Over the next half decade, insurers are encouraged to take two key steps to reshape their procurement function so it can help them achieve their strategic goals. One is relying more heavily on a small group of key suppliers. The other is removing the function from its silo within their organizations and creating what Accenture refers to as an “organization of one,” that is, an organization that consists of a group of procurement professionals embedded in the business and connected back to a smaller, centralized, core-decision making team supported by advanced technology.

Let’s address suppliers first.

Large companies in various industries around the globe already have cut procurement costs significantly since 2007 by beginning to build a virtually integrated enterprise, in which key suppliers are treated as part of the organization, according to the Accenture report, Procurement’s Next Frontier. While the percentage of controlled suppliers doubled to 80 percent between 2007 and 2015,1 procurement costs as a percentage of total spend plummeted 40 percent, our research shows.2 Other factors, such as the increased use of digital technologies and analytics, also have contributed to the dramatic cost reduction and should drive down costs further in the future. But creating a virtually integrated enterprise has been at the heart of the evolution in procurement. Accenture projects that by 2020, insurers can cut their procurement costs to 20 percent of total spend by establishing 100 percent control of strategic suppliers through more intimate relationships supported with even greater use of digital technologies and analytics.3

But cost reduction is no longer the overarching goal in procurement’s evolution. A virtually integrated enterprise should significantly boost top-line growth, as that organization and its strategic suppliers work together in virtual supplier rooms, exchanging ideas on developing effective innovations.

To create a virtually integrated enterprise, insurers should:

  • Tightly align buyer and seller strategies, business plans, goals and targets through strong formal governance, joint metrics, appropriate contractual components and supplier incentives that include profit sharing.
  • Use technology to foster trust and enable a seamless flow of ideas on innovation between the company and its strategic suppliers.
  • Consider conducting joint recruiting and job rotation with its suppliers to have input on the quality of their talent.
  • Appoint a senior executive to build and nurture the company’s relationship with each strategic supplier.
  • Keep their supplier ecosystems robust and sharp by continually scouting for strategic suppliers.

Internally, insurers should tear down the silo walls of the procurement function to create what we characterize as the “organization of one.” We recommend embedding a group of procurement professionals throughout the business and connecting them to a smaller, central decision-making team. That team would focus on higher-level, cross-business-unit procurement requirements and would be supported by various advanced technology.

Next time. Technology’s role in the future procurement function.

References:

  1. “Procurement’s Next Frontier,” Accenture 2015. Access at: https://www.accenture.com/us-en/insight-procurements-next-frontier-organization-one
  2. Ibid
  3. Ibid

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