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Enabling the next-generation operating model in procurement

Driven by three critical enablers, the next-generation operating model can help organizations capture the value available from digital technologies.
Roman Belotserkovskiy

Brings extensive experience in the energy sector, including operations-performance transformations, accelerated cost-repositioning programs, procurement and supply-management excellence, and digital and agile procurement enablement

Riccardo Drentin

Coleads McKinsey’s source-to-pay work, focusing on sourcing optimization and procurement operating models

Advises companies and business leaders across industries on the development and implementation of environmentally-sustainable operations and ESG strategy, including carbon accounting and tracking, supplier sustainability transformations, and supply chain decarbonization

Achieving the level of performance and cross-functional integration required for procurement excellence has never been easy, and today’s digital technologies and advanced analytics are adding further levels of complexity.

However, these developments are also creating new opportunities in procurement: they’re allowing companies to learn more about supplier capabilities and customer requirements, helping to accelerate, streamline, and improve the effectiveness of internal processes.

To manage these emerging challenges and opportunities, procurement organizations should embrace the next-generation procurement operating model, driven by three key enablers of organization, governance, and capabilities. By doing so, they will be able to capitalize on advances in digital, data, and analytics, and deliver new levels of performance across the value-creation lifecycle.

At the heart of the model lies procurement strategy, surrounded by elements which represent a comprehensive set of activities needed to capture and to sustain value (Exhibit 1). To enable the efficient and effective execution of these six elements, companies must achieve excellence in six enabling components of the operating model—processes, digital, organization, capabilities and culture, governance, and data and analytics.

A successful procurement model coordinates multiple capabilities to enable, capture, and sustain value.
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In addition to the core enablers for successful implementation of the next-generation operating model, talent management, decision making processes, and a zero-based approach for resource allocation should all be on the agenda during the design and implementation of the new model.

The following articles share some best-practices to guide the successful implementation of the next generation operating model in procurement.

A next-generation operating model for source-to-pay

A next-generation procurement operating model that capitalizes on advances in digital, data, and analytics delivers new levels of performance across the value-creation lifecycle. The new model reframes the remit of the procurement function (the comprehensive set of interconnected activities it should either lead or participate in) as well as the enabling elements (the critical elements needed for efficient and effective execution of these activities).

Are we long - or short - on talent?

By looking at their supply of skills and talent in a new light today, organizations can take actions that better prepare their companies for tomorrow’s challenges. Emerging digital disruption is raising new questions about how to adjust the supply of skills in a procurement workforce.

Decision making in the age of urgency

Decision making takes up a lot of time, much of it used ineffectively. New survey results offer lessons for making quick, high-quality decisions that support outperformance. Getting the decision process right is one of the key building blocks in reinventing procurement organizations in the next-generation operating model.

Using zero-based principles to forge a purpose-built organization

By redirecting resources and employees to higher-value areas, companies can ensure that organizational structure and spending align with business strategy. Using zero-based principles to assess organizational spending can bring much-needed clarity while directing resources to where they can have the greatest impact. When designing a procurement organization, resource allocation should be on top of the agenda. Necessary assets need to be provided to the value capture teams to take advantage of the strategic savings opportunities, while extensive allocation within the operational activities should be avoided.

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