All posts by Allison Ford-Langstaff

Change In Procurement – Who Are The ‘Change Makers’?

Capturing collective experience and sharing stories from procurement leaders on making change and progress will help shape the profession for the future.

Change-Makers

I remain impressed by those who have driven real and substantial change in the way procurement is done in their businesses. There were some great examples at the recent ProcureCon conference, from the centralisation of both operational and transactional procurement activities by AstraZeneca, to initiatives within Ericsson, Philips Lighting and Shell to name a few.

It’s also understandable, and not a little depressing, to see how many of today’s procurement problems haven’t really changed over the last 25 years. These issues continue to challenge procurement leaders, hindering progress and change.

Change Makers

What remains perennially powerful, however, are the stories we share about what has – and hasn’t – worked so well. Our collective experience helps propel our profession further and faster into an ever turbulent and challenging future. Our people expect us to help prepare them for this path. Our suppliers expect us to be more efficient so they can improve their terms, and our business partners expect us to anticipate, respond and improve the value gained from external suppliers.

To learn from those procurement leaders with tales to tell about the changes they have made in the function we will be running a regular ‘Change Makers’ profile. Our aim is to help capture collective experience and invite your responses comments and contributions to create an essential debate for our industry.

To start with we have asked a few of the Procurement leaders we know well to share their stories by asking a few questions about the biggest problem they had with the way Procurement was operating.

Richard Stewart, Group Head of Procurement, Smiths

Change Makers - Richard StewartWe asked Richard Stewart, Group Head of Procurement for FTSE100 company Smiths Group, to share his experience of creating group procurement expertise in a de-centralised business.

Smiths is a decentralised global technology company with five divisions: John Crane; Smiths Medical; Smiths Detection; Smiths Interconnect; and Flex-Tek. The changes Richard was implementing covered all five of these divisions, no mean feat in a global operation.

Improving Group Procurement

“When I joined Smiths in 2013, my remit was to work with the five divisions to improve procurement across the group. We believed that there was good scope to create greater financial returns from procurement, but also to help us manage risk and improve levels of expertise.

“Smiths is a highly decentralised global technology company, with five different divisions, operating in different markets. So the biggest issue initially was creating connections across the individual teams to work together as a function.

“A key enabler for this was the leadership team. They work together to set direction for procurement across the entire organisation. An early step was to bring this team together to develop a roadmap for the next 2-3 years. As part of this, we invested in key software tools, market intelligence, and spend analysis. For instance, we closely watch volatile commodity prices. Not to mention cost modelling, driving take-up of e-auctions and, in particular, standardised scorecards for all procurement.

Creating Shared Understanding

“A core part of our programme was category management training that involved 90 per cent of colleagues (around 100 people). This has helped helped us foster a procurement community with a common language, which has been vital. Overall, we are aiming to create a framework for procurement,  and a shared understanding of best practice.

“Of course, it’s all a learning experience too – it is important to push forward new ideas but you also need to adjust the speed of proposed change to the pace of the organisation and this requires patience.

“Reflecting on the first two years, I’m pleased with the progress we are making and we have had great support from senior leadership. We’re now aspiring to build links between procurement and revenue growth for the next phase of our development – that’s our ambition anyway.”

Common Language and Shared Experience

Working with Richard we have seen how he has tried to strike the balance between maintaining divisional procurement autonomy, expertise and passion, and leveraging group purchasing power and expertise widely across the different divisions of Smiths, with different cultures and business models.

Using a suite of procurement enablement tools and by implementing a category management toolkit and training he is creating a common language and a set of shared experiences which will maintain the existing strengths but will drive consistency and the ability to collaborate to leverage power and expertise across common categories.

This way of building momentum for change, and a group approach, appears to sit well with Smiths group corporate culture and strategic objectives.

 

Future-Purchasing-Change-MakersFor more on the ‘Change Makers’ series, check out Future Purchasing’s blog.

If you would like to appear in the Future Purchasing ‘Change Makers’ series, please contact Anna Del Mar for details here.

Is There A Case For An Annual Price Decrease Letter?

The Consumer Prices Index (CPI), the UK’s key measure of inflation for goods and services, was negative for two consecutive months in September and October 2015, and recorded a tiny increase of 0.1 per cent in November 2015.

PriceDecrease

This article was originally published on Future Purchasing.

This is a world away from when I first walked into a purchasing department in 1982. Back then the inflation rate was 8.6 per cent and older buyers could still tell war-stories about the eye-watering 24 per cent inflation rate in 1975.

As L. P. Hartley said in his novel The Go-Between “The past is a foreign country, they do things differently there”.  And, of course, suppliers and buyers did do things differently to deal with continually rising labour and raw material prices.

One of the main differences was that every supplier sent an annual price increase letter (and we were fortunate if they limited themselves to just one increase a year).  In the weeks leading up to the arrival of the letter there would be a phoney war of leaked information and rumour from the suppliers until the fateful day, usually just after the supplier had settled on a pay increase for their workers, when the post trolley would come rattling around the smoke-filled office and deliver the bad news to your in-tray. Typically there would be a couple of paragraphs highlighting major cost rises in raw materials, energy and labour, followed by an explanation of how the supplier had sought to minimise these increases before the sting in the tail: “therefore, we have no alternative other than to apply a price increase on all corrugated cases and trays of 6.5% to be effective in 4 weeks time”.

Both parties knew that the letter was simply a signal to let negotiations commence. For me it was also a signal to review volume allocations between suppliers, look for alternative sources and trial different specifications. Then, after a few rounds of negotiation, we would settle on the new, usually higher, price for the coming year.

The idea of an annual price increase has been consigned to history. But given the recent deflation statistics is there a case for an annual price decrease? Suppliers are still making capital investments in manufacturing plants, implementing quality programmes and achieving manufacturing efficiencies to reduce costs and increase margin, so why not?

These days, whenever buyer requests for a price decrease are reported in the media we invariably read about “strong-arm tactics” from “bully-boys” who have sent an “extraordinary letter”. But why is a price decrease so abhorrent when it was perfectly acceptable for suppliers in the past to demand price increases?  Is it simply that we have some long-held conviction that prices only increase over time? I know that when the more sophisticated suppliers receive price decrease letters today they view them as a call to the negotiating table (just as I did back in the eighties) and, perhaps, an opportunity to increase volumes or secure longer agreements.

There are less contentious ways of securing short-term price decreases and certainly better ways of securing long-term value improvements from suppliers but there is a little bit of me that wishes the annual price decrease letter was a more acceptable part of the toolkit – if only because I had to field so many of the annual price increase letters all those years ago “in a foreign country”.

We’d like to hear your views on the best ways to achieve short-term price savings without creating bad press.Let us know your thoughts in the comments below and share using the social media icons below.