CHARTING TOWARDS PROCUREMENT MATURITY

Effective procurement organizations can make or break a company$$s bottom line. While that$$s always been true,

business leaders understand procurement has become even more crucial amid the turbulence of inflation, a global

pandemic, supply chain disruptions, and changing customer demands. But what is striking is that most companies

still are not getting procurement right. Nearly $80\%$ of companies across industries say that their procurement

capabilities are not mature enough to meet their business requirements, according to a Bain & Company survey of

$300$ chief procurement officers and other procurement leaders last year $($see Figure $1).$ Respondents self$-$assessed

their procurement organization$$s maturity across capabilities including procurement strategy, category and supplier

management, and use of digital tools, as well as best practices such as closed$-$loop budgeting, advanced analytics,

and environmental, social, and governance $($ESG$)$ management.

Figure $1$

While most respondents say procurement has greater visibility and importance for their companies than in the past,

the figure above makes it clear that most procurement organizations are failing to deliver on what their organizations

need. Why? Our analysis of the mature organizations points to the critical importance of a procurement strategy that

links back to the company$$s overall strategy. In a time of tight budgets and a challenging economy, having aligned

strategies enables the procurement team to invest its limited resources in the right capabilities that will deliver what

the company truly needs to meet its business objectives$$and not waste time developing capabilities that do not

matter. The result is procurement can create more value than would otherwise be possible.

It will come as no surprise to chief procurement officers and the rest of the C$-$suite, but the survey found that, on

average, mature procurement organizations expect to realize $1\mathrm{.}5$ times the savings of their less mature peers $($see

Figure $2).$ And, increasingly, mature procurement organizations are creating value beyond savings, in areas such as

product innovation, quality, and delivery performance.

Figure $2$

As companies look to enhance their procurement maturity, these leaders hold lessons in how to set the right

strategy, identify sources of value to pursue, and prioritize capabilities in which to invest. One size does not fit all

when it comes to procurement. For a company with multiple business lines that have different product

characteristics and market dynamics, linking the procurement strategy to the company$$s overall strategy may mean

deploying a different procurement strategy for each business unit. This will be quite common, given that many

companies have multifaceted businesses that require juggling multiple procurement approaches. A key lesson from

mature procurement organizations is they do not try to be great at all capabilities. The procurement archetypes

framing is a tool that can be used to prioritize and sequence an overall procurement capability transformation.

QUESTION $2$

Care Construction, a leading construction company, has been awarded a contract to build a new $10-$

kilometer highway connecting Meadowville and Rivertown. The project aims to improve transportation

efficiency and support local economic development, with a timeline of $18$ months and a budget of R$25$

million. Halfway through the project, the project manager, Jason, wants to assess the performance of

stakeholders and make amends if needed, particularly to key suppliers and contractors. Advise Jason on

the methods he can use to achieve this.

QUESTION $3$

Care Construction has been awarded a contract to construct a new shopping mall, "Sunrise Plaza," in the

rapidly developing city of Greendale. The project aims to provide a modern retail space to support local

businesses and attract tourists. The project timeline is $24$ months, with a budget of $$50$ million. The project

manager has recently shared the project cost management plan with you for reviews and comments.

Examine the contents of this document. Make relevant assumptions.

QUESTION $4$

With reference to any project of your choice, evaluate the project budgeting process.

QUESTION $5$

$5\mathrm{.}1$ Care Construction obtained information for a project which it intends choosing. The following details are

available:

Cash outlay$-$ R$600000,$

Economic Life$-4$ years,

Average annual net cash inflow over the economic life$-$ R$280000,$

Depreciation$-$ R$150000,$

Average annual profits$-$ R$130000.$

Determine the payback period and the ARR for the project.

$5\mathrm{.}2$ In the context of the results derived from question $5\mathrm{.}1$ above, comment on the appropriateness of the

methods used in assessing the project.