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January 21, 2021 | Lisbon
Digital Procurement
McKinsey & Company 2
Isabel Santos
Boardmember
João Correia
Botelho
Chairman of the Board
Your hosts for today
Peter Spiller
Partner, Frankfurt
Raffaele Carpi
Partner, Lisbon
McKinsey & Company 3
Agenda
Topic Time
Session opening 10 mins
How DnA is impacting Procurement and helping companies capturing value 30 mins
How to deploy DnA in Procurement 15 mins
Q&A 15 mins
Case study 20 mins
Relevance of Procurement during COVID 15 mins
Closing remarks 15 mins
McKinsey & Company 5
Agenda
Topic Time
Session opening 10 mins
How DnA is impacting Procurement and helping companies capturing value 30 mins
How to deploy DnA in Procurement 15 mins
Q&A 15 mins
Case study 20 mins
Relevance of Procurement during COVID 15 mins
Closing remarks 15 mins
McKinsey & Company 6
Further increase in volatility and pace of change are the “new normal” after COVID
Source: Business Insider, World Health Organization, McKinsey & Company, Institute for fiscal studies (UK), Vault, S&P, Statista
42+
Countries
implemented
restrictive measures1
-56%
Crude oil price
change
350+
S&P rating
downgrades of
companies across
sectors
-80%
Demand reduction in
selected industries
(travel, hospitality)4
5.5x
Increase of remote
work in the US
compared to 2018
data
Unstable
supply chain
Price
volatility
Increased
financial risk
Shift in
demand
People and
operating model
Creating impact in
the “new normal”
will require a
different set of tools
and capabilities
1. Counted countries with full or partial lockdown due to coronavirus, as of 4/9/20
2. Listed on London stock exchange: Fossil fuels & distribution (-27%); Food and drug retailers (+21%)
3. S&P rating revision by April 2, 2020
4. Data from Denmark: Experience industry (including travel, tourism, and hospitality services) (-75%); IT/Telecommunication (-14%)
McKinsey & Company 7
The “new normal” bears risks, but also offers many opportunities to the CPOs
Unstable
supply chain
Regional lockdowns
Regional lockdowns still in
place or emerging fast due to
still uncontained or new
COVID outbreaks
Strategic redesign
opportunities
Seize the opportunity to make
strategic shifts via supply chain
integration, localization, and
supply base redesign
Price
volatility
Economic volatility
Changing economic situation
manifesting in changing
material and energy prices, FX
fluctuations
Raw materials prices
Capture low materials prices
by reviewing existing
agreements, and create value-
leveraging volatility
Increased
financial risk
Increased number of
supplier insolvencies
Small and mid-sized suppliers
are at risk to face financial
distress
Increased M&A and
collaboration opportunities
M&A activities may present
opportunities to generate cash,
or invest in future growth –
alone or collaborating with
other players
Shift in
demand
Slowly increasing demand
Slow increase of consumer
confidence – temporary lower
demand vs. prior to crisis
Lower prices due to
overcapacity
While demand remains below
pre-crisis levels, suppliers will
likely have overcapacity
resulting in lower market
pricing
People and
operating model
Contact restrictions
Social distancing and remote
working impact collaboration,
and may cause reputation
damage if poorly managed
Talent and higher efficiency
In the changing labor market,
increased opportunities to
attract external talent and
implement more efficient ways
of workingOp
po
rtu
nit
ies
Ris
ks
McKinsey & Company 8
Three major strategies address the current risks and opportunities
Steering room
Monitoring and steering
the supply chain
Rapid changes in supply and demand, as well
as increased cost pressure require the
procurement organization to achieve a step
change in transparency and rapid decision-
making abilities
Cost reduction along the value
chain
Driving cost efficiency through
collaborative measures
After COVID, it will become more difficult to
generate cost savings by traditional commercial
negotiation. Thus it will become even more
important to manage demand, accelerate cross-
functional spend optimization and jointly to
generate win-win opportunities with suppliers
Strategic redesign
New tools and capabilities
to build future resilience
Disruption in supply chain and demand pattern,
will require procurement to rethink category
strategies, tools and solutions to secure a
sustainable performance
McKinsey & Company 9
Procurement organizations have prioritized 12 strategies to create sustainable impact in the COVID and post-COVID phase
1. Design to Value
2a: Raw material
optimization
1a: Supply chain
monitoring
1b: Value creation
control tower
2b: Indirect cost
booster
3a: Supply base
redesign
3b: Digital &
efficiency push
2c: Collaborative
DtV1
3d: Sustainability1c: Cash
control tower
1d: Demand
control tower
3c: M&A2d. Lean at
supplier
Steering room
Cost reduction along the value
chain Strategic redesign
McKinsey & Company 10
Agenda
Topic Time
Session opening 10 mins
How DnA is impacting Procurement and helping companies capturing value 30 mins
How to deploy DnA in Procurement 15 mins
Q&A 15 mins
Case study 20 mins
Relevance of Procurement during COVID 15 mins
Closing remarks 15 mins
McKinsey & Company 11
Only operational
(e.g. mostly
creating purchasing
orders)
1 2 3 4 5Strategic (e.g. handles
all sourcing decisions for
the organization)
How would you define the role of the procurement area in your organization?
Please respond using the poll
McKinsey & Company 12
Procurement has evolved from an administrative task to a strategic function, digital and analytics now opens a new horizon of impact
Source: McKinsey Procurement Practice
Operational
procurement:
Supporting order
fulfilment
Strategic
Sourcing:
Optimizing
commercial
terms
End-to-end
continuous
improvement:
Optimizing the value
chain
1 2 3 4 5
Advanced analytics-
enabled procurement:
Tapping on unusual
sources of value
Category
management:
Optimizing TCO
Top quartile
performers
Business partnering
to shape functional /
BU agendas
Superior make vs.
buy decisions
Future leaders
Analytics engine at
scale
Agile organization
and execution model
‘Middle of the pack’:
most companies
across sectors
Category strategies
in place to optimize
TCO
Negotiations
Excellence
leveraging analytics
Below average
performers for most
sectors
Category Strategies
in place
Emerging
collaboration with the
business
Bottom quartile
performers
Primarily
administrative
ordering tasks
Implementation of
systems to digitize
operational
procurement
McKinsey & Company 13
Procurement has access to large volumes of data that contain valuable insights
© Copyright 2020 McKinsey & Company. This material contains the confidential and proprietary information of McKinsey & Company and is intended solely for
your internal use and may not be reproduced, disclosed or distributed without McKinsey & Company's express prior written consent
Client examples
through real-time monitoring of ~70 market indices in packaging 7% price adjustment potential
>5% YoY savingsthrough automated bots managing and flagging deviations across
a portfolio of 30k items in ~20 countries
using AA decision making tools and machine learning on
exogenous factors for agricultural commodities
3-16% cost savings
>20% price gap capture rate through driving parametric cleansheets for more than 3,500
temp labor roles in 2 weeks
by automatically screening supply base for risk indicators
across >30 different risk metrices aggregated across multiple
databases (screened 1,000 suppliers in 2 days)
High risk suppliers
identification
McKinsey & Company 14
Yet, leveraging data to generate procurement value is challenging
Furthermore, a recent survey1
shows, that… Few observations across sectors (not exhaustive or in specific order)
1. Survey participants n=30, across industries with revenue > 1bn EUR
Automation possible, yet solution landscape not mature enough
Limitations in (advanced) analytics skills in the organization
Need for dynamic updates, given the speed of market/internal changes
Highly fragmented data sources and/or bad data quality
Capacity constraints in procurement teams for manual processing
Solutions implemented, but adoption rate is low
Capability challenges in translating insights into value captured
>86%of CPOs state they lack platforms to
perform real time data processing
<20%of available procurement data is leveraged
to drive decision-making and deliver value
© Copyright 2020 McKinsey & Company. This material contains the confidential and proprietary information of McKinsey & Company and is intended solely for
your internal use and may not be reproduced, disclosed or distributed without McKinsey & Company's express prior written consent
1
2
3
4
5
6
7
McKinsey & Company 15
An effective approach to transform procurement into a Data and Analytics enabled function is required to capture value
+10-40% financial impact, better risk management
and enhanced spend control
+30% faster response to opportunities, given the
ability to identify them real-time, and use
digital execution tools
(e.g., accelerated tendering)
© Copyright 2020 McKinsey & Company. This material contains the confidential and proprietary information of McKinsey & Company and is intended solely for
your internal use and may not be reproduced, disclosed or distributed without McKinsey & Company's express prior written consent
Advanced analytics engine, based on a solid data
backbone, designed in a way that it can evolve dynamically
Operating model adapted to embed analytics in the ways
of working and make the most of the technology
Value-backed approach (vs. technology-forward) that
starts from a deep understanding of the high-impact areas
across the value chain
Agile transformation journey for efficient and successful
scale-up and accelerated impact capture
The value of Data & Analytics
in Procurement…
McKinsey & Company 16
Example of value at stake: Data & Analytics doubled the pipeline and enabled YoY better than best-in-class levels going forward
60%
100%40%
Value from
other levers
Data &
Analytics
enabled value
Total
transformation
impact
yr 3yr 1yr -2yr -3 yr 2yr -1 yr 4
Nearly doubled the savings pipelineBuilt an 'engine' to sustainably deliver
best-in-class performance
Data & Analytics
transformation
Client example
How it was achieved What impact was generated
1. 2 data architects, 5 data engineers, 2 data scientists, 1 scrum master, 8 product owners
© Copyright 2020 McKinsey & Company. This material contains the confidential and proprietary information of McKinsey & Company and is intended solely for your internal
use and may not be reproduced, disclosed or distributed without McKinsey & Company's express prior written consent
Single digital and analytics
(DnA) vision
15 ERPs, >15,000 SKUs,
~10,000 suppliers, ~90 external
indexes into a single data lake
8 analytics use cases
20 new DnA roles1
200 category managers trained
>50% additional time on value
added activities
Best in class
Average
McKinsey & Company 17
Architecting the transformation around the sources of value avoids unfocused, low-value-add investments in ‘interesting’ solutions
From: Technology-forward approach To: Value-backed approach
IT roadmap
Multitude of providers
Focus on what seems ‘most innovative’
No business case to support a scale-up
Clear direction with sharp objectives and focus
Use-cases to tap on the most relevant sources of
value
Agile process to choose solutions for each use-case
McKinsey & Company 18
6 building blocks are fundamental to a successful Data & Analytics transformation
Org. and process
redesignData backbone
Capability building
Change
management
User interface
Data &
Analytics
procurement
transforma-
tion
Data and Analytics engine Operating model transformation
Analytics use-
cases
McKinsey & Company 19
Selected use
cases
GCM dashboard and
performance cockpit
CPO dashboard and
performance cockpit
Digital workflow for strategy
development and execution
Digital contract
management
Contract
analytics and
performance
clauses
compliance
Spec & service
levels optimizer
Longer term
demand
forecast and
supply risk alert
Best-of-best
bench-marking
solution
Bid-analytics for
complex bids
Supplier
scouting
Future price
trending
Real-time
external market
input cost
monitoring
Real-time
Supplier
performance
tracker
Real-time
suppliers risk
monitoring
Suppliers
collaboration
platform
Digital
negotiation
factory
Supplier
qualification
acceleration
BOT for real-
time compliance
tracking
Internal
stakeholders
collaboration
platform
Spend controller
Forward-looking
inventory to
unit-cost
optimizer
Volume / price
optimizer
Bot suggesting
hedging /
negotiation
strategy based
on rules
Robotic Process
automation
Bot flagging
contract
expirations and
non-complianceE-Rfx
Advanced analytics Process automation Digital Journey & collaborationExample next
Global
category
management
key activities
Value
driver
Reduce spend from
specifi-cations and
demand rationalisation
Scouting supplier
markets for new
opportunities
Run negotiation and
lock saving potential in
contract
Track supplier
performance through
collaboration
Identify
potential savings
Identify value
opportunities with
suppliers
Ensure contract
compliance and
procure / manage
delivery efficiently
Track compliance,
performance
Manage suppliers
performance and
risks
Track and manage
contracts
Prepare and run
tender and
negotiations
Monitor marketOptimize demand
and specs
Analyze spend and
identify opportunities
Selection of use cases should be driven by the savings it can enable and the
improvement in category managers efficiency and ways of working
Use cases need to be selected based on areas of highest impact
Category-
specific analytics
Digital parametric
clean sheets
Indirect index
Marketing
efficiency for
growth
McKinsey & Company 20
Category Analytics automate granular, category specific levers into trackable dashboards – Temp Labor exampleCategory Analytics Solution identifies category specific opportunities across the full range of TCO levers
Source: McKinsey Digital Procurement Service Line
Advanced analytics model defines potential savings
for standard Temp Labor levers based on input data…
Example output : Rationalize pay rate lever
.. dashboards for each lever display the opportunity
and generate insights for recommendations
Process Identify and switch volume between vendors to leverage
discounted rates8
Ensure compliance with contracted rates9
10 Rationalize and align contractual mark-ups,
Commercial
Levers
1 Align pay rates to benchmark
2 Align mark-ups to mark-ups
3 Build cleansheet rates
5 Re-align number of employees across tiers
(tier optimization)
6 Identify opportunities to allocate resources to
cheaper areas (location optimization)
7 Identify savings by hiring more temps
4 Reduce overall workforce hours for high pay
rate roles
Demand
Top 3 campaigns by
conversion
Comparison of rates paid for same role,
location and tier combination; savings
estimated by moving to optimized rate
Definition of lever and calculation
logic embedded in every lever
Multiple views showing savings by
supplier, location, hiring manager,
month and role
McKinsey & Company 21
Should-cost for entire categories are calculated through scalable models estimate cost based on a few input parameters for each itemParametric Clean-sheets
Source: McKinsey
Example of a digital clean-sheet solution
applied to Titanium Dioxide
PredictiveSustainable
Faster Accurate
How digital clean-sheet
solutions can help
Illustrative
McKinsey & Company 22
As new activities evolve, Data & Analytics transformations will change the way current procurement teams work
LeadershipController
Buyer Category manager
Current procurement teams will have
to adjust their way of working…
Business PartnersData Engineers, scientists /
UI/UX Developers
Translators /
Product Owners
… and be complemented with new roles to sustain
digital transformations
McKinsey & Company 23
Capability building programs will need to be developed for each role
Advanced skills No skills
Target group Objectives
Analytics
delivery team
Able to use all use cases
Procurement
leadership team
Aware of all use cases
Data and analytics
champions (incl. PO)
Understand all relevant use
cases
Data and analytics
development team
Able to use their use cases,
understand all other use cases
Procurement
community
Understand all relevant use
cases
DnA hard
skills
Soft
skills
Proc.
hard skills
Spend and market
analysis
Negotiation excellence
How to get from data to
insights
Mastering different
use-cases
Problem solving
Managing change
Training modules
(examples)
McKinsey & Company 24
Agenda
Topic Time
Session opening 10 mins
How DnA is impacting Procurement and helping companies capturing value 30 mins
How to deploy DnA in Procurement 15 mins
Q&A 15 mins
Case study 20 mins
Relevance of Procurement during COVID 15 mins
Closing remarks 15 mins
McKinsey & Company 25
Very limited
1 2 3 4 5Game-changing
What impact do you believe digital could have in your procurement area?
Please respond using the poll
McKinsey & Company 26McKinsey & Company 26
Large pharmaceutical company
EUR 36bn revenues
4 GBUs: General Medicine, Specialty Care, Consumer
Health Care, Vaccines
73 production sites, in 32 countries; presence in 100
countries total
“Play to win” strategy to transform into a modern, agile
organization
McKinsey & Company 27
A pioneer of digital and analytics in strategic
sourcing, enabling superior value capture
Collaboration with an ecosystem of suppliers to
maximize value-add
The function a key contributor to the financial
targets, innovation and sustainability agenda
Aspirations for Procurement
McKinsey & Company 28
How is this being achieved?Technical solution
Procurement data
platform
Single source of truth;
high quality, granular data
Ownership in procurement;
decoupled but unified
Beyond a spend cube;
enrichment with internal and
external data
Value-back
use cases
Use-cases on largest
sources of value
Focus on opportunity
identification on price,
specifications
Agile approach; quick
scale-up beyond MVP
Buyer
cockpit
Intuitive, integrated interface,
driving adoption
Alerts and actionable
recommendations;
prescriptive analytics
Management oversight
McKinsey & Company 29
Shifting >50% of the
time of a category
manager to
value-add tasks
Accelerating the
sourcing process by
30% or more
Creating new DnA
roles within
procurement
attracting talent
Reskilling our people
to be DnA-savvy and
more analytical
Transform the
culture: make digital
and analytics a
habit
How is this being achieved?Transforming the operating model
McKinsey & Company 30
40%
60%
100%
yr 3yr -3 yr -2 yr -1 yr 2yr 1
Best in class
performance
yr 4
DnA enabled delivery
Delivering a step-change
in results by doubling
the typical
transformation savings
Leaving behind an ‘engine’
and operating model to
deliver sustainably
best-in-class impact
Value from typical
levers
DnA enabled
value
Total transformation
impact
The journey so far and impact achieved
McKinsey & Company 31
Have a razor sharp focus on
delivering value
Focus on change and getting the
organization excited about the change
Tie it back to overall organization
strategy
Lessons learned from the experience
McKinsey & Company 32
Agenda
Topic Time
Session opening 10 mins
How DnA is impacting Procurement and helping companies capturing value 30 mins
How to deploy DnA in Procurement 15 mins
Q&A 15 mins
Case study 20 mins
Relevance of Procurement during COVID 15 mins
Closing remarks 15 mins
McKinsey & Company 33
Our processes
are mostly
manual but are
assessing
potential use
cases to explore
1 2 3 4 5▪ We have a vision,
roadmap and team
and have captured
significant savings
Where is your organization in the journey of digitization of the procurement area?
Please respond using the poll
McKinsey & Company 34
A typical approach to the digital procurement journey
Source: McKinsey Procurement Practice
Vision
Assess where we stand
and define what do we
want to become
Diagnostic
Diagnose current
painpoints and
digitalization maturity
Design
Identify and prioritize
digital procurement
initiatives and develop
implementation
roadmap
Implementation
Implement initiatives
through agile sprints
and MVPsEmpowerment
Invest and improve
digital capabilities and
spend analytics
Detailed next
McKinsey & Company 35
Significant potential Moderate potential No potential
A value heatmap of use cases vs. categories must bedeveloped to ensure focus on high value opportunities
Spend category Digital use case
4 Category strategy
workflow3 Should
cost2 Category
analytics1 Advanced spend &
supplier intelligence.. …
Additives
Resins
…
Temporary
labor
Marketing
…
Source: McKinsey
Client example
PR
NPR
McKinsey & Company 36
Digital procurement initiatives are defined and prioritized to build the initial digital procurement roadmap
Source: Next-gen Procurement operating model service line
Client Example
Demand to
Source
Source to
Procure
Procure to
Invoice
Commodity platform
Smart catalogs
Requestor portal
Procurement
Navigator
Supplier performance
transparency dashboardMaster data management
solution
Vision: “An agile, efficient and integrated procurement
function with the expertise to continuously capitalize on
technology advancements to deliver total value”
Automated supplier
risk management
Overpayment
management
Procurement demand
planning platform
Business Process
Management solution
Digital procurement
capability platform
Supplier network
integration
Specification
management
platform
Category analytics
solutionDigital negotiation
support solution
Process Mining solution
Smart contracting
platform
Supplier portal 2.0
Wave 1 Wave 2 Wave 3
Invoice to Pay Performance Management Enablers
McKinsey & Company 37
Agenda
Topic Time
Session opening 10 mins
How DnA is impacting Procurement and helping companies capturing value 30 mins
How to deploy DnA in Procurement 15 mins
Q&A 15 mins
Case study 20 mins
Relevance of Procurement during COVID 15 mins
Closing remarks 15 mins
McKinsey & Company 38
Please send us your questions
through the chat
We would love to hear your questions
McKinsey & Company 39
Agenda
Topic Time
Session opening 10 mins
How DnA is impacting Procurement and helping companies capturing value 30 mins
How to deploy DnA in Procurement 15 mins
Q&A 15 mins
Case study 20 mins
Relevance of Procurement during COVID 15 mins
Closing remarks 15 mins