Category Archives: Generation Procurement

Professor Olinga Ta’eed: Big Ideas For Helping Your CEO Understand Social Value

Professor Olinga Ta'eed on procurement and social good

Professor Olinga Ta’eed has led a life spanning private, public and third sectors which perhaps is most accurately described as “entrepreneur, investor and social activist” (Professor Conlon, Dean of University of Notre Dame,  April 2011). And despite embarking on plans to retire from a successful business career at 48, Olinga remains active and is instrumental in championing social good throughout business and industry.

Olinga is just one of our 40 influential thought leaders appearing at Procurious’ inaugural Big Ideas Summit on 30 April. To hear the Professor expand on some of the ideas presented in this interview, why not become a ‘Digital Delegate’ and register for the online event? You can do so here.

Procurious asks: You’ve spearheaded the Social Earnings Ratio initiative that will see the annual reporting of social value of 1 billion organisations by 2020. First of all can you explain to the uninitiated what this is, and why its important. 

Olinga: Currently there are very sound robust metrics around financial value based around UK, USA and international GAP (general accounting principles). Financial value is measured because it matters. Increasingly all the ‘other soft stuff’ is starting to also matter– social value, personal value, consumer index, provenance in products, modern slavery in our supply chains, animal cruelty, impact investment, arts, etc. So in 2011 we set about developing metrics as robust as financial value to articulate these intangible values. As we know, in business if you can’t measure it – you can’t bill it and so it is with other values in our society.

Modern society is built on sentiment, about how we feel, about our values. It drives consumer purchasing right through to contracts being awarded based not only on price, speed and quality but also on delivering created social value. For example in public sector procurement, as government funds recede they are increasingly looking towards the private sector to deliver the same services into the community through third sector agencies; this is at the centre of UK The Social Value Act 2012, 2 per cent CSR Law in India, Indonesia 2 per cent CSR Law, 2.5 per cent Zakat in the Islamic countries, the Italian 0.5 per cent Cinque Mille, … the so called Big Society concept. To articulate between these blended solutions requires a common currency. We developed that common currency to translate sentiment into financial value. As governments utilise legislation and procurement to transform society, we found ourselves right in the centre of that need to articulate non-financial values.

Our mission is to translate complex inputs into simple, singular measurements of true intangible outcomes, the Social Earnings Ratio or S/E Ratio. 

Procurious: Regarding the 2020 deadline: Is this realistic/what needs to happen to make this achievable?

Olinga: We currently conduct yearly UK or US GAP (general accounting principles) audits of 35 million companies in USA, 165 million in USA, 40 million in China … c. 1 billion organisations in the world.

Unfortunately using traditional social impact metrics (there are 1153) means surveys, translation proxy tables, etc which cost UK£ 5,000 to UK£ 200,000 to conduct and 3-18 months. This has proven to be a  very significant barrier to resourcing the measurement of social value. Imagine the supply chain of a city like Birmingham with 34,000 suppliers, or a housing association with 18,000 suppliers, or of a food retailer with 35,000 suppliers. Who is going to pay for to evaluate these organisations, projects and processes? In any case no one has the time. The typical turnaround from a formal PQQ/ITT to contract award is a matter of days so this is simply not possible.

We set about building the first Model-T Ford of Social Value – fast, cheap, high consistent quality, fit for purpose, accessible to all, and in a lot of cases does not even require the intervention with the target company. Big Data, Social Media and Sentiment Analysis have changed the world of social value measurement. Shockingly, our disruptive metric takes 10  seconds and costs UK£ 5, and can be undertaken on a SaaS platform, Seratio.com, allowing 1 billion organisations to be measured by 2020. This is why we have been labelled as “the fastest adopted social impact metric in the world” (Vatican press, January 2015).

Procurious: How can procurement help CEOs understand social value?

Olinga: Changing CEO sentiment is a 100 year task but changing behaviour is a lot simpler. For example, if s/he wants to get that UK£ 1.5 billion contract, EU directive now says that impact funds must deliver 20 per cent social value. No ifs, no buts. So the driver here is easy. CEO’s are becoming bewildered by the range of KPI’s they have to perform to. It used to be simple – shareholder value and everything else was a slave to that. But now they find if they cough wrong in one part of the world, customers can walk away in other parts of the world due to social media, governments can pick on them for avoiding tax for example, suppliers don’t want to be associate with their toxic brand, etc.

But it’s not only about self-preservation, it’s about good business. To do that you have to articulate ‘good’ in terms that CEO’s understand. So we give them 3 distinct metrics – social value as a percentage of their capitalization ie what it means to their bottom line; and S/E Ratio which is an efficiency score just like the P/E Ratio – they could spend less but get more impact. Finally, and most importantly, we benchmark them against sectors, competitors, globally – no one wants to be at the bottom. 

Procurious: Modern-day slavery and supply chains are intrinsically linked. Do we need greater transparency? 

Olinga: Let’s not mix up transparency with ethics; they are not the same. When a company demands say 3 per cent cut in supplier remittance, they are making a conscience decision to transfer value. In a capitalist framework, financial value is an artefact between the board and shareholders; everyone else is a ‘slave’ to that. Customers, suppliers, community, statutory bodies, environment, staff … detract from dividends. Pay them more (eg tax, CSR spend, suppliers) and you have less to share with your shareholders and your own bonus. But we now recognize that we operate in a multi-stakeholder Citizenship framework, where all this ‘other stuff’ is social value – and they can contribute towards the total value.

So when a company takes out 3 per cent from their suppliers they have made a deliberate and conscience decision to take out value from their supply chain and give it – usually – to their shareholders. What they are saying that their success is contingent on someone else being deprived of their value ie. underpay, poor conditions, etc in their supply chain in a developing country. We however are not here to admonish companies but merely to measure them. Being university backed we are neutral, non-partisan, no agenda of our own. We merely point out that we can measure that you have taken value from the supply chain and perhaps increased your shareholder value by the same. It may be however, that they give the value to their community initiatives – that’s why  we don’t judge. We simply allow them to measure value so they can track transference.

To hear from Olinga (and many others), watch exclusive videos, read more interviews, and contribute to discussions please register as a ‘Digital Delegate’ on our Big Ideas Summit page.

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Winning the War for Procurement Talent with Social Media

How do we go about attracting the next generation of commercial leaders? That’s the question I have been asking myself recently – and today I wish to put forward social media as the magic solution to our waning talent pool.

How to use social media to attract new talent

Procurement needs to be brave; it’s in dire need of a bold, disruptive force to take us into a rich, exciting and prosperous future. I believe that social media is this disruptor, yet it’s still a blind spot for procurement and very much an under-utilised channel for attracting the best talent. As such it is imperative that we view social media as something we need to take very seriously.

With the exceptions of maybe Google+ and fad networks like Ello – the germ of social media is not going to go away anytime soon. Instead we must view it as a new way of doing business – an opportunity that we not only need to embrace, but one to be mastered. We’ll be touching on this particular issue at our very own Big Ideas Summit physically in London on 30 April, and digitally via Procurious.com. 

To be the most successful CPOs, we need to have the most talented teams. So how can we best use social media to do that?

A new generation with new tools

Procurement is not only one of the fastest growing professions in the world, but we’ve entered an age where “the face” of procurement looks markedly different to before.

The next generation of procurement professionals are intelligent, possess a broad range of interests, have an appetite to learn, and driven when it comes to plotting long-term career goals.

This next generation already possess an affinity to technology and the digital world. They have grown up with broadband, smartphones, laptops and social media being the norm and expect instant access to information. This is the first generation to enter the workplace with a better grasp of a key business tool than more senior workers.

Be where the talent is 

Whether you want to call them Generation Y, or the oft-coined term ‘Millennials’, the same techniques apply.

Once you’ve set out your store, it’s time to ‘go fish’ and build meaningful connections with your new audience. Use social media to identify the rising (and most-active) stars in the procurement and supply chain world – this new tool will very quickly provide you with an insight into the person and their knowledge.

How?

Look towards LinkedIn for an up-to-date career history – you’ll be able to identify gaps before inviting them in for an interview, and reduce the risk of skeletons in the closet.

Scour Twitter and Facebook posts for cultural fit – will this person be a good fit based on their online profile and persona? You don’t want to associate your business with a candidate of questionable morals, or who rubs people up the wrong way.

Who are they connecting with and having interactions with? The company people keep can be telling… Ask yourself if they are representative of your business and brand.

Hang on to a good thing

When it comes to retention – social media plays just as an important role. But don’t fall into the trap of thinking it’s a one-way street…

Just as you’re putting these social powers to good use, Millennials are just as likely to choose their next job based on how they rate their boss, over the company they are going to work for.  They will base their opinion not on your title, but on word of mouth, social groups, strong connections, and online presence.

And its not just Millennials; stakeholders, peers, customers, suppliers are all there. Potential employees will track you (and your organisation) down on social media before an interview. Negative impressions can be formed if you cannot be found online…

Procurement gets a bad rap for being decidedly behind the times and tragically uncool. But by putting the profession out there and appearing instead as a progressive individual/business – someone who’s starting the discussions and making the connections – you’ll be forcing change from the inside out and refreshing the status quo for a new audience.

It should come as no surprise that your company policy on social media is also equally as important. You should be accommodating when it comes to social media use in the workplace – in the first instance it might help you to draw up a social media policy, providing guidance on what it’s OK to communicate.  You should be encouraging employees to take advantage of all the resources at their disposal in order to gain competitive advantage (e.g. Using Twitter for market research/identifying trends; Procurious for eLearning and accessing best practice; YouTube for learning

These are just a few examples of how social media can help you win the war for procurement talent – now I want to hear about your experience. What are you doing as a CPO (or as an organisation) to recruit and retain new procurement talent in this progressively digital world? Come 30 April you’ll be able to hear what 40 of the most influential thought leaders make of it too. Find out more and get involved here.

How to Achieve Award Winning Procurement – Learn from the Experts

Henderson Global is a leading independent global asset management firm. The company provides clients access to skilled investment professionals representing a broad range of asset classes.

Henderson Global

In 2011, Henderson Global’s third party spend was valued at over £100m. However, there was no formal procurement function, with individual business areas conducting informal sourcing activities. The decision was made to create a centralised procurement function, with the aim of delivering value, increasing control and reducing risk.

The department was formed in early 2012 and handed some stiff objectives to prove its worth. It took just three months for the team to deliver significant value and savings and, in 2014, it won the CIPS ‘Most Improved Purchasing Organisation – Start-up’ award.

Nykolas Bromley, Head of Procurement at Henderson, talks to Procurious about his and the team’s journey to this award and plans for the future.

How did you get started in procurement?

After university, I applied to be a trainee buyer on the Tesco Graduate Programme. I assumed that I would end up working in one of the grocery categories, but was offered a place in their procurement function instead. I’ve worked mainly in indirect procurement ever since.

Tell us about getting the department up and running and what your successes have been?

Rather than spend months analysing and strategizing, we initially targeted quick wins in order to demonstrate that procurement can generate an immediate return on investment. By delivering benefits so soon after the function was established, we gained credibility and opened the door to involvement in much larger and more complex projects. In the three years that have followed, we have built out our systems, policies and processes, and focused heavily on developing capability within the team.

What prompted you to submit a nomination for the award?

We were genuinely proud of what we had achieved and felt we had a good story to tell.

What will the award do for you and your team?

Winning a Supply Management Award has raised the profile of the department both within the organisation and the wider procurement industry. The award is proudly displayed in the office, and should the need arise, I expect it will be easier to recruit new talent into an award-winning team.

What has been the most challenging aspect of being in a start-up/greenfield department?

Henderson celebrated its 80th anniversary in 2014, and for most of that time had existed without any form of central procurement. This created something of a communication challenge, whereby stakeholders were often unfamiliar with typical procurement terminology and processes. The steep learning curve worked both ways, as having moved from the retail industry, the language and acronyms of investment management were entirely new to me too.

Do you have any advice for someone in a similar situation?

There will always be a degree of resistance from some quarters in an organisation with no tradition of formal procurement. However, there are also likely to be areas of the business that are crying out for assistance. My advice is to concentrate on the stakeholders that want your help first. Even though they may not be the most strategic or highest value projects, it’s a great opportunity to build up allies, advocates and success stories.

What are your key aims for 2015?

This year we will complete the implementation of a new Purchase-to-Pay tool, which will transform the way that we manage our purchasing and payables processes within Henderson. This is a substantial change-management initiative, and a successful roll out of the tool is a key priority for the function.

What do you see in procurement’s future and how can social media play a role?

We are a small team with low staff turnover, so we try to utilise our external network to keep in touch with developments and best practices in the wider procurement industry. Tools that provide access to potentially thousands of procurement experts and facilitate knowledge sharing are invaluable in our situation, and in advancing the profession.

Social influencer Tim Hughes: Big Ideas for the next Industrial Revolution

Tim Hughes will be speaking at the Procurious Big Ideas Summit

Procurious is gathering 40 of the brightest, most-influential figures across procurement, technology, and social media for the Big Ideas Summit on 30 April.

We quizzed Tim Hughes, social media extraordinaire and Go to Market in the UK for Oracle’s Cloud Accounting and Procurement solutions on the future of the sharing economy, procurement, and technology. You can follow Tim @Timothy_Hughes on Twitter.

Procurious asks: In your Twitter bio you call yourself a pioneer of Social Selling – could you distil it for the uninitiated?

Tim answers: It’s not a self proclaimed title, I’ve been called it many times.  My background is 27 years in sales, so what I do (always) is try and push the Social Selling debate forward.  How can I find new ways of using social and technology to forward an organisations sales strategy.  At the end of the day, it is all about using Social Selling to enable a sales person over achieve their quota quicker.

Last year I was mentioned in Forbes as one of the Top 100 Global Social Sellers, this year an Influence Marketing company, Onalytica, came up with a list which positioned me as the number 2 most Influential Social Seller Worldwide.  The only person from the UK on that list.

My Twitter @Timothy_Hughes has over 100,000 followers and my Blog https://timothyhughesuk.wordpress.com/ I’m told is a “must read” for people involved in Social Selling as it generates so many new ideas and debate.  My most recent blog “Using Twitter to Make C-Level Meetings” went viral.  Something I am very grateful for.

Procurious: Mastering social selling – if you were to promote best practice, what would be your top 5 tips?

Tim: On my blog I provide written materials and webcasts where I talk about the 5 Pillars of Social Selling to offer organisations a strategy.  In terms of day to day things you can do, here are 5 suggestions.

  • People need to have a “Buyer Centric Profile” on LinkedIn.
  • People need to Identify their customers and Influencers.
  • Listen.
  • Build Relationships and Engage.  Don’t Spam!
  • Measure.

Procurious: Innovation in the social space – your thoughts on the likes of Periscope and Meerkat. Will they stick around, what do they offer social storytellers etc.

Tim: I’ve not used them myself, but I’m sure they can.  You always need to go to where your audience is more comfortable.  With C-Level people now being on Twitter and LinkedIn, they is no reason, why a brand or a sales person does not stream video.  For example, a user conference, demonstration or webinar.  Video is becoming more and more a medium that people are comfortable with.  I’m currently working with a sales person to use video for demand generation as inmails on LinkedIn and emails don’t get the right traction.

The Oxford and Cambridge Boat Race last weekend used Snapchat, so why not look at new ways to reach your audience or even reach a new audience?

Procurious: What else is disrupting the online, social space right now? (And how could this tie into procurement)

Tim: SMACT (Social, Mobile, Analytics (Big Data), Cloud, Internet of Things) are the main disrupters I see right now.  People except to come to work and access systems the way they do at home, via mobile and for them to have the same “look and feel” as Facebook.  This is causing major disruption to people that have IT systems that don’t support this.  To that end, we are seeing that IT departments just cannot keep up because of the speed of innovation, that is where they are pro-actively using public cloud to support the business.

People are moving away from text to visual content.  Photo and video.  Instagram is the big platform for people and brands right now.  At a recent procurement event I attended somebody said they couldn’t see how Instagram was relevant and I said, why send out an RFP, why you could post a photo on Instagram and say “who can supply me one of these?”.

Procurious: Gamification – is it important/how can it be used to effectively breed user loyalty?

Tim: Gamification should not be a “shoot from the hip” solution.  Different people react to Gamification in different ways.  While many of us are naturally competitive, often people will just “take our bat and ball and go home”.  It has been used for years by Tesco (Club Card) and Sainsbury (Nectar) to enable them to understand customer behaviour.  I’ve used it in the sales environment for cold calling days, I’ve also used it for Demand Generation via social media (See my blog for details).

Procurious: Why should we be encouraging procurement professionals to face their fears and get on social networks?

Tim: 20 years ago us sales people were able to talk to who we liked in an organisation.  Then people introduced all kinds of technology, like voice mail to stop us getting to company executives.

I have a friend who last week made 12 appointments with C-Level people through Twitter.  A number of us think it’s the “golden age” again.  If executives (in any department) do use social media, how will they understand it?  There was a theory it would just go away.  It won’t.  The argument around social media use in business and the ROI of social media was won two years ago.  We use social media internally, it gives us Competitive Advantage and has increased employee efficiency by 25 per cent.  Why wouldn’t you?

Procurious: Can you recommend some actions to help social-networking newbies spread and grow their online influence?

Tim: The first thing when you get online is to breath. You don’t have to be somebody you are not, just be yourself.  If you are using social media just to get a hang of it, then just do, post photos of what interests you; sailing, cars, book reading.  If you want to grow your influence then be interesting, add value and engage.  Find influencers and engage with them.  

And finally, look forward to 2030. How will the social landscape have changed, what’s your Big idea for social?

Tim: Change will accelerate, as mobiles get faster, can hold more data and the battery live is longer.  Wearables will move from watches and bracelets to be woven into the fabric of your clothing.  Through the Internet of Things (IOT) everything will be connected to the internet and will collect data.  The amount of data we store will get bigger and bigger.  The decision making from this data will revolutionize  society and the way we think and act.  This is already being used by Netflix and dating sites.

The Sharing Economy
The Sharing Economy

The Sharing Economy will move from the edges to be the “norm” with 25 per cent of the NASDAQ having disappeared already, more company will go as new entrants will take their place.  Uber has no taxis, AirBnB has no rooms.  The first question VCs ask start ups now is “What Industry will you Kill?”.

But this will all be surpassed by Artificial Intelligence (AI), while sensors are being seen as the fourth wave of the Industrial Revolution, AI is the 5th.

5 steps of the Industrial revolution
Tim Hughes believes that AI will be the 5th step in the Industrial Revolution. The original appears here http://bit.ly/1Dr3cYX

Want to hear what Tim has to say at the Big Ideas Summit? Follow along by joining this Group.

`Our People Are Our Greatest Asset.` Erm… Really?!

Our people are our greatest asset - Sigi Osagie

This is a guest post by Sigi Osagie – Sigi is a leading expert on effectiveness in Procurement & Supply Chain Management. He helps organisations and individuals achieve enhanced performance growth to accomplish their business and career goals.

A recent post by Stephen Ashcroft reminded me of a point I raised at a leadership round-table discussion a while ago. I smiled to myself as I remembered the looks on the faces of my co-panellists when I started talking about the ubiquitous phrase, “Our people are our greatest asset”. 

It’s one of the most common statements found in company annual reports and regurgitated by many senior executives. Yet, as soon as those same companies hit financial difficulties their people are the first thing they jettison, typically through redundancies, plant closures, etc.

Strange. And interesting.

Why would you get rid of your “greatest asset” so readily in difficult times?

It’s a bit like me being in a canoe on a river, paddling along merrily with my super-duper 4K-UHD TV and my wife, who I claim is my greatest asset*. And then I discover that the canoe has a hole and is taking on water – we risk getting submerged and drowned with the weight the canoe is carrying. I need to reduce the weight quickly for any chance of survival!

What do I get rid of: my 4K-UHD TV or my wife? Hmm… she does weigh more than the TV… but she’s my “greatest asset”

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Financial difficulties are often complex challenges for most organisations. And I’m sure quite a few resort to headcount reductions only as a last resort. But, perhaps, it’d be better for more companies to be more honest and say that their people are their “most dispensable assets”.

Actions do speak louder than words. So if people are really companies’ greatest assets, companies must demonstrate this not in words but in actions: let your corporate mandates and leadership actions show what you truly think of your people.

CPOs may not be the executives who make such “greatest asset” claims in company annual reports. But they face the same challenges of balancing ethical leadership sensibilities with the realities of organisational life. Procurement leaders at all levels must ponder key underlying questions, like;

  • Are my people really my greatest asset in my Procurement function?
  • How vital are my people to my personal success and the success of the enterprise, relative to other things like strategy, processes and systems?
  • How do I show that I value my people and their contribution to our collective success in my everyday leadership style?

These may be difficult probes for some Procurement leaders to contend with. Others may feel confident and justified in their personal modus operandi. Whatever the case, it’s a truism that most of us will spend the majority of our lifetime at work. So finding our mojo, or bringing out our best selves, in the work we do is a big part of our fulfilment and success.

Leaders have a unique role to play in helping people reveal their abilities to excel and succeed. This holds true for whole enterprises as for functional areas like Procurement. Yet, sadly, but in truth, majority of organisations don’t do enough to expose and leverage the capabilities of their people.

When we manage Procurement functions, or any other organisations, in ways that don’t release people’s enthusiasm, energy, excitement, emotion, effort and expertise – what Charles Handy called the ‘E’ factors – we fail the individuals and we fail the organisation. An effective leadership approach that nurtures individuals’ talents and provides opportunities to grow is one of the critical conduits to sustain the psychological contract between employee and employer. It’s a vital mechanism to foster staff motivation and engagement, which, ultimately, fuel performance success.

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Procurement organisations that are able to unlock the performance capabilities of their people are always places of great effervescence. They fizz with the collective passion of the purchasing people, the same people who do the work and deliver performance outcomes that enhance Procurement’s enduring success.

People are indeed the greatest asset of any Procurement organisation. And their harnessed talent is the lifeblood of the function. But ask yourself this: Does our approach to managing our Procurement function bring out the best in our people?

NOTES

*In truth, my wife is not and never will be “my asset”; she’s my co-pilot in life.

We’ve identified Sigi as one of procurement’s key influencers – he will be appearing at our inaugural Big Ideas Summit 2015 on 30 April in London. We hope you can join (digitally!) – catch all of the day’s action here on Procurious and get access to exclusive interviews, video content and discussions. RSVP now and get ready to submit your questions.

Behind the supply chain curtain: 5 questions procurement needs to ask

The five questions Procurement need to ask to avoid a Nanna’s frozen berry issue

Lessons that procurement needs to learn to avoid a Nanna Berry issue

It’s a tense moment in the Emerald City. Dorothy, Tin Man, Lion and Scarecrow stand trembling before the giant visage of The Great and Powerful Oz as he thunders and roars, complete with jets of flame and billowing green smoke. Toto, Dorothy’s little black terrier, slips away unnoticed to the side of the room and pulls back a curtain to reveal that the terrible Oz is in fact a short, grey-haired gentleman frantically manipulating a control panel and speaking into a microphone.  

We’ve all been guilty of accepting the facts presented to us by an organisation without pulling back the curtain to confirm them ourselves. As customers, our powers of investigation are often limited – there’s only so much you can glean from scrutinising the ingredients and country of origin labelling on a box of cereal and you’re unlikely to get very far by interrogating a uniformed teenager stacking the shelves at Woolworths or Coles. A business, however, has the opportunity to gain a great deal of visibility and control over its supply chain, but only if we are willing to do the hard work and get to know their supplier.

The recent product recall of Nanna’s frozen berries across Australia was a very public demonstration of how badly things can go wrong in the supply chain. In mid-February this year, over a dozen cases of Hepatitis A were reported by people who had consumed frozen berries sourced from China via Chile. The company immediately issued a recall but the impacts were enormous: financially, the parent company Patties Foods suffered a 12 per cent fall in share price, while $1.7 million worth of unsaleable inventory sat in their warehouses. The blow to the company’s reputation and customer trust was even more serious, with daily headlines, a class action being threatened and furious comments flooding social media. Red Cross even voiced concerns over potentially infected blood donors.

In January 2013, UK supermarkets including Tesco, Iceland and Lidl were engulfed with a similar supply chain scandal involving meat. Frozen burgers and frozen ready meals labelled as beef sourced from Romania and Poland were found to contain horse and pig meat, leading to a huge customer backlash that saw Tesco drop €360 million in market value, burger sales tumble by 41 per cent and ready meals fall by 15 per cent.

In fact a snapshot of a recent 30 day period identified 47 product recalls in Australia alone. So why did these companies make such poor sourcing decisions that left them vulnerable to risk?

Well firstly, the evaluation team may have put factors such as price and availability above equally-important factors like reputational risk. In an environment where every dollar is a prisoner to its owner, snap price decisions are made without thought to total cost, including risk. The leading procurement managers measure risk by how much it would cost the business if the worst happened, making the total cost argument even more persuasive.

Secondly, have we accepted the Oz-like visage presented by the supplier without taking the important next step of delving a little deeper? Who supplies your supplier? And, in turn, who supplies your supplier’s supplier? Investigating your supplier’s suppliers can be a courageous decision – in many cases, a company may be justifiably worried by what they might find.

So, how can businesses both large and small ensure that a frozen berry or horsemeat-type scandal doesn’t happen to them? The answer lies in taking the well-known financial services compliance mantra of “know your customer” and adapting it into “know our supplier”.

Procurement professionals need to be able to confidently trace the elements used to create their product back to its source, secure in the knowledge that risk mitigation and regular auditing is in place to protect the company’s profits and reputation.

Some typical due diligence questions might include;

  • How financially stable is the supplier?
  • What quality systems are in place to ensure the products or services supplied are of a consistent and high quality?
  • Who owns the supplier?
  • Where does the supplier obtain their goods from?

The first three are typical questions to ask, and ask them we do, but it’s the last one that we need to spend more time and to “look behind the curtain” to find out more about the supply chain. So when we do draw back the curtain what do we need to find out? A good place to start is;

  • Has your supplier done the same amount of due diligence with their suppliers as you have done on them

The walk free foundation http://www.walkfreefoundation.org/ discusses the obligation and opportunity for procurement and supply chain to eradicate modern slavery, a huge and noble venture. One of the ways it advocates this is to audit continuously your supply chain to ensure its slave free. This should be part and parcel of what we do and whilst we are ensuring it is slave free, we should check that the suppliers through the supply chain can actually deliver what the value that each stage brings

To summarise, here are the five vital questions that procurement should be able to answer:

  1. Who, exactly, is the supplier?
  2. Who are the supplier’s suppliers? And who are the supplier’s suppliers’ suppliers (and so on)?
  3. What are the risk factors associated with using this supplier?
  4. What systems are in place to minimise or eliminate risk?
  5. What systems are in place to ensure the product or service is of a consistent and high quality?

So don’t wait for Toto to pull back the curtain, get to know your supplier and pull back the curtain yourself. 

Unfortunately the threat of risk looms large over our profession… In 2015 we’re facing ongoing political instability, increasingly extreme weather conditions, as well as newfound threats from hackers in the digital landscape. We’ll be expanding on these at our Big ideas Summit held in London on 30 April (and digitally – on Procurious, for those wanting to join the discussion online).

We’ll be tackling all the Big Ideas that are set to shape procurement now and in the future with a goal to inspiring a new generation of business intrapreneurs – people who can think outside the box – to drive innovation and lead change in large organisations. For all of the details, to see who’s speaking and how to get involved head to www.bigideassummit.com – don’t forget to RSVP on Procurious here.

Order and procurement progress in Brazil

Procurement in Brazil

We quizzed Procurious members Luiz Paganini and Elaine Santana on the state of procurement in Brazil. Here is what they had to say…

Procurious asks: How do you think procurement differs in your country, as opposed to elsewhere in the world?

Luiz: I believe that procurement in Brazil is still in its early stages. Our business culture is not used to have a person dedicated to Strategic sourcing and another person dedicated to spot processes, what we see most in companies is a person responsible for both jobs, which in my opinion, affects the performance in both cases. Saying that, Brazil does not have a good logistics infrastructure, despite its great potential to have it. Besides that, the experience you gain working in this area is really unique, because, you can work with many types of materials, in many types of industries and basically, if you have experience in procurement, you are able to work with many different materials and products.

Elaine: Brazil is now looking for strategic sourcing specialists, which was not something considered important about 5 years ago. And it seems that only the major companies are looking for this specific skill…

Do you know how many other procurement professionals are in your country?

Luiz: It really depends on the importance companies give to procurement departments, the company’ size and the material’s complexity. As an example, I have worked in teams with almost 60 buyers and contract managers, and I currently work in a team with 3 buyers, which manage contracts and issue POs.

How did you get started in procurement?

Luiz: My first internship was in a chemical company and I was the international purchasing intern. The funny thing about it is that I really wanted to get a job where I could use my English, because I really enjoy speaking it. When I started I used English every day – what made me fall in love with procurement was my first manager, who explained to me the importance of procurement for a business and what benefits can be reached by doing an efficient job in this area.

Elaine: I was in an automotive company as an assistant in Logistics. The role evolved to Foreign Trade and then Purchasing.

What do you see in procurement’s future in your country and how can social media play a role?

Luiz: I reckon that Brazil is moving forward regarding procurement techniques and tools and I suppose that this movement will lead to a huge transformation where we will see more contract managers, giving the necessary quality and generating better results in companies all over the country.

Regarding social media, I believe that it has strengthened our relations with another professionals all over the word, which results in exchanging and sharing experiences, updating these professionals and making them to want change (which in my opinion, is a really good thing).

Elaine: I’ve noticed that Engineers are being targeted [specifically] in this area – and mainly those in the automotive industry. So it looks like people are looking more and more for technical skills in this area.

Why did you join Procurious?

Luiz: Being able to connect with other procurement professionals from many different countries has been really good to me, because it makes me see that I can be the change needed in this area. Besides the fact that I really would like to build an international career, so I reckon that building a strong network in the procurement area is a huge step for me to achieve it.

What are you hoping to get out of the network?

Luiz: Knowledge, contacts, jobs opportunities and partnerships.

Elaine: I hope to get to know more people and learn how procurement works in other countries.

If you’d like to be featured in a future instalment and are keen to fly the flag for your country, why not drop us a line here?

Realising spend savings can leave you wide of the mark

saving money in procurement

It might be seen as a radical point in some quarters, but the first objective of procurement is to save money…

There are clearly other objectives but the primary task remains the same, to deliver cost-effective solutions from third party spend for the business, this is something of a dilemma for procurement and the major customer of procurement – finance. Why is this a dilemma, well, in many cases the finance community do not recognise the savings reported or identified by procurement because they do not actually get to the profit & loss statement. This very simply leads to a disbelief in the claims and ultimately the value of procurement to the organisation.

When CFO and CEOs are polled about what they want from procurement they will in my experience (and various surveys) state three main things:

  1. effectiveness (savings)
  2. efficiency (lower cost of procurement)
  3. risk management / alleviation

Procurement Performance Metrics: Which metrics does your organisation use to measure procurement performance?

Procurement Performance Metrics:

Source: From Data to Profit The Financial CPO – Jonathan Webb 03/12/13, in association with Bravo Solutions. First Published in Procurement Leaders.

This has not particularly changed during my 28 years in the profession across line procurement, consulting and procurement outsourcing. At the same time procurement professionals as well as the Chartered Institute of Procurement (CIPS) the professional body for the profession continue to press for the function to be taken more seriously and strategically.

In my opinion procurement is not recognised in many organisations as a source of competitive advantage for the following reasons:

  1. procurement and negotiation is not understood as an area of competitive advantage
  1. the perceived ROI from investing in procurement is not high enough
  1. other corporate activities / strategies are more important and generate a better return
  1. a general disbelief that the suggested savings can be actually delivered in the business, and ultimately to the P&L statement

It is clear (to me) that the savings opportunity from the effective management of third party spend can be high with the application of the right approaches, and the savings opportunity is of the order 15% on the total external spend of the enterprise.

If procurement is to be treated more favourably it needs to ensure that the benefits are delivered, captured and flow to the P&L. In the same way that profit delivered from new sales flows directly to the income statement. But the question is why do the savings not materialise?.

From my experience across every industry sector the answer lies in the detail, and specifically the common impediments to savings realisation. These are:

  • Institutional lock out
  • Contractual lock out
  • Content compliance by suppliers
  • Budget reduction inertia / budget flow down
  • Lack of knowledge / skills in best practise
  • Cost of delivering savings (overhead)

In simple terms all businesses can save money on the cost of goods and services from third party (external) suppliers, however there are a series of factors that limit even the best businesses from achieving, and more importantly realising, the maximum savings they can.

The total typically that any business can reduce these external costs by is 10-20%; the average company could save 15% from a standing start. So taking a business spending £100m externally could deliver a £15m gross reduction.

However this is often not realised for a variety of reasons. These are:

  1. Institutional or internal cultural lock out – for instance spend areas like legal services, audit, consultancy are controlled by senior stakeholders who will not allow procurement to interfere. This might relate to 8-10% of the saving opportunity. Thus reducing the £15m by £1.2-1.5m.
  1. Contract lock out – these are contracts already awarded and in term, that are felt to be locked out to the end of the term. This might be 10 – 15% of the saving – reducing the £15m by £2.25m.
  2. Contract compliance by stakeholders / users of the deals – not everyone in a business will take up the deals that are put in place. This might be deliberate or because their is a lack of knowledge (i.e. no systems to highlight the deals). This might range from 5-10%.
  3. Contract compliance by suppliers to the deals agreed – this is where suppliers charge rates higher than the agreed contractual rate to different divisions / stakeholders / depts. This might range from 1-5%
  4. Budgets are not reduced to reflect the savings achieved (most permanent in indirect goods and services), resulting in budget holders spending the saving on more goods and services. This is typical in almost every business (except for direct goods and services). It will often range from 33.3 – 50% on average.
  5. Lack of knowledge / skills to apply best practice thinking to the purchased goods or services, thus failing to get the full value of cost savings available (as might be enjoyed by other buyers in other companies). It will typically range from 5-10% of the saving opportunity.

The final element to consider is the cost of procurement. The list above suggests that potentially the best case for savings getting to the bottom line of a business i.e. fully realised would be 67.3% and worst case none (0%) getting through. The cost of procurement to a business will typically be 1-3% (as a proportion of spend). i.e. a spend of £100m, might need staff, overheads and systems totalling £2m p.a. (average of the range 1-3%) to manage. Thus a 10% or greater impact on savings realisation, or put another way a significant decrement to the savings at a net benefit level.

Cost of Procurement in Relationship to Spend Managed 2014

graph2Source: CAPS Research July 15’ 2014

Putting this in in the most simple terms means that for the worst performing function procurement is a negative net cost to the business and in the best only half of the savings opportunity is impacting the P&L.

The critical question is how do we ensure that the savings impediments are overcome, and the savings are realised?

There are a range of factors that can support overcoming these barriers, however one stands out for me – people TALENT or expertise knowledge enshrined in subject matter experts. Clearly there are a whole range of other factors encompassing change management to technology to mandate – oh, mandate the golden ticket, or so some believe amongst procurement professionals.

The reality is that very strong capability will overcome institutional lock-out for example through the deployment of SMEs who really understand how to manage complex spend used and managed by executives. Similarly locked out contracted spend can be unlocked and re-negotiated by specific category experts who know which levers to pull. Knowledge of leading edge technologies and their application will enable the capture of best practise approaches to spend management, budget reduction and communication that ensures deals are adhered to.

The topic of how to remedy the savings impediments could, and may be another paper in itself.

However the answer lays in talent, people talent, the application of subject matter experts whether from within the business or from expert external talent – career interims, for example having made their career from their expert procurement knowledge – will go a long way towards overcoming savings delivery impediments.

So how do you secure and keep up to date talent in your business?

Don’t neglect your technology and analytics boffins in procurement

Big Data! It’s the catch-cry of 2015 and the movement shows every sign of gathering momentum. Article after article has been written on why your business can’t afford to ignore it, and the term has even earned itself a capital B and D, demonstrating just how excited everybody is about the concept.

Yet our benchmarking exercise shows that Australian procurement functions may need to recalibrate their thinking about the skill levels required by the two job-families every team needs before attempting to harness Big Data – technology and analytics.

As part of The Faculty’s 2014 research into capability assessments, research champions from 19 organisations participated in workshops to establish competency benchmarks for six job families within the procurement function: Strategic Sourcing, Category Management, Analytics, Operations, Supplier Relationship Management (SRM) and Supply Chain. The participants were asked to benchmark the competency levels (Awareness, Functioning, Skilled or Mastery) that they believed should be held by different levels of seniority across the above-mentioned job families. The results were then validated by The Faculty Roundtable, consisting of CPOs from 30 of Australia’s largest blue-chip organisations.

Neglect technology skills at your own risk

Two surprises came out of the results. Firstly, there was an anomalous gap at the principal level for the key competency “utilising technology and tools”. Have a look at the radar graph for Category Management (yes, I know the shape in the middle looks like a bird’s head):

Hugo1

Competency levels

1 – Awareness      2 – Functioning     3 – Skilled     4 – Mastery

Out of the six job families, only Operations had a mastery-level benchmark flagged for this competency. In practice, this means that the most senior staff across five job families in the procurement function were content to have no one in their team who were expert users of procurement-related tools. In the case of the SRM job family, the highest competency level for tech was only “Functioning”.

So, what are the possible reasons for this gap, and what are the risks of having a comparatively low benchmark for technology and tools?

Well, one reason may be that most organisations have a dedicated IT team to whom you can outsource your IT-related projects. The trouble with relying on this crew is that the IT team are not procurement experts. Having a scattering of tools-and-tech gurus amongst your own procurement team would be infinitely more valuable than working with an IT generalist, as the marrying of tech skills with procurement know-how can open the door to a potential flood of efficiency and innovation.

The second reason may be generational. At the risk of sounding ageist, we can assume that, generally, the most senior role-holders in your procurement team have more years under their belts than others and may be unwilling to engage with rapidly-changing technology. The tendency, then, may be to leave the usage of technology and tools to junior role-holders, with the risk that critical business tools are operated by staff who lack the experience (and seniority) to make informed decisions. Leaving the mastery of such skills to junior role-holders also means you are reliant on the advice of inexperienced staff or outsourced expertise when deciding on major technology investments, an area in which mistakes can be very expensive.

If the problem is indeed generational, then the good news is that the competency gap will resolve itself in time as technically-savvy members of Gen-X and Y step into senior roles. In the meantime, you might consider “reverse-mentoring”, where the junior in the relationship takes on the role of mentor to provide their senior colleague with up-to-date information and advocate the benefits of new procurement technology and tools.

Don’t neglect your analysts

A highly-skilled team of analysts is worth its weight in gold, yet the results from our benchmarking exercise didn’t reflect this:
hugo2

Competency levels

1 – Awareness      2 – Functioning     3 – Skilled     4 – Mastery

Even a brief glance at the above chart shows that Analytics has a lower level of expected competency almost across the board, with the exception of “cost leadership” and “determining customer need”. This is concerning, given the vital role of this job family and the potential involved in harnessing big data to generate innovation. In practice, the chart above suggests that the most senior analyst in a procurement team is not expected to demonstrate leadership and only expected to have medium- to low-level competency in supply strategy and managing supply chain risk. To me, the benchmarks are more reflective of a non-specialising analyst (much like the IT generalists mentioned above) rather than a member of the procurement function who specialises in analytics.

The strong potential of a high-performing analytics team was demonstrated at the 54-hour “Unearthed Hackathon” in early 2014, where competing teams of number-hungry analysts were given access to Big Mining Data – specifically, transport, logistical, geospatial and geological proprietary data. One of the teams worked out a way to integrate technology into tray trucks that detects when boulders are too large for rock crushers and sounds an alarm to prevent potential blockages. The organisers estimated that this idea alone would save millions for Rio Tinto and other miners – yet it took these boffins only 54 hours to analyse and solve the problem.

We need to master both soft and hard skills

A recurring theme to come out of The Faculty’s capability research was the need for procurement teams to develop those hard-to-define “softer skills”; that is, leading, influencing and negotiating. At the same time, we cannot afford to neglect the “hard skills”, even at the most senior level when leaders step into a more strategic role. An enormous amount is expected of 21st-century procurement teams and we can’t be expert at everything, but if you’re going to neglect one competency to focus on mastering another, do your best not to neglect procurement technology, tools or analytics.

Finally, if you’re an up-and-coming procurement professional who also happens to be a master of tools and tech or an analytics whiz, I’d say you’re in a very good position for a stellar career.

Time Zones and Advanced Planning – What’s Procurement Like in Russia?

With the revelation that Russia’s dreaming of constructing a superhighway that will span the circumference of the globe – Procurement consultant Natalia Urazova and FMCG Procurement Specialist Vladislav Mandryka have got together with their fellow professionals to tell Procurious about procurement in Russia.

What's procurement like in Russia?

How do you think procurement differs in Russia, as opposed to elsewhere in the world?

Commercial procurement only came into being in Russia in 1991, with purchasing previously based on central planning activities. Procurement in Russia is now growing rapidly due to the increasing numbers of multinational corporations in the domestic market. Comparatively, it’s fair to say that procurement in Russia is at the same stage now as it was in the USA in 1999-2000.

Only around 10 per cent of all Russian companies have a defined procurement strategy, nearly all of which are large companies. Small and medium-sized companies tend to view procurement as a ‘passive administrator’ of production orders. As a result of this, these companies tend to lose 25-45 per cent of their spend value in procurement activities.

Leading Russian companies, those with active procurement strategies, are able to save billions of rubles annually through a number of initiatives like reconfiguration of procurement departments, P2P optimisation, category management, tenders and SRM programs.

These organisations have also understood that centralisation of procurement function provides benefits, so, in most cases, the procurement of key commodity categories with sufficient spend is centralised. However category management, Total Cost of Ownership and standardisation are not widely used concepts.

There’s a bit of a mix too when it comes to Supplier Relationship Management and supplier development. Some companies have made an effort to master lean thinking and create cross-organisational cross-functional teams to reduce losses in the value chain. However, there are many that still view supplier management as a method of aggressive negotiations, in order to achieve their own short-term aims.

Some organisations have a level of automation in their procurement activities, although this tends to be a ‘patchwork’ of ERP and MRP systems. Where systems have been implemented, there have been positive results. The same can be said for e-Procurement and e-Auctions for the most part, although in some cases, the focus on minimum prices has caused major mistakes. In one example, an organisation managed to lower the price of an auction item by 42 per cent, but left themselves with 15-years worth of stock!

Procurement is also complicated by the size of Russia and the extended time zones in the country. For example, if you have a regional office in Ust-Ilimsk (essentially in the centre of the country), it requires 2 flights and a 5-6 hour car journey to get there from Moscow. Equally, if you have an issue in a subsidiary in Khabarovsk (nearly the Eastern most city in the country) that requires an answer from a business unit in Voronezh (in the far West), at 9 a.m. you only have two hours for a solution, because there is a 7-hour time difference.

How did you get started in procurement?

In 1999, I was asked by my business to find a specialist to train the procurement department. There was a lack of such specialists in the market at the time, so I designed a small workshop myself. I have adored procurement since then – it’s the most interesting and best part of the business!

I’m now involved in the implementation of lean thinking in procurement activities across all my research and consulting projects.

What do you see in procurement’s future in your country and how can social media play a role?

Procurement professionals are increasingly becoming change leaders in organisations and have the ability to dramatically increase the efficiency of the entire value chain.

Social media isn’t used as much in procurement at the moment. But I hope that we can use it to get involved in conversations with procurement professionals from around the world and share information and experience about procurement best practice.

Why did you join Procurious?

I rarely use social media in my day-to-day procurement activities and to share procurement best practices and I saw Procurious as an opportunity to change that.

What are you hoping to get out of the network?

To get involved in conversations with other procurement professionals and share information and procurement best practice.

How are you going to get your peers involved?

By inviting them via my network, particularly those who shared their experiences in order to help me write this article!