Centralized Procurement through SAP SRM - the next great wave of savings - Part 1
Continually changing turbulent economic environment is forcing organizations to adopt innovative business strategies to stay competitive, efficient in order to achieve highest level of benefits to the stakeholders. Procurement function is playing an ever increasing role in this transformation journey and its importance is becoming increasingly visible.
Benchmark data suggests that organizations are shifting towards a Centralized Procurement model, one which decouples the logical and physical locations of procurement activities. Reasons for this are obvious benefits of spend consolidation, product standardization and enhanced negotiating power. Along with Direct materials, Indirect Materials are a focus area for many organizations from this perspective. Indirect materials procurement typically contributes to approximately 5% of the overall procurement costs in an organization. Apply the Pareto principle and this would mean 20% of the Indirect Materials procurement would lead to 80% of Spend. Hence an effective strategy to minimize this 4% (80% of 5%) Indirect Material Procurement Spend, for 20% of materials can have massive bottom-line benefits.
Over next few write-ups I will discuss strategies that organizations can undertake to implement a Centralized Procurement model and the role played by SAP SRM solution as a business transformation enabler. SAP SRM provides the following features - Organization Structure mapping to enable shift from classic decentralized procurement model towards centralization, Centralized Contract Management and Centralized Sourcing to enable the process. A judicious combination of these will help arriving at a solution that will be a prime reason driving the change in the organization and smoothen the journey of this mammoth organizational change. I will also focus on some of the challenges faced during this journey and recommendations to overcome some of these challenges to achieve a streamlined procurement strategy reaping in huge bottom line savings for the organization.
So be tuned to my future write-ups on this topic…and look forward to your thoughts on this prominent shift in the procurement space.