Tag Archives: best practice procurement

Big Ideas Summit 2016: Big Idea #14 – Procurement Must Evolve

Procurement must evolve if it’s going to survive. It needs to leave its comfort zone and showcase real value for the organisation.

At the Big Ideas Summit 2016, we challenged our thought leaders to share their Big Ideas for the future of procurement.

From ideas that have the potential to change the very nature of the procurement profession, to ones that got the assembled minds thinking about the profession’s impact outside of the organisation, the response we received was amazing.

Evolve to Survive

Dapo Ajayi, CPO at AstraZeneca, believes that procurement as a profession must evolve in order to remain relevant.

Dapo argues that procurement needs to stop being process-based, and leaders must develop new skills in order to deal with ambiguity, and enable evolution into a profession that can work with the business to enable value.

Catch up with all the delegates’ Big Ideas from the 2016 Summit at the Procurious Learning Hub.

Want to find out more about Big Ideas 2016? And maybe what we have planned for 2017? You can visit our dedicated website!

If you like this (and you haven’t done so already) join Procurious for free today. Get connected with over 17,000 like-minded procurement professionals from across the world.

7 Key Objectives for Procurement Success

Global procurement professionals are attempting to find new ways to create cost savings, as well as create value. Help is at hand with these 7 key objectives for success.

Key Objectives

ProcureCon Europe is back for it’s 17th consecutive year, answering your challenges in procurement and the future direction of the industry.

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

Instead, businesses are tasking procurement to effect enterprise-wide change, including implementing process improvement, and operating beyond the contract with suppliers to co-create value, and exploring payment innovation.

ProcureCon Europe has put together seven key procurement objectives you can’t afford to ignore, in order to create an efficient, cost saving and interactive procurement department.

#7: Talent Development

Talent development obtained the least amount of votes in our survey. However, there are few procurement executives who would argue against the importance of having a plan in place to develop the procurement leaders of the future.

#6: Responsible Sourcing

How is this made, and where does it come from? These are important questions on the lips of both procurement professionals and the general public.

Although perhaps less in the spotlight than it was 18 months ago, especially in the public sector, responsible sourcing remains a central pillar for Indirect Procurement.

#5: Taking Advantage of Digitisation

Organisations are rapidly digitising across the board. Procurement is attempting to make the most of the operational advantages implicit in this change.

The move to digitise in many cases means completely overhauling established business processes. This presents a significant opportunity for improvement, and is an essential element of a successful future for Indirect Procurement.

#4: Innovation in Services

Procurement seeks to lead innovation in the way that an organisation uses services, from HR, to IT, Marketing and beyond.

This is an area in which Procurement has the potential to add real value. The fresh availability of external services can mean easy, and comparatively cheap, solutions with minimal risk, which is great for growing companies.

#3: Operational Efficiency

While driving down costs can be done by negotiating better deals, there is also some considerable importance placed on increasing operational efficiency. Doing so means making better use of available resources and ultimately saving money.

#2: Value Delivery

Just like beauty, value is often in the eye of the beholder. That being said, those with a progressive approach to indirect procurement increasingly look to consistently add tangible value to the categories in which they work, and actively measure themselves on their ability to do so.

#1: Cost Leadership

Perhaps unsurprisingly the number one area of importance for Indirect Procurement is in the area of cost leadership. A strong stance on cost leadership can help to drive significant improvement to the bottom line. This is key when Indirect Procurement is expected to demonstrate its ability to drive meaningful savings.

Agility and Technology

These 7 key procurement objectives provides companies with guidance, in order to have an effective procurement department.

However, procurement must stay agile. Factors such as innovation and digitisation are constantly changing. Procurement professionals, particularly those in growing companies, should be taking advantage of available technology to further their reach.

The ProcureCon event series brings together a unique blend of Procurement, Purchasing and Supply Chain experts from across all industries to share their experiences and knowledge with a team of people who truly embrace the strategically important field of Procurement.

Find out more about how ProcureCon Europe is helping procurement professionals to solve their main challenges at on the event website. You can also follow ProcureCon Europe on LinkedIn and Twitter.

The Pareto Principle Has An Expiry Date

Has the Pareto Principle finally reached its expiration date after 110 years? Why the tail wagging the dog heralds the end of the 80-20 rule in procurement.

Pareto Expiry Date

This article was first published on EBN Online.

When Vilfredo Pareto observed in 1906 that 80 per cent of the land in Italy was owned by 20 per cent of the population, little did he know that this 80-20 rule (or Pareto Principle) would be enthusiastically embraced by the procurement profession and still be applicable 110 years later.

The term was popularised in the 1940s by the engineer Joseph M. Juran, who famously wrote of “the vital few and the trivial many”.

In procurement terms, the Pareto Principle means that 20 per cent of the average organisation’s suppliers account for 80 per cent of spend, and vice-versa. I’m a big fan of explaining procurement concepts with relatable imagery, so let’s picture your supplier base as something that we’re all familiar with – a dog.

The Tail Will Soon Be Wagging The Dog

Picture a Labrador. Or an Alsatian, or a Sheep Dog if you prefer – whatever takes your fancy. The head of the dog could be said to represent your top 1 per cent strategic suppliers. This is where you commit most of your time and energy.

Your procurement systems are optimised to work with the head of the dog. You make a significant effort to communicate face-to-face, and you spend a large amount of time worrying about what’s going on inside that head.

Let’s move down the neck to the dog’s body. Think of this as the next 19 per cent of your strategic suppliers. While the body isn’t nearly so important as the head, you recognise that this group accounts for the majority of your spend and deserves almost as much attention. As such, you dedicate time and resources to ensuring the body is in optimal health, and these “vital few” are being properly looked after.

Finally, the tail. Depending on the amount of suppliers you have, this could be a short stubby tail, or an extremely long one that tapers to a tip. Into this tail you’ve crammed 80 per cent of your suppliers – Juran’s “trivial many” who represent only 20 per cent of your spend.

You’re so busy looking after the dog’s body (and especially its head), that you’ve adopted a set-and-forget approach to the spend tail. You automate what you can, and call upon the smallest suppliers only when you need them.

And that’s a mistake, because in terms of innovation potential and risk profiles, the tail will soon be wagging the dog.

Procurement Systems Optimised For Large Suppliers

At ProcuriousBig Ideas Summit in May this year, Coupa Software’s Gabe Perez told the assembled group of Procurement thought-leaders that there are untold millions of suppliers in the world.

And yet most of our systems, or proprietary networks, only give us visibility of a few hundred thousand. We need to develop open networks to give unhindered access to all these suppliers who could potentially be the source of game-changing innovation.

The problem is that our processes and systems are set up to work with the big players at the expense of SMEs. “We can’t have our bureaucracy, our complexity, our layers of organisation impact suppliers’ businesses,” says Perez. “The cost of business goes up”.

Yet, that’s classic procurement, and it takes a culture shift to change the way we do business and encourage a truly open network. Think about the hurdles your organisation is putting in place for SMEs; whether they’re prohibitive insurance requirements, or crippling contractual terms that could bankrupt a small player.

Are they really necessary? Are you closing the door on opportunity because you see yourself as too big to play in the small supplier space?

Building Culture Of Agility And Innovation

Have you ever requested a last-minute change from a large supplier and watched in frustration as the creaky wheels slowly begin to turn? By the time the suppliers’ emails have bounced around to tick all the bureaucratic boxes, a smaller supplier may have found and implemented a solution.

What you want is agility. And small suppliers will expect you to be agile in return.

In her workshop on innovation in procurement, former Deutsche Telekom CPO, Eva Wimmers, stressed the need for nimbleness when working with SMEs. She discovered that the existing processes at her organisation were skewed towards the largest suppliers. 

Processes were changed to encourage innovation through diversifying the supply base to include more SMEs and start-ups, cutting new contracts down to a maximum of five pages, and holding supplier meetings exclusively around innovation.

Eva also implemented what she called “dialogue-rich procurement”. This encouraged her team to greatly increase their communication with both internal stakeholders and with suppliers. Her team discovered that SMEs, in particular, were very eager to share their ideas when they found that procurement was willing to listen and learn.

In Eva’s words, “We do not care how big an organisation is, as long as both the solution and the organisation are scalable and financially solid.”

She used Dropbox.com as an example of a small organisation with fewer than 50 staff that wouldn’t even have shown up on many organisations’ radar. And yet now it has world-wide take-up.

Compression Of The Supply Chain

Paul Markillie, Innovation Editor at The Economist, talked at the Big Ideas Summit about the compression of the supply chain driven by recent technological megatrends.

Robotics, 3D printing and computer-aided design are demolishing the old economies of scale, and separating a big supplier from an SME. This is ushering in no less than a “Fourth Industrial Revolution”. What this means for procurement is that third or fourth-tier suppliers can find themselves rapidly rising to first-tier producers of end-products.

“There will be huge opportunities for companies further down the supply chain to innovate,” Markillie said. “Second-generation robots are more affordable for medium and small companies; 3D printing processes are less wasteful of raw materials and allow greater production flexibility at lower volumes.

“I think we will see some companies grasp these opportunities, which could re-order supply chains, and lead to some companies that were previously suppliers of components making the leap to become producers of final products.”

Lots Of Risk In That Spend Tail

The dilemma many procurement professionals face is that although you can’t afford to spend much time with suppliers beyond your top 20 per cent, every single vendor in your supply chain presents a significant risk to your brand, reputation and bottom line.

Think about a small supplier that you only use sporadically. Have you investigated their suppliers to ensure compliance to standards? What are their second-tier suppliers up to? What about the third, fourth and fifth tier?

Even though your spend with this supplier may be minimal, it can cause just as much damage to your organisation as the top 20 per cent. Child labor, slavery, cyber security, unsafe practices – the list is endless, and frightening.

My point – apart from trying to scare you – is that your risk mitigation and audit processes that are in place for the top 20 per cent, should be extended to the remaining 80 per cent.

End Of The Pareto Principle?

So, does this mean that the Pareto Principle has finally reached its expiration date after 110 years? In my opinion, yes it does.

If you measure the importance of suppliers purely by spend (and that’s very old-fashioned thinking), then you should indeed spend the majority of your time with the 20 per cent.

But modern CPOs know how badly a bottom line can be hurt by a risk event, and the huge potential of disruptive innovation to grow a business. And both of these factors reside in suppliers of every size, including those in the tip of the tail.

Taking the Global Pulse of Procurement

How do you take the global  pulse of procurement and understand key current trends? Here’s a survey that helps do just that.

Global Pulse of Procurement

Zycus recently published their 2016 Pulse of Procurement report, an annual survey and report that highlights key procurement trends around the world.

The report draws on the thoughts and inputs of 650 procurement leaders worldwide, helping to draw valid, statistical conclusions across a number of topics.

The key areas of discussion in the 2016 report include:

  • The present state of procurement
  • The role of procurement technology
  • Hot current trends of procurement
  • The future of procurement

With participation in the survey increasing year on year, and the consumption of the report also increasing, it’s becoming one of the key information sources for procurement leaders. Procurious caught up with Richard Waugh, VP Corporate Development at Zycus, to talk through some of the key messages in 2016.

Procurement Technology 
Adoption vs. Satisfaction

One of the key findings Richard highlighted in this year’s report was the disparity between the high adoption of, but low satisfaction with, procurement technology.

In European countries all of the components of procurement technology have more than 50 per cent adoption. Core technologies such as P2P, eSourcing, Contract Management and Spend Analysis above 70 per cent.

However, only 1 in 5 survey respondents believed their technology solution was best in class or state of the art. One of the key reasons behind this, is that procurement are often left with a version of a legacy system, leading to low satisfaction.

Richard stated that, “These ‘best of breed’ procurement systems do exist, but it’s really only in the e-Sourcing area that state of the art tools are more prevalent.

“There is still a pent up demand for these best in class tools. These would help organisations make a step-change in performance, but many organisations are forced to make do with what they have.”

Supplier Performance Management

Richard believes that having the tools and technology available to enable closer collaboration with suppliers, will in turn drive innovation. These tools can help to measure the value of contributions that suppliers can bring to the table.

Richard stated that the more advanced procurement teams are already using technology to get closer to their supply base, and bring forward the best ideas for profit enhancement.

In addition to this, automation and procurement technology can help to significantly reduce manual, transactional activities, helping procurement get more from their resources, and at the same time enable the profession to be more strategic.

Spend, Perception & Risk
Spend Under Management

The Pulse of Procurement report also highlighted encouraging signs in the management of enterprise spend by procurement. In 2016, 26 per cent of the respondents have achieved an average of 80 per cent of spend under management.

These best in class performers have gone down the path of better stakeholder management and involvement. This allows them to access traditional ‘sacred cows’ of marketing, legal and IT spend.

However, according to Richard, there is still room for improvement. “The weighted average is only 57 per cent spend under management. If you’re average, you’re barely getting over 50 per cent of your spend managed.”

Perception

The report supports the idea that procurement is more of a strategic partner for the business now in many regions. This positive perception, and better visibility with stakeholders is more important, particularly in light of budget pressures.

In Europe, 9 out 10 leaders highlighted a positive perception of procurement by the C-suite. However, this region also has the greatest budget pressure. The majority of European respondents said that procurement budgets for 2016 were either flat or declining. This has led to teams being asked to do more with the same, or more with less.

In Asia-Pacific, the strategic role of procurement is still developing. Richard said, “There is an opportunity for Asia-Pacific to catch up this lag. As you start to manage the spend, the possibilities for savings are better. In fact, the savings goals for procurement are actually highest in this region as they address these categories for the first time.”

Risk

For the first time, supplier risk management fell out of the top 5 priorities for procurement in North America, although it remained in the top 5 in Europe. While this is probably reflective of the current macro-economic conditions in Europe (Brexit; political instability), it does show a potentially short-sighted approach in North America.

In better economic conditions, it’s easy to let risk fall down the ladder. And with less volatility in America, even with a Presidential election coming up, organisations may have changed their focus. However, as Richard states, now is not the time to take your eye off the ball on risk.

“The more mature procurement organisations are doing a better job of managing supply risk. They realise the cyclical nature of risk and the potential for a downturn, and understand the need to be more prepared. However, there is still a significant component who are tactically focused, and dealing with the current reality, rather than looking ahead.”

Pulse of Procurement

Finally, we asked Richard why procurement professionals should download the Pulse of Procurement report. For Richard, it was as simple as saving yourself time with data analysis, and getting a better view of the world outside your organisation.

“For most organisations, everyone is stretched, doing more with less. People tend to have a myopic view of what’s going on in their organisation, without seeing the bigger picture. They can’t readily benchmark themselves against the wider function.

“The Pulse of Procurement report gives you the chance to have data synthesised for you, and to gain some context as to how you compare to the function overall. This then allows you to see where you are leading and lagging in comparison.”

You can download the Pulse of Procurement report on the Zycus website. For more information on how to be involved with the next Pulse of Procurement survey, contact Zycus.

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.

High Performance

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.