How to embark on a Second Generation Procurement Transformation?

Taking Procurement to the next level, part 3

In terms of process, a Second Generation Transformation works exactly the same way as any First Generation Procurement Transformation, but in terms of content, the complexity and demands are significantly greater.

First stage: Procurement diagnosis of current situation

You need to understand your starting position before you start defining, planning and move towards a goal. By starting position, we mean knowing all of your strength and weaknesses. This can be done by baselining your current performance against industry specific benchmark numbers. Knowing how you compare with industry leaders can help clarify where you stand. With this kind of information, you can identify the desired level of performance, the current gaps on how to get there and define a scope for the transformation.

Second stage: Procurement strategy, aligned with the overall corporate strategy

This is where a second-generation Transformation starts to distinguish itself.  In First Generation Procurement Transformations, the goals (i.e. savings) and strategy are relatively straightforward.
In a Second Generation Procurement Transformation, more effort is required to understand the true strategic objectives and the relative priorities of the Procurement organization.

A robust strategy development process starts with inputs from the entire C-suite, and is closely aligned to the overall corporate strategy, not just the objectives of the CFO to reduce cost.

The output of a successful strategy development phase is a genuine, effective strategy with a clear statement of what outcomes are targeted and what choices are to be made, rather than just an aspirational vision statement.

Third stage: Establish a future operating model

The future operating model is designed, starting with the organizational structure, defining key interfaces with the rest of the business, addressing to-be processes, system and reporting requirements, performing a thorough Make vs Buy assessment, and writing job descriptions for key roles.

A first-generation Procurement Transformation here is usually focused on rolling out pre-defined standard processes to a rightsized organizational blueprint, but in a second-generation Transformation, this phase refocuses the existing processes on the different strategic imperatives defined and recreates the organizational structure anew, based on the priorities established during strategy development.
This is an area where a key innovation in recent years has been the decoupling of business partnering and sourcing activities within Procurement departments to better prioritize non-savings related value contributions.

Fourth stage: Implementation and value realization through small steps

The final stage takes your organization through to the desired future state. This is more complex than a First Generation Transformation and typically takes longer. This is not simply a case of training your people on strategic sourcing but requires strong procurement, project and change management skills.

Another key value driver of Second Generation Transformation is agility and it could be argued that the target situation is never fully realized, since the ability to transform itself to meet the evolving requirements of Procurement is the essence for the top Procurement organizations of the future.

Our consultants have extensive experience and possess the necessary expertise to support your organization and realize business value through both First and Second Generation Procurement Transformation. Don’t hesitate to contact us for an informal chat regarding this topic.

At Stretch we believe in small steps to business value. This means that we chose business value over cost, time and scope. We prefer small steps over long-term planning. We believe in one team over IT and business divided. We look to the lifecycle over project and maintenance. We choose close dialog over contracts and documentation.

Curious to read more? Download our e-book Small steps to business value.
In Swedish: Små steg till affärsvärde

Taking procurement to the next level, part 1: First generation procurement transformation
Taking procurement to the next level, part 2: Second generation procurement transformation

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