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Would You Couchsurf to Make Business Travel Savings?

Splitting travel savings with employees may be the best way to encourage travellers to treat every dollar of company money as their own.

A New-York based consultant, Geoff, has to visit a client in Seattle. He logs onto his organisation’s travel management system to book his flight and hotels.

The app recommends a flight that’s within budget and suits his timeframe. However, Geoff ignores this, scrolls through a list of other options, and selects a flight leaving later for a cheaper price.

Similarly, he chooses not to go with the 4-star hotel recommended by the system. He instead chooses a slightly cheaper hotel that’s still convenient to his destination.

Upon arrival in Seattle, Geoff walks past the cab rank to the bus stop. He’s thinking about where he can get a cheap but healthy meal to avoid ordering room service.

As he makes each travel-related purchase, he’s scanning receipts into his travel app, which subtracts the costs from his total travel budget.

Geoff is behaving like he’s spending his own money rather than his organisation’s travel budget. Why? Because in essence, it is his own money. His company has an arrangement in place where employees are allocated 50 per cent of the savings if they come in under their allocated travel budget.

It’s entirely automated. At the end of his trip, the travel management system takes the difference between the budget and Geoff’s actual costs, splits the savings, and adds half to Geoff’s next pay check.

Sharing travel savings encourages a cost-conscious culture

Why aren’t more organisations sharing travel savings? Possibly, it’s due to a myopic attitude where travel managers are reluctant to part with any savings whatsoever, preferring to allocate every dollar straight back to the bottom line.

However, there’s a much bigger prize at stake. Building a cost-conscious culture and creating that critical mind-shift where employees start treating company money as their own.

Shared travel savings might also fix the multi-billion dollar “open booking” problem. In the US, for example, 50 per cent of hotel bookings and 24 per cent of airline bookings occur outside corporate travel programs. This presents a significant compliance challenge and visibility problem.

Creating a policy wherein shared savings can only be claimed when bookings are made through the approved system would provide a major incentive for employees to comply.

Where can employees save on travel costs?

Here are a few ideas for frugal travel across transport, meals and accommodation:

Flights

Even if your organisation allows you to fly business class, do you really need to? What about flying at a different time of day to get a cheaper fare? A common reason employees go outside approved travel management systems is a belief they can find a better deal themselves.

The TripScanner start-up (acquired last year by Coupa) provides a clever way around this issue. Employees can book travel options via any website they like, so long as they sync their purchases with TripScanner. The software then automatically checks each booking against the company’s travel policy.

Ground transport

Can you take the train or a bus rather than a taxi? How about Uber? There’s always going to be a trade-off between the convenience of being taken directly to your destination and having to walk from the bus stop. However, with the prospect of an extra $25 in your pocket, employees might just choose the bus.

Meals

Consider grabbing a cheap meal rather than paying inflated prices for room service. Keep in mind that “cheap” doesn’t necessarily have to mean “unhealthy”. Eating well and affordably takes planning, as room service is most often ordered when busy travellers run out of time.

Accommodation

This is where your company’s travel policy need to be absolutely clear, because accommodation (and to a lesser extent, transport) involves a safety factor.

Having an approved list of hotels will stop truly frugal employees from trying to save drastically by booking hotels in undesirable parts of town. Or even (in extreme cases) going for an unconventional option such as Couchsurfing.

Setting it up

There are some things to bear in mind when setting up a system such as this.

  • Better planning: Saving money when travelling takes planning, because needlessly expensive flights, taxis and meals are usually chosen due to tight schedules.
  • Get the budget right: Travel managers need to do their research to get the travel budget right for their organisation, as setting it too high will mean losing money unnecessarily. Fortunately, there’s software available to help with this task. A sophisticated travel management system will allocate a unique budget to each trip, rather than a blanket dollar figure for all travel.
  • Make sure your travel policy suits your risk appetite: Travel policies can vary wildly, from tightly-controlled lists of accommodation options, to a free system where employees can do as they like. Again, encouraging frugality may cause some employees to select unsafe options, which is why couchsurfing or ridesharing may need to be excluded from the system.
  • Frugal travelling isn’t for everyone: For some, saving money when travelling might not be a priority. Having a comfortable flight or good night’s sleep in a nice hotel might be much more important than winning back a few hundred dollars extra per month, and that’s fine. Again, it’s important to set the budget as accurately as possible, and be clear in your travel policy about what happens if employees go over budget.

Does your company share travel savings? What are your tips for beating the travel budget?

The Truth? Businesses Still Struggle with Indirect Procurement

The procurement industry is evolving at a rapid rate. But it still has broad issues with indirect procurement and how to determine value for money.

No matter where you are in the world, indirect spend is a notoriously difficult area for CPOs to control. Because of this, it presents huge potential for savings for companies.

Direct Procurement refers to the act of acquiring raw materials and goods for production. Indirect Procurement is the act of purchasing services or supplies required to keep the day-to-day business ticking over.

However, there’s a consistent message out there that procurement, and indirect procurement in particular, is under-appreciated by the broader organisation.

Establish Internal Targets

Celia Jordaan is the founder of Australia’s Ichiban Commercial Solutions, which helps businesses with tendering, risk management and procurement solutions.

Over two decades, Jordaan has worked in a number of different countries, locations and cultures. She has experience across procurement, supply chain, contract management, law and risk.

The procurement function often influences the company budget, but doesn’t always entirely control it, she says. The difficulty with indirect procurement or procurement for internal use, is that it’s difficult to determine value for money.

“Indirect procurement is generally seen as soft services that aren’t adding direct value to the cost of production or core business. However, it’s a service that’s vital in order to be able to effectively make the business run,” Jordaan explained.

The downfall in many cases is a clear budget. Professionals need to establish their own internal targets around value created, and qualify what they do and the value they create.

“There’s no real crystal clear way to measure the cost avoidance elements of indirect procurement. It presents a lot of complexities.

Procurement professionals need to sell their own value, and put their own processes in place that helps them demonstrate the value they can create for an organisation, Jordaan says.

Procurement Outsourcing?

David Rae, editor of Procurement Leaders, wrote in ‘Procurement Outsourcing – Managing Indirect Spend’, that change will come when CPOs get involved and influence buying behaviour across the entire organisations, and in every category.

They must also apply the same rigour to the indirect categories as they do to direct materials, he wrote.

“The research shows that, while there is still much work to be done, CPOs are tackling this area. One way of doing so is to engage an outsourcing partner, who can often bring category expertise, greater buying power and improved compliance to an organisation’s indirect spend categories.

“And, while it continues to struggle to match the likes of HR and finance in terms of uptake, there are signs that procurement outsourcing is really taking off,” he wrote in the report.

Under-Investment in Indirect Procurement

Meanwhile, a research report by Proxima explores what procurement can do to redefine how it’s perceived by the broader organisation.

The report says that a vast majority of C-suite executives feel that indirect procurement is under-invested across the UK, Europe, US and further afield.

This prompted Proxima, in conjunction with NelsonHall, to run a research study to uncover perceptions, attitudes and desired outcomes of indirect procurement. It was hoped this would catalyse the common sense that procurement could and should play a greater role in most businesses.

Responses indicated that indirect procurement in some organisations is perceived to have a role that is tactical and administrative. Some respondents advised that it can create process blocks, and can, on occasion, even be antagonistic to specialist suppliers of the business.

Five Key Challenges

The research found five key challenges for the procurement function, impacting on CPOs’ ability to effectively manage indirect expenditure.

These include, as outlined here in the report:

1. Lack of capacity

The indirect procurement team has to focus on sourcing commonly purchased and high volume goods and services, as well as transaction processing.

2. Lack of political clout

CPOs involved in the research study tended to be quite self-critical. This was particularly prevalent in areas such as their ability to introduce process improvement, and to increase the level of spend under contract.

3. Lack of mandate

The primary responsibility for most indirect procurement categories often lies within the business units. For some categories, such as travel, it may not even be clear as to who actually owns the policy.

4. Lack of awareness and low visibility of indirect procurement

Indirect procurement is often seen as less important than direct procurement in the eyes of senior executives. It is seemingly even less important at the business unit level. Many stakeholders view an indirect procurement professional’s role as the ‘rubber stamper’ at the end of the process.

5. Organisations lack the skills required for effective stakeholder management

A common perception held by CPOs and CFOs is that the indirect procurement function has to find ways of working more effectively alongside the various business units and stakeholders within each business unit.

Procurement Goes Cloud-Based To Mitigate Risk

Many procurement professionals aren’t taking all available routes to mitigate risk in overseas transactions. Cloud-based solutions can change this.

A high percentage of procurement professionals aren’t doing everything in their power to mitigate risk when trading with overseas countries, according to an Australian fintech startup.

Trade with international countries can be fraught with issues, warns Hugh Young, General Manager at Octet.  And while there are tools on the market to help mitigate risk, there are plenty of major companies that continue to trade without any kind of secure platform in place.

Mitigate Risk – Know Who You’re Dealing With

Young says that, to start with, it’s critical that you know who you’re dealing with. “It’s critical that anyone dealing with China and ordering meaningful volumes actually goes and visits the supplier on their own turf, which is a lot different to meeting them at a trade show,” he says.

He also adds that nothing can replace the peace of mind that comes with actually seeing the factory you plan to do business with. This helps to get get a clear picture of their production processes, something that’s paramount to mitigating risk.

Another thing for companies to consider is the importance of maintaining the professional relationship, and visiting at least once a year. Some businesses have chosen to engage quality control agents in China, or other countries, which is also worth considering.

Fraud Risk in Exports

“The other major issue is fraud risk. Quite often Chinese exporters are SMEs and they’ll require a company to pay a large balance to be able to finance the manufacturing of the goods for you.

“But we don’t recommend agreeing if they’re asking for the balance to be paid before the shipment has left China. The risk of fraud is too high. It’s also possible for these suppliers to go out of business, taking your money with them,” warns Young.

Another common issue is the exporter deliberately uses a related company bank account, which looks almost identical to the other one. This can cause confusion for procurement, and could mean money is paid into an account that isn’t the exporter’s at all.

Businesses must also be sure to carefully check bank account details, and the names on all of the invoices they’ve been sent. At all times, individuals must check the documented supplier paper trail carefully.

Don’t Get Caught With Hands in the Cookie Jar

While some companies have created their own secure online platform to mitigate risk, many others are leaving their company exposed by not utilising one of the myriad existing secure platforms on the market.

“The world is in a cloud environment. Procurement professionals need to catch up, and implement something that’s going to protect them and their company’s reputation. Everything is shifting toward a secure platform over the coming decade.”

Young says that it’s only a matter of time before something goes wrong for those not utilising a platform.

“The procurement department only needs to get their hand caught in the cookie jar once for the mud to stick,” he says.

Connecting Customers & Suppliers

Octect GM, Hugh Young
Octect GM, Hugh Young

Meanwhile, Octet has partnered with Chinese bank Asiafactor to provide SMEs with a global payment platform. The company will now connect its customers across China to more than 10,000 suppliers around the world.

The partnership means Octet can cater to both existing domestic small to medium enterprises, as well as a range of prospective exporters throughout China.

Octet has also been working with Westpac to offer Australian businesses a platform to facilitate overseas credit card payments. The platform supports 10 foreign countries, and is the first platform of its kind for Australian banks.

Octet is a supply chain management and financing platform that enables people to manage and pay international suppliers. 

The platform is utilised by more than 1,000 Australian and New Zealand importers, spanning more than 60 countries, and facilitating over $1 billion in transactions. Suppliers include Unilever, L’Oreal, Mars, BlueScope Steel and packaging giant Visy.

How The Space Elevator Could Open Up Interplanetary Supply Chains

The prohibitive cost of lifting payloads out of the Earth’s atmosphere is hamstringing humanity’s conquest of the solar system. The space elevator may soon make chemical rockets a thing of the past.  

At the Coupa Inspire conference in May this year, keynote speaker Richard Branson announced plans to have Virgin Hotels orbiting the planet within 40 years.

Branson’s famous “anything is possible” attitude was on display, as he breezily talked of shuttle trips between his space hotels and the surface of the moon, and observatory domes where guests can marvel at the Earth from above.

Branson’s audience predominantly consisted of procurement professionals, many of whom were turning their minds to the challenge of maintaining a supply chain in space.

Considering the vast amount of goods and services that flow through any mere terrestrial hotel, the prospect of supplying a space hotel, or any other off-planet settlement, is daunting.

The Payload Challenge

It’s unbelievably expensive to send cargo into space. These days, all eyes are on SpaceX. Elon Musk’s company is leading the way in reducing the cost of payload delivery through lean operations, integrated engine production and reusable spacecraft.

At full capacity, the Falcon 9 rocket can lift cargo to low-earth orbit at US$1233 per pound ($2719 per kg). NASA is paying SpaceX $133 million per mission to resupply the International Space Station. This equates to $27,000 per pound ($59,500 per kg) of cargo delivered.

Reducing the cost of payload delivery is one of the highest priorities for Musk, who has stated that $500 per pound ($1100 per kg) or less is an achievable goal.

Even with payload cost being driven ever-lower, the expense still makes the prospect of a regular delivery service (such as a space hotel supply chain) prohibitively expensive.

Tech Insider recently published a playful article working out the hair-raising costs of some of the unnecessary items NASA has launched into space. They calculated that astronaut Kjell Lindgren’s bagpipes, for example, would have cost anywhere from $54,600 to $259,000 to deliver.

The International Space Station’s espresso machine weighs 44 pounds (20kg), and would have cost between $400,400 and $1.9 million to deliver.

The Space Elevator – A Better Way to Lift Cargo into Space

Arthur C. Clarke predicted that the space elevator would be built “about 10 years after everyone stops laughing”. That’s because at first glance, it seems like pure science-fiction. The thing to understand about how the space elevator would work is that it isn’t a tower or ladder to space, but rather a tether.

Space elevator structural diagram

The Earth-end of the tether would be attached to the surface near the equator, while the other end would be anchored to an object in space (most likely a space-station) beyond geostationary orbit, or 35,800km in altitude. The tether would therefore be held stationary under tension as the space station tried to “pull away” from the planet.

At present, no material exists with the tensile properties required to construct the tether, but teams all over the world are working on the challenge.

Recently, carbon nanotubes, boron nitride nanotubes, and diamond nanothreads have all been considered viable new materials, enabling scientists to inch ever closer to the required tensile strength.

There are many other challenges involved, but commentators agree that once the tether question has been solved, the other components of the elevator will be relatively simple to design and construct.  

A Freight Train to Space

Once constructed, laser or solar-powered ‘climbers’ would ascend and descend the tether, taking materials and passengers to geostationary orbit. Payload prices could be as low as $100 per pound ($220 per kg), with two added advantages.

Firstly, proponents predict a working elevator would be significantly safer than chemical rocket technology. And secondly, the climbers would operate continuously.

Journalists often write about the space elevator in the singular, but there is no reason why the planet would only have one. In fact, it’s likely that multiple competitive nations (and private enterprises) would insist on having their own.

Opening Up Space

With working space elevators, the enormous expenditure of fuel used in boosting chemical step-rockets up through our atmosphere will become a thing of the past.

Spacecraft will no longer be needed for surface-to-space lifts or descents. Instead they will only be needed to move from point to point in space. After an initial boost, a craft in space simply falls freely along its trajectory, with only short-term adjustments and deceleration required.

Space elevators need not be limited to Earth. Within the next century, we may “drop” shorter tethers to the surface of the moon and Mars, with regular cargo and passenger services plying their way between the space stations at the top of the elevators. The complex task of keeping a Moon or Mars colony supplied would become much more feasible.

But that’s thinking a long way ahead. In the medium-term future, Branson’s luxury space hotel may well sit atop a space elevator, supplying its every need.

In the short-term, any day now we may read that scientists have discovered materials strong enough to construct the tether. At which point – as Arthur C. Clarke predicted – everyone will stop laughing.

eCatalogues are Just Spreadsheets, What’s the Big Deal?!

How many times have you heard someone compare eCatalogues to spreadsheets? It’s time to clear up the differences!

This article was originally published on Suppliers Matter.

That’s what the owner of a small office supply company asked me back in 1999. I was an independent supplier enablement consultant, and it was taking me longer than he wanted to create his first electronic catalogue in Ariba for his largest customer.

Here are the ten things I wish I had said as to why electronic catalogues aren’t “just spreadsheets”. I’ve also added a handful of insights that some newer eProcurement solutions now have to offer when it comes to eCatalogues.

The end result may “simply be a spreadsheet”, but it’s ensuring what’s in this spreadsheet that requires due diligence.

1) Appropriate Selection

eCatalogues need to contain all things that the customer buys from you, and none of the things you’re not supposed to sell.

If you have the contract to sell office supplies, and you’ve been given explicit instructions to only include office supplies, then you can’t include the kitchen sink.

When it’s time to export item information from the back end system, it should be just for your customer’s desired items.

Some larger suppliers have been known to insist their eCatalogues can’t be filtered, in an effort to sell more stuff. You don’t want to play those games.

2) Accurate Pricing

Obviously the prices for these items has to be accurate. Sometimes the calculation of the sell price can get complicated. For example, if it’s X per cent off list for one type of item, but Y per cent off for another. Or if there’s a list of most commonly ordered items that are more highly discounted than the rest.

If your customer finds one item that is priced higher than it should be, they’ll lose trust and question all other item prices.

Newer eProcurement platforms now support tiered pricing, bundles, configurable/custom options, etc., which can help when if you sell more complicated products or services.

3) Consistent Names

The item names are the first thing that a customer sees in their search results, so it’s important that they are strong and also follow a consistent naming convention, for example: Widgets, Small, Pack of 20.

Looking at a long list of items that are consistently named makes it easier for the customer to select the right item.

4) Rich Descriptions

This is one area where the initial effort up front can really make a big difference, but it takes investment. If you want to have your items found in search results, and also help your customer make the right choice the first time, you need rich item descriptions that thoroughly describe your items. You should take advantage of as much space as the customer can support. If they allow 255 characters, use them!

Some suppliers simply export the bare minimum item information from their inventory, which is often hard to understand. And what’s frustrating for buyers is that the supplier’s B2C site has often got great rich content. However, suppliers frequently have two separate item databases – one for B2C/marketing and one for B2B/eProcurement.

If you happen to sell items from popular categories, there are now rich content providers that you can use to enrich your information.

5) Granular UNSPSC codes

There are so many reasons to make sure that the UNSPSC codes assigned to your items are granular and accurate.

Granular meaning that you can’t just assign the ‘Office Stationery’ code to all your items, even the office furniture and computer accessories.

And accurate, meaning that if you’re selling a standard office scissor then you need to use the correct code, and not just the first reference to scissors you see when searching the UNSPSC database.

The customer may have purchase requisition approval rules reliant on the codes to determine who should approve the request. IT may need to approve the computer accessory, and facilities may need to approve the furniture. Plus, your customer’s reports will be much more accurate in terms of spend reporting.

A new consideration is eProcurement systems now have browsable category trees that rely on the UNSPSC to assign the item to the most appropriate category. You want your items to fall under the right bucket and not all get clumped into one.

6) Images for Every Product

This is a no-brainer. You have to make sure as many of your items (if not all) have at least one, nice looking image. They should be professional looking, high resolution, hosted on a publicly available webserver, and assigned to the right item.

And if your customer’s eProcurement system supports multiple images, then give them more. Many suppliers don’t take advantage of this, however, and just do the minimum (if that). Make your items shine!

7) Valid Units of Measure

You don’t want to do all this work and have the catalogue not load because your internal unit of measure is “Each” and the customer’s system needs it to be “EA”. You need to ensure that all your items are using the UOMs that your customer supports.

8) Internal Part Numbers for Automation

If you want to automate the fulfilment of the corresponding electronic purchase order and have it flow seamlessly into your system, the part numbers have to be perfect.

You can’t manually create an item in the catalogue file called WIDGET and expect it to work. You need to export the part numbers out of your system, and only use those part numbers in the eCatalogues.

9) Properly Formatted File

All this has to be exported into a properly formatted file that matches the customer’s file format requirements.

  • XLS vs. XLSX vs. CSV vs. XML vs. CIF vs. ETC.
  • Field titles with correct names.
  • Not exceeding each field’s maximum length.
  • Ensure all their required fields are populated properly.

This is where it can get a little technical, but it’s a one time effort.

10) Automating the Update Process

Fortunately, we didn’t have to update static eCatalogues very often, so doing this once or twice a year was acceptable.

New eProcurement systems now support simple CSV files, and allow suppliers to upload securely. This means suppliers are now in a better position to automate the export, any mapping, and upload using relatively simple scripts or product information management (PIM) tools.

Suppliers, what else would you have told him? (Apart from go do it yourself!)

Has Procurement Dehumanised The Sourcing Process?

It’s only a matter of time before the procurement profession realises that it’s dehumanised the sourcing process, a move that will negatively impact the industry.

Procurement needs a new measure of success that reflects its impact, not its output. This is according to a Melbourne-based procurement coach, and self-proclaimed procurement disrupter, Matt Perfect.

Procurement with Purpose

Just as conscious businesses are learning that profit is a by-product of business with purpose, so too savings will be a by-product of procurement with purpose.

Perfect argues, “What have we really ‘saved’ if we drive down our suppliers’ pricing to unsustainable levels?

“Levels where they are forced to compromise on service and quality, or worse, safety and ethics? Procurement needs a metric that reflects the exponential impact of its decisions throughout the supply chain.

“The impact on suppliers and their employees…and suppliers’ suppliers and so on. This metric must measure real human value. Not just economic value,” Perfect says.

Cost at Any Cost

The Melburnian has carved an enviable niche in the Australian procurement landscape. Perfect has worked in numerous procurement roles, including for FreeMarkets, National Australia Bank, Toll and The Faculty.

Now as an independent coach and facilitator, he advocates the importance of supplier relations, and feels that major disruptive change within the procurement industry is only a matter of time.

Perfect writes about the disruption of the procurement sector in white papers. One, titled Supplier Love and Why You Need More of It, published in July last year, explains that as much as 70 per cent of revenue now goes to third parties (according to Proxima Group). Never before have suppliers been more important stakeholders in an organisation’s success.

Yet, despite significant investment in procurement capability and strategic focus over the last few decades, many supplier relationships remain transactional at best and at worst, adversarial.

Businesses continue to prioritise shareholder value above all else, sometimes even at the expense of customers, employees and the environment, but almost always ahead of suppliers’ interests.

One might be forgiven for thinking that ‘cost at any cost’ is the primary operating model for these businesses.

Conscious Business

Conscious businesses understand that this is not sustainable. Fortunately, there is a better way, but it requires a fundamental shift in the way we define stakeholders and value.

“We need to be looking at ways to win the hearts and minds of suppliers, rather than purely relying on negotiation tactics. When you look at the mindsets of procurement professionals, relationships just aren’t playing a big enough part at the moment,” Perfect says.

“You need to look at supplier relationships and help improve those relationships to get better outcomes. I work to improve that level of trust in a relationship, with the view of generating greater impact. I also look at the broader impact of relationships, which comes down to how it affects the lives of people.”

Perfect says that procurement is ripe for disruption, and is in fact on the cusp of a major shift. Part of this shift should include the consideration of whether procurement accurately sums up the role – supplier relations could be closer.

“There will be a shift to a new age. A human age, which is a process that procurement doesn’t have its head around yet as a profession. We need to be more engaged with vision and purpose moving forward as a profession.”

Perfect believes the younger generation will drive the changes as they strive for a more human-centred career.

Remembering the Human Element in Sourcing Process

A focus on supply chain issues, and the human elements within supply chains, is another driver for change.

Other industries embrace change more readily than procurement has to date. Marketing, for example, understands that to be really effective and cut-through, it has to touch the lives of people.

The human relations industry has also moved away from seeing staff as a number and has improved the way it operates within the business environment by focusing on the people. Procurement hasn’t made this leap yet, he says.

“We’ve also got to be thinking about how to appeal to the hearts and minds of consumers. We need to head into this space as a broader industry if we’re ever going to survive. I urge my clients to be the change they want to see in the world.”

At the moment, the industry is narrowly focused on shareholder value, rather than a broader stakeholder orientation, which is drawn from the realm of conscious capitalism.

“There needs to be an interdependence that creates value without trading off one another,” he says.

People Over Process

Matt Perfect
Matt Perfect

Perfect has an undergraduate degree in economics from Cardiff in the UK, and pursued a consulting career before landing an analyst position, specialising in e-sourcing and online technology. This kick-started a procurement career spanning multiple consulting and management roles in a variety of industries.

He left The Faculty a couple of years ago to focus on coaching. He works to help his clients create better and more conscious relationships with their internal and external stakeholders.

“This is where I focus my energy now. Looking at all spending in procurement and how that impacts on people. I believe we all need to have a greater focus on people than process.

Since working as a procurement coach, Perfect has worked with Social Traders, CPA Australia and The Trusted Negotiator, among others.

You can follow Matt at mattperfect.com or on Twitter at @m8ttperfect.

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

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

This post was first published on POOL4TOOL.

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

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

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

This post is simply about common sense!

Serving Different Markets

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

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

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

Both markets have their own challenges.

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

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

Product Lifecycle

Another difference is the  relationship to the product lifecycle.

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

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

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

Right Tool for the Right Job

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

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

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

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

Can We Agree to Stop Calling Them “Soft Skills”?

How did soft skills become to be known as this? And does calling them this underplay their importance in the modern procurement world?

Kathy Hutchins/Shutterstock.com

The English language is full of misnomers. Just ask the killer whale (actually a dolphin), or the horny toad (actually a lizard). Once a word or phrase has entered common usage, it’s near-impossible to change it, even if the population generally understands that the term is misleading.

Which brings me to “soft skills”. I work for an organisation that provides training for procurement and supply chain professionals. As such this is one of the terms that I hear bandied about many times a week.

My argument is that defining this skill-set as “soft” actually devalues an essential part of every procurement professional’s toolkit.

To quickly summarise, soft skills are those used in dealing with other people. These include skills such as communication abilities, language skills, influencing skills, emotional empathy, and leadership traits. In contrast, “hard” skills – such as tendering or IT competencies – are readily measurable and (importantly) easier to train.

How Did They Come to be Called Soft Skills?

I’d be interested to hear if anyone has been able to pinpoint the first usage of this term.

The concept has been applied to business environments since at least 1936, when Dale Carnegie’s famous self-help book ‘How to Win Friends and Influence People was published. Carnegie’s work, which has sold a phenomenal 30 million copies to date, is essentially the definitive guide to soft skills. However, it stops short of actually using these words.

Recently, there seems to have been an explosion of articles and training courses focusing on soft skills, particularly in procurement. My theory is that procurement – having moved from back-office to business-partnership status only a decade or so ago – is, in effect, late to the soft skills party, and is currently playing catch-up.

It’s possible that the term “soft skills” simply came about as an antonym to hard skills. Perhaps it reflects the “softly-softly” approach, where managers choose to influence, rather than confront, and to make suggestions, rather than issuing orders. Whatever the reason, I believe it’s a misleading term due to the other connotations of “soft”.

These Skills are Anything But Soft

To my ear, “soft” means easy, pliable, or yielding readily to pressure. Yet a procurement professional with excellent communication abilities, who is adept at reading people, will be a “harder” opponent in negotiations, than a colleague lacking these skills.

Similarly, the connotation with “ease” is deceptive when it comes to trying to train for skills like change management or leadership. And quantifying the results of that training is more difficult still. Hence we’re hearing more and more that employers are hiring people based on their attributes (cultural fit, communication skills, willingness to change), recognising that hard skills can be easily picked up later on.

This has changed the approach recruiters are taking in job interviews. There is now less emphasis on hard skills, and more behavioural questions about how you would react in certain situations.

It’s worth considering whether, in the future, soft skills will become so vital, they’ll become a requirement for procurement roles. That situation already exists in some professions. Look at Medicine, where aspiring doctors are interviewed for qualities including maturity, communication, the ability to empathise and collaborate. Hugh Laurie’s Dr House, with his acerbic bed-side manner, would in reality never have gained entry into medical school, no matter how brilliant he was.

There’s a school of thought that when it comes to soft skills, you’ve either got it, or you don’t. Soft-skills training, therefore, is ineffective because you can’t change someone’s personality. Personally, I disagree because I’ve witnessed colleagues who have worked hard to develop skills like effective listening. There’ll always be hard cases, but the days of people dismissing these skills as “fluffy” or otherwise useless are over.

Three Alternative Names for Soft Skills

As I wrote at the beginning of this article, it’s nigh-impossible to change a term once it’s in common usage. However, if professional organisations, training providers, and the like, were to phase out the words “soft skills”, and call them something more accurate instead, we might see this phrase begin to disappear.

Here are three suggestions for a more accurate description of “soft” skills.

1. Essential skills: I’ve borrowed this one from ISM CEO Tom Derry, who also isn’t a fan of the term “soft skills”. Tom used the term “essential skills” when launching ISM’s Mastery Model to describe the many interpersonal attributes required on the journey to achieving accreditation.

2. EQ: “Emotional intelligence quotient” is the technical term for soft skills. I like this term simply because it contains the word “emotional”, which pretty much sums up what soft skills entail. Calling it a “quotient”, however, raises the argument that EQ, like IQ, is something you’re born with, and can’t be improved upon.

3. People skills: The simplest, and possibly the most accurate alternative for soft skills is “people skills”. After all, every one of these skills involves dealing with people, while hard skills can generally be put to use sitting alone at your computer.

If you have other suggestions, or already use a different terminology in your workplace, please add a comment below!

Need help with your people skills or EQ? Want to get your procurement career in shape? Stay tuned on Procurious in September for our Career Bootcamp. More information coming soon!

Procurement Turns to Supplier Relationships for Innovation

As procurement seeks to increased its involvement in innovation, it’s turning to its supplier relationships to drive change.

This article was written by Daniel Ball, Director at Wax Digital.

Wax Digital’s Procurement Innovation Pathway research is based on 100 interviews with the UK’s senior procurement professionals, to canvass their opinions of the key topics in the profession.

Previously, we highlighted that procurement wants to be more involved in innovation. However it is the risk averse nature of procurement that appears to be holding it back.

In this article, we assess the importance of good supplier relationships.

Mutually Beneficial Relationships

Achieving effective, mutually beneficial relationships with suppliers can be a great way for procurement to drive positive change. That’s just one reason, according to new research, why procurement professionals are prioritising suppliers in their quest to innovate.

In fact, Wax Digital’s research showed that procurement’s top two innovation areas relate to working with suppliers.

In first place, 57 per cent cited supplier relationship management as an area that can aid innovation. Sourcing suppliers for product innovation came in second, with 49 per cent. Reducing supply-chain risks also scored highly.

Turning to Supplier Relationships

Compared to lower scoring areas, like automating processes to save time/resource, and improving spend management by empowering people, the supplier is clearly where procurement is turning its attention to innovate.

New ways of engaging with suppliers, through self-service portals for instance, and ensuring supplier compliance through automated contract management, are key priorities.

But it’s equally about what suppliers can do for procurement. There’s a desire to find partners who can be a catalyst for innovation at the core of the organisation’s products and delivery.

Technological Investment

These priorities remain the focus into 2017 too. This means the future could see an even more supplier-focused innovation mind-set in the procurement function.

Adding weight to this, the two most commonly used procurement technologies are also heavily supplier-focused. 51 per cent of organisations favour supplier information management, while 49 er cent are looking to contract management systems.

And the most common technology investment planned for the coming 12 months is supplier relationship management (SRM) tools. Procurement is clearly doing more than talking the talk on supplier innovation.

Challenge of Involvement

The future looks promising in this regard but there are challenges ahead. Procurement sees the value of supplier focused innovation but it is not always in control of it.

84 per cent of respondents said they were currently involved in innovations around supply chain collaboration. However, less than half of these, 40 per cent, said that they were leading it. Although this figure rises to 50 per cent in the future, there’s still some way to go before procurement fully takes the reins of innovation.

Now that many procurement professionals have already achieved some of the more transactional and process based quick wins, it’s natural that we see more and more looking to strategic supplier management as the next frontier to conquer.

Building better relationships with the right suppliers, whether existing or new, is clearly uppermost in their thinking.

The Innovation 2016 research was conducted by Morar Consulting. The research involved 100 interviews to canvass the opinions of UK senior procurement professionals, working in small to large UK enterprises.

You can find out more about the research, and download the report, by visiting the Wax Digital website.

Is Hybrid Best? The Centralised vs Decentralised Debate

Centralised, decentralised and hybrid models – is there actually a ‘best’ way to organise procurement departments. The debate rages on.

Recent studies, and accepted wisdom, have continued to confirm the trend towards a centre-led procurement model. Both fully centralised or decentralised procurement operating models have their downsides, and that a middle (or hybrid) road is preferable.

Centralised organisations unfortunately:

  • do not always understand regional and local supply markets and consumption patterns.
  • run the risk of maverick buying outside contracts.
  • are not suited to managing some indirect commodities.

In decentralised organisations, there is often:

  • inability to leverage corporate spend.
  • poor coordination of information and best practice sharing.
  • uneven supplier performance.
  • higher procurement operating costs.

The Centre-Led Model

The best centre-led procurement organisations concentrate on defining strategy and policy, as well as applying best practices to both direct and indirect procurement. They mostly employ a category management structure, which supports the roll out of their directives to business unit and regional level.

In the Aberdeen Group’s recent report, they noted that centre-led companies reported more spend under management than others. This was twice more than companies with a decentralised structure, and nearly 20 per cent more spend under management than companies with a centralised structure.

“Organisations with centre-led procurement considerably outperform their non-centre led counterparts, in both spend under management and supply cost reductions” (Aberdeen Group 2015).  

Leading from the Centre – Levi Strauss  

The Director of global indirect procurement at Levi Strauss, Celeste Smith, said recently that the while the company wants to create a centre-led global function, there should be good regional support.

“Success for me looks like centre-led, a global approach to managing indirect – not necessarily with global suppliers – but that we have a very consistent and disciplined approach to procurement globally.

“Centre-led means that everyone is on the same page in terms of methodology and approach. But I think it’s very important to have the same regional support.”

Levi Strauss has a global spend of around $1.8 billion (£1.09 billion), of which it wants to manage $1.2 billion (£723 million).

Leverage Central Knowledge – Fluor

Fluor is a world-leading engineering and construction firm. It also offer clients procurement and project management services for capital projects.

Fluor uses a centre-led procurement model, leveraging international procurement expertise and market knowledge, with the aim of providing the best value for their clients’ capital projects.

Their procurement organisation manages an annual global spend of more than $16 billion. This is done through consistent execution strategies across their worldwide network of 1,900 procurement professionals.

For example, Fluor’s local operation in South Africa uses a global logistics planning strategy to help clients overcome procurement execution challenges unique to operating in Africa.

Stakeholder Challenges for Hybrid

A hybrid model seems to combine the advantages of a centralised structure and decentralised execution with minimal downside. So why isn’t everyone doing it?

It’s not that easy. Whatever the model, the satisfaction of stakeholders and end users is paramount. The best model seems to be one that delivers results through open lines of two-way communication, and processes that are flexible enough to take into account regional and cultural differences.

One way to generate higher levels of stakeholder support is to ensure that the global category management structure is replicated in decentralised business units or regions, probably on a more limited scale.

It has been suggested that this type of structure encourages agility and innovation, as well as better compliance to contracts.

The Wheel Turns     

Procurement Leaders’ recent survey on procurement operating models found that no one single model can sustain the expected benefits indefinitely.

They report that savings delivered from a given procurement operating model can erode over time as behaviours become ossified. Incremental savings thus become more and more difficult to achieve. The model just gets tired.

A structural change may be needed to allow procurement to deliver value in new ways, and enable benefits to be sustained or even improved.

Procurement Leaders say that procurement organisations must tackle a wide range of hindrances that arise from change, in order to maximise the benefits from a change in operating model.

Their research also found that the greatest factor preventing transition in procurement is its own lack of change management capabilities.

As a procurement organisation matures, it is likely that it will revise and adjust its hybrid or centre-led structure, in order to stay aligned to corporate objectives and continues to deliver value.