In many change programs, there is an immediate & huge focus on Org. chart & associated number of FTEs: many leaders are just given few weeks in order to make a proposal. And no surprise, we just set ourselves up for a revision after few months of implementation. First one must be ready to answer the question: “What is a Procurement Operating model?”

In any Transformation Program, one of the first key activities is to build the Procurement Operating Model. /// Stéphane Morel

Designing an OPERATING MODEL should logically come after:

• STRATEGY: Proc. maturity audit, Voice of the Business, definition of an ambition & roadmap
• PEOPLE: audit of competencies & team dynamics, rethink the roles vs current org chart
• PIPELINE: draft prioritization of the key initiatives

I tend to oversimplify the work on Operating Model talking about:

• Guiding Principles
• Org. Chart/RACI
• Core Processes
• Governance

Guiding Principles:

Few years ago, it was also called Procurement Policy.

The guiding principles define in a couple of pages (max):

• Why there is a procurement organization
• Procurement scope
• Difference between transactional, tactical & strategic activities
• Key Processes, activities, roles & responsibilities
• Roles and Responsibility in relation to of the rest of the company

Org. Chart & RACI:

We define how do we organize the function based on:

• Business structure & level of centralization
• Third party spend segmentation
• Our goals & maturity roadmap

We should have the strategic conversation about:

• Localization – hubs vs countries.
• Remote work policy,
• Externalizing some parts of Procurement

We create the roles, the ‘boxes’; we calculate the nº of FTEs; we put the names.

Core Processes:

• Define & map the core Proc. processes (inputs, activities, RACI, system, outputs).
• Create a baseline & we do our best to align, alleviate, accelerate, automate.

Governance:

• Governance mechanisms
• KRAs (Key result area), KPIs of the function
• KRAs, KPIs of the transformation program

How do you build a Procurement Operating Model? How is it structured? Any tips & tricks?

Contact Mr Stéphane Morel at LinkedIn if you want to have a more extended answer to the question: “What is a Procurement Operating Model?“.

Steps when creating a procurement transformation program. 

Following are the ideas from Fredrik Axelsson regarding the key steps when executing a Procurement transformation program. A procurement transformation program is a comprehensive effort to overhaul and improve the procurement function within an organization. It typically involves a series of structured and strategic steps aimed at enhancing efficiency, reducing costs, and aligning procurement processes with the overall business strategy. Here are the key steps involved in such a program. (NOTE there is NO one size fits all in this case. See theses steps as inspiration more than a guide to follow in detail):

1. Assessment and Analysis:

• Current State Assessment: Evaluate the existing procurement processes, policies, and performance metrics (and more).
• Identify Pain Points: Understand the challenges and inefficiencies in the current system. Hence, areas for improvement.
• Stakeholder Engagement: Involve key stakeholders to gather insights and understand their needs and expectations.

2. Strategy Development:

• Define Objectives: Set clear, measurable goals for the transformation (cost savings, process efficiency, supplier relationships, etc.).
  • Supply chain: Develop category management and connected strategies.
  • Processes, methods and tools
  • Organization and roles (including Governance).
• Risk Management: Establish a framework for identifying and mitigating risks in the supply chain.

3. Create a general plan which can be adapted to new reality along the way. Examples of activities:

• Streamline Processes: Simplify and standardize procurement processes to improve efficiency.
• Policy Update: Revise procurement policies to align with best practices and organizational objectives.
• Compliance Framework: Ensure that procurement activities comply with relevant laws, regulations, and corporate policies.
• Digital Tools: Implement or upgrade procurement software systems (e.g., e-procurement platforms, ERP systems).
• Automation: Automate routine procurement tasks to reduce manual efforts and errors.
• Data Analytics: Leverage data analytics for better decision-making and performance tracking.

4. Change Management and Training:

• Stakeholder Communication: Regularly communicate with stakeholders about the changes and expected outcomes.
• Training Programs: Provide training to procurement staff and other relevant employees on new processes and systems.
• Cultural Shift: Encourage a culture of continuous improvement and strategic thinking within the procurement team.

5. Implementation and Execution:

• Pilot Testing: Start with pilot projects to test new processes and systems. Start small, de-bug and get traction is usually the most effective way top get results.
• Full-scale Rollout: Gradually expand the implementation across the organization.
• Monitoring and Adjustment: Regularly monitor the implementation and make necessary adjustments.

6. Follow up:

• Performance Review: Regularly review the performance of the procurement function against set objectives.
• Feedback Loops: Establish feedback mechanisms to continuously gather insights from stakeholders and suppliers.
• Adaptation: Be flexible to adapt and refine strategies as per changing business needs and market conditions.

Procurement transformation is a comprehensive and ongoing process. It requires commitment, resources, and strategic planning to be effective. By fining inspiration in these steps, organizations can build a more efficient, cost-effective, and strategically aligned procurement function that supports overall business objectives.

Summary

Answer to: What is a Procurement Operating Model?

In many change initiatives, there is often a rush to focus on organizational charts and the number of Full-Time Equivalents (FTEs) early on, but this approach can lead to revisions shortly after implementation. A more structured approach involves first developing a Procurement Operating Model, which serves as a foundation for any transformation program.

Key Components of a Procurement Operating Model

1. Guiding Principles: These define the purpose of the procurement function, its scope, and differentiate between transactional, tactical, and strategic activities.
2. Organizational Structure & RACI: This involves organizing the procurement function based on business structure, centralization, and spend segmentation, while also considering strategic elements like localization and remote work policies.
3. Core Processes: Defining and mapping key procurement processes, including inputs, activities, responsibilities, and systems, to create a baseline for improvement.
4. Governance: Establishing governance mechanisms, key result areas (KRAs), and key performance indicators (KPIs) for both the procurement function and the transformation program.

Steps in a Procurement Transformation Program

1. Assessment and Analysis: Evaluate current procurement processes, identify pain points, and engage stakeholders to understand their needs.
2. Strategy Development: Set measurable goals, develop category management strategies, and establish a risk management framework.
3. General Planning: Create a flexible plan that includes process streamlining, policy updates, compliance frameworks, digital tools implementation, and automation.
4. Change Management and Training: Communicate with stakeholders, provide training, and encourage a culture of continuous improvement.
5. Implementation and Execution: Start with pilot testing, gradually roll out the changes, and monitor progress for necessary adjustments.
6. Follow-up: Regularly review performance, gather feedback, and be ready to adapt strategies based on evolving business needs.

By following these steps and building a solid Procurement Operating Model, organizations can create a more efficient, cost-effective, and strategically aligned procurement function that supports overall business goals. More about Procurement Management.

I failed at Category Management by Stéphane Morel

Note: Illustration to the blogpost “What is a Procurement Operating Model?” is provided by Stéphane Morel.