Category Archives: Generation Procurement

Procurious talks to Kylie Towie – ‘Procurement Leader of the Year’ 2015

Procurement Leaders 'Procurement Leader of the Year' Kylie Towie

They say that Texas is big. If you’ve been to Western Australia (WA) you’ll know that ‘big’ is a relative term. Western Australia’s size is so vast that Texas would fit within its boundaries three times, with still enough room left over for California and Connecticut to come visit. For the Europeans out there, Western Australia is as big as France, Germany, Spain, Poland, Italy, Greece, Portugal and Ireland combined.

It is from this vast part of the world that the 2015 Procurement Leader of the Year hails.

Kylie Towie is the Chief Procurement Officer of WA Health, the government agency responsible for providing health care to this enormous state and was recently awarded the prestigious title of ‘Procurement Leader of the Year’ at the Procurement Leaders Forum in London.

Kylie graciously took some time to catch up with Procurious to discuss her achievement.

Procurious: Kylie, first of all, congratulations. It is a huge honour to have been recognised as the Procurement Leader of the Year. Can you tell us what it means to you to take out this coveted award?

Kylie: Thank you. To be completely honest, it was a huge honour just to be nominated for the award. The other nominees (Kellogg’s, ITV), along with companies in the room such as Kimberley Clark, Unilever and IBM are global industry leaders and to be mentioned in the same breath as such high calibre organisations was a great achievement.

In terms of the award itself, it is a fantastic feeling to know that the work we’ve been doing at WA Health not only positions us as a leader in the Australian public sector (the department has also been recognised for it’s performance domestically), but is seen by the profession globally as something that is contemporary and leading the way in transformational procurement.

Procurious: Can you give us some background to the projects you’ve been working on at WA Health?

Kylie: My tenure at WA Health hasn’t been a long one. I was parachuted in, back in January 2014, to address some identified issues with the department’s procurement processes.

My first task was to establish a picture of the WA Health procurement landscape. Despite an organisational budget in excess of $8 billion (AUD); there wasn’t a clear view of what was happening from a procurement perspective within the organisation.

The department was also in the midst of constructing two new world-class hospital facilities at a cost of seven billion dollars. So procurement and spending was at the front of everyone’s mind.

When you’ve got programs of that magnitude, it clearly puts pressure on the procurement environment. For us, it was a matter of understanding and determining the levers and mechanisms we could utilise, to ensure the business’s strategic goals would be achieved.

Procurious: You’ve just mentioned that you were able to link procurement activities directly to organisational goals; can you expand on that? 

Kylie: At WA Health, we refer to procurement as business leaders and strategy leaders rather than procurement leaders. We aim to act as enablers to ensure the organisation meets its business objectives.

I have found that if you spend too much time ‘talking procurement’ you quickly get labelled as ‘back office’ rather than being viewed as a strategic leader.

The way that I see it, procurement underpins any business decision you make. Any business strategy requires a solid procurement strategy to sit beneath it.

As procurement professionals, it’s our job to lift the conversation up a level. If you start to talk about business levers, value propositions and achieving strategic objectives rather than discussing supply, invoicing and cost savings, you’ll quickly change perspectives about the function and the value it can bring to an organisation. By making simple changes to your dialogue, you’ll find that business partners will see you in a very different light.

Procurious: How did you go about delivering the transformational change program at Western Australian Health?

Kylie: Stakeholder engagement was critical. Doctors, nurses and clinicians are rightfully concerned with one thing: Better patient outcomes. At times, business and procurement processes can be seen as a burden or a roadblock to health professionals getting what they need to do their jobs. Obviously in health, the ability to get the right equipment or product at the right time has the potential to save lives. It was critical, that in order to be seen as enabler, rather than a roadblock, we engaged closely with these practitioners.

At the beginning of the transformation process, I met with a number of the most senior clinicians from across the state to discuss their problems and determine how, with smart procurement, we could help to solve them.

I found that by shifting our conversations back to the patient, I got immediate buy-in. Everyone at WA Health is working towards better patient outcomes and a healthier Western Australia, that’s our modus operandi. So now, as a procurement function, every time we make a decision, we ask ourselves “how does this serve our patients and our community?”

By asking these questions we are immediately aligning ourselves with our organisations goals and our community’s expectations.

Once we had an overview of what needed to be done, I set out to instil four fundamental procurement pillars that would guide our team through the transformation. The pillars we revolved our operations around were, governance, capability and capacity, training and education, and monitoring and evaluation. I have used the same framework to great effect in every procurement transformation I’ve run.

Off the back of these pillars, we identified 24 strategic recommendations, which resulted in 62 separate procurement improvement projects. We took a systemic approach to addressing these projects and finally delivered all 62 by the 19th of July this year (a remarkable 12 month turn around).

The transformation process means that WA Health now has a very robust foundation for procurement processes and activities with clearly defined roles and responsibilities. It’s also helped us improve our relationships with our providers and vendors.

Procurious: How is Procurement now perceived within WA Health?

Kylie: I think the critical success factor here is that we now have a seat at the executive table and are viewed as essential in the strategic planning of the organisation. This shows that we’ve earned the trust of the organisation. We earned this trust by pointing out where the department was exposed from a legislative point of view, but more importantly, by pointing out the holes in their fiscal buckets and, providing value through robust strategic business advice through procurement solutions that meet our organisations goals.

We were quickly able to point out where financial leakages were occurring. But more than that, we were able to suggest minor changes that stopped these leakages. We also quantified the dollar impact that implementing the changes had made to the organisation. Needless to say, after this, we found that we very quickly got the buy-in we needed.

As I mentioned earlier, another critical factor that lifted our perception was changing the way we spoke about our work. We’ve lifted the level of our conversations up to a point where we are now addressing real business problems faced by the department. By speaking their language, we’ve earned their trust. The procurement department is now seen as a trusted business partner at WA Health.

Kylie, once again, we would like to congratulate you again on this fantastic achievement and thank you for taking the time to share your story with Procurious. This there anything else you’d like to add?

Kylie: I would like to give some praise to my team here at WA Health. They have been remarkable; there is no other word for it.

We are only a small team, but they are the most outstanding, passionate, committed, driven group of individuals you are ever likely to meet. You simply can’t achieve things like this alone; you need people who share your passion and your drive. I really can’t speak highly enough of them.

Why are CPO’s scared of Social Media?

Why are CPOs scared of social media?

Noel Gallagher, he of Oasis fame, said earlier this year that musicians are “S**t scared of social media”. I think CPO’s are too.

This morning I carried out some rudimental research into the Twitter presence of the CPO’s of the world’s ‘market leading” brands. The results were telling. I searched Twitter for the CPO’s (or equivalent) at Apple, Procter and Gamble, Unilever, Coca Cola, GlaxoSmithKline, LG, Reed Elsevier and Shell and couldn’t find a Twitter account for any of them.

Its not just CPO’s either, it seems the whole C-suite really don’t care for social media. Research conducted by CEO.com and DOMO suggests that only 8 per cent of CEOs have a Twitter account and that a staggering 68 per cent of CEO’s have no social media presence at all! A CEO without so much as a LinkedIn account? Are you kidding?

Interestingly, Mark Zuckerberg is the only CEO in the Fortune 500 who is present across the five leading social media platforms, Twitter, LinkedIn, Google+, Facebook and Instagram (given he owns the last two, I guess he had a head start).

So why are CPO’s so anti-social (media)?

Sure, social media is a generational thing. Younger people ‘get it’ because they grew up with it and older people tend to struggle to understand it. Now let’s be honest, most CPO’s fall on the older end of the youth spectrum and hence are operating from a disadvantaged position. This however, is no excuse to ignore social media.

Like it or lump it, social media has become a critical part of our social fabric. It’s where we go to interact with people, inform ourselves and most importantly for businesses, it’s where we go to make our judgements and voice our opinions on brands.

We are judging you

While a traditional procurement leader may not see it, people are forming opinions based on their social media activity (or rather, lack thereof).

In the same way that recruiters will look at a candidate’s Facebook page to get an understanding of who they are; employees, suppliers, customers and shareholders are researching corporate executives to determine if they’ll make a good boss, business partner or are worthy of investment. Those that are not present on social media, miss the opportunity to put their best foot forward.

In the case of the companies I listed above, I’ve already established an opinion (a negative one) about them based on the fact that they don’t have a socially active CPO. In all likelihood, the opinion I have formed is incorrect and uninformed, but the lack of social presence has led me to subconsciously make certain assumptions about those departments and businesses.

The importance of socially connected leaders

To state the bleeding obvious, the business world has changed. Gone are the days of unknown senior executives ‘connecting’ with people through ads in local newspapers. The modern business environment is hyper-connected and driven by information.

Business executives are now seen as celebrities and the advent of social media has led people to expect access to celebrities. Richard Branson, Tim Cook and Mark Zuckerberg are the faces of their brands. The fact that their celebrity shines so bright also means they are incredibly effective marketing vehicles.

A company’s brand, as well as its understanding of its customer base and the market it operates in, now depend on its social presence. Put bluntly, there is an expectation, from customers, shareholders and the press that leaders will be active and accessible on social media.

Socially active leaders are better leaders

Not only is there an expectation that leaders will be active on social media, there is strong research to suggest that socially active leaders are better at their jobs. Brandfrog, a professional branding company, released a study in 2014 highlighting the importance of social media in the perception of company leaders. Below are some of the high level findings.

  • 75 per cent of US respondents agreed that CEO participation in social media leads to better leadership. This figure is up from only 45 per cent in the previous year.
  • 77 per cent of US respondents agreed that C-Suite executives that actively engage on social media create more transparency for the brand.
  • 83 per cent of US respondents agreed that leaders who actively participate in social media build better connections with customers, employees and investors.
  • 82 per cent of US respondents agreed that executive use of social media establishes brand awareness.
  • This one is particularly relevant to my Twitter research this morning; 77 per cent of US respondents believe that social media is a powerful tool for building thought leadership and enhancing the credibility of C-Suite executives with stakeholders.

The report lists many more stats, similar to these, that clearly spell out the case for CPO’s and others in the C-suite to start interacting on social media.

Get involved already!

Social Media won’t be optional in the near future – it’s not a passing trend. CPOs need to understand that in order to gain the respect of their clients, their industry and their staff, they simply must be present and active on social media. The good news is that the bar for CPO social media participation has been set so low that there is a huge opportunity to get in early and capitalise!

So here is my call out to the CPO’s – Sign up! Twitter, LinkedIn, Procurious, Google+, Facebook, Instagram. Who knows, you might even enjoy it, everyone else does!

5 Things Procurement Organisations Should Start Doing Now

By Kay Ree Lee, The Hackett Group 

Stop paying lip-service to your internal customers: Here are five things Procurement organisations should start doing now to meet and exceed internal customer requirements.

Five things Procurement organizations should start doing now to meet and exceed internal customer requirements

“Procurement needs to be more proactive versus the Business initiating projects”

“Procurement needs to be an integral part of the team”

“Consult the Business before implementing any process improvement”

“Procurement needs to issue the POs in a timely manner. Waiting 3 days on a PO is unacceptable”

These are some comments we’ve recently heard when conducting a Stakeholder Survey (Voice of the Customer) as part of a broader Procurement benchmark for different clients. We often hear that Procurement is focused on meeting and exceeding customer requirements, but benchmarks from Hackett’s Procurement database shows otherwise.

The chart below shares that 30 per cent of Non-World-Class (Non-WC) organisations rated Procurement as an Administrator while only 15 per cent of Non-WC organisations rated Procurement as a Valued Business Partner. So, if this is the stakeholder’s perception of the Procurement organisation, what are some things you can do quickly to change this perception?

What is the Current role of Procurement in supporting business success in your area?

Other than changes to the organisation structure, there are five things that we believe Procurement can quickly do to improve internal customer perception and exceed internal customer requirements:

  1. All Procurement resources should be customer focused and empowered
  2. Dedicate specific Procurement resources to Help Desk activities
  3. Start conducting monthly training to educate internal customers
  4. Create a monthly/quarterly newsletter and share recent projects, success stories and upcoming projects
  5. Create an internal website to share Procurement information: FAQs, contact information, approved suppliers, success stories, process documents, etc.

1. All Procurement resources should be customer focused and empowered

We often hear the comment that perception is reality – unfortunately, there is some truth in this. As Procurement resources are typically focused on assisting end-users with different processes in Procurement, all Procurement individuals (whether they are internal client-facing or not) should be customer focused which means being helpful in problem solving and troubleshooting, being proactive, being a good listener, and feeling empowered to fix processes that are broken.

The term ‘fit-for-purpose’ or ‘fit-for-risk’ comes to mind when addressing broken processes. As Procurement works to address issues identified by its internal customers, it should determine whether the process is adequate or overkill for what the internal customer is trying to accomplish based on the value and appropriate risk appetite of the organisation.

2. Dedicate specific Procurement resources to Help Desk activities

Procurement activities are a complex string of processes. As such, we should expect our internal customers to have plenty of questions related to the process, status of transactions, etc. Dedicating specific Procurement resources to answer questions from internal customers is one of many ways Procurement can help address and resolve questions in a timely fashion. However, it is important to note that the more knowledge the Help Desk resources have about the usage of Procurement technology, status of sourcing events, process for sourcing, and a broad understanding of Procurement, the better they will be at being able to provide first-contact resolution.

3. Start conducting monthly training to educate internal customers.

Conducting monthly/ongoing training to internal customers will help provide them with the knowledge and latest information to perform their jobs. Ultimately, this will also help Procurement. There are various types of training that can be provided to include:

  • How to create transactions
  • How to create spend analysis reports
  • How to identify approved suppliers
  • How to use e-catalogs
  • How to manoeuvre the ERP maze

During these sessions, it would also be helpful to document the various issues that each of the internal customers faces. By addressing these issues, Procurement will be able to 1) ensure that internal customer requirements are met and 2) improve internal processes.

4. Create a monthly/quarterly newsletter and share recent projects, success stories and upcoming projects

Most of Procurement’s work goes behind the scenes and rarely do we share our success stories for one reason or another. However, creating a monthly/quarterly newsletter will help provide our Internal Customers with additional information on how the Procurement organisation is able to assist, help identify new projects and bring to light creative ideas from previous projects. In addition, it is also a way of demonstrating value that Procurement organisations bring along with some shameless self-promotion.

5. Create an internal website

While the monthly newsletter is focused on sharing the latest news, an internal website is another way of allowing our Internal Customers to perform self-service. There are various reasons to create an internal website including:

  • Sharing of information with our internal customers
  • Providing them a portal to log issues
  • Providing them ability to self-diagnose and resolve issues

As a member of the Procurement organisation, our role is to help support internal customers by listening, understanding, meeting and exceeding their expectations. Being front and center to our internal customers is important. Hopefully, these 5 activities can quickly help your Procurement organisation change your internal customers’ perception.

Five Tips For Effective Dispute Resolution

FIVE TIPS FOR EFFECTIVE DISPUTE RESOLUTION

“If the dispute negotiation fails then we can always litigate, right?”

As courts are backlogged there is an increasing trend for matters to be referred to alternative dispute resolution (‘ADR’). However, your commercial contract may commit parties to engage in several steps of ADR. Georgia Brandi provides insights to effective application of dispute resolution with five tips she hopes you’ll never need.

1. Include a dispute resolution clause in contracts

First, check whether your company’s contracts have a dispute resolution clause and become familiar with its elements. Multi-tiered dispute resolution clauses are popular setting out timing for each stage of the process as each party’s obligations increase. Examples can be found at the International Chamber of Commerce and local dispute resolution bodies.

Multi-tiered dispute resolution clauses typically require senior individuals in the organisation to meet. If that is not successful then the matter is referred to mediation. If unresolved the matter is referred to arbitration. Only if that fails can the matter be referred to litigation. Each step is a pre-condition for the next.

2. Know the difference between methods of alternative dispute resolution

Two popular ADR methods are mediation and arbitration so it’s prudent to know how they differ.

Mediation uses an impartial third party to facilitate an interests based discussion. The mediator does not provide advice or determine an outcome. The discussion is confidential and the parties reach their own agreement and it is self-enforced.

Arbitration is however determinative and may not be confidential, subject to the relevant body’s arbitration rules. For cross border disputes, also note whether the country is party to the New York Convention for enforcement of arbitral awards.

3. Know when a dispute is a dispute and track time

Usually receiving a letter with ‘DISPUTE NOTICE’ stamped on it is a good indicator. It may not be that obvious as another party may assume their communication is a dispute notice by its content. Does the supplier think a late invoice demand notice satisfied criteria for a dispute notice? Seek clarification if you’re unsure because once a dispute notice is received time will start ticking, so know when you need to respond. Also know who needs to be advised e.g., legal counsel, CPO.

4. Agree on the basics

It would be awful to trigger further debate on who pays the mediator/arbitrator fees or what language the process will be conducted. Draw your mind to the basics such as allocation of costs, location, dispute resolution body and language of proceedings within the contract. Courts may sever elements of a dispute resolution clause for uncertainty.

5. Understand dispute resolution trends in the jurisdiction selected

If your clause elects a dispute resolution body, look at their rules. There may be provisions for a combined method of mediation and arbitration such as ‘arb-med-arb’ in Singapore and ‘med-arb’ which is trending in Hong Kong and China. Although both parties need to consent, understand the reason for the trend and what benefits are available. For example, mediation in Japan offers the benefit of confidentiality where there is otherwise no without prejudice privilege.[1]

Many disputes can be diffused with an interests based discussion[2] and practically may not be suitable for litigation where the core issue is commercial. However I encourage you to become familiar your company’s dispute resolution clause and approach to managing disputes. And ensure your company’s legal counsel is always consulted.

[1] The Japan Commercial Arbitration Association International Commercial Mediation Rules, Rule 12.

[2] See e.g., Fisher and Ury “Getting to YES: Negotiating Agreement Without Giving In”.

Centralization of purchasing in business networks (Part 2)

How are the business networks towards the centralization of purchasing operated?

How are the business networks towards the centralization of purchasing operated?

  • Formal consolidation of the relationship with partners who have for years been part of a single supply chain, putting together a greater production, marketing, commercial and sales capacity.
  • Once the primary objective has been consolidated, it is important to look at the secondary objectives, best exploiting the indirect advantages of being part of a business network: what can be improved and optimised by working together? Clearly, suggestions in this respect can be obtained by looking at how big companies and/or industrial groups operate.
  • During this phase, the contribution by the network manager, who is responsible for performing this analysis and suggesting the right strategy by which to exploit the indirect advantages of the network becomes essential. Of these, one of the most natural, highest-impacting actions is without doubt the introduction of centralised purchasing.
  • For the centralization process to be a success, it is important to introduce it gradually, starting with the product markets that are most immediately and easily able to be centralised.
  • Finally, specific professional skills will be needed in the field of purchasing for managing the relevant activities, issuing the contracts/orders open and managing them (in some cases, the networked companies are of different sizes and the most structured may already have staff with specific professional purchasing skills who can therefore be used for the management of centralised activities, alongside the network manager).

Difference between business networks according to logistics

  • Same region
    • Greater attention may be paid to local suppliers for more categories
  • Multi-region
    • National/international supplier categories will mainly be used

E-procurement and the use of a platform to manage purchasing

The tool that helps us in centralization is an e-procurement platform. This is a question of equipping the business network with a “shared” computer system, based on the latest web technologies and used by all networked businesses.

The introduction of innovative purchasing tools such as e-procurement is one of the most important subject matters by which to improve the overall efficiency of the procurement processes of a complex organisation like a business network. The electronic negotiation of purchasing (e-procurement), in fact consists of enabling those using it to manage all relations with its suppliers over the internet, using a “dedicated purchase” IT platform that enables processes like the selection of the contractor, receipt of offers, submission of orders and catalogue consultation to take place on-line. For example, in the purchasing of consumable goods or in any case of repeated purchasing, the choice of a centralised procedure that defines a series of conventions with a series of suppliers makes it possible to include on-line catalogues available to the various different network structures by which to make direct purchasing at competitive prices, insofar as they had already been established in the conventions.

Current IT technologies also enable a simple interfacing and sharing of data, virtually in real time, with all the various managerial information systems (MRPs) of the individual networked businesses.

Methods for the use of the e-procurement platform and possible market offers:

  • purchase of licences by which to obtain a platform in Saas (Software as a service, i.e. hired, not purchased) mode for each buyer-operator;
  • hire or payment of an annual tariff for each utility activated for the use of a partner company platform;
  • delegation of the entire purchasing activity or part of it (through the e-procurement platform) outsourced to partner companies (maintaining complete visibility and sharing of all specialised processes in this activity.

The advantages of using such a platform include:

  • standardisation of the buying process using a single, common tool for all networked companies;
  • possibility of creating on-line catalogues for use by the individual customers of each company, whose list prices will be negotiated upstream, according to the forecast total quantities required by the network as a whole;
  • in the expenditure cycle activities, it enables the correct management and attribution of invoices for the individual company involved in the purchasing process. The platform will be easily integrated with the ERPs of the individual businesses (each business receives invoices from the supplier for its part or in any case as envisaged by the network contract rules);
  • use of electronic invoicing;
  • single roll of network suppliers available to each individual networked business;
  • objective supplier assessment system for the continuous improvement of performance;
  • each company can easily pool purchasing experiences (suppliers that are valid and others that are not, price references for individual expense categories, etc.), with clear reciprocal benefits;
  • standardisation of the technical specifications for purchases with the best practices of the networked businesses with consequent improvements in the price/performance of the goods and services purchased. It is easy to imagine enhanced efficiency in the purchasing of common materials such as Personal Protection Equipment, stationary, cleaning services and facility management, etc.

Procedures and controls

A choice to centralise purchasing entails special attention paid to the procedures regulating the purchasing procedure. In actual fact:

  • In the case of structures that are mutually independent, the procedures used by the individual networked companies vary considerably and may be more or less complex, depending on the dimensions of the structure (micro/small/medium-sized business) and the purchasing budget. In most cases, we find ourselves looking at a lack of written procedures insofar as the purchasing methods are connected with the common sense of the person implementing them.
  • In this type of situation, moving towards centralised purchasing entails paying special attention to the drafting of a purchasing procedure. This procedure, according to the expenses involved, must be:
    • coherent with the objectives of reducing costs and procurement time
    • coherent with the incoming quality and efficiency objectives
    • compliant with the ethical standards established for purchasing
    • shared and approved by way of protection of expenses managed by each individual structure participating in the purchasing group.

Again by way of protection of the interests of the individual networked companies, there must be a control of the operative application of said procedure by an appointed person/audit structure for the network (e.g. network manager).

Closing remarks

Considering that the priority objective for the centralization of purchasing can certainly be identified as the exploitation of scale economies by which to reduce the unit prices of the goods and services to purchase, it is important to see if that objective looks to include a standardisation of said goods and services or, additionally, the identification of the goods and services with the best cost-benefit ratio. In actual fact, these objectives need three different operating approaches, the consequences of which need to be carefully assessed, particularly according to the time frame involved in order to obtain results. In actual fact:

  1. it is relatively simple to obtain scale economies to reduce the unitary costs by bringing previous specifications together, but this can at most have a positive financial effect in the short-term. Already at the second tender, with the same logic, it is difficult to obtain significant additional discounts;
  2. If we add an objective of standardising goods and services to the positive effect of scale economies, we are then facing a more complex work in which all the individual structures must be involved (data collection and assessment/sharing/choice of standards), but at the same time, we are also looking at greater economic benefits;
  3. Finally, identifying the goods and services with the best cost-benefit ratio is an extremely complex matter, as it requires lengthy technical analysis and the concentration and sharing of data with the internal applicants. This, however, represents the launch of a virtuous process of the introduction of logics and instruments governing the business network, ensuring a comparison of peers and the construction of organic partnerships with suppliers, which may represent a carrier for long-term organisational development.

Finally, if the competences in terms of purchasing are limited to within the network of businesses, one solution may be to appoint external procurement professionals who, alongside the Network Manager, can start the centralization of purchasing process and, potentially, thereafter manage the activities by e-procurement, with the use of an appropriate platform. This choice would have effects that are so immediate that the costs of the solution would rapidly be repaid by the immediate returns enjoyed in terms of the reduction of the TCO.

Centralization of purchasing in business networks (Part 1)

Purchasing groups have many advantages including boosting 'purchasing power'
Purchasing groups have many advantages including boosting ‘purchasing power’

What do we mean by the centralization of the purchasing or purchasing group?

A PG (Purchasing Group) can be defined as an entity that groups two or more independent purchasing organisations that join together formally or informally or through a third independent organisation. Doing this combines their individual needs with the volume in the purchasing of materials, services and goods on capital account. Thereby exploiting the greater contractual strength in order to obtain the added value from suppliers in terms of best prices, best service and best technologies, which could not have been obtained individually by each organisation.

Advantages of the purchasing group

1. Scale economies or “purchasing power”

The first, most obvious advantage of a purchasing group is the scale economy. The volume of the aggregated purchase demands, for example of a network of businesses of reasonable size, gives the individual businesses that scale economy and consequent purchasing power that they could not hope to obtain alone.

2. Lower prices/Greater negotiating power

By increasing the forecast purchase volume, the PG is generally able to negotiate lower prices for the goods or services purchased with respect to what could be obtained, alone, by the individual companies. These savings are usually considerable, ranging from 10% to 35% according to the competence level of the structure dealing with making the centralised purchasing.

3. Reduction of transaction costs

By adhering to a PG, the organisations can effectively simplify the procurement processes. This not only reduces the unitary cost but also the total transaction costs, due to the reduced number of contracts (to be negotiated, prepared and managed).

4. Process economies

By sharing information acquired on suppliers, new technologies and market knowledge, as well as past purchasing experiences, not only is all redundancy successfully avoided, but transaction costs are also reduced and far greater process economies achieved than would have been possible by each individual organisation by itself.

5. Reduced workload

Given that the PG manages all stages for the issue and related management of contracts on behalf of the network, the individual businesses benefit from a significant reduction in their workload and are free to focus on their core business, which is therefore more strategic for them.

6. Improvement in best practices over time

The organisation that manages the PG enables the network businesses to improve their results by sharing the best practices in some business processes, exploiting competences in specific functional areas. In actual fact, most of the modern organisations that handle the PGs use sector experts for each individual product market managed. These sector experts constantly search out ever more effective methods aimed at improving the processes, quality and efficiency of the supplier in order to guarantee the optimisation of processes at increasingly competitive prices (improvement in the TCO – Total Cost of Ownership).

7. Technical savings and improved TCO

The organisation that manages the PGs in the future will offer all the advantages connected with its purchasing skills in the individual categories that will go beyond the initial advantage connected with scale economy alone. In actual fact, once the initial phase is complete, in which maximum use will be made of scale economy to lower prices, the organisation managing the PG will use its experience to help the networked businesses allow buying technology to progress, reducing waste and optimising the use of goods and services purchased.

8. Positive impact on the profits for each individual networked company

We know that a reduction in purchasing costs, for example of 5%, produces an increase in profits of more than 2% and that to obtain the same result, sales would need to increase by more than 20%…! Therefore, the saving generated by a centralization of purchasing in a network of businesses, increases profits in each individual network company.

Business networks contract in Italy: a great solution for SMEs

The business network contract is a private agreement between two or more enterprises to jointly perform one or more economic activities to increase their potentials for innovation and competitiveness. The network contract therefore enables companies (usually SMEs) to combine two key elements of business growth, which seldom coexist: enterprises can collaborate on large scale projects without losing their legal independence and their autonomy in the business activities not included in the contract.

Critical Issues affecting Business networks in Italy

The PG applied to the business networks, although having these undeniable advantages, also has critical issues that are often underestimated and that need to be managed in the right way:

  • Local supplier vs national supplier vs international supplier
    • Use of centralised purchasing by a group of networked companies, considering the increased quantities and related purchasing power, inevitably results in the involvement of national and international suppliers, as well as local ones. In this comparison/assessment of suppliers, it is important to pay attention to ensure that the right consideration is paid not only to the final price but also to the quality of the product and the services relating to the supply (lead terms, after-sales activities, etc.). It is also important to consider the characteristic aspects of long-standing (valid) suppliers linked to knowledge of the client, which results in greater flexibility in the customer-supplier relationship as well as the avoidance of the inevitable discontinuity typical when changing supplier. Naturally, alongside the attention paid to all the aspects highlighted, there must also be a new “Vision” towards the market, connected with the fact that now one is no longer alone, but rather part of a group of businesses, hence the choices to be made must be the best for the whole network of businesses.
  • Resistance to change (old supplier (history, knowledge, customs))
    • As for any process that results in a change in procedures/consolidated habits, etc., the centralization of purchasing will also be initially resisted. It is therefore important to pay close attention to dealing with this change gradually, so as to help the people involved to make it the best possible experience.

10 tips for procurement professionals from a brand wizard

What Procurement can learn from CPA Australia

10 tips for procurement professionals from a brand wizard

According to Murray Chenery, Executive Marketing Manager, Brand, CPA Australia, procurement professionals cannot afford to ignore their business’ brand.

Speaking at the 8th Asia-Pacific CPO Forum, Chenery who for 12 years was marketing director of Target, one of the country’s most recognisable brands, guiding the retailer through the process of Coles Group selling to Wesfarmers, detailed that ignoring a business’ brand affects a company’s ability to do business.

Chenery highlighted that managing a business’ brand can help grow an organisation into a global player and detailed that this process has a direct effect on recruitment pipelines. Bad decisions in procurement can deal enormous damage to a companies’ brand, meaning brand risk needs to be constantly top-of-mind for every decision made.

It’s no accident that CPA Australia is a brand powerhouse. Under Chenery’s guidance, the accounting body has followed a clearly defined roadmap to success. Chenery highlighted the most important points of what he called “building brand DNA”: know your core business, protect it, nurture it and resource it. Define the brand by understanding your purpose, points of difference, your organisation’s personality and the customer promise.

Chenery stressed the importance of brand differentiation and the value of putting time into finding, understanding and amplifying what makes you stand out from your competitors. Importantly, your competitive advantage must be sustainable to establish and maintain your edge. CPA also places a big focus on customer centricity with an enviable growth market in young professionals between 24 and 32 years of age. His advice on “being where your customers are” to connect with this generation is 100 per cent relevant for the procurement profession and its ongoing challenge of securing the talent bank of future business leaders. Chenery also shared some valuable advice on the need to avoid internal-gazing, the importance of creativity and the immense opportunities for Australian businesses to push into the Asian market, where CPA Australia currently boasts 40,000 members.

To close his speech, Chenery gave the audience his top ten tips for good procurement practice. He’s not a CPO, but his background as a risk-averse brand expert makes his advice valuable and extremely relevant to the assembled procurement professionals.

  1. Recognise that marketing is a creative process.
  2. Treat suppliers as strategic partners.
  3. Understand your brand’s DNA and strategy.
  4. Understand the dynamics of the market in which you are buying.
  5. Appreciate the history of relationships.
  6. Be as clear as possible in your briefings.
  7. Understand the processes being bought.
  8. If you don’t measure, things don’t get done.
  9. Evaluate partners by visiting their operations.
  10. Use flexible, longer contracts to build partner loyalty leading to better deals.

The 9th Asia-Pacific CPO Forum will be held in May 2016. To ensure you receive an invitation, register your interest in attending here ([email protected])

 

30 Under 30 Supply Chain Stars

Roundtable photo

This year marks a historic tipping point in US demographics. The Baby Boomers will be overtaken by the Millennials (18-32 year-olds) as the largest living generation, and nowhere will this be felt more than in the workforce. In fact, Millennials will comprise about 75 per cent of the workforce within 10 years. Research by ThomasNet suggests that employers’ perceptions of Millennials need to shift – most manufacturers (62 per cent) say Millennials represent a “small fraction” of their workforce, while eight out of 10 (81 per cent) say they have “no explicit plans” to increase these numbers. At the same time, 38 per cent of manufactures report that they plan to retire in one to ten years. 

So, the answer seems obvious – businesses need to move fast to attract and retain Millennials before they find themselves in the midst of a major talent crisis. ISM and ThomasNet have joined forces to strike a major blow in procurement’s “war for talent” with the 30 Under 30 Supply Chain Stars initiative.

I’m sitting at a press conference with five of last year’s 30 Under 30 winners lined up in front an enthusiastic group containing many of their fellow winners –  in fact, you could say that the future of US procurement is concentrated right here in this room. Today is all about putting a spotlight on the best young talent working in the supply chain to encourage more Millennials to enter the profession, excel like the panellists lined up before us, and tackle the looming demographic crisis head-on.  

What’s more important, in my view, is that the professionals in front of me really buck the trend of negative stereotypes of “brattish” millennials. They’ve all climbed to impressive levels of responsibility for their age bracket and are poised to fill the void as Baby Boomers retire. We have Amy Alpren, Manager of Strategic Sourcing at CBS Corporation; Nick Ammaturo, Director of Profit Improvement and Procurement at Hudson’s Bay Company; Matt Bauer, Procurement Administrator at City of Mesa Arizona; Katy Conrad Maynor, Category Manager, Finished Lubricants/B2B, Shell Oil, and Weslet Whitney, Sourcing Specialist at Enterprise Products. They’re joined by Jami Bliss, Director of Global Procurement Program Management at Teva Pharmaceuticals, who was a nominator for the competition. Each one of the panellists shares with us the impact they’ve already made upon the profession, reeling off a list of combined achievement that would silence even the most vocal critic of their generation.

Following the event I catch up with another 30 Under 30 winner in the exhibition hall. Leah Halvorson is ‎Director of Procurement & Supply Chain Development at Minneapolis Public Schools and very enthusiastic about the award. She tells me that she and the other winners have seen some amazing benefits flowing from 30 Under 30 – her peers have been offered job opportunities, scholarships and celebrity status at ISM and ThomasNet, but most importantly, they’ve had the opportunity to network with each other. Leah herself has had some fantastic recognition at her organisation, with senior executives congratulating her personally and career-boosting recognition in the company newsletter.

ISM and ThomasNet are already looking ahead to the next batch of 30 Under 30 Supply Chain Stars and expect to double the number of nominations this time around. This initiative has won the approval of businesses large and small across the US because it celebrates young talent, attracts more Millennials into the profession and, like the 30 Under 30 winners themselves, it has a bright future.

9 Killer Questions for Corporate Mega Stars

So you’ve found yourself a mentor. Congratulations. They have a glittering CV, impeccable corporate track-record and stirring leadership vision. There’s only one problem:  you’re terrified of creating an awkward ‘tumbleweed moment’ by asking your corporate superstar a stupid question.  

tumbleweed-roadkill_LRG

Having a mentor can be one of the most valuable assets for career growth. So while some will tell you ‘there’s no such thing as a silly question’, its also understandable that you want to be smart, poised and considered in front of your career idol and make the most of their (and your) time.

Tomorrow, more than 30 of Australia’s brightest rising stars will gather for Future Leaders in Procurement (FLiP 2015) in Melbourne.

Delegates will have a once-in-a-career opportunity to sit down with some of Australia’s leading CPOs in a master class session to discuss and debate perspectives and seek leadership tips for their own career.

Here’s a list of 9 great questions that will take the pressure off and help you make the most of your ‘hour of power’ with a corporate mega-star:

  1. As a leader, what are the things that only you can do?
  2. Where do you ‘big ideas’ come from, i.e. what is the context in which you feel most inspired?
  3. What are the issues that keep you awake at night?
  4. What is the one behaviour that you have seen derail more leaders’ careers than any other?
  5. What impact has networking had on your career?
  6. Who else would you recommend I connect with?
  7. What tips do you have for working smarter?
  8. What would you do if you were me?

And if you’ve still got time left over (or better still, the promise of a second mentoring meeting), ask your mentor: “How can I help you?”

Most leaders will be accustomed to mentees who are only interested in what they can take away from the meeting, so demonstrate a willingness to create a win:win relationship and recognise you have a unique vantage point too.

What are the best questions you’ve been asked as a mentor? 

 

 

Chris Lynch: `You’ve shown me the money, now show me how we’ll get there`

Rio Tinto’s CFO, Chris Lynch offers: when you’ve got a big idea that you believe in, then don’t waste the chances you get to convince others – communication will be key.

Chris Lynch talks communication

Remember that people at the top of organisations are time poor, therefore Big Ideas, backed by courage, resonate.

So if you get the opportunity to present your idea, make sure it’s punchy and grabs their attention.

Don’t overcomplicate it. And make sure you frame it so they can quickly see how it will solve their business problems.

What should give you confidence is that pitching a Big Idea should be a lot easier than a small one.

Because you are passionate about the topic, and you have sized the prize. If not, you better make sure that you are, and that you have.

We all have our own way of communicating, but two things stand out – rehearse, prepare and test.

We can all write our best ideas on a page, and even all convince ourselves we have every angle covered.

My tip is don’t just believe in yourself, test your concept first, with family, or a friend or colleague.

They will give you the feedback, and the confidence, to make sure you have properly stress-tested your idea and your plan.

If you were presenting to me, I’d want to know: what’s different about your idea? How come we haven’t been able to capture this value before?

What resources will you need to get it done, and how long’s it going to take? Don’t underestimate the time and effort it can take to drive change through an organisation.

And importantly, make sure you know how you’re going to measure success.

So the art of communicating in procurement, as it is in any field, is, once you have shown me the money, show me how we will get there.

Communicating within your own organisation, be it up or down, is one thing, but communicating across boundaries or outside to others may help you create wealth.

For it will probably be outside our own walls that new ideas are flowering or taking hold. We need people on the inside with visibility of the outside.

To act as intrapreneurs for our business and help re-invent it.

At Rio Tinto we have 60,000 people and operations in 40 countries over 6 continents. So for us social media provides a global platform to communicate and share.

I think there is a real opportunity in eLearning. You can imagine as a CFO, I see a better ROI on that than bringing hundreds of people together for training.

We live in a world of instant communication, from email to social media, but let us not overlook face to face communication, be it real – or via satellite to save money!

You can learn a heck of a lot by picking up a phone, and you can speed up and broaden your connections through social media – it can often be the shortest route to an answer and can expand your breadth of knowledge.

In a relatively small but specialised field of procurement, communication is even more important.

Accountants, well, I hate to admit it, but there are a lot of us…and we all kind of do the same job.

But if you’re a procurement professional, you may be specialised and isolated.

Social media platforms [like Procurious] may well be your best way to connect and share learnings and the experiences of others in similar circumstances.

The short distance between two points, or a knowledge gap and a solution, maybe just a phone call or email away.