Procurement Advisory

Next generation procurement Achieving growth and creating sustainable value 2 | Procurement Advisory Procurement Advisory | 3 Table of Contents

The Future of Procurement 04

Our View of Procurement in ASEAN 06

Driving Procurement Excellence 08

Bringing Benefits to You 10

Offerings that can Promote Excellence 12 and Innovation 4 | Procurement Advisory

The Future of Procurement

The role of Procurement functions must be bold, vigilant and The changing role of Procurement collaborative. They must move will see an increasing demand for is fast changing to keep beyond the traditional role of a buyer employees with strong analytical and pace with business and deliver more strategic value. strategic thinking skills, able to more This new strategic role will require effectively manage business and demands. Best-in-class Procurement’s increased collaboration vendor relationships against a backdrop Procurement functions with both business and suppliers. of a limited talent pool. are evolving to become …internally To attract and retain talent, it business partners, Collaboration with internal business is essential to develop a talent units alone is insufficient against management plan. This should shifting their focus to the backdrop of a global drive for be implemented through ongoing strategic and sustainable productivity and continuous savings. investment in Procurement training There is a need for organizations to academies and certification programs. value creation and take on a cross functional sourcing Such initiatives should also articulate preservation - to deliver approach entailing close collaboration clear retention strategies and robust bankable dollars. with key stakeholders across Business, career pathways for both existing and Finance and other areas. new Procurement professionals.

EXECUTING THE FUNDAMENTALS …externally The cost of doing business is on There is a pressing need for the rise. With Procurement Procurement to strengthen supplier representing the largest share of a partnerships, reduce supply chain typical organization’s overall costs, risk and embrace innovation and the function should be a priority area operational excellence. for businesses. Introducing and measuring the Considering that Procurement functions right levels of incentives and key in The Association of Southeast performance indicators (KPIs) can help Asian Nations (ASEAN) are often less foster collaboration and deliver greater developed than in other regions, it sustainable long term value. Tony Rawlinson is crucial to get the fundamentals Partner, Head of Business right through implementing effective Enabling Procurement Transformation procure-to-pay processes, executing Having the right technology solution strategic sourcing activities and to support Procurement can provide Management Consulting, ASEAN enabling the right technology solutions. organizations with reliable spend data. KPMG in Singapore Automation can enhance business Implementing the fundamentals processes and provide greater A next generation presents an opportunity for spend and budgetary control, while Procurement Organization organizations to significantly reduce strengthening the links between “ costs, improve sourcing efficiency Procurement and the finance function. is effective and efficient - and positively impact their cost This will enable Procurement to streamlining processes, exploiting income ratio. evolve beyond its transactional role technology and enabling active to a more strategic one, realizing collaboration with stakeholders to NEW WAVE OF PROCUREMENT greater value via sourcing, category Driving collaboration management, and supplier relationship achieve strategic goals and create To be leading-edge, Procurement management. sustainable value.“ Procurement Advisory | 5

Challenges faced by procurement leaders today

• Lack of skilled Procurement resources with a strategic view Organization • Limited partnership between Procurement and business • Legacy structures

• Disparate technology provision Systems & Technology • Lack of analytics to understand addressable spend, controls and risks

• Off-contract ‘maverick’ spend • Stricter regulatory and legal requirements Risks & Controls • Loosely delegated authorities • Incidence of fraud

• Lack of standardization of processes and inefficiency Processes & Metrics • Lack of consistent measurement of procurement savings 6 | Procurement Advisory

Our View of ASEAN

What is the call to have allowed organizations to Engage suppliers identify potential improvements The supplier landscape in ASEAN action for Procurement in value creation and operational poses challenges in delivering quality functions? performance, providing a robust and service consistently across the framework to deliver efficiencies and region. The need for Procurement to Focus on risk management and sustainable savings. become strategic thinkers to harness governance the value of operating in this region is With the increase in business Unlock value critical. Engaging in advanced activities across ASEAN, the ASEAN Procurement functions will supplier relationship and performance adequacy of risk management and need to move beyond the management is paramount in order business continuity becomes more traditional role of cost management to add more value. important. Procurement needs to and prioritization of spending to take on a more proactive role in deliver more strategic value to the an organization’s risk management organization. The development of strategy and work with the business stronger Procurement capability in to develop strategies to mitigate category management, strategic supply chain risks, while having in sourcing, demand management and place a contracting and governance supplier relationship management is model that allows the business to required to cash-in on the bankable stay agile. dollars from superior Procurement management. Optimize and leverage technology Gerard Seng In promoting the use of technology Build competency across the Director, Procurement Advisory for contract management and organization Management Consulting, ASEAN enhancing data analytics capabilities, The complex Procurement KPMG in Singapore Procurement functions can drive environment in ASEAN demands that increased cost savings, improved Procurement professionals possess Given the resistance to cash flow, strategic management a mix of soft and technical skills. The of supplier relationships and greater talent crunch experienced in this “change, ASEAN Procurement risk mitigation. region suggests that organizations organizations still face cultural will need to strengthen training challenges to transform into Establish an optimum operating and coaching programs to build a more value-adding function. model sustainable capabilities. Businesses Procurement must invest in While there is no one-size-fits all should be equipped with skills to changing the existing mindset and model, center-led models correlate understand how to collaborate with most closely with procurement Procurement and involve Procurement empowering the organization to benefits realized. Reviews of earlier in the process in order to manage the entire Procurement Procurement operating models increase overall shareholder value. transformation journey. “ Procurement Advisory | 7

Case study 1: Building regional Procurement capability for one of ASEAN’s largest financial services organizations

A financial group needed to The KPMG team designed Benefits to the client includes transform its Procurement and implemented a holistic a potential first year savings function into a commercially-driven transformation program. exceeding US$ 25 million with organization geared to deliver further material annual savings. sustainable savings. This includes: The client also achieved significant • review of current Procurement To achieve this, the client required a spend visibility through the operating model, processes, major Procurement transformation adoption of a single technology maturity and gap analysis project designed to: interface across the region. This • deployment of a spend analysis allowed the client to methodically • define the transformational tool to establish a baseline and reduce overall spend through a change needed to establish a identify savings opportunities regional savings program. leading regional Procurement organization within 3 years • design and implementation of Other outcomes and benefits Target Procurement Regional • provide the technology enablers include: Operating Model, including to achieve the necessary change organization structure and • a fully designed center-led • enhance strategic sourcing technology requirements regional Procurement operating and category management model implemented • competency and capability gap capabilities to achieve assessment and identification • an organization structure and immediate and sustainable of up-skilling and training needs FTE identification aligned to savings best practices • category pilots to develop • implement a new regional category management skills and • procurement policy and process Procurement organization capabilities handbooks to institutionalize • support in negotiation for a commercially-driven • design of a robust strategy to contract that represented the procurement principles and renegotiate key contracts single highest contract across support Procurement processes the bank (> US$ 30 million per • KPI framework and savings annum) handbook • up-skilling and development of category management capability

Procurement operating models and sustainable cost reduction

9% 6% 6% 4% 3% 4% 4% 3%

CENTER-LED DECENTRALIZED CENTRALIZED HYBRID

Average cost reduction (%) - direct spend Average cost reduction (%) - indirect spend

Source: High Impact Procurement Operating Models, KPMG in the US 8 | Procurement Advisory

Driving Procurement Excellence

Our philosophy: to bring about tangible value. In organization’s spend data, providing addition, supporting our approach is a an enterprise-wide view of third- Procurement baseline analysis of the organization party expenditure. It visualizes spend transformation is spend to identify opportunities. by category, supplier, business a journey and this unit, buying channel etc, to unveil Procurement maturity important insights regarding buying underpins our approach enhancement patterns to enable prioritization of in helping clients We conduct an in-depth focus areas. understanding of the Procurement achieve their goals. organization where practices, Category optimization processes and performance are Member firms help organizations Our global reach, compared against the relevant develop their category playbook to peer group and best-in-class build robust category strategies. The insights and expertise benchmarks. A roadmap is designed levers and opportunities considered allows our approach to to create clarity and visibility over include managing end user demand, how the organization can design standardizing specifications, be customized to meet a procurement strategy, operating reducing acquisition costs, clients’ unique needs. model and associated competencies evaluating in-sourcing/outsourcing to achieve the organization’s vision. decisions and leveraging market and Member firms use a structured commercial opportunities to deliver two-way approach – Performance Spend transparency service reliability and increased Enhancement and Cost Optimization KPMG’s proprietary spend tools commercial leverage. to achieve Procurement excellence. provide detailed analysis of the

This includes a clear roadmap to deliver savings and organizational optimization opportunities for the Procurement function. Our approach is designed to achieve Procurement maturity enhancement, spend transparency and category optimization. We drive procurement excellence through realistic and sustainable actions which are prioritized and timelined according to the maturity of the Procurement function.

Both top-down and bottom-up analysis are carried out to ensure that the procurement strategy is supported by tactical deployment Procurement Advisory | 9

Performance Enhancement (Top-down approach)

ORGANIZATION

Who is buying... PRODUCT & SERVICE

What?... SUPPLIER IN VS OUT ...where/with whom? AGREEMENTS SOURCING

SUPPLY END-TO-END MARKETS PROCESS

Category Optimization (Bottom-up approach)

Procurement Maturity Spend Transparency Category Optimization Enhancement • Spend transparency and • Clear category strategy • Clear insight into the maturity classification • Cross functional commitment level of Procurement • Action prioritization • Identification and execution of • Comparison to peer groups to • Sourcing activity support with optimization initiatives identify gaps data analysis • Roadmap for performance enhancement • Measurable increase in maturity via implementing the roadmap 10 | Procurement Advisory

Bringing Benefits to You

Business partnering Resilient supply chain Faster speed to market

An enhanced target operating With growing complexity in A Procurement function that model increases engagement organizations’ supply chains, is interacting with business at between procurement and the a proactive and integrated a strategic level shortens the business, allowing Procurement approach to managing the time-to-market. It is also able to interact with the C-Suite. This entire sourcing/supplier value to introduce new products and helps ensure that Procurement chain allows risks to be services to the market more is constantly kept abreast of the identified early and mitigating quickly. strategic needs and demands actions to be taken. of the business.

Unlocking value Spend transparency Cost aware culture

With 40 to 80 percent of Procurement transparency is the An operating model that spend typically managed by baseline for the identification dynamically engages the Procurement, optimization of savings potential and the business to drive value and of the strategic sourcing and definition of a clear road develop a cost-conscious procurement function can map towards Procurement culture across the organization. generate and unlock business excellence. It is also a basis for This provides opportunities for value and bring about material supplier segmentation critical structured cost improvement. improvements in cost income for developing robust supplier ratio. relationships. Procurement Advisory | 11

Case study 2: Procurement enhancement for a major international airport

A leading international airport • inconsistent sourcing and and a transformation plan. was keen to identify and realize contract management (e.g. operational efficiencies in the market analysis, negotiation and The result was identified savings sourcing management process. vendor management) practices of 5 to 10 percent in operating across organizational silos expenses. The team also Key challenges faced by the client analyzed the levers and identified were: KPMG in Singapore performed opportunities to enhance the a procurement maturity performance of the categories. • limited ability to generate assessment of the organization An enterprise-wide Procurement value from Procurement as and conducted a spend analysis training program was rolled procurement is only involved on and detailed category analysis out to both Procurement and a project-by-project basis to establish the baseline. We business users to equip them • lack of Procurement skills eventually recommended and with the new skills and tools to across the organization resulting re-designed a category-led improve their game. in ‘money left on the table’ Procurement operating model

12 | Procurement Advisory Offerings that can Promote Excellence and Innovation

Leveraging a global network of practitioners and KPMG methodologies, our member firm’s services are tailored and scalable.

Category Service Description Category Service Description

Category sourcing • Spend analytics* Tax efficient • Captive purchasing company design and management • Opportunity assessment procurement and implementation • Supply base optimization/ rationalization • Best value/low cost country sourcing • Direct/indirect sourcing

Process optimization • Source-to-contract Risk and • Supplier/vendor risk management • Contract lifecycle management governance • Risk program assessment • Purchase-to-pay • Contract risk management

Procurement • Transformation business case Technology • e-Procurement Request For transformation • Organizational/Target Operating enablement Proposal development Model design • Technology and vendor selection • Procurement master data management

Organizational • Procurement maturity diagnostics Sustainable • Procurement waste assessment effectiveness and benchmarking procurement • Procurement requirements • Performance management • Talent management/procurement academy

Supplier relationship • SRM approach/strategy management (SRM) • Value for performance

* Powered by our in-house KPMG Spend Cube

Why KPMG: A leader in procurement advisory services

A leader in Sector leading Global Strong focus Specialist for procurement procurement footprint on execution people development advisory services capabilities 3,000 KPMG member Sound knowledge, Over 900 Combine technical, Especially in up- firms have a track trusted by many procurement commercial category skilling management record of working big players across consultants globally knowledge with tax and staff and delivery on more than industries and IT know-how of procurement 3,000 procurement academies projects

Source: KPMG Global Procurement Advisory Center of Excellence, 2016 Procurement Advisory | 13

Case study 3: Procurement transformation for an ASEAN integrated health provider

An integrated healthcare • an assessment of the • lack of mandate to challenge provider with third-party spend organization’s Procurement demand and enforce Group- in excess of US$ 490 million maturity based on leading wide policies and processes annually across the group wanted practices and industry The outcomes included an to perform an independent benchmarks assessment of the overall current state assessment and • defining the core design maturity of procurement, the discovery of the efficiency and principles of recommended identification of a fit for purpose effectiveness of its Procurement Target Operating Model (TOM) high level target operating model activities. with the initial identification of Key challenges faced by the client priorities and recommendations The tailored program included: included: of activities required to bridge the • a review of the client’s gap between current practices • lack of Procurement integration existing Procurement strategy, and leading practices. The team across the healthcare group organization structure, also conducted a category pilot processes and use of enabling • fragmented technology to demonstrate benefits of new technologies systems and databases ways of working. 14 | Procurement Advisory

Case study 4: Power and utilities company implements a procurement SRM system

An Asian power and utilities KPMG in Singapore assisted the • centralize sourcing and RFQ company undertook a series client in reviewing the business collaboration whilst reducing of initiatives to transform requirements, developed the cost and optimizing the the procurement function to tender documents and evaluated process cycle time become a strategic partner the vendor proposal submissions • systematically execute of the business. One of the against both commercial and effective sourcing strategies key initiatives was to drive technical requirements. cost savings and organization • monitor compliance to productivity using a technology The key outcome was the contracts and policies platform to standardize the implementation of a Procurement • improve transactional company’s Procurement process SRM system that enables the efficiency through supplier and monitor service level and company to: connectivity contract compliance. • enterprise-wide insight via spend category reporting Procurement Advisory | 15

Our recent thought leadership publications

The Power of Future of Implementing FUTUREBUY: High Impact Procurement Procurement in the Future of The Future of Procurement Asia-Pacific Procurement Procurement Operating Models

The first of an This paper aims This paper illustrates KPMG interviews 25 Procurement’s annual series of to convey to ENR how Procurement Chief Procurement journey from a global reports stakeholders how teams of healthcare Officers from back-office tactical to compile data the Procurement and life sciences global organizations function to a key from Procurement function can help organizations across a spectrum lever of competitive organizations and organizations can position their of industries and differentiation is a across sectors to enhance their Procurement summarizes the story that has been provide an ongoing competitive- organizations to major capabilities receiving greater and consistent advantage. Using capitalize on current identified as attention globally. benchmark for a variety of region- trends, enhance necessary for This survey seeks Procurement wide case studies, their processes and competitive to understand functions to measure it demonstrates technologies, rethink adaptation and the different their progress against how strategic their organizational growth Procurement that of their peers. Procurement can structures, and in the current operating models help companies: deliver tangible value business and governance capitalize on to the bottom line. environment. structures in various emerging trends, organizations. enhance processes and technologies, rethink their organizational structures and deliver tangible value to the bottom line. kpmg.com.sg Contact us

ASEAN Tony Rawlinson Partner Head of Business Transformation Management Consulting, ASEAN KPMG in Singapore T: +65 6411 8101 E: [email protected]

Indonesia Leornie Quek Partner Management Consulting, ASEAN KPMG in Indonesia T: +62 215740877 E: [email protected]

Philippines Imelda H Corros Partner Management Consulting, ASEAN KPMG in Philippines T: +62 2 885 7000 E: [email protected]

Singapore Gerard Seng Director Management Consulting, ASEAN KPMG in Singapore T: +65 6507 1911 E: [email protected]

Thailand Siraporn Chulasatpakdy Partner Management Consulting, ASEAN KPMG in Thailand T: +66 2 677 2678 E: [email protected] kpmg.com/socialmedia

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Publication name: Procurement Advisory