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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.

Emotional Intelligence in the Supply Chain

Emotional Intelligence can be a powerful tool for procurement in dealing with both internal customers and external suppliers.

There has been a lot of talk recently about the concept of emotional intelligence.

According to Wikipedia, it is defined as “the capacity of individuals to recognise their own, and other people’s emotions, to discriminate between different feelings, and label them appropriately, and to use emotional information to guide thinking and behaviour.”

The concept was pioneered in the middle of the 20th Century, but only popularised in the late 1990s. Following an increase in popularity, Emotional Intelligence was quickly moved across into the business world.

Developing Internal Relationships

Although they may not have known it as Emotional Intelligence, most procurement and supply chain professionals will have used its facets. This may have been fairly common, and both with internal customers, as well as with suppliers.

A good Supply Chain Manager must not only understand the motivation and needs of customers and suppliers. They must also develop strong and lasting relationships, based on mutual respect and trust.

With these relationships, over time (and assuming a good job is being done), internal customers will respect the manager’s role, relying on their decisions, and their judgement, in day-to-day work.

Gradually, the lines of thought from both sides will become aligned, potentially reaching a perfect strategic synchrony. If this happens, fewer explanations will be required for procurement to understand, and satisfy, internal customers’ needs.

Such coordination is the best example of the optimisation between these areas, resulting in great efficiency for a company.

Good Listeners

In addition to this, similar relationships should also be developed with suppliers. While keeping the primary company goals in minds, procurement should be able to guide the supplier approach in line with their organisation’s, and get them working in the same direction.

As Artur Osipyan explains in his excellent article, when dealing with suppliers, “you need to be a good listener to ensure you capture opportunities of doing things better and can connect the dots together.”

Companies must not impose their conditions, but look to build a partnership with the vendor, for both parties’ benefit (the famous win-win).

Perhaps the most critical use of Emotional Intelligence is where the internal customer demands and supplier offer fail to match up. It presents a situation where procurement needs to play ‘Good Cop-Bad Cop’ with both sides.

Using diplomacy and Emotional Intelligence will help create common ground for both parties, and transform this into a mutually beneficial relationship. This will also enable the parties to work together in the future.

Creating Mutual Wins

There are few things that create a stronger partnership than working together to overcome issues, and finding a satisfactory, and mutually acceptable, solution.

There are advantages to the so-called ‘cold negotiations’, where hardly any contact is made with suppliers prior to, and during, the process. However, any effective medium- to long-term strategy will need a foundation of common agreement, and understanding of mutual professional development.

To achieve this foundation, procurement and supply chain managers will not use negotiation skills, but Emotional Intelligence. This can then create the first pillar of a professional relationship between the two companies that could produce plenty success in the future.

What Price Inequality? What Should We Make of Opposition to Equality?

Not all bias is unconscious. Recent derogatory comments by high-profile public figures has drawn attention back to the equality debate.

ChristianChan/Shutterstock.com

How should we understand the spate of recent derogatory comments by high profile figures such as Steve Price and Eddie Maguire about women? And by Sonia Kruger and Pauline Hansen with their anti-Muslim comments?

How do we understand this increasingly public declamation occurring alongside a growing recognition that greater innovation and financial prosperity are achieved through diversity, and that inclusion makes for a better society?

Disproportionate Power

High profile public figures wield a disproportionate amount of power in our society. Steve Price’s labelling of Van Badham as ‘hysterical’ was bad enough (although deftly handled by Badham).

Price’s use of hysterical drew a huge outcry from the audience at the time. However, he seemed perplexed as to why. He then went on to repeatedly talk over Badham. What did he believe was happening, and how did he feel justified to respond as he did in those circumstances?

The social response in the following days was more concerning. There were multiple threats of violence to Badham via her Twitter account, and similarly in public comments to press coverage of the event. What it is that unleashes such harsh and violent responses; why do some people feel justified making nasty, public threats?

Social Dominance Theory

These events serve as a powerful reminder that not all bias is unconscious, and not everyone is interested in being fairer to those around them. Power and dominance have been concepts receiving too little attention lately, but are fundamental for developing a deeper understanding of this behaviour.

Social Dominance theory provides some clues. It suggests that people differ in their level of the two elements of Social Dominance Orientation (SDO): Opposition to Equality, and Support for Social Hierarchy and Dominance.

Support for Social Dominance

People with a high level of group-based Dominance value safety, stability, conformity, obedience and rule-following. They prefer greater levels of hierarchy and power distance in relationships and in society.

High levels of Dominance are associated with active oppression of subordinate groups, justification of oppression, and a strong focus on group competition and threat.

Support for social Dominance means support for active, and sometimes violent, maintenance of hierarchies, predicated on domination by high status members and the subordination of low status members.

Opposition to Equality

Opposition to equality involves support for the legitimacy of the current system including its inequalities. Those at the top of the system tend to believe that the existing system is fair; their position is justified and appropriate to their achievements.

Opposition to equality is associated with political conservatism, support for concepts like ‘work ethic’ as a way of justifying inequality, and with opposition to policies such as equal opportunity or affirmative action.

Opposition to equality is more subtle than Dominance, and is supportive of differential access to power and resources, but not through oppressive means.

(A low Opposition to equality is associated with a high level of empathy, tolerance, compassion and humanitarianism.)

Gender Differences

Individuals who have a high Social Dominance Orientation overall desire to maintain and, in many cases, increase the differences in social status of particular groups. Typically, they are dominant, driven, tough and seek power. Often, people who score high in SDO  strongly believe that we live in a “dog-eat-dog” world.

Men are generally higher than women in SDO. Recent studies have found that high SDO has a strong positive relationship with authoritarian, sexist, homophobic and racist beliefs.

Changing the Landscape

For those of us who do value the increased power and visibility of diversity in all its forms and who aspire to an inclusive society, how do we effectively navigate this landscape?

We can’t necessarily change the beliefs of others. But we should not let them deter us from pursuing a more equal, inclusive world. So what should we do?

  1. Avoid giving those promoting inequality more airtime than they already have (they’re pretty capable of handling this part themselves!).
  2. Tell more stories about positive change.

Even small signs of progress towards equality and inclusion are highly motivating. Psychology expert Professor Teresa Amabile says, “Progress motivates people to accept difficult challenges more readily and to persist longer.”

When people make progress toward, and meet, meaningful goals, the match between the expectations and the reality allows them to feel good, to grow, and be even more motivated to tackle the next challenge. (We can apply some of the same principles as Pokémon Go is using so effectively!)

If we notice the small gains regularly, and publicly, our motivation will increase. And then we will more readily move onto the next step in the equality journey.

Got a story to tell about positive change? Get in touch with Karen on her website.

Power Dynamics: Emotional Conflict in Indirect Procurement

Indirect procurement implementations are tricky. Take into account power dynamics, and there’s an emotional conflict that needs to be overcome too.

miroslavmisiura/Shutterstock.com

At a recent CIPS event in Zurich, the topic was disruption in indirect procurement. There were some excellent presentations and lively discussions afterwards on working with business functions.

But when I raised the fact that, in fact, successful indirect procurement implementations take away power from functional heads, the reaction was raised eyebrows.

While leading the build up of a global indirect procurement business partner organisation, I was sure that the hardest part would be getting the right talent to face off to the business. And if this match up were done correctly, all would take care of itself.

This formula worked well at first, and the team was making inroads with the business and delivering real savings.

But as we got into more controversial categories, the team started talking more and more about how difficult some business people were, especially senior ones.

Targets pressure was high, and the tension mounted both from the team and from executive management. My thinking that things would smooth out on their own over time was dead wrong!

Addressing Power Dynamics

Then I realised we were actually in the midst of three power dynamics that were holding us back. These had to be addressed.

Buyer & Supplier

The first power dynamic is the obvious one that happens when you cut across existing relationships between the business and the suppliers. It’s not just about interrupting nice lunches, but also touching the egos of the functional colleagues because procurement was:

  • Saying the business were not expert negotiators, which some colleagues took very personally.
  • Interfering with relationships where the business colleague had been the centre of attention and they now had to share airspace.

We were still at the beginning, so some good stakeholder management allowed us to work through this power dynamic by:

  • Putting in highly qualified and business knowledgeable procurement managers with great business partnering skills.
  • ‘Love and Care’ – taking time to listen and understand their concerns, which lead to better understanding but also assuaged egos.
Loss of Power

The second power dynamic was harder. The reality was that as spend came under control and savings were embedded in budgets up front:

  • Budget holders were losing decision making power over ‘their’ savings that could no longer be used to fill gaps.
  • There was more scrutiny, and decisions on re-investment were being taken at a more senior and cross-functional level.

Needless to say, they didn’t like it!

At this point, even the most fearless and confident team members were getting stressed. We needed to find a way to reduce the tension. We did it with:

  • ‘Tough Love’ management engagement – being very transparent that, yes, it was a shift of decision making, and not pretending that it wasn’t (supported by ‘Love and Care’).
  • Support and coaching of the procurement teams, so they could talk openly about difficult clients, and then work up solutions to solve it.
Senior Management Power

The third power dynamic is the trickiest. This was about very senior management and their personal skin in the game for the indirect procurement program:

  • The easy blanket ‘we support you’ was not giving enough air cover for the complex and more controversial projects.
  • We had specific blockers in the system at very senior levels that needed to be overcome to move forward.

The indirect procurement leadership discussed the issue intensely and decided to try a new direction:

  • For each of the controversial projects we presented to the senior committee, we asked for an individual sponsor from them
  • We also asked each sponsor to not only enable cut through with their own organisations, but also those of their peers

They said yes and volunteered specific sponsors right then and there.

This created space for the team and also created a peer pressure dynamic among the executives. We reported regularly, and no one wanted to be behind.

The team then took forward a series of projects closely aligned with the business functions, including transforming legal services, establishing consulting preferred suppliers, and changing the business model with marketing agencies.

Changing Relationships

In addition to delivering significant savings, there was a deep change in the relationship between indirect procurement, their functional colleagues, and the senior management, as a climate of respect and common purpose took shape.

I knew things had moved on, when at a regular update, the CFO made a classic comment that ‘his wife found a cheaper plane ticket on the internet’, and his peers looked at him and we moved on as if it hadn’t been said.

Implementing indirect programs involves strong emotions and power dynamics which need both active upward selling and strong change management. This might involve simply getting the right people together to make a fit for purpose plan for formal executive presentations and stakeholder management.

Solving the underlying emotional conflicts creates trust and delivers results.

Pauline King is the CEO of Heykins GmbH, Rapid Results Procurement, focused on working with clients’ existing teams to deliver tangible financial results.

She is a recognised expert in indirect procurement with deep operational experience in procurement transformation. Pauline also works closely with The Beyond Group AG where she heads up the Indirect Procurement Practice.

Beware the Scary Old-World CPO

Is your career in the grips of a scary, old-world CPO? How do you recognise if your boss is one, and what can you do about it?

Beware the Jabberwock, my son!

The jaws that bite, the claws that catch!

– Lewis Carroll, 1871

You’ll know a scary, old-world CPO when you see one.

I had almost forgotten about them until I found myself in a meeting with one last week. Somehow in recent times I have escaped the horror of hearing such old-world, closed network thinking like:

  • “I don’t want my team on social media, someone may poach them”
  • “We’re too busy working to be looking at what’s happening in the rest of the world”
  • “We know our business best”
  • “What if my team spends all day on social media?”

To the team at Procurious, these comments are like blasphemy. We’re on a mission to change the face of procurement, and give the images associated with the profession a makeover. We want to replace the old brown cardigan-clad stereotype, with fresh images of procurement as the “smartest guys in the room”.

My meeting with this archetypal nemesis reminded me of all the reasons why we founded Procurious. It gave me increased motivation to continue our mission, and gave rise to an overwhelming urge to protect all the amazing rising stars in procurement from the soul-crushing dictatorship of a scary, old-world CPO.

The Old-World CPO

Let’s face it, if your personal characteristics and actions portray an image that you’re living in the past, the chances are good you are. People don’t leave companies, they leave bosses.

As such, we want to reward the great bosses, those leading by example, keeping their teams energised, investing in individuals’ careers, and continuously pushing procurement to excel.

What are the tell-tale signs of a scary, old-world CPO? The next time you’re going for an interview, or looking at your current boss, don’t fall for the flashy suit, big title, or even the big brand name they represent.

If the person opposite you falls into one of these categories, the chances are your career development will come to a screeching halt under such a draconian regime.  

The (Digitally) Invisible Man…or Woman

Check whether this CPO has any sort of online presence. Tell-tale signs of invisibility include profiles with no photos, or inappropriate photos, scant, or no, information, and no visible mentions in a Google search.

There may have been a freak internet-cleansing event, wiping out all references to this person, but the reality is that they probably haven’t spoken at any events, written anything interesting, taken the time or effort to understand social media, or understand the fact that you will be researching them online.

Also, beware those CPOs who have fewer than 500 connections in their network. Some CPOs do make the case of quality vs quantity. But, if you’re working in a large company, have a large team, and work with an extensive supply base, shouldn’t 500 quality connections be expected?

You (and the majority of your peers) want to work for someone who is an influencer. You want a leader with a wide range of connection they can introduce you to, and broaden your horizons. Working with someone with a limited network can be a road to nowhere for your career prospects.

Robinson Crusoe – the Loner 

This CPO really is an island.

They don’t believe in networking, collaborating, or outside knowledge flow, and believe information is for their own personal advantage to build their power base. The Robinson Crusoe profile can physically manifest itself as an executive sitting in a corner by themselves, with their back to the team.

This information block exists not only within their psyche, but extends to the procurement team itself. This old-world CPO has particularly old-world views, and creates a knowledge hierarchy, where they take all the great (and politically advantageous) ideas as their own.

Another problem with this approach is that it encourages working in a closed network as part of the norm. These scary old world CPOs end up staying in the same profession, peer group, company, or industry, invariably associating with people they already know. This peer group continues to reinforce their outdated approach to management, and their thinking is never challenged.

The new world CPO is collaborative, a “true influencer” and shares their knowledge freely and widely.

My view is that a CPO’s main job is to not only drive change and innovation (and make a couple of deals on the side), but to give their team the opportunity to access tools and discuss ideas with other professionals, thought leaders and experts from around the globe.

Yet I still see CPOs encouraging teams to work in isolation, unaware that there is whole universe of knowledge to help them grow and excel in their jobs.

The Devil Wears Prada – The Career Crusher

Their desk calendar reads 2016, but their attitude towards employees is stuck in the 1950s.

Yes, your boss should have an overall plan for how their team is delivering against the overall business strategy. But they should also have a plan for you – both for what you need to deliver, and how you need to develop in the future.

They should be committed to diversity and promoting young talent, to making sure their team reflects this commitment and is generating opportunities for the next generation of talent.

The best CPOs are obsessed with finding the best people and helping them develop. They send their people out to be trained in the skills they need, expose them to new opportunities, and build peer networks that will develop leadership skills.

The worst CPOs keep their category managers locked away from the rest of the world in fear that their people will be poached. A great CPO doesn’t need to worry about this. They know that they have developed a great employee value proposition that keeps their team engaged and retained.

Reverse Mentoring

Let’s not be too hard on these talented Heads of Procurement. They can’t all be cut from the same cloth.

Why not get on the front foot and try and initiate some reverse mentoring. With a few polite, and well-placed pointers, I am sure you could help turn your scary, old-world CPO into a procurement rock star.

Sharing your skills and knowledge could help your CPO become increasingly tech savvy and an advocate for technology, including social media, for procurement. And just in case you need some more points, you can find a 5-point checklist on being a great procurement boss right here.

We look forward to seeing you both on Procurious soon!

Welcome to the Uncanny Valley

Why are we happy to watch movies with AI and robots, but feel disturbed by near-identical humanoid robots in real-life? Welcome to the Uncanny Valley.

Considering the robot theme of my last two posts, I was somewhat pleased last week to have picked up a radio show from the BBC in their series ‘The Why Factor’ called “Fear of Robots” in which they make some of the same points concerning our assumptions that robots will always be benign.

The presenter found himself somewhat disquieted by a robotic seal pup, and completely disturbed by an almost-human android.

He had, so the saying goes, entered the uncanny valley. Although we humans react (and sometimes over-react) very positively to human-like features – cartoon characters, dolls and the like – we have a generally very bad response to simulations which are very, very nearly, but not completely, life-identical.

The Uncanny Valley

Despite the extraordinary advances in CGI, many filmgoers find greater satisfaction and easier suspension of disbelief in watching old-style animation, than movies which seek to recreate the real world.

The characters just don’t move right, or look right, or something.  The difference is so slight and subtle, yet rings huge alarm bells in our heads.

One contributor to the radio show described very-near-human robots as giving us the same heebie-jeebies as walking corpses might. After all, they are cold, their skin tone is wrong, they don’t move naturally. Of course they freak us out.

Away from the uncanny valley, though, we love the broader approximations to human behaviour.  As we turn away in discomfort from the close-to-real, we delight in the more grotesque caricature.

It seems we’re more comfortable with the messy, chaotic, imperfect real-world, than a more sterile near-perfection.  Perhaps that speaks to a deep aspect of human nature, something that we software developers might do well to pay heed to.

Emotional Reactions

There are clear cases of this emotional reaction to human-like behaviour in the use of software, especially at work.

The response that many, if not all of us, had to that [expletive deleted] animated paper clip when it popped up and said, “I see you’re trying to write a letter, would you like some help with that?” was no different to the reaction we’d have to the co-worker who would keep dropping by to say, “You don’t want to do it like that. Do you?”.

Approximating the real world, including human behaviour, when developing the software that we need to interact with, is thus a complex matter.

Get it right and the user experience is one of delight and sustained engagement. But go too far and users are actively put-off by the feeling that the software itself is somehow working against us.

At GEP we’ve been working on user experience technology that puts the human at the heart of process.  We are, of course, some way from software that has a human personality. And although the possibilities are immense, they are not without risk.

Imagine sitting down at your desk each day to find that overnight everything has been rearranged to make it slightly more convenient for you.  Perhaps so you don’t have to reach so far for the telephone, or your chair is aligned more ergonomically to the monitor.

Such things could dramatically improve our day…or screw it up entirely, leaving us feeling irritated or even violated.  As creatures of habit we naturally reach for the place where the telephone is, which is not always ideal.  It just is.

A Real-Life, Virtual Assistant

But there is another, more subtle, set of possibilities that we might permit to assist us without, to be frank, freaking us out.

You might imagine an assistant who begins by learning how you work, where the shortcuts are that you naturally take, and how other might be offered to speed things along.   Then when the time is right, you assistant might suggest you have some choices, all in good time, no rush.  The assistant makes notes of how they can improve your life and recommends rather than enforces changes.

In time you might start noticing that there is less clutter around and you’re completing tasks faster without having been trained, directed or instructed.  User consent to small changes that help keep things tidy could be far more effective than wholesale re-ordering of menus and icons.

It’s something we have to keep in mind when developing software that should be designed to help you work.  There is a fine but definite line between being helpful and just downright irritating.

It reminds me of the wonderful scene in Father Ted where a sales assistant tries to tempt Mrs. Doyle with an automatic tea-maker.   “It will take the misery out of making tea.”  Her response?  “Maybe I like the misery!”

Cloudy Future for ERP Based Procurement

Traditional ERP systems just don’t do the job for procurement. However, an integrated, Cloud-based approach could be the answer the profession is looking for.

This article was written by Daniel Ball, director at eProcurement specialist, Wax Digital.

The benefits offered by best-of-breed eProcurement technology are well documented. Procurement professionals don’t need much convincing of the advantages of using them.

However, for some organisations, stepping away from using their Enterprise Resource Planning (ERP) system’s in-built purchasing tools isn’t always an easy option.

Modern ERP systems offer organisations a way to manage, collect and interpret data from a variety of business activities across seemingly all business functions, from purchasing and finance to HR and customer service. They also integrate all internal data-collection systems so that all business functions rely on one single database.

This one source of real-time data can help businesses to make decisions based on facts rather than assumptions. To coin a well-used phrase, they could be considered something of a panacea capable of eradicating all business process ills.

There is another way…                                                                                                             

However, for all of the many benefits ERP offers to the organisation as a whole, it’s not uncommon for procurement teams, amongst others, to be frustrated by its rigidity and functional limitations. While core functions such as Finance, Manufacturing and HR are well supported by ERP systems, Procurement, it would seem, is often less so.

Procurement teams will therefore inevitably face the choice between continuing to use ERP, or move to an alternative best-of-bread solution. Today this almost invariably means a cloud-based system that needs to integrate seamlessly with ERP.

The Integration Challenge

But how can procurement convince the rest of the business, and especially the IT department, that the existing functionality on offer to them is no longer adequate for their needs and that moving to a cloud-based system that can be integrated with ERP can be done easily and securely?

We’ve seen many of our customers seek to replace the procurement modules offered to them by their ERP systems but who have been stopped by the integration challenge. They have faced concern from IT managers that integrating with a remotely-hosted, third-party system may pose a risk to the organisation, especially when business-critical master data and finance systems are concerned.

However, the tide is now turning. Some cloud-based eProcurement solutions can securely integrate with ERP and their finance systems. This offers users freedom of choice and the ability to automate, improve, and better manage many of their day-to-day procurement processes.

Feasibility of Integrated Systems

A platform which comes with its own ready configured Integration Platform as a Service (iPaaS) is certainly a major step forward in convincing the finance and IT departments and using a separate but integrated system is not just possible, but advantageous.

We’ve worked with many procurement teams in leading organisations who’ve decided to reject the functionality on offer to them from ERP, and integrate cloud-based eProcurement.

One of our customers uses JD Edwards’ (JDE) ERP system for finance, and had used its procurement module for over ten years to raise purchase orders and approve invoices.

The system wasn’t very efficient or easy-to-use so certain departments chose to bypass it all together, preferring instead to manually process their orders.

However, the complexity and limited functionality of the existing system was preventing the organisation from making wide-scale purchasing efficiencies and not giving a clear view on organisational-wide spend.

Deciding to integrate a new eProcurement system with the JDE finance system that would enable a number of efficiencies including better spend control, more efficient order processing and payments, the organisation decided on a hybrid cloud approach allowing us to host our cloud-based service from within its data centres.

Wide Reaching Benefits

At another of our customers the procurement team was keen to make efficiencies to the management of its indirect spend across Europe.

Multiple systems were being used across the region for indirect purchasing, and these were largely manual, paper-based processes that did not provide full visibility and control over expenditure.

As a result, collaboration between the purchasing teams and finance, as well as with suppliers, was not integrated and could have lead to duplication on spend, or even the business purchasing goods or services it didn’t need.

In order to improve indirect purchasing across Europe, the organisation chose to move its entire European operations to a single, cloud-based eProcurement system to integrate with SAP.

Best-of-breed cloud-based, eProcurement solutions offer a host of benefits across the business, that are far reaching and extend beyond the walls of the procurement department.

Australia’s Love of Credit Set to Continue

Australia’s love of credit isn’t likely to fade anytime soon, a conference in Sydney was told last week. But that’s no bad thing.

The Banking and Financial Stability Conference, hosted by the University of Sydney Business School, brought together senior representatives of the US Federal Reserve Bank, the Reserve Bank of Australia, the Australian Prudential Regulation Authority, the Bank for International Settlements, and The Bank of Finland.

The one-day conference also discussed:

  • The current global obsession with monetary policy;
  • The constant pressure banks face from new fintech players; and
  • The Brexit vote and what its broader impact could be.
“Over-exuberant Lending”

The Reserve Bank of Australia’s Head of Financial Stability Department, Luci Ellis, spoke on the topic of ‘Financial Stability and the Banking Sector’.

Ellis told the conference that Australia’s ongoing need for credit can mean that the value of a well-functioning creditor sector is sometimes under-appreciated.

“Especially since the (global financial) crisis, the dangers of too much credit have become all too apparent. Over-exuberant lending and borrowing can mean that some people are getting loans that they have little prospect of being able to repay, even in good times.”

Importance of Credit

Less well appreciated are the costs of having too little credit available, Ellis added.

“The point here is simply that in recognising that too much credit can be dangerous, we should not instead fall into the trap of thinking of all borrowing as illegitimate, or somehow immoral. Less credit isn’t always better,” she said.

“The low credit levels available in regulated past decades are not the benchmark we should be evaluating ourselves against now, when trying to assess risk in the system. Some activities can and should be financed with at least some debt, even in bad times. And even thought there are plenty of others that should not.”

While Australia doesn’t have this problem, some recent examples overseas show the damage that can be done when there isn’t enough credit available, Ellis told the audience.

“Australia is one of the more bank-orientated financial systems when it comes to providing credit, but it is hardly alone. Some of the countries at the lower end of the range, such as the United States and Canada, are there partly because their governments support the securitisation market in various ways.

“These interventions allow banks to take some exposures, particularly mortgage exposures, off their balance sheets. In some cases they also allow some non-bank loan originators to operate at larger scale than might otherwise be possible,” Ellis says.

Broader Brexit Impact

Conference Co-Chair and Associate Professor in Finance at Sydney Business School, Eliza Wu, says pull-back in bank lending to Asia-Pacific by global, and in particular European, banks can be expected as a result of the Brexit. This is a major concern for the region’s investment and growth.

“This trend started with the GFC, continued into the European debt crisis, and now with Brexit,” Wu says.

Wu told the conference that, “enhancing financial stability in the face of unprecedented monetary policy regimes, and new risks that have developed, will remain a major challenge for policy makers and conference attendees alike.”

Associate Professor within the Discipline of Finance, Professor Suk-Joong Kim, added: “The most immediate concern is the increased level of uncertainty and volatility expected, and experienced, in the international financial markets due to the Brexit vote. Brexit has cast doubt over London as the world’s most important financial centre, and the future of the international banks that operate there.”

Regulation & Supervision

Luci Ellis also spoke on the role that major banks will play in the future. In a world where banks are central to financial stability, they will always need to be regulated and supervised.

“The Australian financial system has managed to weather the external shocks of the past two decades reasonably well. Strong prudential supervision has helped achieve that positive outcome.”

However, supervision goes far beyond ensuing that banks have enough capital, she added. History shows that banks can have much higher shares of capital in their liabilities than we see nowadays.

“We should remember that the policy measures that safeguard the liquidity of bank deposit liabilities, such as deposit insurance and liquidity provision by the central bank, can create incentives for banks to take those risks,” Ellis said.

“If the ultimate goal of financial stability policy is the real economy, it isn’t enough to require banks to hold enough capital to absorb losses, while disregarding the scale of those losses. The losses themselves can represent distress in the economy. The holders of capital are often part of the same economy, so absorbing the losses does not make them go away,” she says.

“Absorbing the losses, and thus avoiding a collapse of the banking system, prevents knock-on effects to other parts of the economy, which is better than nothing. But it would be irresponsible to disregard the risk profile of the banking system’s assets, as long as banks have enough capital to cover those risks,” Ellis says.

How to Ensure High Performance Procurement Contracts

If you want your business to thrive, sticking with the status quo isn’t enough. Ensuring high performance in procurement is the only way to stay ahead of the competition.

With a volatile economy, the need for superior supply management and increased organisational efficiency is vital. Organisations feel the pressure to contain costs while maximising results.

However, incremental improvement won’t work. For long-term success, a transformation of key processes is required. Supply chain managers must accept nothing less than adopting the methods that can make their organisation best in class.

How Well is Your Company Covering the Basics?

While innovative solutions will be important going forward, the foundation of high performance is mastering the basics. Ensuring contract procurement efficiency based on solid core processes will lead to savings in both time and resources, driving better outcomes.

According to data collected by the Aberdeen Group, 70 per cent of procurement executives cite addressing and streamlining indirect spend processes as a top focus for controlling and reducing costs.

While many procurement executives have found ways to rein in cost inefficiencies in direct spend, they are also finding that tried-and-true techniques for reducing costs aren’t working.

So, how can you ensure high performance in your procurement contracts? The following areas contain some of the most targeted ways to achieve success:

Making Use of Mobile Apps to Expedite Processes

Employing the use of mobile apps can help with contract execution.

Mobile apps allow your employees the ability to use real-time information. This will help managers rapidly adapt to the changing procurement environment around them.

Dole Foods is a prime example of how mobile technology can expedite key business processes. The company created a mobile app to streamline key components of logistics and workflows.

Case Study: Dole Foods

Dole Foods is currently the world’s largest producer of fresh fruits and vegetables as well as high-quality packaged foods. The organisation markets and sells their products in over 90 countries.

However, today’s economic conditions along with changing consumer preferences, rising competition, and new regulatory hurdles caused the company to seek new ways to support continued growth.

Their partnership with SAP for core operations was already proving extremely effective; however, accessing the tracking and management software from laptops and desktops alone was becoming cumbersome.

The solution was a user-friendly mobile app, allowing Dole employees to stay productive while on the go. Now, purchase orders can be addressed and managed on their smartphones and tablets.

The ready-to-use P.O. Approval app is fully integrated with Dole Foods’ on-site SAP system. The result is seamless performance.

Employing Multiple Communication Channels

While face-to-face meetings are ideal, they are not always possible. This is where communication software can be invaluable.

Its cloud-based capacity allows for instant communication, the inclusion of multiple collaborators, and permanent record keeping of all communications.

Internally, your team may want to use Slack. This ensures all relevant parties receive the information in a timely manner. And, when everyone is knowledgeable, the risk of errors and legal concerns are reduced.

Automation: Now is the Time

Companies should consider automating to help accelerate key processes. Automated template management can provide a major time-saving benefit. It deploys unlimited customised office templates to all employees.

A contract management template ensures that all the necessary language and concepts are included in your contracts. You can create boilerplate documents that can be easily personalised for special circumstances.

Seamless Supplier Onboarding

Document management is key to never misplacing a critical item. Create a central repository to store all important compliance and legal documents related to each supplier.

Establishing a contract repository provides organised storage of documents. Furthermore, contracts can be securely shared. Permission settings allow for even more in-house confidentiality.

Ensure High Performance

In today’s economy, high-performance procurement contracting is essential. Accuracy and efficiency can lead to significant time and cost savings. Take your business procurement performance to the next level.

Has Procurement Got Its KPIs Right?

As the Procurement function evolves, its KPIs remain old-fashioned. Bertrand Maltaverne explores the surprising results of a Procurement KPI survey.

In a rather interesting coincidence, just as ProcureCon Europe was releasing a benchmarking paper called Procurement Challenges, we released a white paper that also focuses on one of the most fascinating challenges in the industry: The Direct Material Procurement Challenge.

More than a coincidence, this is a sign of the times as the role of Procurement and its position in organisations rapidly becomes quite a recurring hot topic.

Before going into the specifics of ProcureCon’s report, the challenges that Procurement faces stem almost entirely from the transformation Procurement  is going through as a function.

Value vs. Cost reductions

“As businesses emerge from the recent recession into a fragmented supplier ecosystem, a normal approach to creating value through cost saving alone is no longer relevant.”

ProcureCon’s report is not the only one to highlight the current gap between a value-­based Procurement approach and the actual KPIs that most organisations track, specifically:

  • 91 per cent of surveyed organisations have cost savings as a KPI;
  • 76 per cent have cost avoidance as a KPI.

KPIs for value metrics like quality, risk, and cycle times languish respectively in 5th, 8th, and 12th place! Fewer than 50 per cent of companies track these measures.

More troubling: only 30 per cent track Procurement ROI as a KPI. ROI (Return On Investment) or VFM (Value For Money) is actually the main KPI that all organisations should aim for as it synthesises the ratio between value generated and energy or resources employed. Or, in other words, a measure of the effectiveness and efficiency of a Procurement organisation.

Supplier Management Core Procurement Activity

Among the many interesting insights in the report, there are two aspects related to supplier management and stakeholder management that are kind of interesting. They both relate to the qualification of suppliers and are quite revealing.

Procurement still operates too much in a silo

“Procurement typically take the lead when it comes to the qualification of contractors and suppliers during the bid process.”

Decisions regarding sourcing have to be cross-­functional. Not only to ensure that all aspects have been looked at but mostly to ensure adoption of the decisions. Involving other departments in the decision-­making process is critical.

Even better, involving them in the early stage of defining a category’s strategy is vital to define the value that they expect suppliers to deliver. This may not be low prices alone.

Procurement still sees suppliers as trading partners, not business partners

There are also a couple of surprises when it comes to the dimensions Procurement looks at when assessing new potential suppliers. We assume this also reflects the KPIs tracked afterward.

Not surprisingly, financial stability comes first. As a former purchaser, I can say this fits with the practices I have seen on the field. This is not without inherent risk: “conducting a single financial stability check (e.g. D&B check) before engaging a supplier could provide a false sense of assurance.”

More surprisingly, CSR-­related themes like sustainability and safety stand squarely in the middle of the list. Around 50-60 per cent of respondents say they include these factors in their assessments. A notable exception is diversity, which comes last on the list with only 20 per cent of respondents taking this into account.

Issue of Supplier Innovation

But, very surprisingly, competent advice is a criterion that is at the bottom of the list, covered by only 29 per cent of respondents. This is especially surprising considering the focus on the role of Procurement in organisations, and its impact on innovation. The lack of attention on this area is rather troubling.

As we understand it, if organisations do not measure if suppliers could be a source of new ideas and suggestions, it means that they do not expect suppliers to be able to participate in their innovation process. This quite a self­-centred view of innovation!

In conclusion, there seems to be a consensus within the Procurement community that Procurement is not in the place it deserves to be, and that, in the future, its importance will grow. For example, ProcureCon’s report says that 62 per cent of respondents to their survey estimate that Procurement will move towards making board-level decisions in the next 3 years.

But, as far as their report and many others show, there is still a gap in capabilities and delivery that needs to be bridged before we get there.

Now is the time for Procurement to evolve!