Category Archives: Generation Procurement

Stop…Millennial Time!

The Millennials are here and there is nothing you can do to stop them. Those born between 1982 and 2000 have surpassed the Baby Boomers in sheer numbers and are now the top consumers globally.

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Hospitality is one of the most challenged industries when it comes to ‘Keeping up with the Millennials’, as it is typically a very traditional industry and change isn’t exactly its favourite word. Hotels in particular have been doing the same things, in the same way, for years now. They know change has to happen but more often than not they are quite uncertain as to what that change might be.

Marriott International for instance has gone from producing high-thread-count bedsheets to a YouTube Web series aimed at entertaining younger travellers. They also went on to buy Starwood Hotels & Resorts in a $12.2 billion deal because of its strong presence in the lifestyle brand category. W Hotels (part of Starwood) is all about edgy design, gourmet food and trendy public spaces — all features appealing to the Millennial traveller.

Redesigning for Millennials

A keen focus and demand for the latest technology, public areas with high speed WiFi for both work and play, as well as clever loyalty programs offering instant gratification, are all key to the millennial consumer.

“Millennials aren’t so interested in staying in their room, but congregating in compelling spaces with great design, music and a unique point of view,” says Jason Pomeranc, CEO of SIXTY Hotels. It’s why hotels like ACE and CitizenM are doing so incredibly well. They are first and foremost utilising their non-room space and creating inviting, cutting edge design hubs of interaction.

From major chains to small independent businesses, hospitality companies across the world are redesigning properties, spending a fortune on new technologies and even using Facebook Messenger for their Customer Service communications. It’s what Hyatt Hotels have done recently. In fact, there is a lot you can do from the app if you plan a stay at the Hyatt: check availability, make reservations, enquire about the view and even order room service.

How the Major Players Take Action

The reason for all this commotion – in the USA alone, more than 1 in 3 workers are Millennials, which amounts to some 83.5 million people. “They are becoming the earners, the spenders, the travellers, and importantly, the workers,” remarks Tina Edmundson, Marriott’s global officer for luxury and lifestyle brands.

Here is how a few major players are taking action based on this research:

  • Marriott launched Moxy and AC Hotels specifically with Millennials in mind
  • Best Western unveiled Vib, a chic urban boutique hotel
  • Hyatt premiered Hyatt Centric, an affordable lifestyle hotel
  • Hilton will open Canopy next year in Iceland. Each subsequent hotel will be inspired by the local community in everything from design to food and drinks

“By 2025, these guys are going to make up three-quarters of the workforce,” says Guy Langford, vice chairman and U.S. leader of travel, hospitality and leisure at Deloitte. And this is the one aspect the industry still isn’t facing. Most of the back office operations have not changed in the past 10–15 years. For Millennials, each day at work is like going Back to the Past…The heavy use of paper, spreadsheets and antiquated software makes adoption within the Millennial workforce sector very low.

This in turn affects staff retention and therefore drives staff costs ever upwards. Offering Millennial staff the opportunity to continue their digital, one-click habits at work by implementing technology heavily focused on User Experience (UX), is an absolute must for productivity.

“We have to understand what impact they’re going to have in 10 years’ time,” says Langford, “so changes made now, for both the Millennial consumer and the Millennial employee, will see huge ROI.”

Smart Cities – Revolutionising Public Procurement in Barcelona

Barcelona – a city of churches, tapas and endless Gaudi landmarks – boasts an intriguing procurement initiative that is fundamentally changing public procurement methodology. 

The concept is new and the way changes are being made is a stroke of genius. Traditionally, public procurement initiatives have looked something like this:

  1. Determine the problem
  2. Determine a solution
  3. Develop a scope of work containing detailed specifications as to how the problem should be solved
  4. Go to market to see who can meet your specification.

Decision-making is generally carried out within the four walls of a government building and leads to nothing more than a race to the lowest price point between two or three large suppliers.

Turning Public Procurement on its Head

Barcelona has completely flipped this process. Rather than telling suppliers what they want, they are simply outlining problems that are present within the city (like bicycle theft or potholes in the road) and asking the public to come up with innovative ways to solve them.

By opening civic problems up to the cities entrepreneurs, Barcelona is leveraging a vast pool of innovation and creativity that resides within its city. The following quote by CityMart‘s (the organisation behind this initiative) CEO, Sascha Haselmayer, sums up the approach brilliantly.

“City governments need to get out of procuring by specifying the solution they want. They can’t possibly have enough knowledge to do that well. What they should do is specify the problem they want to solve and show metrics on what success looks like. And then allow the market to inspire them to find the best solutions.”

As well as suggesting product solutions, applicants to the BCN Open Challenge are encouraged to challenge current city regulations and services in order to address six of the city’s key civic problems. Essentially, the canvas is blank and creativity, freethinking and innovation are encouraged.

The response to this initiative has been astonishing. Since Barcelona published its six city challenges online, the initiative has received over 50,000 views and more than 100 official submissions. CityMart stated that a benchmark number of views for public procurement contracts of this nature would normally be around 7,000.

Boost for Small Business    

In a country whose economic woes are well documented, this initiative provides a vital lifeline to Barcelona’s small and medium sized organisations. CityMart claim that 98 per cent of all ‘open procurement’ projects listed on it’s website are awarded to small and medium sized organisations.

This is a significant contrast to traditional public procurement tendering practices; where long lists of specifications and pre-requisites along with protracted contract award cycles, rule out all but the largest and most established suppliers from winning public contracts.

When you consider that city and community spending globally accounts for $45 USD trillion a year (yes that’s right…TRILLION!), you begin to get an understanding of the impact this sort of initiative could have for small businesses across the world.

An Engaged Community

It’s not just small business that benefits from the new model Barcelona has implemented. The project is making huge progress in improving community engagement. The city defines its problems in conjunction with its citizens, encourages these citizens to suggest solutions, and then uses tax payer funds to provide a work space from where these problems can be solved.

If that’s not effective community engagement, we don’t know what is. The project’s tagline is ‘Open for business. Open for innovation’ and it certainly holds true.

While opening a city’s problems up to the public certainly encourages innovation, community engagement, and supports small business, it’s important not to overlook the financial benefits these projects can create.

Global consultancy firm McKinsey has estimated that city governments can reap savings of up to 10 per cent by opening up procurement contracts and leveraging innovative community based problems solving.

Don’t tell your suppliers specifications…ask them for solutions

All procurement teams can learn something from the work that is happening in Barcelona. Procurement professionals could all benefit from being a little less prescriptive in telling suppliers what it is they want. The power is in admitting that these teams alone can’t possibly come up with the best solution to every business problem they face.

But how can professionals possibly know what they want when they don’t know what’s out there? By admitting their ignorance and opening up problems to more people, it is possible to leverage the vast creativity and innovative power that lies within communities.

So move your discussions away from specifications and prescriptive statements of work, be more creative and stop telling people what you want and start asking for solutions.

Passion from the Podium – 7 Speaking Tips for Procurement Pros

Apparently, the old underwear trick doesn’t work anymore.

Tania-CPO-Forum-14May14

Last year my son confided in me his nervousness about making a speech at his school assembly. I shared the old tip “pretend they’re all wearing just their underwear”. He replied, “Mum, that’s even scarier!”

And he’s probably right!

Public speaking is one of the most terrifying prospects we mortals face.

In my experience, there are just a few essential ingredients to becoming a screaming success on the stage. Here are my top public speaking tips for procurement professionals.

1. Talk about what you love – A lesson I learnt very early in my career was to only talk on topics you really know well, are comfortable with, and – ideally -passionate about.

Let me return to my (then) 8-year-old son’s school assembly presentation. He insisted that his topic was “Piranhaconda” (which, in case you missed it, is the sequel to the much better known “Sharktopus”). Both are B-grade (at best) movies that involve a lot of terribly clichéd, semi-clad, screaming women and tough guys with guns/missiles. Get the picture?

At the risk of being personally embarrassed at his selected topic for this highly competitive, academic audience, I encouraged him to talk about what he loved…(a movie about crazy hybrid animals) and he did a sterling job. Barely referring to his notes, he spoke with passion and was rewarded with a glowing review in the weekly newsletter (phew!).

My point here is, that no matter what your topic, if you talk about something you know and love, you are going to do a much better job. Your audience will be so much more appreciative if they feel passion coming from the podium.

So, spare the time to really think about your topic. Uncover and share where your real enjoyment is generated from. It may not be the technical details of your new eProcurement system or contract management process, but more about how you managed your team, and managed the change.

2. Also talk about the BAD stuff – A stalwart of my inner-circle procurement community is Santos’ CPO, David Henchliffe. He’s always encouraging The Faculty’s Roundtable members to share “when things go wrong”.

The quote “we learn from our mistakes” could not be truer. A mistake shared is a community lesson learnt. Everyone benefits. Sharing your failures also supports your authenticity as a leader. If you can show your vulnerability and humility you become a lot more accessible to people. Plus, let’s face it – nobody’s ever going to believe that your project/learning process was as perfect as some presenter would have us believe.

Tell your audience you overcame adversity – tell them how your number one supporter stabbed you in the back, tell them how your funding floundered, complain about moving goal posts, how your supplier stalled at the gate – your audience will love it! Why? Because (of course) this is their world too!

3. Write it down. That’s right – commit the whole darn thing to paper or screen! Why? Because it’s the only way you can guarantee you have really worked through your thinking. Many years ago, I remember hopping onto the stage with my dot points, confident in my subject matter, only to make a less than optimum impression when I ‘um-ed’ and ‘ah-ed’, circled back on previous points, and then took 200 words to say what I could have said in 20.

Writing out your whole speech gives you the opportunity to really think through your structure and how you want to effectively make your points. You can make your dot points from there and throw all the detail away once you’re clear about your speech.

Of course, the other MAJOR advantage of committing your thoughts to paper is that you can then fashion it into a blog, post it immediately on the day of your speech (ideally – exclusively on Procurious!), and encourage people who connect with or follow you to read and reflect on your thoughts. In this way, not only are you communicating to those in the audience, but you are also ‘amplifying’ your views through social media. A very nice ROI on your time!

4. Jettison the Jargon – Like you, I have sat through way too many procurement presentations that are strikingly similar in both their content and delivery. If we are going to individually and collectively ‘spice it up’ and enthuse our profession, we need to create a bit of a stir with our language and choice of vocabulary.

Why?

Because people stop listening when they hear repetition. You need to keep them listening by using different words and terms that make them think about what you are saying.

5. Make it Visual – Story-telling is now a well-accepted formula for successfully communicating a message. Use it! Kill the PowerPoint – it sends your audience into a semi-comatose state where they are more focussed on the timing of your next slide change, than what you’re actually saying. Use emotive and unusual photographs and infographics (that people can read from the back of the room).

6. Practice, Practice, Practice – I was surprised to read in the book “Talk like Ted” that the best Ted Talkers have rehearsed their speeches up to 200 times. They practise with friends, colleagues, anyone who will listen. And it’s not just about delivery, it’s about fine-tuning the words they use and simplifying them as much as possible to gain clarity. They write and re-write their presentations to ensure they are communicating what they really mean.

7. Make it quick – “Talk like Ted” also insists that speeches should be specifically 18 minutes only! Apparently that’s the magic number for giving your audience enough, but not too much, information! Audiences today are growing more and more used to the sound bite. Leave your audience wanting more, rather than being bored and switching off.

So there it is! Good luck with your next speaking engagement – I look forward to feeling the passion coming from the podium!

5 Things You Need to Know About Working in Germany

When you think of Germany, pretzels, beer and BMWs are common stereotypes that come to mind. But there is much more to Deutschland than that – especially if you are planning to work.

A country built on research, innovation and its ability to attract foreign direct investment (FDI), with the biggest economy in Europe and the fourth largest in the world – who wouldn’t want the opportunity to work in Germany?

Not only home to many of the European and Worldwide market leaders, recent figures show more than 45,000 foreign companies are also conducting business there. Although many more factors have helped shape German industry, this structure has consequently had deep impacts on the Procurement (Beschaffung) role.

The Need to Know

Procurious founder, Tania Seary, recently had the opportunity to meet the leadership team from the German Association of Materials Management, Purchasing and Logistics (BME) in Frankfurt. BME have established themselves as a professional association for buyers and logistics, supporting members in developing new markets and the configuration of economic processes.

According to BME, there are more than 100,000 procurement professionals working in Germany, so here’s what you need to know if you’re looking to join them:

  1. Germans can be considered the masters of planning

Doing business in Germany without adequate cross-cultural awareness is a risky proposition, and businesses should ensure they carry with them an appreciation of both the business landscape and the culture. Hierarchy is highly valued in Germany, and there are often myriad procedures and policies which can slow things down, so having a bit of patience is crucial to the success of business negotiations.

The desire for orderliness spills over into the business life of Germans – surprises and humour are not welcome! According to the German Business Culture Guide, everything is carefully planned out and decided upon, with changes rarely occurring after an agreement is made.

  1. Get used to some straight talking

There are cultural differences at play. The German business culture is perhaps less instantaneous than in countries like the UK, and personal relationships that are developed slowly over time are seen as a more desirable way to do business. Don’t be surprised if you jump straight into business talk, as there is little time for small talk.

  1. A series of villages, not really a country

Germany is a country with a long history and vast cultural differences throughout. For a country of its size (only 357,000km² – Australia is 21 times bigger), it has 16 states and over 400 districts.

This means you’re going to need to recognise the contrasts across the country, especially as industry is fragmented and big companies operate often in small villages. Although complex, this presents a fantastic opportunity to learn how to work with, and understand, different cultures – a brilliant training ground for future leaders.

  1. If you’re a social media nut – this is a different landscape

By sheer numbers, social media is as popular here as the rest of the world. According to the EU’s “Passport to Trade” more than 75 per cent of all Germans over 14 years of age use the Internet in some way, and 90 per cent of 14 to 29 year olds are on social media.

What is different about social media in Germany is the popularity of the local, German-only networks, in addition to the global players. The most popular networks listed according to their number of users are (get ready – you may not have even heard of some of these):

  • Facebook
  • Google+
  • Xing
  • Wer-kennt-wen
  • MeinVZ/StudyVZ
  • LinkedIn
  • MySpace
  • Lokalisten.

Up until 2009, there were up to 15 million German-speaking users on a German language network resembling Facebook called StudiVZ. But Facebook eventually conquered Germany (as it has for most of the world), as it enabled users to socialise and interact with people outside Germany too.

There is a Russian joke that says:  “Twitter can’t be popular in Germany, because 140 characters are basically two words in German.”  There are certainly enough short words to compose tweets in German, but when you read that only 10 per cent of Germans use Twitter, it makes you think there might be some truth to that joke.

With words like “kraftfahrzeughaftpflichtversicherung” meaning ‘car liability insurance’, and “donaudampfschifffahrtsgesellschaftskapitaenswitwe” meaning ‘widow of a Danube steamboat company captain’, let’s hope Twitter changes to a 15,000-character limit soon!

  1. And your role in procurement…

Procurement is not the only function of choice – it’s one of hundreds – and, if you’re coming from a large multinational corporation, a word you need to understand and add to your vocabulary is “Mittelstand”.

We often throw in terms like MNCs and SMEs (small and medium-sized enterprises) around when asked who your employer is, but statistically what is the real difference?

Statistically, any business with fewer than 500 employees is classed as an SME. However, in Germany this would mean that 99 per cent of businesses would fall into this category.

So the Germans created the world “Mittelstand”, which can refers to both SMEs and much larger companies, if they are run in the same spirit. This typically means the owner or owners take business decisions largely on their own, but retain close ties with both the business and the employees.

This involvement with the business applies to over 3.6 million “Mittelstand” companies, providing more than 60 per cent of all jobs in Germany, and making up 53 per cent of the country’s GDP. So the chances are you’ve already conducted business with a potential employer.

There you have it – some top tips for working and doing business in Germany. And if you’re looking for a job there, or plan on working there in the future, good luck (or as the Germans say…viel Glück!)


Useful links:

Germany Job Seeker Visa

Working in Germany: Getting a German Work Permit

EU Blue Card Germany

How Generation X Managers Can Help Generation Y Succeed

Hundreds of column inches and pixels have been dedicated to the challenges of managing Generation Y, that group of upwardly mobile professionals that are currently in their twenties or early thirties.

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Also called millennials, they have had a lot of bad press, not all of it deserved. Generation X managers, born somewhere between 1965 and 1980, and now with their youth behind them, have inherited Generation Y, and are grappling with both age and cultural differences in their teams.

Generation Y employees need flexibility, interesting team-based work, and freedom to work with new technologies. The over 50s may work independently, prefer to be office-based and are often reluctant to embrace new ways of communicating.

The key is to be able to align the two without providing any special treatment to the newcomers, which can have its own pitfalls, legal and otherwise.

What Does Generation Y Want?

Human resource managers and recruiters tell us, in no particular order, that they want:

  • Interesting and challenging project-based, non-routine, exciting work
  • Career growth opportunities and active mentoring
  • Inspiring and enabling leadership including regular feedback.
  • Flexibility – telecommuting, working remotely and time for their other life
  • Access to key decision makers. They need to know about strategy and how their job fits into the organisation’s goals
  • Community-centric and supportive working environment
  • Access to data and information. They want to see the full picture.

This shopping list may look impossible at first glance but some organisations are making strides to adjust their HR policies and operational guidelines to accommodate at least some of the requirements.

Retention of key staff in procurement needs a new approach. Some US companies that are leading the way with Generation Y are Shell, Boeing, Caterpillar and Cisco. They must be doing something right as they have some star employees under 30 years old who love their jobs.

What Generation X Managers Need to Provide 

  1. Leadership and guidance.
  • Don’t try to manage Generation Y, just lead them
  • Provide guidance and direction while giving consideration to their input; they don’t take kindly to direct instructions
  • Facilitate mentoring between different levels of employees, not only top down
  • Focus on the results employees produce rather than on how they get it done
  • Set aside time to provide honest feedback – feedback is coaching
  1. Provide flexibility in their work life
  • Consider offering partial telecommuting and/or working offsite
  • Build in some scheduling flexibility to allow management of their personal time. It doesn’t matter as long as the work gets done.
  • Review conventional approaches to face-to-face meetings – use available technology
  1. Career development and training
  • Keep employees engaged by providing inter-active and technology-based educational and training opportunities as well as career growth advice.
  • Make small promotions regularly – don’t make them wait for a year.
  • Regular performance management systems won’t work – more regular and constructive one-on-ones are needed
  1. Team-based projects
  • Take advantage of Generation Y’s preference for teamwork
  • Fulfil their high expectations with special assignments.
  • Give them full responsibility for a sub-project or make them a “champion”
  • Consider putting them on a task force to solve an outstanding problem.
  1. Open communication channels
  • Let everybody to contribute to decision-making through sharing of information and collaboration.
  • Allow multiple communication methods depending on preferences.
  • Use available electronic tools to speed up project delivery

What Does Generation Y Need to Do to Succeed? 

Generation Y individuals need to show a willingness to learn more and feel free to ask for help. The internal culture must support this approach, if it doesn’t, find out what the problem is and fix it. My advice to young procurement professionals is:

  • Build your technical skills and get qualified to give you a head start on the competition
  • Take ownership of your job by taking pride in your work and assuming responsibility for your results and outcomes. Go beyond the job description to do whatever it takes to get a task done.
  • Grow your job by making it your own and taking on any challenges that are offered. The expression “it’s not my job” is not in your vocabulary.
  • Ask for technical guidance and advice when needed from subject matter experts. Most successful people are keen to share their knowledge.
  • Read widely on your chosen field and make it your mission to learn about best practice and apply it in your own environment.

3 Final Tips for Managing Generation Y

  • Understand and accommodate different learning styles.
  • Consider personal employee needs, such as flexibility with scheduling.
  • Be careful not to follow blanket age stereotypes.

Is ‘Free’ a Dirty Word in Procurement?

How can you resist something that is free? Even when something is genuinely free, there’s still that voice at the back of your mind that sounds a warning. 

If someone offers you something for free do you automatically say no? Do you sometimes get curious and wonder why it is free? If you ask more questions and find out that it is truly free, do you still say no? Or do you wait until you find out that there aren’t any strings attached either before you take a chance and say yes?

It doesn’t matter what walk of life you are from, or which profession you work in, there is something that has changed in the human psyche that has made us all inherently suspicious of the word ‘free’. And in procurement, this suspiciousness only appears to get worse.

Something for Nothing?

We now live in a very skeptical society. Long gone are the days where you took someone at their word, without question. Now, recommendations and references are gladly accepted, but further research and checking is carried out before anything is done with them.

It’s probably true to say that there are few things that can be offered that are truly free or come with no strings attached. Entering a competition or signing up to a ‘free’ service online puts your e-mail address on a mailing list, to allow you to be sent future opportunities. Even ‘free’ products are likely to be being used as a loss leader to make you think about spending real money.

Perhaps the reality of it is that we are no long as trusting in nature as we once were, and trust has to be earned, rather than being given until proven otherwise.

Trust me, I’m a Procurement Professional

Trust comes in a variety of guises in procurement and supply chain, two of which we can look at here. First there is the trust between the buyer and supplier, the buyer and end user, or between any two links in the supply chain. This trust is based on the idea that what has been ordered or requested is what is delivered, at the right time.

This is trust that needs to be earned, and is a particularly fragile form of trust, which can be shattered by one missed delivery, one failed quality inspection, one wrong phrase in a negotiation. What is key though, is that this trust is crucial to the smooth operation of a supply chain.

Trust can be built in the supply chain through providing great, consistent service, and delivering on promises. Transparency in operations is a good tool to build trust – many organisations are building consumer trust in this way by making their supply chain operations transparent to the public.

 Everyone Likes a Freebie

The second type of trust is between the procurement or supply chain professional and their stakeholders, such as their employer, shareholders or the public. The trust in this case is based on the professional doing their job in an ethical fashion, and not being in receipt of ‘free’ things in return for contracts and business.

The ‘free’ items on offer could range from being taken out for dinner or being taken for hospitality to a sporting event, to kick-backs and bribes. There have been numerous reports of bribery and unethical behaviour in procurement, all of which have succeeded in eroding trust in the profession, as well as giving the word ‘free’ negative connotations.

However, it could be argued that not every ‘freebie’ is given with strings attached or with ulterior motives. In fact, giving and acceptance of gifts can help to create goodwill in the supply chain, or show appreciation for a job well done, or a successful relationship.

While strong governance regulations help to ensure transparency and ethical behaviour, requiring endless forms and registers to be filled in for low value gifts is potentially punishing the honest many, for the actions for the dishonest few. Now that procurement has begun to earn that trust again, maybe it’s time for the profession to be trusted more.

After all, free isn’t such a bad word, is it?

We would be interested to know what you think? Have regulations gone too far? Or are they entirely justified in light of past events? Is there such a thing as a ‘free lunch’ in procurement?

Zero savings? Thanks, that’s perfect!

In this article, the fourth in a series of five, I consider the level of credit granted to projects which deliver substantial savings, and whether, from the perspective of the business, this is appropriate.

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As procurement professionals our time is often consumed by savings targets. Delivering, seeking approval and recording savings. Big savings are good news. No savings is bad news – really bad news. The type of bad news that gets you sacked.

For those of you who have followed my previous articles you know that I like to turn things around a little – to view things from the perspective of a business owner rather than a procurement professional. This article is no different.

The Savings Process

Let me first paint a picture which represents countless procurement activities around the world, I think it will be familiar to you:

After months, sometimes years, of effort the cross-functional procurement team signs the contract with the new supplier and implementation commences. The business signs off the savings which satisfies the agenda of the procurement leaders. The procurement personnel step back to allow the business to implement the new contract and manage the contract thereafter. “See you in three years” is the agreed message.

The newly contracted supplier, who may be the incumbent working on new contractual terms, sets about a “seamless” implementation (Ever seen one of those? No, nor me). Ever constrained resources of the procurement team and the business mean that effective Supplier Performance Management (SPM), (being very distinct from Supplier Relationship Management (SRM)) becomes a luxury too often performed by personnel unskilled at perpetual jousting with a hardened supplier account executive.

The inappropriate flow of information commences, which, in turn, will detriment the value (cost, service quality, innovation etc) retained by the buyers organisation. Suppliers work hard to find loopholes in the carefully negotiated performance clauses and claim to be meeting their contractual obligations even though the satisfaction levels of the buying organisation may remain low or decreasing with time.

Before we know it, the causes of the dissatisfaction which caused the buying organisation to test the market a few months ago are back on the agenda. Inevitably, at the end of the contract term, perhaps before, the market will be tested again. The result of the repeated procurement activity? Savings. Again, savings.

A Perfect Zero

How about we turn this around? How about we strive for zero savings? That’s right. You heard me correctly. Procurement could strive for zero savings. Before you question the level of my delusion please read the last paragraphs of this article, but first let me paint another picture.

In this picture, the same procurement activity took place as before, but the post-contract SPM was fully executed by adequate and skilled personnel. In this case, the innovation and continuous improvement clauses that were written in to the contract are realised. Suppliers are not able to wriggle out of the spirit of the previous negotiations. An appropriate period ahead of the expiry of the contract – long enough to switch suppliers should the need arise – the buying organisation commences its procurement activity only to find there are zero savings. A disaster? No. Let me tell you why.

We all hear the newsreaders’ tone change if the Dow Jones, FTSE, or Nikkei, or whatever is your favoured index, has fallen that day. Their tone drops portraying a sense of negativity. We are indoctrinated that a falling market index is bad news. Instead, however, what if the event of the indices dropping was accompanied by a cheerily delivered message of “great news folks, tomorrow you’ll be able to buy those blue chip stocks at a price way cheaper than today!”

Such a statement would be true; the stocks would be available at cheaper prices, but we never hear this message, even though we each take advantage of the falling index via our pension funds managers who are continually investing our hard earned cash.

Analogously, with procurement savings on repeated contracts – is a saving, a saving? I contend that those numbers which are repeatedly cited as savings by procurement teams could alternatively be merely a measure of the buying organisations ineffectiveness in managing its suppliers during the last contract term. A high saving means a poorly managed preceding contract.

A robustly managed supply contract, followed by a professionally implemented procurement project which delivers zero savings could be (stress, could be) demonstrative of a very well run contract where value has readily flowed to the buying organisation throughout the contract term, leaving non-incumbent suppliers with nothing further to offer.

Theory and Reality

Do I really believe zero savings are aspirational for most procurement projects? Well, no, actually I don’t. There are always some inefficiencies that can be eliminated, market developments and innovations that can be exploited, and organisations simply do not have the resources to execute the theoretically perfect procurement and contract management that I have set out above.

My message is simply that procurement leaders should carefully consider the causes of significant savings numbers, including the degree, and success, of post-contract supplier management – the news may not all be positive. Offering reactionary congratulations for projects delivering big savings numbers or an automatic chastisement for projects delivering small savings may be ill-advised.

By the way, I also need to be abundantly clear that I am not suggesting managers chastise personnel who report significant savings with a short-sighted, inflammatory question of how their staff previously spent their time. To do so is sure to lessen future efforts.

So, it may then be advantageous to allocate the scarce resources of the organisation toward contract management rather than repetitive RfX-style procurement. Readers of my earlier article “Buyers under the Duvet” may recognise a need to stretch practises outside the normal comfort zones of buyers, with the possible result that effective contract management actually reduces the level of savings from RfX-style negotiation.

In itself, this is not a problem so long as (!) organisations have already secured the value during the contract management phases of the procurement cycle.

Jim WillshawJim Willshaw (MBA, MCIPS, MIIAPS) is an experienced procurement professional acting as a consultant, speaker, coach and trainer to leading organisations all over the globe.

Extreme Procurement

With growing focus on emerging markets, ‘extreme procurement’ will become more common.

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I was at an airbase in the desert when the call came in on my satellite phone: my regular security detail was stranded in Northern Iraq and wouldn’t be able to meet me when I arrived in Baghdad. My firm had won a tender to re-establish banking systems after the war – a great opportunity for us, a great contribution to rebuilding the country – but dangerous work. Western contractors like me were being kidnapped, tortured and beheaded on a regular basis. To travel without security would be suicidal.

Fortunately, a quick call to another of our suppliers established that they had a team available that could stand up at short notice to meet me on arrival. All that was left to do was to call the office in London to have the work order put through…which I did, to be told by a purchasing manager that as I hadn’t followed the firm’s required processes, that couldn’t possibly be done.

On that occasion, a fairly direct suggestion that he join me on the trip and see if he felt the same resolved the matter. With the anaemic performance of Western economies driving more and more businesses to seek growth in increasingly exotic locations, however, the challenges of what might be termed ‘extreme procurement’ are being faced more frequently by the profession and line staff alike.

In extreme environments, procurement is more important than ever

So should procurement butt-out and leave the people on the ground to get on with it? Far from it. In the more exotic emerging markets, procurement is more important than ever:

  • The reputational – and legal – risk from engaging with suppliers who don’t meet the right standards, for example of workforce welfare, is significant, and this can be more common in less developed economies;
  • Strict transnational laws on bribery and corruption require supply chain assurance – you need to know not only that your staff are not involved, but also that no one acting on your behalf is either;
  • Costs can be far higher, and much more varied: the potential for savings is greater than in more settled supply chains;
  • The rate of economic growth may require your business to move fast to capture the opportunity, in a fast developing market vital materials may be in short supply – effective procurement can make the difference between failure and success.

Rules are still needed – but they may need to be different rules

The requirements behind your organisation’s policies and procedures – compliance with law, good governance etc. – will remain. If it hasn’t operated extensively in emerging markets before, however, the way those principles are applied may need to adapt.

Reviewing the supplier landscape at an early stage will provide the best sense of this. If you make exceptions to some requirements due to, say, there being only one appropriate supplier in a category, make sure to insert a ‘sunset’ clause so the exception is revisited as the market develops. 

Check the practicality of your procedures

Having defined policies suitable for the circumstances, double check their practicality. If costs are significantly higher than in your home market, approval levels may need raising. If you have an exceptions policy, make sure those who can grant them will be readily available when needed – bearing in mind both time zones, and that Saturday and Sunday may be working days.

Get familiar with different cultures 

Understanding different cultural norms is crucial to understanding how business gets done – and how you can do business effectively. This isn’t just about the new countries with which you may be dealing: expats can also be a breed apart, those who open up the riskiest locations especially. Spend some time getting a handle on how all involved think and act – and you’ll be able to work out the most effective ways to get them on side.

There’s no substitute for first-hand experience

To be truly effective – especially if this is to be a major part of your business – you need to experience the markets involved for yourself. It may be a hard sell to your boss, the finance department and even the frontline staff to fly a ‘back office’ person out, but the case should be clear: procurement is more important than ever in these markets, for you to understand the supply landscape, you need to see it for yourself.

Exotic emerging markets are challenging, difficult, often dangerous and invariably highly demanding. Both for you and for your business, they can also offer unparalleled opportunities: for growth, for profit, for developing skills fast and for demonstrating your worth.

Now, where did I leave my flak jacket…

Brockle

Stuart Brocklehurst is Chief Executive of Applegate Marketplace. His past roles have included Group Communications Director of Amadeus IT Group SA and Senior Vice President for External Relations at Visa International CEMEA.

Procurement Systems – a Panacea or Pancake?

In a far off world, our intergalactic cousins may have a procurement systems panacea, but in my world I’ve yet to see it.

Of course they can help manage the process flow, speed up the approvals, assist contract management and supplier performance. Some even claim to manage relationships. (Really? Systems manage relationships? – that’s news to me!)

Of course, systems have their place and are a necessity in most organisations. I am not suggesting a reversion to having no procurement systems in place. It would be folly in today’s ever-global world, with increasing expectations on corporate governance, to do so. My issue is not with procurement systems, per se, my issue is with systems being used as an excuse for under performance.

The ‘Panacea’ Menu

A commonly held view is that the system’s deficiencies are a core reason of procurement’s inability to deliver the business’ requirements, and a conclusion is drawn (sometimes hastily, sometimes protracted) that a new procurement system is needed.

Procurement software companies pitch for the new and the panacea, complete with all manner of whistles and bells is selected. Rather like my own children at a pancake house selecting from the menu, this is their most fun part, seduced by all manner of options – it is often all downhill from here.

Having made the significant investment commitments, the intricacies of software become known and the integration of the selected system panacea hits trouble and is scaled back, perhaps even being stacked alongside or on top of previously selected ‘panacea’ systems.

Often bells and whistles become either un-implementable or unaffordable. The panacea has turned in to a pancake; or moreover, a large stack of pancakes complete with sickly, unpalatable toppings upon which the consumer looks and questions why such a large, unappetising feast was ordered. Appetite quickly disappears and nausea kicks in. When half of the stack is consumed, cries of “I’m full” resound.

Make Systems work for you

In a previous article, I set out my thoughts on procurement personnel too often remaining in their comfort zone, failing to challenge themselves or their stakeholders.

My point in this article is simple – expecting a procurement system to play too large a role in any procurement transformation is madness. Systems are only systems. Systems are nothing without the people who use them. Buyers who dislike the old system will, in time, learn to dislike the inevitable deficiencies of the new system.

The skilled buyer needs to master their system and make their system dance; using the system to assist, not hinder, meeting the most strategic requirements of the business; to not be constrained by its imperfections. During implementation care needs to be taken to not impose distractions on to the business which reinforce any misconceptions that procurement is only interested in cost cutting.

Clever configuring of almost any well maintained (up to date) reputable system can deliver necessary controls without the unnecessary frustrations and costs of a wholesale re-implementation. Systems should save time for the procurement team and for the business users. Systems should perform for us, not the other way around.

I hope that it is needless to say, that of course, systems need to be maintained, developed and users professionally trained to extract value from the system, not be constrained by it. I simply urge all who are considering a procurement transformation not to over-estimate the criticality of their system, and to correctly consider the manner in which its personnel use existing tools. Systems can become the rule by which we are measured, but they should never become our ruler, nor our excuse.

The scarce resources of your organisation are at stake, and along with it the reputation of the department. Previously, I have contended that buyers are too narrowly focussed in their practised skills – I simply favour investing in the flesh and blood that use the systems ahead of investing in the systems themselves.

Read more articles from Jim here.

Jim WillshawJim Willshaw (MBA, MCIPS, MIIAPS) is an experienced procurement professional acting as a consultant, speaker, coach and trainer to leading organisations all over the globe.

What Does the Board Look for When Hiring a CPO?

In the second part of this series on CPOs, we look at what Boards look for in their CPOs.

Read the first article on expectations of CPOs here.

The successful procurement leader today is expected to establish credibility by embedding the basics. Good financial data consistent with the reporting model of their business, robust controls across a lean supplier base, and well negotiated contracts that are fit for purpose. They must build a function that operates across international boundaries and divisional corporate structures.

Comments from Board level executives in the last three months include:

  • “I want someone smart, quick and innovative. In my business if we can make a 1 per cent saving on our cost base we will increase profit by 50 per cent. I will judge success by the MDs wanting to spend time with the CPO”
  • “I need someone who can sit with my Divisional MDs and help them create a profitable business. Procurement is absolutely critical to the operating model of our organisation. We are in turnaround, and its success is linked directly to the cost base”

How Do You Compare?

When you are invited to interview for a CPO role, be it an internal promotion opportunity or an external process, remember you are not operating in a vacuum. Assume your competition is the highly respected, experienced CPO in your direct competitor and ask yourself, “How do I compare?”.

It is most likely that an executive search firm would have been engaged to identify the best possible talent in the market and competition will be fierce. At this level, everyone is good. So, what makes the difference at the margin?

1. Business first, procurement second

This point was stated clearly in a recent discussion with a CFO of a global Consumer Packaged Goods (CPG) company and experienced Non-Executive Director. When you get close to Board level, everybody is expected to know their “job”. The differentiating factor becomes what else you can contribute to help the company achieve its goals or solve its problems. The ability to understand the business strategy and its challenges, and align procurement to it, is essential and execution is non-negotiable.

2. Leadership 


The ability to build and lead a diverse, global team is vital to being a successful CPO. Generating energy, creativity, ambition, commitment and loyalty amongst the broader team are key attributes of a successful leader. This is particularly relevant in a complex corporate environment. Leadership amongst peers is also critical. Being seen as a credible and well respected leader by colleagues in other functions across your business is vital for your individual success and that of the function that you lead.

3. International Experience 


Many organisations operate in a global environment, from its operations to its supply base and customer markets. Those with experience of living and working outside of one region (Europe, US, Asia) will be more desirable than those who have not.

4. Breadth

Procurement can be viewed as quite a narrow skill set and, therefore, gaining experience across all elements of spend (directs and indirects) will be viewed positively. Exposure to pre- and post-merger acquisition work, integration and delivery of synergy benefits would be another tick in the box. Outsourcing is also on the list, along with experience gained in more than one industry sector.

5. Commercially Astute 


To be respected internally it is vital that your reported numbers and achievements are accurate. Many times, in discussions with CEOs and CFOs, they state that the reported numbers bear no resemblance to their data. They joke that if procurement saved as much as they said year on year, their spend would be zero in three years’ time.

You must be able to build a function that is aligned to the way the business measures and reports its numbers. They need to believe you. A recent McKinsey study stated, “Companies that have invested in developing best- in-class purchasing capabilities have nearly double the margins of those that have not”.

In a recent NED appointment, we specifically targeted the global procurement and supply chain community. The press comment from the FTSE 100 Chair on the successful appointment was “…their extensive expertise in driving efficiencies in manufacturing processes and procurement in global organisations will be of real value to us”.

And Finally…

The good news is that the momentum is building and procurement is getting on the Board agenda. Having been a headhunter in the procurement marketplace for the last 13 years I can confirm that the quality of talent at the top has improved significantly.

The reality however, is that expectations are higher than ever and competition is tough. If you want to reach the CPO role, it’s worth taking a little time to reflect how many boxes you can tick and take steps towards closing any gaps.