Much like pop-punk stalwarts Blink 182, David Henchliffe, CPO at Santos, is preoccupied with ‘All The Small Things’.
David thinks that we should also focus on the small ideas, bringing together a number of them to achieve a great result.
Much like pop-punk stalwarts Blink 182, David Henchliffe, CPO at Santos, is preoccupied with ‘All The Small Things’.
David thinks that we should also focus on the small ideas, bringing together a number of them to achieve a great result.
Last week I wrote a post about my (very positive) experience at the Procurecon Asia 2015 conference. You can read my thoughts here.
Attending the conference and indeed, writing up my thoughts, got me thinking about what I would have liked to have heard more about. So with this in mind, I’d like to present four topics that I feel upcoming conferences should be addressing.
1. Social Procurement and Ethical Procurement
This has a different meanings across different countries, something I came to understand at the Procurecon event. Luckily, there is now a consistent way to measure it. An organisation called the Centre for Citizenship Enterprise and Governance has developed the go-to metric for measuring social value. The metric is what sits behind the UK Social Value Act 2012 and Modern Slavery Act 2015. The organisation works with more than 20,000 members and has measured the social value of organisations with a combined value of £2.7 trillion
Given the rise of modern slavery and exploitation of vulnerable people globally (especially within Asia), CPO’s, leaders and progressive companies need to be more active. We need to discuss this at our conferences and measure progress every year.
Currently Thailand, China and Japan are going through an anti-corruption push. This topic should always be on the agenda at major procurement conferences to share insight, provide support and continue to show leadership to eliminate criminals from our profession.
Total transparency of procurement and supply chain is the future and will reduce the opportunity for fraud. Technology is helping us achieve this high standard of accountability.
3. Business Analytics
Procurement has an amazing opportunity to create significant commercial value with world-class analytical tools and technology that can provide 360-degree visibility and business reporting of your corporate data.
We can be seen as key facilitators and leaders by adopting cloud computing, data analytics and machine learning which have been instrumental in recent times. These areas will continue to hold strategic importance as procurement becomes increasingly viewed as trusted business advisors.
4. Disruption technologies – The Internet of everything and 3D printing
Much has been written on these topics so I won’t recover them much, i.e. (read: http://www.topfunded.com/iot/internet-of-things-iot-growth-in-southeast-asia/)
Technology is driving significant change in business and all things. It would be great to hear from procurement thought or industry leaders on the topic. Both will have major impacts on procurement and supply chain in the future.
Many thanks to Market Dojo for giving Procurious permission to republish this article.
Cost plus (definition, adjective): “relating to or denoting a method of pricing a service or product in which a fixed profit factor is added to the costs.”
You could argue that every item or service sold is cost plus. In other words you need to make a profit to stay in business so everything purchased has to have a margin added so the final sale will be more than the sum of their parts.
The area of cost plus that I would address is where the client has agreed to buys products or services from a supplier and the final price for those bought off the contact is not known.
This unknown value will be created from a cost plus relationship to ensure a profit is maintained. However, if the client continues to pay, where is the incentive for the seller to ensure they are procuring the goods or services at the market price.
Surely the client should be ‘on the ball’ and focus on year on year cost reductions although many times complex and varied builds on a contract prevent this.
‘Should cost’ exercises would be a useful tool in a perfect world if we all had the time but isn’t that why you are together with a trusted supplier? Surely the supplier would focus on procurement costs so their sales exercises would be more competitive?
You would think so, but what if the market is not so competitive. In fact, does the cost plus model mainly arise in non-competitive markets dominated by larger players?
If this is the case you could draw the conclusion that procurement is not being driven in the right direction due to a number of unbalanced forces (cost plus, lack of competition, lack of customer focus). This bad practice could easily spiral downwards.
Will increased globalism be enough to shake up these suppliers or will the customers drive better value? Either way it often seems that procurement in these type of industries can be an afterthought that is of little importance.
Viva la procurement revolution.
Market Dojo is a pioneering software-as-a-service (SaaS) company that offers professional, intelligent and easy-to-use online negotiation software and accessible eSourcing software. Find out more at www.marketdojo.com.
Ahead of the upcoming CIPS Australia event, Procurious caught up with Dr. Karen Morley, one of the event’s distinguished presenters. Karen has extensive experience working with organisations, teams and individuals to increase their leadership effectiveness.
Over her career Karen has led a broad range of leadership development, succession and talent management assignments. She emphasises evidence-based approaches tailored to suit the organisation/firm’s context.
Today Karen is talking about what makes great procurement leaders and how to successfully move technical procurement experts into managerial positions.
Procurious asks: At the upcoming CIPS Australia conference you will be discussing a piece of research you produced for The Faculty that looks to distinguish the very best CPOs from the rest. What would you say are the traits that separate the great CPO’s from good CPOs?
Karen: That’s right, I will be presenting the findings of our X Factor research. The report addresses the importance of great leaders in the procurement function.
To answer your question, I would say the two things that make the great CPOs stand out from the rest are their interpersonal leadership attributes and the way they go about linking these relationships to the commercial direction of the organisation.
It is clear that the really outstanding CPOs nail commercial leadership. This stems from the fact that they possess an in-depth understanding of the whole business, not just procurement. They are engaged across the entire organisation and are speaking to other functional leaders on a strategic level. They are engaging with the board and CEO on what has greatest strategic value, and they interpret this through their procurement initiatives.
Once that strategic dialogue has been established, the next critical step is to ensure these messages are reaching staff further down the chain. It’s here that interpersonal skills become critical. Great CPOs have very close relationships with the people that report into them. They are able to align the goals and expectations of the business to activities of their staff.
Procurious: Can you provide any insight into what difference these ‘great CPOs’ can make for their organisation?
A lot of organisations are still focused solely on cost cutting. It’s a vital part of what procurement teams do and this will certainly continue to be the case. I think the difference that really great CPOs make is around moving discussions and activities to a more strategic level. They are not simply focusing on what can be cut out, but where savings can be made and value added at the same time.
I think that’s a pretty rare mindset. A lot of procurement leaders talk about value, but only a few can actually deliver it.
The costs cutting initiatives will always be there. It’s something that you can do successfully for a couple of years and come up with some impressive saving numbers. But, the challenge comes in finding what’s next. Once you’ve delivered those initial savings, then what are you going to do? The great CPOs realise they need to understand the business broadly and create close relationships across functions to see where procurement can best add value.
In a January 2015 report, The Smart Cube discussed key trends in corporate procurement practices, including managing increasing procurement-related risks, establishing alliances with key suppliers, and leveraging data analytics. The report also highlighted specific trends in the market that have the potential to increase or decrease in prominence.
This article continues the conversation with a focus on several key aspects of procurement policy and practice: centralised procurement, category management, stakeholder engagement, and better implementation of total cost of ownership (TCO) as a strategic sourcing tool.
Adoption of Centralised Procurement
Many organisations are restructuring their procurement departments to favour centralised (where both decision-making and purchasing are conducted centrally) or center-led (wherein overall policy is centralised, but some freedom is given to local departments to make sourcing decisions) sourcing of both direct and indirect categories.
As shown in Figure 1, executives participating in KPMG’s July 2014 Procurement Pulse Advisory Survey foresee a shift in the structure of procurement organisations. Specifically,
Why is Centralised Procurement Growing in Popularity?
A centralised procurement structure offers several important benefits to organisations that want to increase competitiveness and efficiency. According to a January 2014 report by APQC, organisations with centralised structures experience:
While the numbers look promising, procurement policy must always be informed by the specific needs of each organisation. For a high-tech company, for instance, cost and efficiency of the procurement function may not be as important as the speed and flexibility offered by a decentralised structure. Yet several industries are using centralised sourcing, including these examples in global healthcare:
Establishing Stakeholder Alliances
Companies are developing more innovative supplier incentives and supplier relationship models to gain competitive advantage. As per a 2012–2013 survey of CPOs conducted by Capgemini, 30 per cent of executives believe that supplier relationship management (SRM) will be their key focus area in the future.
The UK-based supermarket chain Sainsbury’s has developed strong supplier relationships as a result of concerted long-term effort focused on improving service quality through collaboration suppliers, incentivising supplier innovation, and sharing best practices with suppliers. This transformation in stakeholder management practices has resulted in improved sales and profitability for the company. (Read more in the May 2013 study by State of Flux).
Leveraging Category Management
Category management is used by procurement organisations to improve both the effectiveness and efficiency of purchasing activities by restructuring sourcing around specific categories of expenditures. In fact, 57 per cent of executives in the Capgemini survey believe that the introduction or extension of category management within procurement functions is a current or future focus area.
The US federal government is one of the latest organisations to embrace category management. Their procurement function is set to be divided into 10 super categories of commonly purchased goods, including IT, transportation, travel, and professional services—categories that account for $277 billion of the total federal spend. Improved coordination of purchases and sharing of best practices across various agencies are expected to make procurement more effective for the government. (Learn more in the January 2015 White House memorandum).
Total Cost of Ownership: Gulf between Theory and Practice
A cornerstone of procurement management, TCO is the cumulative cost of owning, maintaining, and utilising a product over the course of its lifetime, and helps assess the “true” cost of a product instead of only its base cost. TCO should be a critical element of strategic sourcing; however, there seems to be a gap in the potential benefits of TCO and its actual implementation.
In the Deloitte Global CPO Survey 2014, only 24 per cent respondents planned to reduce TCO over the coming year. Meanwhile, in a survey published in October 2014 by BackerSkeie—a Norwegian executive search firm—only 21 per cent companies are leveraging TCO in an optimal manner, while 66 per cent have limited or no exposure to TCO. This simply highlights the void in the procurement capabilities of many organisations.
The Way Forward
These are only a few of the many important principles to consider when formulating one’s procurement organisation and its related activities. In assessing their fit, it is important for companies to consider their internal practices and organisational maturity. They also need to study the procurement practices of companies inside and outside their industry to gain a deeper understanding of policies that they should adopt.
By Ankit Abraham Sinha, Senior Analyst, & Sidharth Sreekumar, Assistant Manager www.thesmartcube.com
Which of these sixteen personality types fits you best?
Isabel Briggs Myers created the sixteen personality types with the help of her mother, Katharine Briggs, and the theories of psychologist Carl Jung. Since then, much research has been done into how each type functions at work, at home, and in relationships.
A recent post in the Harvard Business Review pours salt on the Myers-Briggs Type Indicator (or MBTI for short), saying:
“Myers Briggs—and I would argue any personality assessment—is neither valid nor reliable. These tests identify a black and white version of people, a reduction of who they really are. They offer us the illusion of understanding at the cost of truth and freedom. Sure, they may make people more comfortable (‘Oh, I understand you now’). But it’s a trick.
It continues: “Self-assessments, by definition, reinforce a person’s self-image. You tell the assessment what you think you are like and then the assessment tells you what you are like. Which, of course, would incline you to think they’re valid. But they’re just telling you what you told them… Personality tests reinforce our blind spots.”
Not to be downhearted back in July we asked the Procurious community whether they thought there was a ‘typical’ Myers Briggs profile for procurement pros. There’s been 33 answers to-date, so it’s clearly a talking-point among members.
We’ve helpfully wrapped-up the results thus far (25/08)
ENTP 9, ENTJ 6, INTJ 5, ENFP 2, ISTP 2, ENFJ 1, ESTJ 1, INFP 2, INFJ 2, INTP 1, ISFJ 1, ISTJ 1
It appears the most common trait is ENTP and from 33 responders E is included in 19 out of 33 profiles.
Things to consider
Mike is just one of many who has asked an interesting question on the findings. He wants to know:
“Do you think you have a different profile depending on the role your fulfilling in the company? I run a consulting business and recently created a new commercial model for procurement, so maybe its no surprise I am currently a ENTP but I haven’t always been one.”
A few of you have picked-up on the changing classification too. Monica Palacios said: “I agree with the idea that we evolve with our roles. I took it at the beginning of my career ENTJ; some years before I found it was ENTP.”
Glen Lovett: “I’m an INTJ but given the changing face of procurement I would suggest that ‘E’ is becoming more valuable.”
Chris Roe notes: “We seem well represented for a type that makes up 3 per cent of the population in this sample…
I guess making decisions based on logic and facts rather than emotion is a desired trait!”
Judging by your individual test results there just may be some common traits among procurement professionals after all. Matt Cockfield exclaims: “Wow, what a great question. I’m not sure I ever thought of connecting the two — MBTI with the procurement discipline. Apparently, there is a correlation here!”
Do you see value in such tests, or are you like Iain Wicking who claims they’re just “a superficial way of assigning traits… I would not take it too seriously.”
Research shows Accounts Payable Automation is a top trend when it comes to improving the procure-to-Pay cycle.
With enterprises realising the continued inefficiency of mostly manual, paper-based Accounts Payable (AP) processes, new research provides insight to the top trends for improving the procure-to-pay cycle.
According to “Total Transformation: Trends and Value Drivers for AP and Procurement,” written by Ardent Partners, top performing AP functions are indeed driving greater process efficiencies and delivering strategic value to the enterprise. Leading the way is the continued focus on AP automation. 83 per cent of respondents to Ardent’s survey believe that within two years, AP processes will be largely automated.
“Ardent Partners research has shown that automation is a critical element for enterprises seeking to drive value across their procure-to-pay processes,” said Andrew Bartolini, Chief Research Officer. “When P2P processes are linked and automated, procurement and AP groups can operate on a platform that promotes collaboration, visibility, and efficiency.”
Ardent found that following AP automation, stronger AP and procurement partnerships, evolving AP staff skillsets, and greater involvement in working capital optimisation are the top trends for greater efficiency. The research suggests that organisations of all sizes must leverage the strategies and technologies that can jointly transform AP and procurement, leading to significant competitive advantages.
“While many organisations are realising the benefits of AP automation, that is just one part of the equation,” said Jim Wright, Vice President of Sales at Corcentric. “This important research suggests that a more holistic approach and breaking down silos between procurement and AP is what will ultimately drive down costs and inefficiencies.”
One of the key topics at the Big Ideas Summit 2015 was the concept of innovation in procurement and the supply chain. Many organisations look for innovative solutions from suppliers, but how easy are these to come by? And are suppliers rewarded for this?
Saying that innovation is a key pillar for an organisation, and actually being able to successfully embed an innovation strategy, are two very different things. Supplier innovation can be tricky to nail down and many procurement departments are not looking in the right areas.
How it can work
For some organisations, it’s about working with the right suppliers. Craig Muhlhauser, CEO of Celestica, spoke at the Procurement Leaders ‘Ovation’ event in July, and spoke about how he brings about innovations for his organisation and for the companies they supply to.
According to Muhlhauser, both organisations need to be open to change in ways of working and ask questions in order to understand the other party’s point of view. Where procurement is concerned, Muhlhauser believes that the profession needs to be less prescriptive to suppliers, leave specifications more open and use the expertise of the supplier to uncover innovation.
This collaborative working relationship has successfully borne fruit across a number of industries. In the automotive industry, Brose, a German-based supplier, worked closely with its customers to produce a new door unit, way ahead of its rivals in terms of quality and innovation.
The key for Brose had been procurement on two sides – their customer, but also internally in order to allow them to build collaboration and trust with their own suppliers to make innovation a reality. Supplier collaboration has also helped to improve supply chain sustainability in the NHS in the UK and led to GAP Inc. being named the winner of the GT Nexus Innovation Award 2015.
Both positive examples have highlighted the work of procurement in supporting the innovation.
Why it fails
Failure to generate innovation, or sustain innovation in the supply chain can come down to a number of factors, although it would be hard to pinpoint one in particular as a key culprit.
A common issue can be with one or both parties not fully engaging in the process. In the Brose example, one supplier involved had to make a financial commitment before a production contract was signed. Payments like this are certainly not common, but here help to build the commitment and trust between the two parties.
Strategy is another common issue. Where strategy is too rigid, or where the strategy is simply pointing to procurement savings, innovation will suffer as the parties in question have approached it with the wrong mind-set. Where innovation is seen as a step to future learning and opportunity, research has shown that it is more likely to endure.
The other side to the strategy argument is that often procurement functions do not formalise the innovation process. Formal programmes are often reliant on senior stakeholder buy-in, something that procurement may struggle with if they lack credibility in the organisation.
While formal programmes and investment can help to drive innovation, it’s worth remembering that rewards or incentives for innovation will help the process. In some cases, procurement has been tasked with saving money, so spending more to achieve innovation is not rewarded.
Suppliers who feel like they will be supported and rewarded are more likely to go the extra mile and suggest innovation to procurement. Building incentivisation into contracts can help to formalise the relationship and underline the support on both sides.
The Real Question
“Is procurement open to innovation?”
That’s the real question. There are good examples of innovation in procurement and supply chains, but plenty more where there is inactivity or hesitance. Have we as procurement professionals been painted into a corner, where savings and the bottom line are the only things that are considered?
We better hope not, or, as Craig Muhlhauser argued, it’s adapt or cease to exist.
Have you got any good examples of innovation in your procurement department or supply chain? How do you encourage it? Let us know on Procurious!
Here are some other stories that are vying for our attention this week:
FTSE edges towards 6,000 after China shock
Read more on City A.M.
Hills chief defends close links with Woolworths’ Masters hardware chain
Read more at The Sydney Morning Herald
Gap to test ‘Fast Fashion’ model in select stores
Read more at The Wall Street Journal
GCC airport construction 2015-19 to grow by 8 per cent
Read more at Arabian Supply Chain
NHS competition could waste millions says Labour, after Care UK complaints
Read more at The Guardian
In his video Robert Pease, Commercial Director for the Faculty, talks about the shift in procurement terms of the increasing demand for high-quality, innovative suppliers, against the supply of these.
Robert goes on to talk about the importance of building relationships with these suppliers.
It’s been a while since we wrapped up some of the discussions on Procurious, but the questions and answers have still been coming in thick and fast.
This month, we’ve selected three of our most popular discussions, covering topics including attitudes and skills of procurement professionals, eSourcing and the chance to revisit our career choice.
What is more important, the right attitude or the right skill set?
This question really caught the eye of the community and has great resonance in procurement and supply chain given all the recent talk of talent gaps and recruitment struggles.
For many employers, finding the right person is more than the skills and experience that they possess, but ensuring that the candidate will be a good cultural fit. But which of these is more important?
The common consensus in the community was that, in a straight choice, it was attitude, rather than skill, that was more important. James Ferguson struck a chord with the belief that “new skills can be taught, attitude can’t”.
The right attitude allows the right skills to be learned more readily, with the individual willing to learn and helping with the overall development of the team too.
However, Darren Niblo and Monica Palacios had the opposite stance. Darren argued that attitudes could change over time, while Monica stated that it was dependent on the seniority of the individual, with executives needing the skills (i.e. understanding the environment) in order to succeed.
What’s the first thing that comes into your head when you hear the word ‘eSourcing’?
This is another hot topic, with procurement increasingly moving towards working electronically with new technology. However, a lack of clarity can sometimes inhibit the use of technology or systems, even when they seem very straightforward.
The most popular answer from the community was from Samantha Coombs, whose definition of eSourcing was “Procure-to-pay all in one platforms, with bolt on contract management blocks as and when required”, also stating that the process was “revolutionising procurement globally”.
Other key themes associated with the concept of eSourcing were:
Two answers also highlighted the networking opportunities eSourcing presented, either speaking to an existing contact or inviting new/unknown suppliers into the RFx process.
And one thing we can all agree on is that it is a positive move away from endless printing, photocopying and envelope stuffing!
If you were 25 again, would you follow the same career path?
Tom told Procurious, “If I was 25 again, I couldn’t think of a field that I would personally find more fascinating than a corporate career in procurement and supply chain.”
Perhaps unsurprisingly for a community of highly motivated, intelligent and progressive procurement and supply chain professionals, the verdict was unanimous – we would all make the same choice given our time again.
With more people actively seeking a career in procurement, the number of individuals ‘falling’ into the profession is decreasing. And with the opportunity to be an architect of change and drive business efficiency, mentor new entrants and push forward the boundaries of the profession, why wouldn’t you want to work in procurement!
Once again, we’d like to thank you for being part of our community and sharing your knowledge with your peers and colleagues.
If you have a burning question you would like answered, head over to the Discussion forum and pick the brains of your fellow professionals.