Tag Archives: procurement savings

5 Ways to Avoid Spreading Fake News in Procurement

Have you ever been guilty of presenting fake news or “alternative facts” to your CFO? Integrity is a cornerstone of the procurement profession, but benefits realisation is one area where supply managers sometimes play fast and loose with the facts.  

It seems everyone is talking about fake news at the moment. The term came to the fore after the U.S. election, when Hilary Clinton called out fake news as a contributing factor to the Democrats’ defeat. Since then, President Trump’s team have wholeheartedly embraced the term, regularly branding unfavourable reports as “fake news” and even describing selected media outlets (such as CNN and Buzzfeed) “fake news organisations”.

After Trump’s press secretary Sean Spicer’s first press conference contained provable falsehoods about the size of the inauguration crowd, campaign manager Kellyanne Conway came to his defence by saying that Spicer was simply presenting “alternative facts”, much to the delight of Twitter users who immediately converted the term into a hashtag.

Fake news can be dangerous – putting aside whether or not it influenced the U.S. election, the phenomenon has inflamed racial tensions, led to at least one shooting (the “Pizzagate” gunman), while more recently the two nuclear powers Israel and Pakistan exchanged tense words over a news report that proved to have no verifiable source.

The good news is that solutions are popping up all over the globe. The BBC is setting up a “fake news” team, Italy plans to establish commissions of experts to rule on the veracity of news, while Germany has threatened to fine social media platforms including Twitter and Facebook for spreading fake stories.

How does fake news apply to procurement? Let’s look at two examples – firstly, the CPO’s role as the organisation’s trusted advisor and arbiter of facts, and secondly, the risk of feeding “fake news” about cost savings upwards to the CFO.

 The trusted advisor in times of crisis

When a disruptive event takes place, procurement needs to be known as the calm centre of the storm. Let’s take Brexit as an example. After the shock result in June last year, a rising sense of panic took hold of markets while business leaders worldwide were rattled. Media organisations began to speculative on the potential fallout of the Brexit vote, leading to the danger of knee-jerk reactions from CEOs and other decision-makers.

It was gratifying to see that one week later, the CEOs of the world’s two biggest professional bodies for procurement and supply management released statements that contained essentially the same message of reassurance. Importantly, both statements emphasised the procurement professional’s role as the suppressor of speculation and the guardian of facts.

ISM’s Tom Derry spoke to Procurious about his organisations’ decision to release a supplementary Report on Business revealing that the impact of Brexit on US CPOs’ buying decisions was negligible. “There has been an enormous amount of speculation about the impact of Brexit, fed by a sense of unease and uncertainty”, said Derry. “ISM was in a position to gather real data and put the information out there so businesses can make informed decisions based on facts, rather than fear, concern or emotion.”

Similarly, the late CIPS CEO David Noble urged procurement and supply professionals to “act as the suppressor of panic, not the creator”. Noble said that how supply managers behave “is fundamental to how the business manages these coming weeks and months. Supply chains can emphasise or exaggerate concern, which can then be magnified all the way down the chain.”

Benefits realisation – procurement’s very own “fake news”

While the Brexit example demonstrates how procurement can either supress or endorse speculation originating in the media, there’s one area where CPOs are guilty of generating fake news themselves – the realisation of negotiated savings and other benefits.

In a report commissioned by members of The Faculty Roundtable entitled Making it Stick, researchers found that 50% of contracted savings are not making their way to the bottom line in leading Australian organisations. Without effective contract management to realise the full value of savings and other benefits, procurement professionals risk damaging the integrity of the function. Eventually, the falsehood will catch up with them when the CFO calls them into their office and demands: “Where’s the money?”

That’s why, to avoid being a purveyor of false data, CPOs must address the fundamental shortfalls that are costing organisations hundreds of millions in unrealised savings.

Five ways to turn “fake news” into real, bankable savings

Procurement teams are adept at finding the money, but it takes a whole organisation to keep the money. Given the uncertain business climate facing organisations internationally, driving savings and other value to the bottom line is an absolute priority facing the C-level today.

  1. Encourage enterprise-wide ownership and alignment with Procurement’s targets (shared targets).
  2. Bust silos through true cross-functional collaboration, particularly between procurement and finance.
  3. Work to eliminate maverick spend and other non-compliance that undermines procurement’s gains and damages supplier relationships.
  4. Establish crystal-clear benefits definitions, measurements and validation processes, agreed upon across the organisation.
  5. Create a cost-conscious culture to enable CPO-level efforts to expand the value that procurement contributes.

In short, as a CPO you’ll need integrity to win the trust and respect of your team, your peers, and your suppliers. Your willingness to accept or even endorse fake news, such as panic-driven speculation or unrealised savings, will very quickly erode this respect and lose the confidence required to run an effective procurement function.

Mastering the True Art of Saving

Why addressing demand management, and bringing down your demand can realise more of a procurement saving than simply cutting costs.

Art of Saving

This article was written by Jon Milton, Director at Comensura.

Most of us know too well the need to tighten the purse strings occasionally in our daily lives. When doing so it’s a natural response to search for cheaper alternatives to the services and products that you’re already buying.

Think about your home energy expenditure for example. Let’s say that you shop around and find a supplier that charges 5 per cent less than you already pay. That’s a good reduction, but it’s a saving within the scale of pricing which, aside from some major shift in energy production trends, is only going to vary to a certain degree. This kind of cost-saving approach will typically only be incremental and rarely save you a dramatic amount.

However, there is an alternative way to save – by managing down your demand. Rather than the pain of switching provider, you could install a smart energy meter and manage down the demand for energy throughout your home, eliminating excessive energy used, and pinpointing when and where you need the heating on. A smarter approach like this could save you much more than 5 per cent.

Smart Saving

It’s for that reason that a cost cutting approach that goes beyond incremental savings should be applied to the corporate world too – especially in complex spend categories such as temporary labour. It’s difficult to know for sure how many workers you need, as it requires you to have an overall view of your organisation’s demand.

And once you establish a number, the sample of workers that are on offer to you vary by qualifications, experience, skills, availability, geography and more – all of which affect how much the candidate costs – making temporary recruitment a complex service category.

Think about how much money organisations could be wasting by hiring the wrong number of temporary workers, the wrong kind, or by not utilising their skills properly. Our evidence as a labour supply management specialist shows that by accurately sourcing the right skills against the organisation’s demand, you can take your cost saving on temporary staff from less than 20 per cent, to over 50 per cent.

Addressing Demand Management

Here are some steps you can take to address temporary labour demand management issues:-

1. Understand your expenditure

Temporary labour is typically ordered directly by line managers as it is under their supervision and control that workers are engaged. There’s usually a business rationale, but is it justifiable?

Additionally, the original rationale for engaging temporary labour will normally be linked to a set time period, such as three months. Any expenditure beyond this initial period should therefore be questioned as to why it is required. 

2. Challenge usage

Once you’ve established an understanding of what’s being spent on temporary labour, ask your managers to justify any anomalies. If they cannot provide sound business rationale, ask them to create an exit plan for the worker and an agreed date. When you review usage the following month, make sure that the worker has been exited.

3. Start planning your workforce

If your use of contingent labour is reactive, ‘fire fighting’ to meet business demand, it is unlikely that you will be in control of your expenditure. Try and review your ordering patterns to identify trends, as this will enable you to plan the workers’ tasks and/or help you to plan your permanent headcount’s activities better.

For example, if historically your usage of contingent workers has a spike in August when staff go on holiday, you may want to review the way that you co-ordinate leave requests, and then plan ahead where cover is required.

4. Properly evaluate needs

Feeling the pressure to hire contingent staff and then recruiting staff that are over qualified (and paid more than the work requires) is one way to rack up an unnecessarily hefty bill. By understanding your requirements fully, you can better establish the experience and type of individual required.

5. Provide a detailed specification

Once you’ve established and understood your requirements, make sure that you, or managers across your organisation communicate these requirements properly. If you want someone with certain skills and experience, be specific about what you need. It sounds simple but it is one of the most common pitfalls that we come across and can cause significant issues.

Often the role is specified (which in an applicant’s mind they could do), but the experience, demonstrable evidence of skills and attributes are not. The more detailed you are, the closer your applicants should be to the requirement. You may get fewer applications, but the quality of hire should be much better.

Saving on Category Procurement

Many organisations are already taking a sound approach to complex category procurement, and with the financial benefits they’ve seen, it’s safe to say that they don’t regret the decision. One of our customers regularly uses temporary staff, and chose us as a single platform to place orders, assign candidates, and manage its temporary staff time sheets.

Having saved £900,000 on temporary staff in 17 months, and delivered a 10 per cent cost saving overall, the customers’ smarter approach to managing temporary staff means that it can invest more funds into vital areas of the organisation.

Just as its name suggests, complex category procurement is a tricky process, particularly when looking for ways to make procurement cost-effective. But provided you look at the wider picture of your organisation, you can restructure processes and gain the benefits.

It starts with making a distinction between your complex and simple procurement, and approaching processes like temporary recruitment in a smarter way that means not just finding cheaper providers.