Capturing quick wins and outgrowing limited procurement ability
The first task was to set up an efficient, transparent process for categorising and analysing current vendor spend. The company was spending far more than it should on contracted products and services, and it had multiple vendors supplying similar services across various departments. Contracts negotiated years prior were automatically renewed on an annual basis, even if the services were no longer needed or were irrelevant to current operations. With a lack of procurement expertise and little visibility across siloed departments, the organisation was unable to leverage economies of scale and negotiating power to execute vendor contracts in the most cost-effective manner.
Protiviti used a third-party spend analytics tool to consolidate and categorise vendor spend data, create dashboards, identify trends and analyse individual line items within current third-party spend to uncover patterns and opportunities for vendor rationalisation, better spend leverage, and more favorable pricing, all pointing to significant savings. Meetings were held with decision makers within each business line to better understand the purpose of each contract and whether it had been reviewed recently to ensure its validity.
As part of this initial analysis, Protiviti worked with the organisation to create a custom taxonomy for the procurement function – a necessary step, as finance and procurement view spend very differently. Finance typically sets up cost centers that are organised by business line or department. But to gain clear visibility into expenditures within various categories, spending needed to be organised in a category and sub-category basis to be able to look across departments.
After reviewing each spending category, the team conducted an opportunity assessment for the top vendors to determine which contracts were coming up for renewal in the next year and had not been bid competitively in the last three to five years. By renegotiating and not renewing unnecessary contracts, the firm was able to capture immediate, significant cost savings. Identifying the services that had not recently been competitively bid enabled the procurement function to build its project pipeline, providing an ROI of 240%.
Building a sustainable procurement function
After achieving initial quick wins, the focus turned from spend and contract review and optimisation to building a strong procurement function. Protiviti worked with key sponsors within the organisation to design a roadmap for standing up a procurement department that would incorporate leading practices and ensure processes, procedures and skills would be ingrained in the organisation for years to come. The company hired its first director of procurement and worked with Protiviti to develop purchasing standards and policies, along with job descriptions, to enable the function to staff up effectively.
As part of standing up the procurement department, an e-sourcing tool was identified and launched, allowing individual departments to collaborate with Procurement on sourcing events. The software serves as a single source of truth for all procurement activities and allows staff involved in the sourcing process to provide feedback on RFP criteria, as well as report on savings and results of each project. To date, 47 company business partners across six functional departments (including marketing, HR, facilities and real estate, IT, product and content creation) have collaborated on sourcing events using the tool. In all, the organisation has completed 20 projects, with another 10 in active status and five in the pipeline.