Tag Archives: procurement strategy

The Loss Leading Approach to Savings

Challenging, controversial and, for small organisations, potentially crippling, but for many, Loss Leading remains a popular strategy. Is there a sustainable way procurement can use this strategy to deliver real savings?

Photo by Artem Beliaikin from Pexels

Loss Leading is the practice of selling products at, or just below, cost price, with the aim of bringing consumers into a store and then selling add-on items to the original product, or encourage impulse purchases. And when the average consumer spends $5,400 per year on impulse purchases, you can understand the attractiveness of this.

If you have been shopping for groceries, a new mobile phone, electronics or even a new car, the chances are fairly high that you have encountered a Loss Leader pricing strategy. So common are these deals across a whole range of goods and services that it’s probable you have encountered this strategy without even realising it.

It’s the notion that this strategy is somehow underhand that, in spite of its popularity, has led to controversy. It’s even been banned in half of US states and some European countries. Why? Because there is a widely held belief that the practice doesn’t promote competition and may harm consumers in the long-term. 

Reduced Competition?

The fact that the strategy has been banned in half of US states suggests that the practice has more negative connotations than positive. In most cases, the belief is that Loss Leading actually reduces market competition to the detriment of the consumer. 

Large organisations, the likes of Amazon, Walmart and Apple for example, have broad product ranges and the ability to withstand losses from these products by having a greater profit margin on others. Smaller organisations don’t have this luxury and either choose not to stock a product or sell it for more, reducing consumer choice.

It’s not all positive for organisations either. Savvy consumers may only look for the introductory offer or the products at the loss leading price, and not buy add-ons. This is termed as ‘cherry picking’ and may cause financial issues for even large organisations in the long-term. There may also be a knock-on effect in the supply chain as manufacturers may be required, or feel the need, to keep prices low so that loss leading strategies can continue.

There are positives for organisations and consumers though. Organisations may use it as a strategy to increase sales or engage consumers on a new product, with consumers benefiting from better deals and lower prices. 

Could we then be looking at a situation where unsustainable loss leading is the issue, where the strategy is actively used to reduce competition or drive other organisations out of business? And how does all of this relate to procurement?

Sustainable Loss Leading

For procurement, introductory pricing and negotiated discounts are commonplace. Across all industries and sectors, suppliers will try to get a foot in the door with an organisation, offering lower prices, demonstrations and even free samples. While regulations and transparency should stop this having a direct correlation to contracts awarded, there is benefit that procurement can derive from this.

Where suppliers can accommodate lower prices, a loss leading strategy on price plays right into procurement’s hands. As the profession looks to drive down costs in both direct and indirect sourcing, procurement strategies are looking for greater innovation and strategic buying initiatives to achieve this, without just chipping away at profit margins.

The Power of GPOs

Let’s say, hypothetically, that procurement professionals are looking at loss leading strategies without knowing that this is what they are. A good procurement strategy would focus on ensuring that no matter how low the price is, it is sustainable for the market and the supplier. After all, it’s no use driving prices down and putting your supplier out of business. 

What if there was a solution in the market that would enable sustainable loss leading prices over the longer term, which procurement could take advantage of? The good news is that there is in the form of Group Purchasing Organisations (GPOs). Linking up with a GPO doesn’t diminish procurement’s role, rather it enhances it. Supplier consolidation activities can be aided and it’s not a ‘race to the bottom’ in pricing, meaning that required quality levels will be maintained.

GPOs will assist in gaining the best prices possible through sourcing at bulk rates, without the individual organisations having to increase their purchasing volumes. The GPO can then guarantee that these prices stay low, at the ‘loss leader’ level for the life of the contract, through the use of pre-negotiated contracts and the fact that, due to the volume, even the smallest organisation is treated as a key customer for the supply base.

Turning the Negative Positive 

As you can see, when done sensitively and sustainably, a loss leading strategy for savings can actually be a positive for procurement. Not only that, but by taking the route of the GPO, the strategy is open for the first time to smaller organisations, without the potentially fatal risks attached to it. As procurement strategies go, it’s a strong one, allowing for wider input and not undermining strategic supplier relationships. 

Who knows, you might even earn your organisation a slice of that impulse spend. Now that would be a good outcome, wouldn’t it?

Want to know how to gain the benefits of sustainable loss leading without any of the negatives? Then contact UNA today and join their growing network.   

Why Contracts Are Key to Executing Your Sourcing Category Strategy

The implementation of a category strategy is seen as best practice in procurement. But contracts themselves hold the key to success.

For procurement organisations, “category management” is considered a best practice for sourcing. Simply put, category management is the process by which companies segment all the goods and services they need to procure into discrete categories that reflect the specific common characteristics of the products they’re buying.

For example, the procurement department at an automobile manufacturer will likely be responsible for sourcing everything from steering wheels to cleaning services. While in both cases the company needs to make prudent decisions about its spend, what goes into to choosing vendors for those goods and services are obviously very different.

Some goods are highly commoditised and therefore cost will be the determining factor. Other goods may have stringent performance requirements attached to them. These will be evaluated based on the quality of the vendors bidding for business. Some goods are business critical. Others, less so.

A category management strategy for steering wheels may look something like this:

  • The company’s steering wheel vendors should be equally dispersed between the North American, APAC and EMEA regions;
  • No one vendor should supply more than 40 per cent of all steering wheels;
  • The total spend on steering wheels can’t exceed a pre-determined amount.

This strategy means that the supply of steering wheels is more resilient to disruptions like natural disasters (since they are coming from various geographies) and not exposed to undue damage if a single vendor fails (since no one vendor dominates the supply). And, of course, it provides predictability in how much will be spent procuring the product.

Making Sure the Category Strategy Is Followed

But designing the category strategy is just the first step of the process. The greater challenge is carrying it out. The history of large enterprises trying to execute category strategy-driven procurement shows that while they are sometimes able to apply the category rules at the time of sourcing, it becomes a struggle to monitor adherence during the operations phase of a contract.

For example, contracts may have been awarded assuming a certain mix of supply sources (with differing costs and quality parameters) to deliver on certain quarterly cost goals, but issuance of purchase orders in a different proportion at the execution stage will invalidate those assumptions and cause the category strategy to fail.

To improve compliance with a category strategy, leading enterprises are taking a new approach. Putting contracts at the centre of the process.

Using contracts to drive category management compliance is enabled by the emergence of digital contracts and contract management software. By managing contracts on an enterprise contract management platform, companies can leverage contract data to execute effective contract strategies—and design superior strategies to begin with.

How It Works

Let’s go back to the steering wheel example and see how enterprise contract management can optimise the process.

First, the procurement organisation develops the category strategy for steering wheels. The development of a category strategy is a consultative process and depends on data to draw insights and validate assumptions. Much of this data exists in past contracts: supplier performance on existing contracts, spend on different sub-categories and geographies, and other data points. That information, when available on a contract management platform, gives rise to a superior strategy.

Next, the company put out requests for bids from vendors. Contract requests and bid lists aligned with the adopted strategy are launched from within the contract management system. This ensures that the vendor shortlisting and price discovery process conforms to the category strategy.

Once purchase orders begin to be issued, business rules in the contract management platform ensure the strategy is carried out. If a buyer tries to execute a contract that goes against strategy – for example, with a vendor whose geography has already reached its limit in the strategy – the contract will be blocked or routed for special approval.

Finally, the contract management software monitors in real time vendor performance against the contract. This is done both through data tracked within the platform itself and through integrations with other enterprise systems. This way category managers can not only make sure contracts comply with the strategy, but that performance complies with the contract.

Contracts Are the Foundation

Since contracts are the foundation of buyer-supplier relationships, an enterprise contract management platform can support all phases of a category strategy:

  • Insights to develop the strategy;
  • Tools to execute the strategy;
  • Rules to enforce the strategy; and
  • Integrations to monitor the strategy.

Icertis is focused on how digital contracts and cloud-based enterprise contract management software can improve business performance, including in procurement. To learn why Gartner has named Icertis a “Cool Vendor in Sourcing and Procurement” and why “the clear leader” in buy-side contract management, contact us today.

Want to get access to more great insight on contract management, A.I. in procurement and all things procurement software? Icertis are one of the main sponsors for the Big Ideas Summit Chicago 2019, and will be delivering one of the keynotes on the day. There’s still time to register as a digital delegate – find out more and sign up today here!

Captain Planet, Power Rangers, Voltron … and Procurement

A chain is only as strong as its weakest link, but the whole is greater than the sum of its parts. It’s time for procurement to consider a procurement strategy angle it has never thought of before.

By Sean P. Aune/ Shutterstock

“Earth. Fire. Wind. Water. Heart. Go Planet!” “By your powers combined, I am Captain Planet!”

If you were a child of the 80s or early 90s, there’s a fair chance that you are familiar with these words. They are, of course, the words used to summon Captain Planet, via the power of five magic rings wielded by his “Planeteers”. The cartoon acted as an advocate for environmentalism and even spawned a charity.

What, I hear you cry, does a distinctly average 1990s cartoon have to do with procurement strategy? It’s not about how procurement can help to promote environmental sustainability. Need another clue?

Cast your mind back to settling down in front of your TV on a Saturday morning in the 1980s or 1990s. Did you ever watch Voltron? How about Power Rangers? If you did, and remember how our mighty heroes defeated their nemeses, you might be beginning to get the idea.

For the Power Rangers, it was creating the “Megazord”; in Voltron it was the combination of 5 robot lions (or 15 smaller vehicles depending on which series you preferred…). As we alluded to in our introduction, when people or organizations operate alone, they can be ignored or out-maneuvered. When they team up with others, then they wield much greater power that can be leveraged to create great benefits.

From Purchasing to Strategic Sourcing

Procurement may not face overwhelming opposition in the form of giant dinosaurs or evil polluters, but it faces its fair share of challenges. Elements such as maverick purchasing and non-compliance with processes serve to undermine procurement’s position as a strategic sourcing partner to the organization.

There is also the issue for small organizations that their procurement teams are seen by suppliers as non-strategic. Through this they may lose the opportunity to negotiate better terms in a contract, or end up being so far down the supplier’s priority list that they will never be viewed as an important customer.

A wealth of literature exists on why procurement should be creating better relationships with suppliers. Why shouldn’t procurement be looking to create closer relationships with other procurement departments and work together to improve their own strategic buying potential?

Think of your procurement team as one small part of the Voltron robot. If you join together with other small parts to create a procurement mega-bot, there’s little that will be able to stop you from achieving your goals. It’s no coincidence that we often refer to Group Purchasing as procurement’s “secret weapon”.

Here are the some of the benefits that can be reaped by combing your (purchasing) powers with other procurement organizations:

  • Scale or Spend Leverage: Probably the most obvious benefit based on using greater, combined volumes to drive a better price. Also known as “buying power”.
  • Price Alignment: Where one organization is paying more for a specific product than another organization, but then align their prices to the lower one. By working together and aligning prices, Police Forces in the UK have saved over £237 million ($339.5 million) in 3 years.
  • Collective Negotiation: Similar to the idea of Collective Bargaining between organizations and employees, but in this case, procurement with other procurement teams. It extends the idea of leverage, giving even the smallest organization presence at the negotiating table.

The Power of Many

Centralized procurement is usually focused within a single organization, but who is to say that you couldn’t have centralized procurement activities as part of an overarching procurement strategy? The options are there that could make this a reality and turn your procurement team into the organizational equivalent of a power ring.

If you’re not sure where to start, then you don’t need to look much further than the potential for outsourcing procurement via one of the many procurement consulting houses. Or, if you are after procurement solutions that enable your organizations to keep more control, you may choose to investigate the option of a Group Purchasing Organization (GPO).

A GPO can offer organizations the benefits outlined above and can back up all of this with hard facts too. Savings on direct and indirect sourcing, access to pre-negotiated contracts and linking up with other organizations to really leverage scale and volume to create tangible savings.

As Captain Planet said at the end of each episode to the viewer at home, “The power is yours!” Now it’s up to you to decide how to use it and if you’ll join forces to overcome the myriad challenges facing procurement today.

Want to know more about GPOs? Contact UNA to discuss the benefits of Group Purchasing.  

2017 Rewind – Do You Have The Right Skills To Deliver On Tomorrow’s Procurement Strategy

As part of our 2017 Procurious rewind, we’re taking a look at the top blogs of the year. This piece looks at why are our procurement teams are falling so short when it comes to delivering on strategy? 

mangsaabguru/Shutterstock.com

Shockingly, 60 per cent of CPOs believe their teams do not have the skills to deliver their procurement strategy, according to Deloitte’s “Global Chief Procurement Officer Survey 2017.”

Why are procurement teams falling so short?

Originally, procurement was heavily based on process management, negotiation and basic spend analysis. But the procurement function is evolving, and professionals have to adapt to a new environment . There are new and growing expectations that require alternate skills for a more advanced job profile.

Procurement professionals are expected to be much more analytical, with the ability to perform data mining. They also must learn to manipulate and understand financial data and indicators, such as P&L and balance sheets. That’s not to mention that they should be proficient with the latest technologies.

Yet, one of the most important skills to develop is customer centricity. In today’s customer-centric world, this becomes crucial.

In my opinion, understanding internal customers,  being able to communicate in their language, knowing what they want or helping them to understand what they need, is the most difficult skill to learn and develop because it often goes against the conventional and traditional training that many procurement professionals have received.

It’s time to stop hiding behind the processes and get to know the internal customers! Given the back-office environment we are coming from, there is still a lot to do to change the mind-set and the behaviour of those involved. Procurement professionals need to develop their consultative skills and become less process focused, since excessive process significantly impedes speed and agility.

Keeping It Fresh

Another challenge for procurement involves attracting and retaining fresh talent in our industry. This situation needs to be addressed now to prevent a significant skills gap within the next couple of years. While we still have to continue to build traditional procurement skills. We also need to recognise that these skills must evolve as analytic and cognitive solutions provide more refined data and insight. The challenge is less about finding someone who is an expert negotiator and more about recruiting someone who understands data and logic.

At IBM, we are currently hiring maths and statistics majors because they can understand trends and probabilities. Although many procurement skills can be taught,  it’s hard to train someone to find trends in complex data.

Taking IBM’s example, our strategy to recruit and retain talent is reflected in how we communicate our procurement roles. “Our Procurement strategy is about collaborating with customers to ensure they have best in-class solutions, with access to the most advanced technology available on mobile devices. We partner with our suppliers to be as innovative and creative as possible.”

Presented like this, a job in procurement sounds pretty exciting!

The party ain’t over yet!

And the party isn’t over once we’ve found the right skills and talent, we also need to keep that skilled staff within the procurement function! If we help employees build on their competencies as well as add new ones, and if they can see that their contribution to the company’s mission clearly makes a difference, it will help us to keep those employees in procurement.

Ultimately, modernising the procurement profession and making procurement a “cool” place to work will help retain a talented, skilled and motivated workforce.

IT Procurement Without a Tech Strategy Is A Recipe For Disaster

If you’re struggling to effectively run your IT procurement processes, it might be time to evaluate your strategy!

This article was written by Harry Wilson, an IT Consultant. Read more via Leap Consulting.

If procurement is the series of activities and processes required during the acquisition of any IT infrastructure, software and systems, IT procurement and the purchasing of updated systems are essential to any business which uses information systems and digital technology equipment to drive projects, management and processes.

The running of the IT procurement process should be carefully managed and examined to ensure that  purchases provide both a good foundation and high-quality equipment for the future process, in line with the businesses goals.

This requires a dedicated employee in charge (usually the CIO) and an IT strategy to allow a business organisation to reach best practices of IT procurement.

Digital transformation and disruption

Digital transformation and disruption have changed the IT buying process. Traditionally, the CIO had the final say in IT purchasing decisions following consideration of the IT strategy and alignment with business goals.

However, recently it has been found that nearly a third of purchasing power has moved outside of the executive suite into the hands of departmental managers.

Business departments making technology decisions without the CIO can lead to CIOs losing control of the IT then having to deal with issues such as;

  • Lots of different systems running in silos
  • Information sprawl
  • Incompatible systems
  • Gaps in internal information technologies
  • Hindered business growth
  • Loss of competitive advantage

This emphasises the need for an IT strategy as one of the biggest mistakes a business can make is committing to a system or contract without due diligence or consulting the overarching IT strategy to understand how the implementation of the considered technology will impact the operations and systems within the business.

What should an IT strategy include?

An IT strategy can benefit both CIOs and department managers as it encourages collaboration that results in alignment with existing and new investments. A strategy should include up-to-date versions of:

  • A systems architecture rundown of the whole business
  • An inventory containing end-of-life dates, and usage
  • A list of emerging problems recorded by staff and IT team

The rapid speed that these technologies are being innovated is phenomenal, and businesses are being exposed to more technologically advanced IT systems which creates the need to update and adapt to these IT systems regularly.

The benefits of an IT strategy

Despite significant investments in new technologies over the past decade, many organisations are actually watching their operations slow down due to underutilisation of technology and poor user engagement related to technology usage is part of the problem.

Poorly designed applications and a general lack of training causes many employees not to leverage the innovation and drive productivity.

Encouraging effective adoption of new technology requires an IT strategy for organisational change management.

There’s no easier way to manage IT than to work with an IT specialist who can help you manage these IT services and create a more efficiently run business. Many companies are seeking It managed services for a source of competitive advantage, so there isn’t a lack of responsibility or confusion within the company.

By following an IT strategy and understanding the reasons behind process bottlenecks and other errors, enterprises can more efficiently allocate IT and human resources. By partnering with a managed services provider who can create and implement an IT strategy, businesses can focus on their core competencies to cut costs and increase productivity.

This article was written by Harry Wilson, an IT Consultant. Read more via Leap Consulting.

Have You Aligned Your SIM & CLM Systems?

Procurement teams with mature SIM and CLM systems can extract greater value from supplier relationships. How can the two be brought into better alignment?

This article was written by Kelly Barner for Determine

Procurement is so accustomed to aligning our technology and processes with the objectives of the business at large that we sometimes miss opportunities to align our own technologies and processes with each other.

Supplier Information Management (SIM) and Contract Lifecycle Management (CLM) provide a perfect case example. Both bring together suppliers and internal touch points, extend beyond procurement’s peak involvement in managing spend categories, and play an important role in addressing (and mitigating) supply chain risk.

Procurement teams that have mature SIM and CLM programs in place reduce their risk, but they also create opportunities to extract greater value from each supplier relationship and reduce confusion within the enterprise.

When we stop and think about how SIM and CLM can be brought into better alignment, three critical shared issues come into focus: information integrity, ownership and actionability.

  1. Information Integrity Through Integration

Information is such an important component of SIM it is included in the name, whereas with CLM the devil is always in the details. An incorrect piece of information in a contract can easily become a legal liability. Both start with essential supplier contact information and metadata and extend to the details associated with supplier onboarding and contract terms. Although the following information is collected for separate reasons, it is critical that it be consistent across SIM and CLM:

Supplier Onboarding

 When a new supplier is on-boarded post award, a standard set of information is usually collected. This includes their contact information, location details, proof of certification, and details regarding the users who will represent the supplier in company systems during the term of the agreement. Making sure as quickly as possible that this information is complete and accurate lays the groundwork for an equally smooth implementation and on-going relationship. Beyond simple collection and centralisation, procurement must also validate supplier information at the time of onboarding – paying particular attention to documentation associated with certifications that were included in the award decision.

Contract Initiation

When creating a new contract, it is natural for procurement to focus on product/service specifications, prices, terms and SLAs, but capturing other more straightforward information is just as important. For instance, specifying a production location might seem like a minor detail — until the supplier makes the decision to outsource their production to another facility, or even another country. Having specified the location in the contract may not prevent the change from being made, but it does create an opening for discussion of the associated quality and oversight expectations. As contracts become an increasingly dynamic part of supplier management, more details need to be incorporated.

  1. Ownership

Since managing risk and increasing performance are at the heart of both SIM and CLM, establishing ownership early on is critical. Who will manage the relationship and who will be the documented owner of the contract? Should it be the same person? Why or why not? Alignment of goals can not be achieved if the individuals associated with each responsibility are not also aligned.

Supplier Relationship Management

Any supplier may have multiple relationships in an enterprise. Procurement is certainly a point of contact, but so are the budget owner and any functions that have a high volume of demand associated with that supplier. Many people may have contact with a supplier in the course of daily business, but information about performance reviews and contract updates should be managed in an organised fashion so that the supplier is kept informed and no one speaks out of turn.

Contract Ownership

 In addition to including a complete set of terms and signatures, each contract needs an owner from the outset. While captured as a simple name field in many CLM systems, a lot of consideration must be given when deciding who will own each contract. The primary value proposition of CLM is that it allows contracts (and the business deliverables they govern) to “leave the filing cabinet” in order to have a measurable impact on the business. Empowered by automated CLM notifications, someone in the enterprise needs to take action based on the information provided; and having an appropriate designated owner from the start provides accountability and ensures a prompt response.

  1. Alignment Actionability

Putting SIM and CLM in place is not about static documentation or information centralisation, but rather the actions each motivates. Unlike information integrity, where consistency is key to alignment, actionability requires each of these systems to “feed” information to each other. There are supplier performance considerations in both systems, and while they are different, it is in their combination that the best result is achieved.

Supplier Performance

SIM systems often include supplier performance details submitted by procurement, as well as the other individuals in the enterprise who come into contact with the supplier’s products or services. In some cases, determinations of performance will be based on buyer perceptions and expectations. This information should be recorded and communicated to suppliers on a regular basis.

Contract Compliance

When viewed through the lens of a contract, supplier performance is about following the “letter of the law.” Just as suppliers can have performance issues that do not rise to the level of legal non-compliance, a supplier can be in perfect standing based on the requirements of the contract and still not meet the expectations of the company. If performance measurement and contract terms are not both aligned and visible, it will be hard for procurement to know the difference and lead the appropriate response.

The full benefits of SIM and CLM alignment are realised over the term of the agreement, as long as 3-5 years in some cases. The sooner the enterprise can achieve alignment in terms of information integrity, ownership and actionability, the shorter the timeframe to evaluate and lower the overall risk.

This article was orginally pubished on Determine. 

Can You Make Decisions Under Fire?

Are you struggling to lead or motivate your team through difficult times and under extreme pressure? We’ve got some top advice from someone who knows a thing or two about making decisions in extreme conditions…

Register now  as a digital delegate for The Big Ideas Summit Chicago!

“There are only two types of leadership.” begins Andy Stumpf “good (effective) and bad (ineffective).”

In today’s world, senior managers often struggle to effectively  respond and adapt to change. But the world is full of change and it’s crucial that our procurement leaders are flexible enoughto respond to the unexpected, to “read the tea leaves and meet the challenges of the real world.”

Andy  began his U.S. military career at the age of 17, transitioning from the position of an enlisted soldier, to an officer, and then,  in 2002,  he joined the most elite counter terrorism unit in the military; SEAL Team Six.

The unit, which is tasked with conducting the nation’s most critical missions, has become the inspiration for a number of Hollywood movies and books.

If you ever needed a man who knows how to plan for and adapt to change, Andy Stumpf is your guy! He’s strategised and executed hundreds of combat operations throughout the world in support of the Global War on Terror.

At Procurious’ Chicago Big Ideas Summit, Andy will draw on his wealth of leadership experience to talk about the intersections between business and combat, decision-making and empowering procurement teams.

Building the greatest leaders

“Business and combat are defined by their similarities, not differences and the theories of successful military leadership and successful business leadership are identical” Andy believes. It’s possible to apply the same principles and philosophy to your procurement teams because it’s really only the arena that differs.

“60 per cent of the time, organisations want me to talk about leadership. In fact, the definition is always the same. What can change is the way in which you approach leadership.”

So, how do the military build strong and competent leaders?

“Leadership is about empowering your people. From day one in the military we are taught, and it is enforced, that in the absence of leadership you must stand up and take control.

“Instead of creating individuals that think reactively in nature, we instead create individuals that think proactively.  You don’t have to be in a leadership position now to think two or three steps ahead.  In doing so, when a decision presents itself you’ll already have an answer for it.”

Does Andy believe these skills can be taught or are natural leaders exactly that?

“neither successful teams or leaders occur by accident, these are skills that must be learned, practiced, and refined. Navy SEALs are successful because of how we select, train, and lead our teams.

“Nothing in that process happens accidentally, everything is calculated. We demand leadership and accountability from each individual starting from the first day of training. We prioritise the individuals to our left and right, and the goal of our team over personal success. This philosophy is diametrically opposed to what is often found in society, and requires a structured approach and prioritisation from leaders to be successful.”

And Andy has some strong words of advice for any over-confident leaders out there. “The 1st leadership principle within the SEAL Team is ego; if you have a massive ego you’re more concerned that your ideas and strategy is being used as opposed to striving for success of the team. You can’t meet the challenges of the real world this way!”

Plan, plan and plan some more!

“We plan for everthing in the navy. We often say that if you want to shut down the military, you simply need to shut down powerpoint!

“Every stage of a plan gets one slide and there might be between five and seven slides on the ‘what-ifs’, the contingencies. Where will we land this helicopter? Where is the nearest location for medical treatment and what alternate options do we have?” When, as Andy points out, precisely 0 per cent of planning goes as expected, contingencies are everything!

“You make primary, secondary and tertiary plans because you don’t want to have make snap decisions in a crisis. You need to be able to fall back on stable procedures”

And of course, it can’t hurt that contingency planning makes you look like something of a genius! “It’s really hard to make difficult decisions in a crisis because you’re in a time compressed environment and you may have people’s lives depending on you.  We plan for 24 -72 hours and there are 5 phases per plan. Each phase has 5-7 ‘what if‘ contingency plans because, at the end of the day, you don’t want to make decisions in a crisis, you want to be able to draw on a branch diagram.

“It’s the contingency planning especially in the SEAL teams that makes the difference between success and failure in moments of crisis.”

What can our procurement teams learn from this? Spend a lot more time planning, for starters! But Andy also reinforces the value in having baseline standards to fall back upon. “Businesses should always fall back on standard procedures so people can come together, with a clear knowledge of the protocol. This is especially crucial when you’re working under restrictive time constraints.”

Andy’s final words of advice? “Don’t get attached to your plan -get attached to success!”

Want to hear more from Andy Stumpf or submit your questions for him? On 28th September, Procurious is bringing The Big Ideas Summit to Chicago.  Register now  (It’s FREE!) as a digital delegate to gain access to all of the day’s action and LIVE video from our speakers and attendees. 

Strategic Procurement: A CFO’s Guide To Getting There!

Ever felt like a different perspective on that age-old plea: “Help! I need to be more strategic!” would do your procurement team the world of good? Here’s what a CFO has to say on the matter…

Register now  as a digital delegate for The Big Ideas Summit Chicago!

What do we hear from procurement professionals all the time in the industry of Procure to Pay? “Help me be more strategic” or “I want to demonstrate the value of procurement” or “Give me the tools to practice strategic procurement” or “How can I influence the big decisions being made?”

The good news is, there is a way to make these things happen – but you must be keenly focused on two things: data and analytics.

Get Perfect Vision with Complete Data

To even think about being strategic, there’s no way around it – you must tap into your company financial data and that data has to be comprehensive and clean. To build the complete data set, you must get 100 per cent visibility over enterprise-wide spending with:

  • 100 per cent of your e-procurement users funneling all indirect spending through the e-procurement solution
  • 100 per cent of invoices, both direct and indirect,  being processed through the AP automation solution
  • 100 per cent supplier on-boarding to ensure all invoices are being converted to e-invoices, regardless of supplier sophistication.

Layer this data with the power of analytics to quickly glean actionable insights and you’re ready to build your strategic procurement team, enabling everyone to see clearly to make informed decisions.

Keep Your Eyes on the Prize

As a CFO, I firmly believe that for both Finance and Procurement to be successful in achieving organizational goals, there must be strong collaboration between the CPO and CFO. The unique talent that exists in these functions needs to be leveraged to build and analyze the full financial profile of the company and see the possibilities for the future. From my perspective, CPOs can foster this collaboration and create a strategic procurement team that has their eyes on the prize by doing these 3 things:

1. Support Working Capital Strategy

53 per cent of organisations use payment terms as a strategic lever to manage cash flow.1 As the owner of supplier relationships, Procurement is in a unique position to support Treasury in the management of working capital by negotiating advantageous payment terms with suppliers. Procurement can help the company keep cash on-hand longer by:

    • Working with large suppliers to extend payment terms and pay later
    • Managing the long tail of the supply chain through a virtual card payment program that enables suppliers to get paid quickly, while the company pays later.

By working directly with suppliers to arrange the right payment terms for the company while benefiting the suppliers, Procurement ensures that Treasury can accurately forecast cash flow, properly invest in growth areas and optimize working capital overall. Supplier relationships also improve as financial volatility is minimized for suppliers, reducing risk in the supply chain. Additionally, a strategic procurement organization can generate a new revenue stream through virtual card payment programs that offer cash back. Read more on strategic payment programs.

2. Use Innovative Technology to Control Costs

Generating cost savings has always been a part of traditional Procurement, but now more than ever CPOs have access to innovative technology and advanced analytics to support these efforts. For example, artificial intelligence built into e-procurement solutions can continually scan procurement data to alert Procurement to savings opportunities like consolidating orders for bulk purchasing, better rates offered by different suppliers, reducing off-contract and rogue buying, optimizing inventory carrying costs and reducing other areas of wasteful or unnecessary spending. CPOs can also give approvers the ability to see how orders affect their budgets in real-time and educate other departments on ways they can make the most of those budgets – spreading the procurement talent across the company to help everyone. Suddenly, Procurement goes from being seen as the spend police to a helpful, collaborative arm of the business. Procurement professionals can also use automation tools to run strategic sourcing events to quickly identify and collaborate with the most cost-effective partners. With the right source-to-pay solution, Procurement is better positioned to quickly save costs and free-up time for more strategic initiatives.

3. Develop the Right Talent:

To achieve a strategic procurement organization, CPOs need to ensure they are developing and acquiring the right skills within the procurement department to focus on data analysis. Strategic procurement organizations steer away from a focus on squeezing cost savings out of suppliers and are moving to data-based decision-making that pivots the business one way or another to get ahead. According to Gartner, “the emergence of machine learning and AI is introducing the need for analytical skills and an understanding of data science and technology.” With rule-based and tactical activities becoming increasingly automated, the skill set needed in Procurement will involve working within that complete data set every day to derive the right insights for strategic initiatives like, right-sizing the supply base, spending smarter, reducing risk in the supply chain, improving supplier relationships and properly maintaining supplier data. Read more about the future talent needed for Procurement in Gartner’s article, Start Preparing Now for the Impact of AI on Procurement.

If CPOs stay focused on these areas, they will be able to realize their goals for strategic procurement and the perception of Procurement across the organization will change. If there’s one thing to take away from this article and my perspective on strategic procurement, it’s that you must set your sights on the data flowing through your organization in order to be effective.

See the Light

At Basware, our customers and their suppliers transact over the world’s largest open business network. That means we’re aggregating data across millions of financial transactions, creating an unmatched data set and layering that information with a powerful out-of-the-box analytics suite. If you’re ready to see how this data can make you more strategic, reach out – we’re ready to help.

On 28th September, Procurious is bringing The Big Ideas Summit to Chicago.  Register now  (It’s FREE!) as a digital delegate to gain access to all of the day’s action and LIVE video from our speakers and attendees. 

How To Increase ROI With Clear Communication To Business Stakeholders

The Hackett Group’s, Nic Walden, explains how to improve your ROI through engaging and clear communication. 

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Most stakeholders say that consistent delivery of core services is the principal requirement to consider procurement as a trusted advisor. Although many organisations are capable of filling this role, most are still viewed by internal customers as sourcing experts (i.e., focused on negotiation and supplier selection), or worse, as gatekeepers or simply administrators. In fact, only 29 per cent of procurement organisations are viewed as valued business partners by key stakeholders.

Does It Matter? Absolutely!

Analysis of Hackett benchmarks shows as much as a 2.5X ROI can be achieved from elevating the role of procurement, and aligning the goals and expectations of procurement teams to that of the business. That’s a hefty bump in savings or broader value terms in anyone’s language.

At Hackett we measure ROI as total cost reduction and avoidance divided by the cost of the function. As an example, professional sourcing teams can deliver strong savings performance when looking at percentage terms only, but when compared to the level of resource investment (i.e., ROI), they come up short.

Why Leave Money On The Table?

Let’s assume we have the capabilities to operate at a higher level (closing the capability gap is itself another discussion). One reason for misalignment is that procurement teams struggle to communicate their capabilities. Ineffective communication with internal customers, suppliers, and colleagues also causes confusion, delay, or leads to incorrect assumptions of what procurement can and cannot offer. With this in mind, Procurement teams face three main challenges to elevate their role:

  • Perceptions on historical performance cause resistance to change.
  • Internal customers are unaware of what procurement can offer.
  • Undergoing a major transformation results in confusion and inconsistencies.

The result is that successful procurement teams go to great lengths to build a compelling brand image, supported by a well-defined vision, services that meet or exceed expectations, and a formal measurement program to ensure ongoing improvement. If these steps are not taken, procurement groups can plateau in operational efficiency and effectiveness despite having the capabilities to operate at a much higher level.

Launching a New Procurement Brand

Defining a brand is an important concept for procurement because it makes their purpose and identity more comprehensible for stakeholders. The Hackett Group has outlined four major activities (understand, define, create, engage) that make up a successful brand transformation, supported by ongoing internal input. Everyone has a role to play in communicating and utilizing procurement’s new brand for effect: leadership, sourcing, buying, and operational teams.

  1. Understand what is most important to internal customers and stakeholders

The brand should highlight procurement’s desire to support stakeholders and its ability to act as a valued business partner. This means having a solid understanding of what is important to stakeholders. For example, they might want more help defining requirements, to run credible and achievable projects, to manage difficult supplier conversations, to bring new products to market faster, or reporting. Most often, they just want procurement to excel at delivering core services.

  1. Define procurement’s brand-management strategy

This is the time to clearly develop a clear vision and simple set of guiding principles to communicate goals, followed by defining procurement’s roles and responsibilities, and to make this information easily accessible to procurement and its stakeholders.

Other activities include:

  • Delineate the services that procurement provides to internal customers; ensure these align to their needs and requirements. Take this opportunity to de-prioritize or reshape what is not valued.
  • Provide clear definitions of the activities and tasks performed for each support service, along with the service levels provided (e.g., meeting frequency, cycle time, error rates).
  • Determine which business segments and departments that procurement can support.
  • Match staff and skill sets to procurement’s services.
  1. Create marketing materials and share initial communications

Now we match the desired stakeholder experience with procurement’s future behaviors. Since people respond differently to various methods of communication, consider creating an “omnichannel”, personalized stakeholder experience to allow broad access to the procurement process and enable the ability to buy/pay from all locations and get real-time information. Common activities include:

  • Develop a new brand identity, including a name, mission statement, a set of values and goals, and even a logo if desired.
  • Determine the way communication with internal customers and stakeholders will be handled, such as email, phone, in-person support, chat or robotic tools.
  • Deploy an intranet portal that lets internal customers communicate with procurement and conduct self-service activities. Consider setting up a similar site for suppliers.
  • Develop marketing materials for various stakeholder groups, making certain that overall messaging is consistent.
  • Define and document any related changes to the organization, such as new employee titles.
  1. Engage and continually communicate with all stakeholders

Multiple channels of communication should always be open for both internal customers and suppliers to reach out, get questions answered, or further develop relationships. There are various ways to engage with stakeholders, not all of which make sense for every company. Some of these activities include:

  • Face-to-face road shows with business executives, such as ongoing conference calls or one-on-one calls
  • Face-to-face road shows with middle management / operations followed by regular calls to ensure procurement is meeting objectives
  • Regular emails that include policy updates and metrics showcasing procurement performance

Nic Walden, Director Procurement and P2P Advisor, The Hackett Group works continuously with senior executives of the world’s leading companies to provide top performance insight, research and networking.  Nic is a regular speaker at conference events and a regular contributor to social media and online blogs.

Learn more about Hackett’s Procurement Executive Advisory Program

3 Key Qualities That Help Create an Agile Team

Plenty organisations talk about creating an agile procurement team. However, few actually put the qualities in place to increase their agility.

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I recently attended The Hackett Group’s 2016 ‘European Best Practices Conference’ in London, where Nic Walden, Senior Procurement Advisor, led a Procurement workshop on creating agility.

Speaking to the 40 or so procurement leaders in the room, Nic noted that increasingly agility is the defining trait of world-class procurement teams, both today and in future.

“More agile functions will be better positioned to respond to complex business problems. They can make and implement important decisions quickly, respond rapidly to changes in business demands or priorities, and maintain or improve cost under volatile business conditions”, explained Nic.

But how do you go about developing your team, improve efficiency and move from low to high agility?

Using The Hackett Group’s model, Nic divided the qualities that contribute to agility into three categories:

  • Adaptive Organisation
  • Information Centricity
  • Agile Service Execution

1) Is Your Team Adaptive?

Perhaps most importantly, an agile team must be an adaptive one. There are several ways to achieve this within your organisation:

Keep Learning

With mobility, cloud, artificial intelligence, and supplier networks accelerating at an unprecedented rate, Nic urged workshop participants: “Even if you are not a technologist, it is never too late to become one.”

For example, what are these new technologies? And how might we apply them to create value for our teams and business?

Are you continuously transforming your team’s capabilities to ensure they’re keeping pace with the evolution of the business? To be sustainable, change management should be embedded in your team with the opportunities to continuously upgrade, learn new skills and employ new capabilities.

Change your Strategies

Top management looks to procurement teams to help the business execute purchasing strategies more successfully. In turn, this enables the business to become more agile and innovative.

There is no need to stick to traditional approaches when considering how best to include fresh thinking and new idea generation in your supply base. Leadership teams should make quick decisions, be calculated when it comes to risk taking, and seize opportunities to think and act differently.

Adapt to your Talent

The Millennial Generation represents one of the greatest potential challenges to managing and adapting to talent in the next year or two.

Surveys tell us Millennials are likely to remain in a job for three years or fewer. Training strategies need to be modernised to reflect this accelerated reality, as well as changing learning styles and preferences. Strategies like 70-20-10 that get people up to speed faster and the use of more interactive, workshop and team based formats should be preferred.

The pace at which open positions can be filled affects operational agility, as does the efficiency of your organisation’s on-boarding process.

Given that staff turnover can be high, as in the case of Millennials, it’s crucial to save time here in order to maximise the contributions employees can make to the business.

2) Is information, knowledge and intelligence centric to all your team does?

Perhaps the greatest opportunity remains for many organisations to leverage information to enhance decision making. This opportunity can be looked at much broader than only historic spend data.

Is your team able to navigate information effectively? Do you have the insight to take necessary decisions quickly?

Invest in the right technology

Nic highlighted how “world-class procurement organisations spend 23 per cent more on technology per FTE, and invest a greater proportion of their budget than the peer group on systems and tools to enable analytics capability.”

The right technology, implemented correctly and consistently across teams, is worth the investment.

Know your stakeholders

Make it a priority to engage with and meet your key stakeholders in order to understand their needs, the problems they face and therefore the data needed to solve these problems.

Decision-making should be based on actual information and KPIs tracking value delivery mutually aligned across your team and stakeholders.

Harness the Value of Big Data

It all starts at quality data. Big Data has the potential to transform analytics with real-time intelligence. Procurement leaders are realising that higher-quality information can help them drive greater business value.

Big Data has been a game changer when it comes to customer analytics, offering an unprecedented ability to quickly model massive volumes of structured and unstructured data from multiple sources.

Enhanced and more granular demand sensing and forecast accuracy are obvious examples for procurement and supply chain teams.

Automate Your Reporting

Adopting automated reporting and dashboards helps to streamline information, saves your team time and significantly reduces human error.

Real time reporting allows for speedier, pro-active decision making which will help your organisation to quickly achieve strategic alignment. What’s not to love?

3) Does your team execute service in a responsive, customer centric and agile way?

In an agile team, Nic notes that talent is “empowered, accountable and incentivised to focus single-mindedly on the customer – the internal stakeholder.”

Use Focus Groups To Prioritise

Set up focus groups to provide “voice of the customer” recommendations into what really matters. Your team’s product and service offerings should be designed from the outside in, beginning with the customer experience.

What outcomes or challenges will deliver optimum value? New innovations that your team seeks to implement should be driven as a result of customer and stakeholder feedback.

Act holistically

Try to create an end-to-end customer experience that cuts across multiple procurement (and sometimes other function) processes.

From the beginning, engage and involve the key players (ex. legal, finance, R&D, etc) in the processes that affect the customer experience.