Tag Archives: procurement strategy

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…

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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. 

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.

creating agile teams

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.

Is Trust The Key to Successful Alliance Management?

Pharmaceutical procurement teams need to change their approach to alliance management. Is trust the key to success?

trust key

A few years ago I had the opportunity to be part of a ground-breaking initiative with our suppliers. We sent a team to the boards of some of our major suppliers and asked a simple question: “Why is it that you are always late and come in over budget?”

To which they said: “Why is it that you always change your mind about what you want and interfere in the way we deliver it?”

It was then logical to respond: “If we promise to not change our mind and to leave you in control, will you deliver on time and budget?”

They agreed and so a new contract was created.

20 years on and the same questions still seem to remain, and now, more than ever there is a need to change our approach.

I believe that the solution to the challenges of clinical development today do not lie within our own organisations, but between our organisations, and should be accessed through increased collaboration unpinned by deliberate trust

To investigate this, it’s useful to consider three questions:

  • Why do we need to change?
  • Why should we collaborate?
  • How can we trust someone outside our own company?

Why do we need to change?

The pharmaceutical industry has seen the need for change for years, and the same underlying factors remain:

  • A clear constraint on resources;
  • The number of NCEs per year decreasing dramatically; and
  • R&D costs rising, reportedly having doubled in the last decade alone.

Meanwhile, we need more specialised patient populations, there is a lack of easy wins as drug targets, and we face the continually tougher regulatory environment. All of these have contributed to longer development times and rising costs.

These same problems are threatening the level of potential investment. We have witnessed the death of the blockbuster as the magic answer, while at the same time seen cost pressure on sales.  The patent cliff is a real problem in many companies, there is generic competition, and sadly mega-mergers have been ineffective, cutting staff costs without delivering efficiency.

If we do what we have always done, we will get what we have always had.

Why should we collaborate?

Basically there is no alternative! In a world of increasing communication, it is hard to keep knowledge secret. Employees no longer stay decades at the same company, and staff turnover is far higher than it was.

The Internet allows for very quick sharing of data. It’s also a reason why information leaks. So let’s stop keeping so many secrets and start to share information first.

The market place is very complex. The top pharmaceutical companies hold only around 6 per cent of market share, while the top 7 Contract Research Organisations (CROs) combined hold only around 50 per cent of the market.

In this situation innovation is critical and anyone (regardless of size) is a potential source of the answer. This includes totally new players, as any quality questions can be managed. Someone else knows something you do not. If you want something, it is out there!

How can we trust someone outside our own company?

We have to start by wanting to trust – trust is necessary to access new solutions. This means that we have to be open, to accept others, to make sure that we are reliable in ourselves, and live congruently with our values. In this way we communicate trust.

Of course it is also important to have a right worded contract. After all, incentive is better than enforcement, and a new way of working may need new contract wording.

In this we should look carefully at what is being bought and make sure this is reflected in the T&Cs. For the lawyers – a standard template may not be appropriate. In any contract, payment should be linked to goals and should incentivise both parties. There are many other relevant contractual matters.

There is nothing wrong with walking softly and carrying a big stick.

Trust is the only way forward. But this is not a short path, we need to be ready for the long term, trust takes a while to establish and can too quickly be lost.

We need to do something different.  We need to access new innovative solutions.  It is time for increased collaboration with partners, underpinned by deliberate trust.

Escaping Groundhog Day with Corporate Knowledge Capture

Can cognitive technology revolutionise the way we capture corporate knowledge?

groundhog day knowledge capture

Introducing Watson Supply Chain from IBM. Get to know Watson here.

Do you ever feel like you’re stuck in the nightmare of a supply chain groundhog day? One minute you’re gaining some solid ground in your organisation and the next… You’re back at square one, looking likely to make the same mistakes over and over again, trying in vain to get things right.

Capturing the Knowledge

Groundhog day is the reality for procurement and supply chain professionals who don’t adequately and methodically capture corporate knowledge.

  • When an individual leaves your organisation that doesn’t mean that all their knowledge should leave with them.
  • The tribal knowledge residing in your supply chain shouldn’t be reliant on key individuals keeping it there.
  • All of your supply chain decisions should be mapped out.
  • If your team makes a mistake you should be learning from it, not repeating it.
  • Knowledge capture should be an ongoing, continuous process and not something that is attempted, under pressure, at the point of employee exit.

There’s no question that retaining corporate knowledge is good for business. It helps facilitate the creation of new knowledge, it saves time and effort, positively affects your relationship with suppliers and customers and encourages new innovations.

Corporate Knowledge Capture is also great for new employees who can learn quickly and resolve problems more efficiently. That’s not to mention the benefits of leveraging the accumulated experiences of employees both past and present.

Social Capture and Collaboration

Organisations have employed various techniques to retaining corporate knowledge.

One approach is to use social intranet software that acts as a social collaboration platform. These provide a space where you can capture information, share data and communicate better with colleagues, suppliers and customers. Services such as Yammer and Jive have helped to increase efficiency and enhance information flow.

Other organisations have their own internal intranet, which serves the same purpose.

The problem with either of these options is that they are both laborious and time consuming. They depend on your knowledge base being regularly updated with the newest information as it becomes available in order to offer maximum value.

Employees will also be relied upon to review information and update the content. It might sound like reasonable expectations in theory but, in practice, it’s hard to maintain. New approaches are needed which are proactive as opposed to reactive.

Along Came Cognitive Technology

Fortunately, the ways that we capture knowledge are changing and evolving with technology developments, making it easier than ever before to do so. Cognitive Technology is today’s game changer in many ways and one of them is the impact it could have on corporate knowledge capture.

It can think, learn, and generally mimic human intellect. IDC estimates that, by 2020, 50 per cent of all business software will incorporate some cognitive computing functionality.

With regards to knowledge retention, cognitive tech can modify and document specific and analytic knowledge in a manner that others can re-use and adapt it for their specific use.

It can make intelligent decisions about where inventory should go, but also how it gets there.

It will also add information to the puzzle on warehouse space capacity, trailer loads that are going LTL, and ultimately, the best route not only based on cost or labor, but all of the extraneous details that aren’t apparent at the onset of an order.

Decisions will no longer be made that leave out key stakeholders by accident. Cognitive tech will recognise recommended participants for conversations and bring them together for troubleshooting in one place.

Balancing supply chains is a never-ending puzzle. As the complexity grows, communication and knowledge retention becomes of the utmost importance. How can Watson supply chain help to enable more intelligent decisions and guide leaders to make strategic moves? Find out here.

Could Direct Bookings Help Drive Value for Procurement?

Travel procurement tends to get people hot under the collar. But should procurement be more open to direct bookings to drive greater value?

Hotels direct booking

This article is based on a study conducted by Software Advice, available to read here.

In the hotel room booking wars, online travel agencies (OTAs) seem to be giving up a little ground. This represents a great opportunity for small, boutique and independent hotels.

Hotels that sell rooms through OTAs must pay a commission, so direct bookings mean higher profit margins. For many years, hotels gave up that extra profit in order to reach a wider audience.

However, new data shows that many rates are now cheaper when booking directly through the hotel website.

What Is Causing Cheaper Direct Bookings?

The true cause of this shift is hard to nail down, though some experts think a combination of a couple key factors may be leading to cheaper direct bookings:

  • Effective regulation against rate parity clauses. Regulations against rate parity clauses – contract language that forces hotels to maintain the same rates on all distribution channels – may be having an effect. This means some hotels could offer lower rates on their own website.
  • OTAs are willingly easing up on commissions. OTAs often charge hotels an average of 15 to 25 per cent per booking, so it’s easy to see why hotels would want travellers to book direct. It’s possible the OTAs believe reducing commission rates won’t matter, since their volume of business is so high.

This shift is an opportunity for small and independent hotels to educate potential guests, and market these cheaper direct booking rates to them.

Taylor Short, Hotel Market Researcher for the hotel information systems reviews companySoftware Advice, believes that incentives could be the key to attracting customers.

“Hotels and resorts want to attract organisations and groups for the revenue and sales potential when the group is on property. Because of this, hotels will often use software to manage incentives offered to guests, such as free wifi or rate discounts, for those who book in groups,” says Short.

“To compel group over individual bookings, hotels will try to tailor packages to the groups they see most often. For a business networking group, for example, they may offer free transportation from the airport, discount on drinks, or a round of golf. There are things to offer that can help deliver a better, more personalised experience.”

Driving Direct Bookings

Shifting consumer habits to looking at a wider range of options presents an opportunity for small hotels to educate travellers that booking directly can be cheaper and more valuable.

There are a number of tactics smaller hotels can use to help drive customers to websites, and boost brand loyalty. These include:

  1. Compel website visitors to book direct with pop-ups or calls-to-action (CTAs).
  2. Offer incentives on the website.
  3. Arrange OTA widgets so that rates capture visitor attention.
  4. Focus on what they can offer vs. bigger brands.
  5. Prepare for the long game.

Changing Habits and Procurement

So if consumer habits are changing, it’s probably fair to say business travellers are looking for similar options. But where does this leave procurement?

Travel procurement is one of the ‘hot buttons’ for organisations. Procurement need to find the right balance between value for money, and ensuring that their staff are getting a good experience.

Every year, millions of pounds are spent outside of travel management systems. This maverick spend, which can be up to 20 per cent more expensive than through authorised sources, further hinders procurement’s position. Maverick spend comes in all shapes and sizes, and organisations need to be aware of why it is happening so they can combat it.

However, as travel options, in particular accommodation, open up with businesses such as Airbnb, procurement needs to stay in step with changes. This doesn’t mean allowing staff to book directly themselves, but not staying with preferred suppliers because they happen to be on a list.

The difficulty for procurement lies in how organisational travel is booked. Large organisations tend to use a travel management system, or agency, to collate bookings.  Smaller organisations might be more flexible. However, if processes are in place, then it’s likely to be more difficult to justify a change.

However, it doesn’t stop procurement looking at smaller hotels who may offer added extras that employees will enjoy. If direct bookings could offer greater value, then it’s worth considering working with these suppliers in the future.

How to Change the Game with Sole Suppliers

Sole suppliers – you might think you’re stuck with them in procurement. But once you know the why, you can plan a change for the better.

sole suppliers change game

This article was first published on Future Proofitable. 

In the first part of this series, I discussed how sole supplier situations can occur. From monopolies, to high exit barriers and business attitudes, there are a number of reasons procurement might find itself in this situation.

But now we know how these occur, the question to ask is how we can do something about them.

Sole Suppliers – Can you do anything about it?

Definitely – yes. What you can do depends on what you are dealing with, and which stage in the process you are in.

1. Product Selection

If you can avoid buying the product in question, you should. You can also head off the sole sourcing situation by being involved in a process as early as possible. Making products in house is an option too.

You may also be able to find a provider who offers similar services or products, and convince them to adjust their offering to your requirements. Integrate vertically by buying your supplier and making them your internal provider.

2. Tender or Category Strategy Review

Assess the full lifecycle of the product or service. Analyse what, if any, additional costs are related to object you are purchasing.

Study alternative sources of supply, or look at the make vs. buy decision again. Even if you choose to buy, when the time comes to create negotiation leverage, you will have done half your homework already.

Choose the right way of buying. If it is possible, could you buy machines and servicing or maintenance separately? Or, on the other hand, could you bundle the products and service together?

Prepare a good contract in advance, and communicate it upfront. Build in price review mechanisms and no-penalty exit clauses. Alternatively, invest time in developing a full SLA, and ensuring this lasts for the whole relationship.

Share the information (technical, legal, commercial) early in the process with all suppliers. Cross-validate information and responses with specialists or 3rd party service providers. Finally, analyse proposals with the purpose of identifying “unique” solutions.

3. Analyse Sole Suppliers Business Needs and Decision Drivers

What time of the year is it and when does their financial year finish? Is there a reason to believe that tendering on a specific time frame might give you better or worse conditions?

  • Like buying grain just after new harvest data is clear and not based on assumptions
  • Or negotiating with software companies closer to their financial year end, when they are likely to be more aggressive with pricing.

Consider geographical aspects. If you are negotiating with a large multi-national, perform a market test of their pricing policy in different countries. You might be surprised that a branch, located somewhere further away from the central function would get a better group deal purely because of the location.

What sales strategy are they using? Are they more aggressive with the pricing of new solutions or new technology? Are they interested in growth? Market entry? Stopping their competitor entry? Can you invite someone new, who is not yet in the market? Does the size of the contract matter?

Do not forget to negotiate small value adding add-ons and other benefits to the contract. You can ‘sell’ positive references, feedback and referrals. You can help to reduce the supplier’s risks and become a better customer (implementing electronic ordering and invoicing tools, consolidating POs).

Or you could threaten them with moving to an alternative supplier, or bring one in.

4. Business Strategy

One thing to think about might be a change to your business strategy. Could you move the location of your HQ (for a critical product), or give up certain markets or products?

You could invest in in-house R&D, work with laboratories and universities. While doing this, educate business users. Challenge old ways of working, and help to eliminate all pseudo-sole suppliers.

Re-evaluate short term switching costs and compare them against long term business losses, if you decide (once again) not to change anything.

Should you do anything at all?

That is the question, too. The saying goes “nothing personal, just business”. Procurement should also be business oriented and invest its resources where they matter.

Should you start any project? Well, that depends. If this is something that you must do routinely (review a category or contract), you might consider how much time and effort to invest. And similarly, if the prize you are after is big enough, it’s probably worth spending time on it.

Based on the situation your business is in, you should perform opportunity analysis and evaluate your expectations. It’s not only about the size of the spend.

With sole suppliers, there is another level of complexity to be evaluated – the nature of the business situation. You can do this for single supplier situations, too.

For the categories mentioned above, approximate ratio of effort to success are shown in the graph below. Required effort is a relative number and can vary in units of measurement (days, weeks, months, people involved).

roe

It’s only one part of the equation in that it performs a sense check from Procurement’s perspective.

Weighing Dissatisfaction vs. Change

Another key part in projects like this is implementation. In many cases, it can (and will) end up in a change project. If you don’t want Procurement’s credibility to suffer, you must make sure that savings promised and savings achieved are as close as possible.

If the dissatisfaction with the sole supplier situation outweighs resistance to change, and if you have a plan on how to act, you increase the chances of success.

At the same time, it suggests what you can do if any side of the equation is not favourable. You can increase internal dissatisfaction among key stakeholders (clearly communicate risks and losses of the situation to finance people), or reduce resistance to the project (get the buy-in from engineering, technology, sales and other departments).

Top 10 Trends for Spend Control & Procurement Automation

With the final months of 2016 fast approaching, it can only mean one thing – planning for 2017 is fiercely underway. In this article, we look into next year and share insights into how Spend Control and eProcurement Automation will evolve.

trends in spend control

These are not the macroeconomic trends you’ll hear from the large consulting companies. Nor are they the ‘who’s going to buy who’ predictions from the technology analysts. These are the trends that PROACTIS is seeing and hearing in our customer base, and in the companies we’re talking with every day.

We are participating in some of these trends, and we are even leading the charge on a couple. Some are not really even trends yet – some are just growing topics of discussion.

But these are all things real procurement professionals and real finance managers are thinking about, and doing today, as they move forward in their quest for world class Spend Control. Below is a summary of the top 10 trends for 2017.

  1. The Rise of Procurement 2.0

Procurement is rapidly moving away from what was once a personality-centric function where senior procurement professionals did a lot of the work themselves, did a lot of the work manually, and did a lot of the work using mainly the knowledge they had amassed from years in the profession.

  1. End-to-End eProcurement – Plugging the Gaps

Driven by the changing expectations of Procurement, there is now a growing vision of what ‘end-to-end’ procurement looks like and a conscious effort to move toward that vision. More organisations are moving to ‘source-to-settle’ solution suites to achieve maximum Spend Under Management.

  1. A Growing Focus on Supplier Collaboration

Few organisations really have the breadth, depth and quality of supplier information needed to do all the things they need to do.

As procurement organisations move through the Spend Control journey, they are recognising that one of the fundamental requirements for success is to have a solid, sustained handle on their supplier base. They are realising that supplier information is the lifeblood of Procurement.

  1. A Stronger Requirement for Buyers to be ‘Easy to do Business With’

Organisations that have put in place a solid Supplier Management cloud framework (which typically includes a supplier portal) are seeing that they can leverage this new capability to improve supplier interaction and commerce. This makes it easier for buyers and suppliers to do business.

  1. Cloud-Based Procurement will Remain – and for Good Reason

After looking at the options, the more organisations are opting for cloud-based options to solution licensing, deployment and management. Traditional software licensing, on-premise installation, and in-house technical management just don’t make sense anymore.

  1. Blurring the Line Between Software and Services

We have started to see more organisations combine software-as-a-service and associated people services into a broader solution to meet particular needs. For example, cleaning supplier records, sourcing specific categories of spend, and turning paper invoices into eInvoices.

  1. A CPO Mantra: Think Strategically, Act Tactically

Even procurement leaders with a clear end-to-end Spend Control vision are recognising that the war against excess cost and risk is generally won one battle at a time. Nothing big is ever accomplished in ‘one fell swoop’ and world-class Spend Control is a big thing.

  1. A Growing Recognition of the True Cost of ‘Shelfware’

Many larger organisations have made the move to one of the mega Enterprise Resource Planning (ERP) or Financial Management systems. However, often the procurement modules aren’t fit for purpose and become ‘shelfware’ – software that’s just sitting on the shelf unused to any meaningful extent.

Organisations are recognising that if they are going to be successful, they must insist upon getting the right tools. And if they have to branch out from the ERP mother ship to do so, they will.

As a result, more companies are taking action and adopting integrated best-in-class applications.

  1. A Better Understanding of the Limitations of “Simple Self-Service Shopping”

Everyone agrees that employee adoption is a key factor in the success of a purchase-to-pay roll-out. The faster and more intuitive the experience, the more spend that’s likely to go through the system.

The problem is that it doesn’t do a lot of good to put spend through a P2P system if that system does not lead employees to purchase from approved suppliers using negotiated pricing and service agreements.

More organisations are now looking closely at how their solutions are going to help with all aspects of increasing Spend Under Management.

  1. The Importance and Value of Integration

No eProcurement system should exist in a vacuum. And no existing information systems environment is a blank sheet of paper.

More organisations are integrating their eProcurement solutions with a wider range of systems in order to create a single Spend Control umbrella over all aspects of enterprise-wide spend.

To find out more, download the full paper ‘Procurement Automation 2017: Key Trends & Hot Topics’.

Procurement Isn’t Done Innovating

Changing the close-minded nature of a stakeholder to the value of procurement is a big challenge. But procurement isn’t beaten yet.

stakeholder management

Have you just started following this series of posts? Don’t miss the first two! I’ve been sharing my perspective on procurement productivity and efficiency from over four decades worth of experience in the field. Catch up here on Part 1 and Part 2.

If you’ve ever met me, you’ll know it is in my nature to look forward. I’m always trying to figure out what is likely to come next for a profession that has already seen so much change.

Although most of the time we consider savings as the primary procurement performance metric, our core focus should actually be on spend and what it can accomplish.

In my first post, I suggested that the total number of annual procurement hours is a fixed resource that must be maximised if we are going to approach our full potential. The same is true of spend.

A company’s total annual (or budgeted) spend is fixed. Simply shrinking it is a limited view of procurement’s impact, and one that has gotten us in trouble in the past for being overly cost-conscious.

Expanding View of Spend Management

In order to really influence spend under management, we need to back up or expand our view of the spend management process. Starting with eSourcing and moving forward is too late. By then, a significant opportunity to impact the category has already been passed.

The supplier discovery process – as reimagined by the team at tealbook, for instance – contains all of the value potential uncovered in downstream processes. While it might seem like more work to broaden the pool of prospective suppliers, it’s actually procurement’s best change to affect results by more than a shade or two at a time.

All measurements (savings, spend under management, etc.) need to drive meaningful improvements in results. They can’t just capture activity, and no measurement exists for its own sake. Because of the seemingly contradictory nature of the metrics in play, procurement is sometimes in the position of having to reconcile long term strategic value creation with short term business requirements.

In the face of this challenge, we have to make working the ‘right way’ so easy and intuitive that people don’t have an incentive to fall back on their old habits.

Importance of the Right Price

Procurement has successfully overcome a savings-driven mindset. It is time for us to help our internal stakeholders overcome a status-quo mindset. I have been in situations when an internal stakeholder tells me something along the lines of, “This is an area where we aren’t really concerned about what we pay.”

And while we need to be careful not to alienate someone by beating the ‘savings drums,’ this is a prime opportunity to educate, and to explain why it is important to get the right price regardless of what is being bought.

Each dollar spent has the potential to create varying levels of value. Not being worried about what you spend in a particular category or on a specific product is one thing. But what if you could accomplish more with that same dollar? Maybe there is a more innovative supplier or a next generation product available?

If a company’s doesn’t open their mind to what is possible, and investigate qualified alternatives, they condemn their potential to the bounds of the past.

tealbook allows companies to pursue inquiries like these without holding up the project timeline. In fact, an internal stakeholder can search the suppliers themselves if they like. They may even uncover new potential sources of supply that match their definition of desired value.

Shifting the Stakeholder Mindset

This mindset-shift is a challenge that the procurement community as a whole can stand up and address together.

Procurement pros are notoriously conservative in their sharing habits. While this makes a lot of sense in specific cases, any opportunity to contribute to, or benefit from, aggregate industry intelligence may be just the cure we need to closed-minded stakeholders and the frustration they create.

I have been around a lot of different procurement and purchasing groups, and they get all worn down. I’ve seen unbridled energy and excitement degrade to the point of becoming a lack of professional engagement.

When we don’t set up the true mission of procurement right – maximising the value of every dollar spent – it’s not a fun place to work. But hope is not lost. Procurement is not done innovating.

Catering to business clients is a big role for procurement. We need to draw those clients into the process and make it easy for them to understand the real meaning behind differentials in cost. Not just in terms of savings, but also in terms of what the spend can accomplish for the company. Ultimately, this will carry procurement forward to the next phase of our development.

And that is something I can hardly wait to see play out.

Gregg Brandyberry is a recognised pioneer in procurement and sourcing technology. He has over 40 years experience in industries such as automotive, textile, manufactured goods, electronics and healthcare.

He is the former Vice President of Procurement – Global Systems and Operations for GlaxoSmithKline, and a Senior Advisor for A.T. Kearney’s Procurement and Analytic Solutions organisation.

Do Labels Matter? The Debate That Just Won’t Go Away

Purchasing? Procurement? Strategic Sourcing? Supply Management? As the profession continues to evolve, old labels tend to come unstuck and peel away.

chrysalis labels

Getting Out of the Back Room

It started in the 1990s. Like drab caterpillars transforming into magnificent butterflies, purchasing professionals left their brown cardigans draped over the backs of their uncomfortable chairs in dimly-lit back offices and emerged, blinking, into the bright hub of the business.

No longer a service department, we were suddenly business partners. We talked strategically rather than tactically, proactively seeking to understand what the organisation was trying to accomplish, and find ways to contribute to its competitive advantage.

But, what did we decide to call ourselves?

Almost thirty years later, the only thing that has really been agreed upon is to leave the term “purchasing” behind. Perhaps if there was one global, all-encompassing professional body, the decision would have been made for us, but unfortunately this isn’t the case.

In the U.S., the National Association of Purchasing Agents (founded 1915) changed its name to the National Association of Purchasing Management (1968). It finally became the Institute for Supply Management (ISM) in 2002.

In the UK, CIPS changed its name from the Chartered Institute of Purchasing and Supply to The Chartered Institute of Procurement and Supply as late as 2014.

Across private businesses and government departments there’s a bewildering array of labels and job titles. This, of course, makes the standardisation of job descriptions and salary levels unnecessarily difficult.

Getting Out of the Box

I’m half-way through ISM’s “Fundamentals of Purchasing” guided learning (e-learning) course under the tutelage of Dr Wade C. Ferguson, President, Erv Lewis Associates, LLC. The course begins with some of ISM’s definitions around Supply Management and what the profession actually entails. It led to one of the class (me, actually) asking Wade’s opinion on the term procurement versus supply management.

His reply: “Changing definitions represent the evolution that the profession has gone through. In the company I worked at for over 30 years, we changed our name from “purchasing” to “procurement”, but it didn’t really change anything, as procurement is basically a subset of supply management.

“It’s a necessary and important subset, but if you want to be more encompassing, we prefer the term ‘supply management’. It underscores the recognised breadth of the modern supply chain and the need for coordination and value optimisation.”

Wade argued that the reason for dropping the old label was a profession-wide effort to, “Get out of the box. Out of the myopic purchasing view, to understand what the organisation is really trying to accomplish. When we can do that, we’re perceived as being strategic, not just a tactical cost centre.”

Pigeon-Holed by Labels?

This argument makes sense when you look at ISM’s definition of responsibilities under the Supply Management umbrella:

  • Purchasing/Procurement
  • Strategic sourcing
  • Logistics
  • Quality
  • Materials management
  • Warehousing/stores
  • Transportation/traffic/shipping
  • Disposition/investment recovery
  • Distribution
  • Receiving
  • Packaging
  • Product/service development
  • Manufacturing supervision.

If you wanted to keep things in separate boxes, then I’d estimate that roughly half of the components above belong to Procurement, while the other half belong to Supply Chain.

This separation of responsibility might work in a company where, say, you have a Chief Procurement Officer working closely with a Chief Supply Chain Officer. But why not combine those two roles into one? It’s all interconnected, and it makes sense. And Head of Supply Management could be the label that encompasses the whole picture.

Here’s the thing – maybe, just maybe, the narrowing effect of “Procurement” labels is one of the contributing factors holding Chief Procurement Officers back from that coveted spot at the boardroom table.

Even for those CPOs out there who do in fact have responsibility for the supply chain as well. It’s possible that their very title means that this vast part of their role isn’t actually recognised by the people that matter.

Don’t Abandon the Progress We’ve Made

In a previous article, Procurious founder Tania Seary also called upon the profession to stop worrying about what we call ourselves:

“In my opinion, re-branding procurement is a distraction, especially since we’ve made enormous progress in educating businesses about what procurement does. Rather than having to re-educate the C-Suite about what a Commercial Director or Chief Relationship Officer does, that energy could be better spent actually showing people what we have and can achieve.

In line with why we created Procurious to begin with, we know that the procurement and supply chain profession has struggled to overcome outdated stereotypes, so it’s time we join forces to become collectively valued. By empowering future procurement leaders, we can change the face of the profession from the inside out, rather than worrying about the label itself.”

Things Certain to Change Again

“The only constant in life is change.”

…just as the only quote that the Greek philosopher Heraclitus will be remembered for is the one above.

The Procurement/Supply Management/Whatever-you-want-to-call-it profession has changed so much in the past thirty years that there’s no reason why it shouldn’t change again. By the time we’ve settled our current labels debate, it may already be outdated.