for the procurement function were led by a large Global strategic consulting firm while the full implementation and integration was led by one of our senior partners. The scope of the full implementation (over multiple years) included:

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  Aligning procurement strategy to the overall organizational strategy and ensuring that all actions within the procurement function was linked to the functional strategy.
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  Define roles (strategic and managerial) with responsibility and accountability spread across Global, Regional and Local organizations with clear measurable metrics for performance.
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  Implement a structure to Identify, define, track and report procurement savings opportunities across various levers.
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  Organizational architecture including structure, reporting and capability building for the function – this included definition of talent requirement at leadership levels.
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  Review and recommend the right tools, metrics, and systems to manage the function effectively with single source of information and full transparency.
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  Design and implement a shared services organization for transactional processing to improve effectiveness, efficiency, and agility of the processes.
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  Change management strategy and ensuring seamless transition to the new functional organization.

The successful implementation (still running in its 7th year) has seen many changes within the organization. The first of these was setting up a new functional organization and hiring all the leadership talent, starting with the CPO for the organization and his direct team. All roles with clearly defined responsibilities, accountabilities and metrics for success were implemented. Several key procurement levers such as commodity strategy, bundling, LCC sourcing, negotiated savings and effective working capital management through optimized contracts and inventory management. In the fifth year of implementation, global shared service centers were created to further optimize resources, costs, and efficiencies. As part of the implementation, skills and competency requirements for each function was defined, leading to the setting up of a Procurement Academy to skill, upskill and develop people within the function.

The organization by the end of the fifth year had seen overall savings in excess of USD 1Bn with a road map to achieve annual savings of over 23% on spend and 9% through capex optimization. The implementation efforts are ongoing.