Global Multimedia Organization Transforms Sourcing and Procurement Function and Saves Millions
In many organizations the procurement function is thought of purely as an administrative function and cost center, but addressing opportunities in this area offers a chance to add significant value to the organization. Investment and focus on the procurement function can enhance business outcomes, improve the bottom line and help manage risk, especially during periods of rising inflation and supply chain bottlenecks.
A fast-growing global entertainment firm was lacking a true procurement function and had no staff dedicated to managing spend within each business line. The company did not have insight into the goods and services it was procuring and what was included in the contracts for those goods and services. It also lacked a clear picture on how those contracts were being managed, whether they were favorable or not, and where their money was outflowing from the various parts of their business.
The organization engaged Protiviti to help establish a high-functioning procurement department that could provide operational efficiencies across strategic sourcing, contracting and procurement while driving better visibility of spend and ultimately achieving cost savings across major spend categories.
Fast-growing global entertainment firm
Lacked insight into procured goods, services and spend within each business line
Established a high-functioning procurement department
Gained 240% ROI through spend transparency and procurement operations efficiency
Capturing quick wins and outgrowing limited procurement ability
The first task was to set up an efficient, transparent process for categorizing and analyzing 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 organization 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 categorize vendor spend data, create dashboards, identify trends and analyze individual line items within current third-party spend to uncover patterns and opportunities for vendor rationalization, 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 organization 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 organized by business line or department. But to gain clear visibility into expenditures within various categories, spending needed to be organized 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 optimization to building a strong procurement function. Protiviti worked with key sponsors within the organization 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 organization 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 organization has completed 20 projects, with another 10 in active status and five in the pipeline.
Value delivered: Spend transparency and efficiency in procurement operations
As a result of these efforts, the organization has recognized a significant, tangible return on its investment in creating a centralized procurement function. It successfully consolidated vendor lists throughout the enterprise, improved vendor management processes, and attained rich analysis and insights into its procurement practices. Despite the highest rates of inflation in four decades, the procurement function has successfully renegotiated with current vendors and solicited competitive bids to achieve significant savings. To date, the company has delivered $4.4 million in procurement savings and has achieved annual savings of $4 million.
With Protiviti’s help, the company has designed, implemented and staffed a high-performing procurement function. Key stakeholders from across the organization reach out to the procurement department to help with procurement activities, even when not required, based on enhancing company-wide visibility and transparency, empowering management to perform its duties of oversight and governance, ensuring proper adherence to all procurement policies and procedures, and driving the best costs for high-quality goods and services
Identifying services not recently competitively bid enabled the procurement function to build its project pipeline, providing an ROI of 240%.