All posts by Bertrand Maltaverne

The Accidental Procurement Engineer

What makes the exciting world of procurement the perfect place for a curious engineer?

Procurement engineer

Some people begin their procurement careers with a big bang. Others start theirs with lots of sweat and toil. I started mine with a freak event. I was an Accidental Procurement Engineer.

Since this freak event, I have never looked back. I went on to have a fifteen-year career that would take me across North America, the Middle East, Europe and Asia. Now I work on improving the Procurement experience with the software solution, POOL4TOOL.

Procurement is an ideal career for an engineer at the beginning or in the middle of their career, especially if you’re looking for a little more from life.

Procurement by Accident

Let’s start with the freak event. I was working for a large multinational company headquartered in France. My job was based in Turkey and was technical. It also happened to be the first job I had after the completion of my engineering degree in France.

Following Turkey’s 2001 economic crisis, the stock market crashed and the interest rate shot up to 3000 per cent. There was an immediate slowdown in our business activities and an immediate impact on my income.

The Turkish Lira lost approximately 50 per cent of its value against foreign currencies which meant that, in one day, I had lost 50 per cent of my salary against the French Franc.

These circumstances, of course, made me consider leaving Turkey. I got help from the local management who took my CV and forwarded it to their network in the company.

Among the proposals was the offer of a position in Procurement for manufacturing plants in France. I knew nothing about Procurement so I rushed to the office of the Purchasing Manager in the Turkish plant and within two hours had made my decision.

I was going to become a Procurement professional! It was a perfect career move: an ideal profession for the Curious Engineer.

The Curious Engineer

In recent years it has become evident that Procurement is an ideal professional path for engineers. Many people choose to embark on this path at the start by studying Supply Chain Management.

More and more mechanical engineers are coming into the profession and the Head of Material Flow & Logistics at the famous Fraunhofer Institute has even campaigned for there to be educational opportunities for Procurement Engineers.

What makes Procurement a great career path for engineers? The field of engineering attracts curious people and, whilst many engineers are curious about how things work, some have an even broader scope of curiosity.

They are interested in a wide range of fields and want to pick up skills outside of what is normally associated with engineering.

Procurement and Supply Chain gives these people the opportunity to exercise their technical knowledge but also allows them to follow market and business developments and develop networking and people skills. It’s a place to use both your right and left brain.

The Pros of Procurement

1. Procurement is a Great Place to Use Technical Knowledge

A technical background is a clear advantage in direct procurement, in fields such as discrete manufacturing. It’s important to understand how your company’s product is made and what material properties and specifications are needed and why.

Moreover, a technical background gives you insight into quality management and standards. Be it consumer goods or automotive industries, understanding quality standards is useful when it comes to sourcing parts and selecting the right suppliers.

2. Procurement Satisfies Your Analytical Side

Engineers are trained to be analytical and data-driven. We design and then we implement – with analysis being a key preparation process of the design. Procurement and supply chain produces a vast amount of data to analyse.

In this profession, you collect and analyse data to then be able to make optimum sourcing decisions, be it operational or strategic. You also need to calculate hidden costs and incorporate business priorities and market behaviour into your decisions.

3. Procurement Takes the Curious Engineer Into an Exciting World

Procurement gives you the chance to add to your knowledge and skills well beyond traditional engineering. It requires you to hone your people and networking skills.

This means managing not only suppliers, but also relationships with other departments. It requires sales skills: selling change and ideas to your colleagues across the organisation. And, of course, a whole new set of skills comes in with Change Management.

I’m a huge advocate for engineers considering procurement careers as a serious option. It will be interesting to see if more educational and training opportunities come up for this kind of talent in the future and how that changes peoples interest in the function.

Bertrand Maltaverne is Senior Business Consultant and Product Marketing and Content Manager (Int’l) at POOL4TOOL. POOL4TOOL is the market leader for electronic process optimisation in direct procurement. 

Indirect & Direct Procurement: Right Tool for the Right Job!

Too often organisations use the same tools for direct procurement as they do for indirect. It’s time to start using the right tool for the right job.

Direct Procurement

This post was first published on POOL4TOOL.

Let me start by saying what this post is not about.

It is not about Direct vs. Indirect. It is also not about what is more critical and strategic between Direct and Indirect.

Things are more complex than a Manichean division of Procurement into two categories. If category management was just about that split, we would know it. Wouldn’t we?

This post is simply about common sense!

Serving Different Markets

All the above does not conflict with saying that there are specificities to both components of the Purchase spend. Especially when looking at industrial companies.

One area of differentiation between Direct and Indirect Procurement is related to the market they serve.

  • Indirect serves mostly internal needs, a.k.a. the employee
  • Direct serves external needs, a.k.a. the customer or the consumer. Though, of course, the difference between B2B and B2C is becoming increasingly blurred.

Both markets have their own challenges.

In indirect, the diversity of internal customers is quite important (travel is an example) and that makes stakeholder management quite difficult.

In Direct, stakeholders are more easily identifiable as they revolve around the product (this would typically be R&D and manufacturing). But consumers are more diverse and volatile, which requires special attention as, in the words of Peter Drucker, “the purpose of business is to create and keep a customer”.

Product Lifecycle

Another difference is the  relationship to the product lifecycle.

R&D and New Product Development (NPD) are intrinsic to Direct Procurement. This is a bit less of a reality in Indirect, even if some indirect parts of the spend are related to complex projects very similar to NPD, for example, real estate and facility management.

Some companies like Apple have very complex projects to manage in that area, for example their new headquarters or their retail spaces. As retail spaces contribute to the overall customer experience, is that Direct Procurement or Indirect Procurement?

Supply chain management and execution is also an area of differentiation, as direct supply chains tend to be more global and complex.

Right Tool for the Right Job

This post is about using the right tool for the right job!

Each area has specificities, so you have to use specific tools and processes for the job. In terms of Direct Materials Procurement, some of the specificities translate into specific capabilities that modern platforms should have, as Michael Lamoureux from Sourcing Innovation explained in a recent post.

The thing is that none of the Indirect tools have all these capabilities. And neither they should, as most of them are irrelevant for a great part of indirect spend. As Lamoureux puts it in the conclusion of his white paper available for download here.

“The fact of the matter is that you wouldn’t use a Chihuahua to herd sheep, so why are you trying to use a mouse to herd cats (which is mission improbable anyway)?”

Why Elon Musk Thinks Supply Chain is “Tricky”

If Elon Musk describes something as tricky, then you know that it’s something organisations should be paying close attention to.

Elon Musk

When someone who:

says something is “tricky”, it means something!

“Tricky” Supply Chain

Elon Musk, founder of a number of high profile companies, including Tesla motors, PayPal and SpaceX, was interviewed recently at Code Conference 2016.

In the interview, Musk tells a couple of stories and anecdotes about Tesla’s Supply-Chain that highlights how things can derail fast and put your production to a halt.

It helps to illustrate the role that procurement can, and must, have in anticipating and preventing such situations. Also, in minimising impacts, and if the worst happens, to react quickly, and get back to normal as fast as possible.

You can watch the whole interview below (I recommend you do). If you prefer to go directly to the part I am referring to (1 hour 10 min into the interview), it is here.

Has Procurement Got Its KPIs Right?

As the Procurement function evolves, its KPIs remain old-fashioned. Bertrand Maltaverne explores the surprising results of a Procurement KPI survey.

Procurement KPIs

In a rather interesting coincidence, just as ProcureCon Europe was releasing a benchmarking paper called Procurement Challenges, we released a white paper that also focuses on one of the most fascinating challenges in the industry: The Direct Material Procurement Challenge.

More than a coincidence, this is a sign of the times as the role of Procurement and its position in organisations rapidly becomes quite a recurring hot topic.

Before going into the specifics of ProcureCon’s report, the challenges that Procurement faces stem almost entirely from the transformation Procurement  is going through as a function.

Value vs. Cost reductions

“As businesses emerge from the recent recession into a fragmented supplier ecosystem, a normal approach to creating value through cost saving alone is no longer relevant.”

ProcureCon’s report is not the only one to highlight the current gap between a value-­based Procurement approach and the actual KPIs that most organisations track, specifically:

  • 91 per cent of surveyed organisations have cost savings as a KPI;
  • 76 per cent have cost avoidance as a KPI.

KPIs for value metrics like quality, risk, and cycle times languish respectively in 5th, 8th, and 12th place! Fewer than 50 per cent of companies track these measures.

More troubling: only 30 per cent track Procurement ROI as a KPI. ROI (Return On Investment) or VFM (Value For Money) is actually the main KPI that all organisations should aim for as it synthesises the ratio between value generated and energy or resources employed. Or, in other words, a measure of the effectiveness and efficiency of a Procurement organisation.

Supplier Management Core Procurement Activity

Among the many interesting insights in the report, there are two aspects related to supplier management and stakeholder management that are kind of interesting. They both relate to the qualification of suppliers and are quite revealing.

Procurement still operates too much in a silo

“Procurement typically take the lead when it comes to the qualification of contractors and suppliers during the bid process.”

Decisions regarding sourcing have to be cross-­functional. Not only to ensure that all aspects have been looked at but mostly to ensure adoption of the decisions. Involving other departments in the decision-­making process is critical.

Even better, involving them in the early stage of defining a category’s strategy is vital to define the value that they expect suppliers to deliver. This may not be low prices alone.

Procurement still sees suppliers as trading partners, not business partners

There are also a couple of surprises when it comes to the dimensions Procurement looks at when assessing new potential suppliers. We assume this also reflects the KPIs tracked afterward.

Not surprisingly, financial stability comes first. As a former purchaser, I can say this fits with the practices I have seen on the field. This is not without inherent risk: “conducting a single financial stability check (e.g. D&B check) before engaging a supplier could provide a false sense of assurance.”

More surprisingly, CSR-­related themes like sustainability and safety stand squarely in the middle of the list. Around 50-60 per cent of respondents say they include these factors in their assessments. A notable exception is diversity, which comes last on the list with only 20 per cent of respondents taking this into account.

Issue of Supplier Innovation

But, very surprisingly, competent advice is a criterion that is at the bottom of the list, covered by only 29 per cent of respondents. This is especially surprising considering the focus on the role of Procurement in organisations, and its impact on innovation. The lack of attention on this area is rather troubling.

As we understand it, if organisations do not measure if suppliers could be a source of new ideas and suggestions, it means that they do not expect suppliers to be able to participate in their innovation process. This quite a self­-centred view of innovation!

In conclusion, there seems to be a consensus within the Procurement community that Procurement is not in the place it deserves to be, and that, in the future, its importance will grow. For example, ProcureCon’s report says that 62 per cent of respondents to their survey estimate that Procurement will move towards making board-level decisions in the next 3 years.

But, as far as their report and many others show, there is still a gap in capabilities and delivery that needs to be bridged before we get there.

Now is the time for Procurement to evolve!