Category Archives: Procurement News

2016 – The Year of Procurement Transformation

Transformation – the word on procurement’s lips. But when will real strategic change be realised for the profession?

transformation

If you were to pick one word to describe 2016, you could probably settle on volatile. There has been major change afoot in global markets and politics, which has lead to unprecedented volatility and upheaval.

In the past few weeks, we have been talking to some of our Procurement partners about the topic of change and transformation within their organisations, and more broadly in the market for our ‘Autumn Market Insights‘.

It prompted us to think about what has actually changed? Clearly the spectrum of change is quite varied. However, a common theme coming out of these discussions was ultimately that Procurement was, is, and always will be, about getting cost out of the bottom line of the business.

Transformation on the Procurement Agenda

How aggressively this is approached will obviously vary from business to business depending on its agenda. But surely this is why Procurement is critical to any business?

What this has allowed over time is for Procurement to have a seat at the “top table”, rather than being part of a broader function that reports into Finance.

Increasingly we are seeing businesses turning to a more category aligned approach to Procurement, bringing in experts in their field to drive category strategies forward and having the gravitas to collaborate with stakeholder groups.

However, as of one of the CPO’s we spoke to pointed out there can be risks to this approach. There can be a risk that a Procurement team member becomes so immersed within their stakeholder group that they “go native”, and move away from the Procurement agenda.

And the Buzz Word Is…?

If the buzz word for Procurement in 2015 was “strategic”, we would say 2016 is all about Procurement transformation. We are working with four large and well respected organisations at the moment in the South, supporting their transformations.

But what does Transformation truly mean? Does this simply mean a change in process or ways of working or is it something much larger? We have to consider transformation as fundamental change across the business – the processes behind procurement, the remit it covers, and the tools used. This is true transformation.

Clearly 2016 is very much about driving this Procurement transformation agenda. These are exciting times for the profession. And, as we approach the end of 2016, it can only add to Procurement being at the forefront of an organisation’s DNA.

Procurement Heads is all about getting to know great Procurement people and recruiting Senior Procurement professionals.

Procurement Heads understands the value of working in partnership, both in helping people develop their careers and in supporting organisations to build world-class teams.

Stop Ignoring Twitter As A Supply Chain Tool

Using social media as a supply chain tool? Don’t dismiss Twitter – it can add real value for your organisation.

twitter supply chain

Many procurement teams and companies have realised the crucial role that social media plays in their marketing efforts. However, while Facebook and LinkedIn are often used effectively, Twitter is frequently relegated to an afterthought – and it shouldn’t be.

From brand awareness to customer engagement and trend monitoring, Twitter provides many opportunities for supply chain organisations to stand out from the crowd.

In addition, the microblogging platform can be an asset that extends beyond your marketing efforts and shapes your overall business strategy.

Below are just a few ways Twitter can be a game changer for your company:

Use Hashtags To Showcase Thought Leadership And Discover New Supply Chain Trends

Twitter’s hashtags are a great way to get a pulse on the supply chain industry. In fact, there are 228 tweets per hour that include the hashtag #supplychain. Some of the other most popular supply chain hashtags include #Procurement, #SCM, and #Logistics.

Use these hashtags in your posts to showcase thought leadership and uncover potential business development opportunities. You can also follow these hashtags – and others – to uncover new trends, technologies and best practices that you can use to implement in your organisation.

Tools like Hashtagify make it easy to find hashtags relevant to your company and industry.

Recruit The Right Talent

Recruiting and retaining top supply chain talent is becoming more competitive, so companies need to find new ways to recruit the best in the industry.

Showcasing your company’s corporate culture through Twitter can entice the right supply chain talent to apply for job openings at your organisation.  

Not only can Twitter help find the right talent, it can also help your organisation research and vet candidates. Your organisation will understand the candidate’s perspective on the supply chain industry, as well as get a better sense of whether or not the candidate would be a good fit in your organisation.

Discover Potential Demands And Risks in Real Time

Twitter acts like a real-time news ticker, which can help supply chain professionals prepare for unexpected demands and risk. Twitter is able to add rich, real-time insight to operational data that can help your organisation make timely and better-informed decisions.

According to IBM, Twitter is a valuable indicator of demand for certain sectors of manufacturing. For example, if a major influencer discusses one of your products on Twitter, the awareness of your brand may skyrocket, causing a large demand for your company’s product without any warning.

By monitoring your products and services on Twitter, you’ll be able to learn about the demand as soon as you can. Social listening on Twitter can also help your organisation prepare for low-probability, high-impact risks such as natural disasters that could disrupt your supply chain.

Showcasing your knowledge, connecting with top talent and keeping your finger on the pulse of the supply chain are powerful ways to gain a competitive advantage over the competition, and Twitter makes it simple. Be sure to integrate it into your social media strategy.

Ed Edwards is Audience Outreach Manager at THOMASNET.com. He leverages his extensive experiences in engineering, manufacturing and procurement, to educate procurement and engineering professionals on how to streamline and improve their work.

Ed provides customised training to organisations’ engineering and sourcing teams and helps buyers with their challenges and finds them new opportunities.

Unpicking The Kraljic Matrix for Procurement

In 1983, the world was introduced to The Kraljic Matrix. But is it still as relevant to procurement today?

kraljic matrix

September 1983: Peter Kraljic publishes an article that will deeply change both the working methodology and concept of many Procurement departments.

The article, published in the Harvard Business Review was titled “Purchasing must become Supply Management”. It introduced a concept that has been a key tool for procurement ever since: The Kraljic Matrix.

In this article, Kraljic advocated and argued for the need for profound transformation of the Purchasing Department into a much more strategic role. He included several examples of large organisations that had already done so, and achieved excellent results.

In order to support the required change to a more strategic role, Kraljic introduced a decision matrix. In this article, we will explain how the matrix works, and how organisations can apply it in their procurement department.

Defining The Kraljic Matrix

The Kraljic Matrix classifies the sourcing scope (also known as acquisition perimeter) from a company according to two factors.

1. Financial Impact

Measures the impact on both the manufacturing costs of the product and its impact on the profit margin.

Look at the example of manufacturing a Lego brick. Plastic would have a high financial impact, both because it accounts for most of the product cost, and because the current volatility of oil (the price of which impacts directly on plastic cost) greatly affects the profit margin.

2. Complexity of Supply

Sorts the market complexity to achieve a stable and uninterrupted supply. In this case, we must consider whether there are monopolies, logistic issues, volatility, or impact of technological changes.

An example of highly complex supply would be the chipset manufacturer for mobile phones Qualcomm. The company took over Intel and Nvidia, giving them a monopoly on the market, and the ability to refuse to supply certain organisations.

Whereas some organisations, like Samsung, chose to manufacture their own chipsets. However, not all companies can do the same.

The Kraljic Matrix

By combining both factors, we produce a chart with four perfectly differentiated groups:

  • Leverage Items

Standard commodities with an abundant source of suppliers. They are usually highly standardised, and easily available, products. Supply risk is low, though there is a high impact on costs and benefits. For example, plastic or raw material for Lego bricks.

  • Strategic Items

These are critical products for a company, and are the key focus for the Procurement team. There is high risk against supply, and a high impact on cost. For example, the Qualcomm chipsets for mobile phones.

  • Non-Critical Items

Those products that have a low impact on costs, and the supply of these is low in complexity. A good example would be, for example, standard screws in a computer factory.

  • Bottleneck Items

These are products with limited source of supply. Their supply risk is high, but do not have a major financial impact. For example, an integral part of technology hardware, the power pack for a laptop.

Analysis and Strategy

Once you have classified the products, you can define the strategies to be applied on each group in order to optimise supply. While each item will likely have it’s own specific strategy, the categorisation in The Kraljic Matrix points to a common direction and goal for each, and shows common pros and cons for each group.

kraljic-categories
Adapted from ‘Purchasing Must Become Supply Management’ – Peter Kraljic, Harvard Business Review, 1983
  • Leverage Items

We are in a so-called “buyer’s market”. Because of this, we need to negotiate to achieve the best supply conditions from a dominant position. Procurement can do this through the use of tenders, reverse auctions, setting specific target prices, or framework agreements.

  • Strategic Items

In this case, the need to mitigate risk is mutual between the supplier and the buyer. The goal here is to ensure long-term availability. Therefore, procurement needs to consider suppliers as an equal and look for a “win-win” negotiation that benefits both parties.

In these cases supplier development strategies, partnerships, and supplier innovation are recommended.

  • Non-Critical Items

There are products with low economic impact and low complexity of supply. This makes them usually the lowest priority in a sourcing strategy.

Habitually supply agreements are negotiated based on high volumes, or Kanban type solutions are implemented. A good example is the screws in the computer factory described above. These would be bought in bulk, but have a variety of suppliers available in the market.

  • Bottleneck Items

These are the opposite to Leveraged Items – we are in a “Supplier’s Market.”

In this case two parallel strategies must be followed. The first is to secure supply through framework agreements, providing for penalties for the supplier due to lack of supply while maintaining good relationships with existing suppliers.

The second, which should be done at the same time, is for procurement to work with R&D or Engineering departments to establish alternative products that can be used. This enables the organisation to reduce supply risk, turning bottleneck items back to non-critical items.

Some Advice to Heed

Although the information provided by The Kraljic Matrix may seem very generalised, it’s purpose is to help set up a basis of supply strategy.

By classifying sourcing activities using the Matrix, organisations can get a clearer picture of its available resources, priorities for negotiations, and objectives it wants to achieve.

The article wouldn’t be complete without some advice. The Kraljic Matrix is a dynamic tool – it changes, so it needs to be reviewed frequently. Markets have become more dynamic, and the supply situation can change significantly in short time periods.

Being able to adapt to these changes is a critical success factor for Procurement. Therefore the tools used to develop strategies must also be dynamic and flexible, which is why the Kraljic Matrix can provide great value for organisations.

How Big Data Insights are Revolutionising Global Procurement Strategy

More companies than ever are using Big Data insights to drive their decision making. But what key benefits are they realising by doing so?

big-data-insights

This article was originally published on My Purchasing Center.

Advances in technology are making it possible to generate more data than ever before. We can quantify, measure and track every interaction, transaction and engagement in excruciating detail.

And when we collect these “big data,” we can gain tremendous insights into business processes, including global procurement strategy.

Because global procurement is focused entirely around obtaining greater efficiencies and streamlining purchasing operations, global procurement is primed to be revolutionised by the insights that stem from big data.

Businesses that collect big data insights are finding that they can refine global procurement strategies and processes with greater precision than ever before. They also can intervene more effectively to resolve problems and challenges, and they can use concrete data instead of intuition and instinct to accomplish this work.

One study by the Massachusetts Institute of Technology’s Sloan School of Management, finds that among companies in the top third within their industry, the use of data-driven decision-making made a company 5 per cent more productive and 6 per cent more profitable than a company that didn’t use data-driven decision-making.

Let’s explore the specific ways that big data insights are revolutionising the global procurement industry:

Shorten order-to-delivery times

Traditionally, the procurement timeline has been based largely on individuals using their best judgment and insider knowledge to get the right products and resources to the right place at the right time.

No matter how talented people are, however, they’re often no match for a computer algorithm that is specifically designed to optimise timelines and manage all aspects of the ordering and delivery process.

Computer-based analytics also can adapt to changing conditions in real time, ensuring that no matter what happens, nothing will slip through the cracks, and order-to-delivery times will continue to be optimised.

Increase supply chain efficiency

As with managing a procurement timeline, individual people can only manage a supply chain as efficiently as the human brain will allow.

Analytics software goes past the limitations of the human brain, processing and interpreting more data points about a supply chain than anyone’s brain could possibly synthesise.

In the end, these big-data insights yield more precise predictions about how to optimise the supply chain – and better predictions yield better decisions.

Lower costs

The goal of global procurement is to achieve cost savings, so it makes perfect sense to use big data insights to optimise all opportunities to lower costs.

Analytics software can instantaneously and accurately compute more possible combinations of events and items and scenarios than any human brain could, and computers can also thus make the “sweet spot” recommendation that appropriately balances all of these competing factors.

Improve supplier-client relationships

Both the supplier and the procurement client benefit from big-data insights. The supplier gets access to invaluable information that helps the supplier more effectively allocate its resources, as well as make plans to deliver on time and on budget.

The client benefits by no longer being forced to actively manage every aspect of the procurement process. Rather, a computer-based management approach frees the client to focus on building and enhancing relationships with suppliers, and on developing creative, out-of-the-box solutions that further enhance procurement processes.

Eliminate arbitrary decision-making

As much as businesses like to think their managers are making sound decisions, some will inevitably make decisions based on emotion, gut instinct, and self-interest.

Big data insights dramatically reduce the chances of this by forcing managers to not only use data-driven analytics to make decisions, but also to be prepared to defend those decisions.

As more businesses turn to big data insights to drive global procurement strategy, it’s important to provide adequate resources to support this transition and to provide adequate time for this transition.

When big data insights are integrated effectively into procurement processes, businesses can count on shorter order-to-delivery times, increased supply chain efficiencies, lowered costs, improved supplier-client relationships, and less arbitrary decision-making.

With more than 30 years of experience working with and providing excellent customer service to companies of all sizes, Rick Bender now is the Sales Director at CenterPoint Group.

CenterPoint is a management consulting firm that specialises in reducing purchasing expenses of businesses in areas such as office supplies, janitorial supplies, and industrial supplies.  

5 Common Failures in Technology Implementation

Technology should provide huge benefits in procurement. So why do so many projects fail at the implementation phase?

failure at implementation

 

Join our webinar on the 7th of November and find out how to drive successful technology implementation.

If you’ve been a procurement professional for any length of time, this is probably a familiar situation.

Your company has decided to implement new technology in the procurement function. A date for go-live has been set, and some training has been arranged for current users. There are grumblings about yet another system to be used, but that doesn’t fit with current procurement processes.

When you ask around, very few, if any, of the department have been asked to input into this decision. The company certainly doesn’t seem to have spoken to people who are actually going to be using the system.

When the time comes, the technology is implemented, and training is rolled out. The procurement team accept the new system (perhaps grudgingly), and start to use it.

Within a few weeks, the (very short) honeymoon period is over, and the issues and bugs have appeared. Far from improving or simplifying the processes, the technology isn’t working out as planned. It’s begun to make even simple tasks more difficult.

Within months, the shiny, new, purpose-built technology is being used for the bare minimum that the procurement team can get away with, and they have begun to come up with novel ways to work around the system.

Difference Between Success and Failure

While situations like this may be decreasing in number, they still occur with uncomfortable regularity. When it comes to technology across organisations, not just in procurement, implementation is the stage in the process that is most associated with the success or failure of the project.

Ahead of the free webinar between Oracle and Procurious, Darryl Griffiths, Acting MD at Enrich, and implementation expert, shares his key reasons for why implementations fail.

  1. Alignment of Strategy and Technology

Ensuring that the business, procurement and operational strategy all aligns is the first step in this process. However, too often, strategies aren’t aligned, or have been created in isolation without proper discuss.

Without fully understanding the strategy, the objectives for the technology implementation can’t be fully understood. This can lead to the wrong technology for the project being selected, and not being fit for purpose against the objectives.

  1. Lack of Change Management Plan

The plan for how the technology is going to be implemented should be laid out clearly from the start. Frequently, organisations work towards their go-live date, but give little thought to the short, medium, and long-term plan following the launch.

Too few plans take into account training requirements, or how new users will receive this training when they start in the department. 

  1. Lack of Communication or Champions

Without good communication, it’s likely to be a fight to get buy-in. Without buy-in, the implementation is doomed to failure.

Organisations don’t take into account the end users of the technology. This leads to the ‘why’ of the project never being disseminated.

This leads to the perception of new technology being forced on them, and breeds resistance. This resistance undermines the project, creating a situation where users are expecting the technology to fail, rather than having an open mind on how it can help them.

  1. Poor or Out-of-Date Data

The old technology didn’t work properly because the data wasn’t right. But there’s no data clean-up been carried out before the new technology is implemented. Which means the new system won’t work any better.

There is a vast amount of data available to procurement, which technology is frequently implemented to help sift through. However, putting poor data into the system, as well as not keeping the data up to date, will inevitably result in bad data out.

  1. Built to Last vs. Built to Change

In years gone by, products were built to last. It was common for things to last 10 years or more. However, in a marketplace and environment where agility and flexibility are valued, a built-to-last system may not fit the bill.

If the system hasn’t been built to be changed easily, then it’s going to go out of date very quickly. And it’s unlikely that budget will be available for a new system after 1-2 years, when it was designed to last 10 years.

Secret of Success

It’s easy to pin-point where technology implementation fails, but far harder to ensure that it’s a success from the outset. However, if the right strategies are in place, and all the planning is carried out, procurement gives itself a greater chance of success.

If you want to find out more about how to manage your implementation, and hear more from Darryl on how you can set yourself up for success, join our free webinar on the 7th of November.

Darryl will join Oracle Business Development Direction, David Hobson, in a discussion chaired by Procurious Founder, Tania Seary. The webinar is aimed at helping Procurement Leaders come to terms with volatility, understand the role and benefits of technology, especially cloud, in procurement strategy, planning and decision making.

For more information, and to register, visit our dedicated page.

Why Instant Supplier Information Access Can Fire Productivity

Procurement needs to maximise its productivity if its going to meet business needs. Having access to real-time supplier information is a step in the right direction.

supplier information productivity

When I started my career in procurement over 40 years ago, we used notebooks to store all of our supplier information.

Go ahead – be shocked or have a little chuckle about how ‘primitive’ we were! But guess what? Things haven’t changed nearly as much as people like to think.

Today, most procurement teams have modernised their supplier information management by using some type of a shared database. These solutions, while centralised and searchable, still rely on internal team members manually entering and then searching for supplier knowledge.

And while most companies are doing the best they can with scarce resources, it is important to remember that it is possible to make progress without actually resolving any key business issues, or becoming the slightest bit more strategic.

Value in Scalability

We had notebooks and you have a database. But if the information isn’t (a) current and (b) fully leveraged, it doesn’t really matter where it sits.

The true transformative value of any technology is its scalability. How much of an effect does it have on the amount of work each person can accomplish?

tealbook, a platform that centralises supplier provided information, internal supplier knowledge, data from Dun & Bradstreet, and aggregate intelligence from industry peers, has set this challenge of scalability as their target.

Making it possible for procurement to accelerate the discovery process through instant supplier recommendations, and improving the match between business needs and prospective suppliers, gets at that need for scale.

With better suppliers available sooner, procurement can achieve a step change in their productivity. This also helps to move the needle on the all-important metric of spend under management.

Productivity – Focusing Your Efforts

Let’s say you’ve got 20 people working 40 hours a week, 50 weeks a year. That gives you a maximum of 40,000 procurement hours per year. You’ve got to ask yourself how many of those hours the team spends looking or searching for something to satisfy an information need. Every hour not spent on value-added activities is an opportunity to improve productivity.

When we look at procurement’s productivity in the context of supplier discovery, we have to focus our attention on how much time procurement spends searching for the right suppliers before a sourcing project can get off the ground.

In order to decrease the time required for discovery – and increase the quality of the suppliers invited to participate – we need to make sure we’re searching a resource dense with suppliers and supplier information, preferably using a common language search rather than archaic codes.

Whether you’re looking at a supplier discovery platform or a more traditional supplier marketplace, the point is to focus your efforts where they are most likely to generate positive results.

There’s a huge advantage in somebody being willing to take the time to centralise the right information and maintain it. The resulting resource will make a dramatic improvement to what procurement is able to deliver, how often we can deliver those results, and just how BIG those results are.

There aren’t many companies adding employees, so if you can find a solution that dramatically changes the amount of work each employee can do, you’ve really got something strategic.

Meeting Real-Time Supplier Information Needs

Today, an increasing number of corporations want to believe that their procurement teams operate strategically. As that reputation spreads, more and more projects will come from the business.

In order to handle the increased demand for our time and skills, procurement has to be really good at making decisions about how to spend time and allocate scarce resources.

If we are going to facilitate purchases, strategically source every category, AND meet the real-time needs of the business, technology has to be capable of actual heavy lifting, not just function as an electronic supplier notebook.

In my next post, we’ll go beyond the supplier information modernisation process to look at the strategic value of a marketplace approach.

Gregg Brandyberry is a recognised pioneer in procurement and sourcing technology. He has over 40 years experience in industries such as automotive, textile, manufactured goods, electronics and healthcare.

He is the former Vice President of Procurement – Global Systems and Operations for GlaxoSmithKline, and a Senior Advisor for A.T. Kearney’s Procurement and Analytic Solutions organisation.

5 Biggest Challenges Facing Public Sector Procurement

Public sector procurement managers face a different set of challenges to their private sector peers. But which are the biggest challenges?

challenges public sector procurement

The procurement profession is increasingly becoming a core component of an organisation’s innovation and process-driven strategies to reduce costs, increase efficiencies and make advancements. As a result, procurement managers are feeling the pressure to remain agile and at the forefront of change.

When it comes to the public sector, however, there are numerous and unique roadblocks to successfully implementing these strategies, systems and processes into existing operations.

Procurement managers in the public sector often have a specific framework within which they are required to work. Generally these framework have an increased focus on probity, and lack the traditional supply chain model.

However, public sector procurement departments are responsible for some of the highest levels of spend in any given economy. In most countries, state and federal departments and agencies are responsible for purchasing for public services, including healthcare, infrastructure, and education.

In recent years, the spend by public sector agencies in both the UK and Australia has been measured as over 40 per cent of national GDP. With scrutiny over how money is spent, and any inefficiencies open to public criticism, public sector procurement professionals face a tricky balancing act.

As such, the public sector can both be a source of great knowledge and best practices for those in industry. Yet, they also face their own particular set of challenges.

Key Challenges for Procurement

In July, GovProcure launched a survey aimed at finding out, directly from government procurement managers, what their biggest challenges are for 2016 and beyond.

After analysing the results, the 5 main challenges have been identified so far as:

  1. Realising true benefits from data and analytics in the procurement division
  2. Ensuring the benefits of embedding sustainable procurement practices are fully realised
  3. Balancing outsourcing with maintaining high quality internal capacity
  4. Getting the most out of suppliers
  5. Developing strategies to engage effectively with Indigenous suppliers

Do you have any challenges to add? There’s still time for you to get involved and have your say in the survey. You can complete the survey here.

The final results will be shared with the audience at the GovProcure 2016 conference later this year. The event will host a panel discussion specifically designed to address the challenges identified in the survey. The session will also give procurement managers tangible ideas for improvement in the areas that matter to them most.

Let’s stop just talking about the challenges we face, and work together to overcome them.

The GovProcure 2016 conference in Sydney brings together public sector procurement managers from all levels of government each year to focus on in on opportunities to improve, collaborate and ultimately deliver more value to their organisations.

To find out more, download a GovProcure brochure here.

How Procurement Can Support SMEs in Tendering

SMEs can provide formidable USPs to procurement. But procurement first needs to take steps to support them in the tender process.

smes

99 per cent of all businesses within the UK are small and medium enterprises (SMEs) – those companies which are made up of 250 employees or less.

At the end of 2015, the total number of companies this size in the UK stood at 5.4 million.

Recently, within public sector procurement, there has been a noticeable increase in the number of contracts awarded to SMEs. Given that SMEs have long since made up the majority figure of all businesses within the UK, it is interesting to see that only now are they being brought to the forefront of the bid and tender process.

Wave of Change

A recent study has shown that nearly three quarters of public sector procurement contracts have been awarded to smaller organisations. This is in contrast to a few years ago, where just over half of contracts were awarded to SMEs.

Historically, larger businesses have been able to gain competitive advantage on SMEs in the contract bidding wars. They have been able to provide extensive financial data, as well as time and money, to work through the complex tender processes.

However, the wave of change has arrived. Public sector organisations are helping make that tender process a lot easier in a bid to support local businesses. With less red tape, SMEs are able to provide an enhanced USP to procurement. This includes access to local products/services, innovation, ethical trading and overall a more competitive offering.

Simplifying the Procurement Process

Leading the way, some organisations have already begun by standardising tender documentation. They require less financial information about the company, and are setting up electronic portals to help make the process as efficient as possible.

All of this is in aid of simplifying that bid process for SMEs to encourage them to apply and succeed in winning contracts.

For procurement professionals, this simplification of the tender process not only supports local SMEs, but also helps to cut out inefficiencies in day-to-day procurement jobs.

When it comes to reviewing bids now, procure have less financial data to wade through, and a more comprehensive tender document to look over. Plus, taking advantage of technology is also helping save time and money.

Procurement Heads is all about getting to know great Procurement people and recruiting Senior Procurement professionals.

Procurement Heads understands the value of working in partnership, both in helping people develop their careers and in supporting organisations to build world-class teams.

Defining & Defeating Maverick Spend

Is maverick spend an issue for the UK public sector? Is local government adhering to procurement practices when spending taxpayers’ money?

maverick spend

It’s not uncommon for businesses to suffer from high levels of uncontrolled procurement, often known as maverick spend. These levels can often reach 80 per cent of total spend, a figure likely to send shivers down the spine of any procurement professional.

To elevate its role within an organisation, procurement must extend its reach. A CEO is unlikely to take a function seriously that only influences 60 per cent of the activity for which it’s responsible.

Yet that is the situation of the average procurement team. No other function would allow this: Legal, HR, Finance, Compliance, Public Affairs – all insist their writ runs broad.

Maverick spend is a major obstacle to extending procurement’s influence. However, decades of setting policies and rolling out enterprise systems have had limited impact in reducing it.

Maverick Spend in the Public Sector

While it’s often easy to see the figures in an individual organisation, actively tackling this spend is another matter. Solutions range from improving reporting to enabling other functions to see the benefits proper procurement processes bring.

Today, Applegate PRO has released a whitepaper on maverick spend via Procurious. The paper will showcase data on procurement practices gained via a Freedom of Information (FOI) request to all local councils in the UK.

This is one of the largest FOI requests relating to procurement processes that has ever been conducted in the UK.

We hope that this research will provide a valuable snapshot of how local councils weigh up in the use of their allocated budgets on a national scale.

Applegate PRO are exploring further areas of research to analyse the maverick spend in public sector bodies, including the Ministry of Defence and NHS.

What the Whitepaper Offers

This white paper uses a case study of local government procurement to explore the varying levels of maverick spend across a set of comparable organisations. It reveals startling differences in levels of uncontrolled expenditure and explores the ramifications for this.

Findings from the 276 councils that responded from across the UK include:

  • Definition of maverick spend.
  • The top three councils that reduced levels of maverick spend between the financial years of 2012 and 2016.
  • The councils whose maverick spend increased the most between the financial years of 2012 and 2016.
  • Local council with the most maverick spend.
  • Local council with the least maverick spend.
  • The percentage of maverick spend undertaken in their council from each financial year from 2012 to the present day.
  • The sanction systems in place for non-compliance to procurement practices.
  • The percentages of transactions that require a purchase order.
  • The number of procurement professionals that have a CIPS or other professional procurement qualification and how many are currently undergoing procurement training.

If you are interested in reading the full report, you can sign up to receive your copy here.

Applegate PRO is a free-to-use eProcurement system that streamlines request for quotation and purchase order processes, enabling buyers to submit a request, receive up to ten competitive quotes and raise a PO in a matter of hours.

Submit your request for quotation today with no obligation to buy at http://www.applegatepro.com/

5 Imperatives for Creating Greater Procurement Agility

Is your procurement organisation world-class? Improving agility is a key step in this journey, according to new research.

world class procurement

New benchmarking insights from The Hackett Group have revealed that world-class procurement organisations now have 18 per cent lower operating costs than typical companies. They also operate with 28 per cent fewer staff, and generate more than twice the return on investment.

How are they doing it? Here are the five key strategies identified in Hackett’s latest research paper.

  1. Embrace digital transformation

World-beating procurement organisations have shifted to a complete digital experience for their business users, according to The Hackett Group Principal, Sourcing and Procurement Practice Leader Robert Derocher.

“This includes a true move to a paperless environment and the ability to work from anywhere on any device. Companies are implementing new, integrated source-to-settle technology platforms, primarily in the cloud, and adopting new capabilities that enable the agility required by their customers and the marketplace,” says Derocher.

Added to this is a convergence in software advances and wider use of new technologies. Cloud-based infrastructure, and virtual business and technology networks make up the first parallel. The second comes from rapidly transitioning user bases that are increasingly adept with new mobile technologies and business models.

The research found that world-class organisations spend 23 per cent more on technology per person. The investment yields real productivity gains, including 71 per cent lower cost per order than typical companies.

  1. Reallocate resources from transactional focus to value adding

A high level of automation also allows staff to devote more time to talent development and business performance-related activities. Digitally-enabled processes reduce errors, and make information easier to access, freeing procurement staff for higher-value work.

In addition to operating with dramatically fewer staff, leading organisations also allocate their people very differently. They dedicate a significantly larger percentage of the overall staff to sourcing, supply base strategy and planning/strategic roles.

They also have a much smaller percentage of people focused on operations and compliance management.

Top organisations spend 13 per cent more on outsourcing than typical companies.

They selectively outsource in areas such as procurement system support, supplier help desks and market intelligence to tap into greater expertise, augment knowledge, and leverage the capacity and capability of third-party providers.

This helps to increase agility by providing resources that can scale to demand and frees up procurement to focus on anticipating and responding to critical business needs.

  1. Leverage analytics-based decision making

Increased investment in cloud-based infrastructure and applications is creating tremendous new opportunities for procurement organisations to apply digital technologies to transform service delivery.

Increasingly, this becomes the platform for delivering a whole new class of services, such as information and predictive analytics to guide decisions.

According to the report, the hallmarks of information-centric world-class procurement organisations are:

  • Having a sophisticated information/data architecture that makes effective data analysis possible;
  • Planning and analysis capability that is dynamic and information driven;
  • Performance measurement that is aligned with the business.

World-class procurement organisations also invest a greater proportion on systems and tools to enable analytics capability.

  1. Adopt a stakeholder/customer-centric service design and delivery

The customer must be the focal point of all key activities and functions within procurement. With this approach, services are designed based on users’ wants and needs, rather than forcing them to change their behaviour to accommodate procurement’s internal processes.

World-class organisations are service-oriented and customer-focused in their approaches to procurement delivery. They design services and processes from the customer perspective or outside in rather than from the inside out.

According to the report, two mainstays of a formal service delivery model are global business services/shared services units and centres of excellence (COEs).

Overall, 39 per cent of all procurement organisations have some form of COE in place today. 

  1. Re-skill the procurement function

The report recommends the following steps to enhance the skills sets of procurement staff:

  • Invest in Talent Development

Hire or train procurement staff with the skills and business acumen required to meet the business needs of senior executives. Recruit staff from key business units in your company, and have them mentor and coach other business partners who have come up through the procurement ranks.

  • Increase your Team’s Business Acumen

Assign staff to cross-functional teams to provide exposure to different parts of the organisation’s operations. Make sure that having an understanding of business fundamentals is a requirement when hiring new staff.

  • Build Analytics Skills

Create a dedicated analytics group to fully leverage skills and tools across all areas of procurement.

  • Create a talent retention plan

World-class procurement organisations are nearly twice as likely to have talent retention planning in place, and see turnover rates that are more than 50 per cent lower than typical companies.

You can download your copy of The Hackett Group’s research here.

The Hackett Group is an intellectual property-based strategic consultancy and leading enterprise benchmarking and best practices implementation firm to global companies.

The Hackett Group also provides dedicated expertise in business strategy, operations, finance, human capital management, strategic sourcing, procurement, and information technology.