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How to Set a Procurement Strategy Part 2: What You Should Be Doing

How do you set a strategy for your procurement function? Discover what to actually do.


How many times have you heard the word ‘procurement strategy’ throughout your career? Hundreds, if not thousands? And how many times have you seen one created and executed brilliantly?

Hmm. 

In 2020, especially after this year’s crisis, we all know that a procurement and supply chain strategy is more important than ever. But it’s also more challenging than ever to create the right one, as we posited in our last article Procurement Strategy: What You’re Currently Doing Wrong

So with all the challenges and complexities that a procurement strategy brings, is it possible to create an ideal one? One that goes beyond a ‘your wish is my command’ strategy, yet doesn’t make the mistakes inherent in a ‘market leader’ strategy?

It most certainly is. And here is how you do it.

Step 1: Assess and define

The first step in setting a strategy is assessing the one that you already have. Think you don’t have one? Think again. As we showed in our last article, all procurement functions have a strategy – whether they like it or not. 

If you’re struggling to define your strategy, or it seems like it’s nonexistent, have a look at the choices and activities you undertake every single day. Are you constantly behind, putting out fires left, right and centre and at the mercy of your stakeholders? If so, you’re probably pursuing a ‘your wish is my command’ strategy. Or alternatively, are you rocketing towards an idyllic vision of ‘procurement best practice,’ focusing more on the doing side rather than consultation with your stakeholders? If this is the case, you’re pursuing a market leader strategy which, although it may seem ideal now, will soon lead you astray. 

Assessing your current strategy will force you to confront the truth about what you’re doing but more importantly, what is and isn’t working. Understanding your mistakes here will help set you up to create a strategy that does work. 

After you’ve discovered your strategy, the next critical step is understanding the strategic priorities of the organisation. For example, perhaps you’ve always been focused on costs, yet your business is more focused on quality? When undertaking this step, as procurement professionals, it’s tempting to pour our everything into it, meticulously researching our business, their competitors, and so on and so forth. Yet with all things strategy, the solution is more important than the problem, so ensure that you spend no longer than a few hours figuring out both your own strategy and that of your business. 

Step 2: Identify stakeholders and laser-focus 

From a stakeholder analysis perspective, the problem with the ‘market leader’ strategy is that, quite simply, the firm’s internal stakeholders aren’t consulted in its creation. Conversely, the problem with the ‘your wish is my command’ strategy is that stakeholders aren’t consulted here either – they are just left to make demands. 

The obvious solution for procurement, then, is to identify your primary stakeholders within the firm, figure out your core offering to them, and define what you will be able to deliver, and what may need to be outsourced. 

Dave Pastore, Senior Director, Sourcing Operations, at Corcentric, believes that identifying key stakeholders is absolutely essential to secure buy-in across the organisation: 

‘You’ll find that some stakeholders are more inclined champions of procurement than others, identifying them early and collaborating with them will lead to a snowball effect on procurement’s successful collaboration across the organisation.’

To give an example of, let’s say that a business has recognised that their rate of returning customers is low, due to substandard product quality.  The primary stakeholders who are concerned by this trend are the executive, customer service team and marketing team – and they are exactly who, from a strategic perspective, you’d need to prioritise. As a procurement function, then, your focus may be on sourcing new, higher-quality suppliers, while also carefully balancing cost considerations, as undoubtedly the finance team would still be a key stakeholder for you.  With the focus on product quality, you may then choose to outsource quality assurance or administrative tasks, so you can laser-focus on what will add the most strategic value. 

When considering the overall corporate strategy, and which stakeholders to prioritise, you’ll inevitably need to choose the parts of the strategy that you can influence the most. 

Step 3: Consider your competitive advantage

When it comes time to decide which strategy to pursue, your decision-making process should be similar to the way that any business decides their own strategy: by figuring out your competitive advantage. 

Think about it. How does Starbucks get ahead? By providing better value coffee than Dunkin’ Donuts. And McDonalds? They need to find their unique value proposition and deliver on it, vis-a-vis Burger King. As strange as it may seem, this is no different from you and your procurement strategy. 

Diego De la Garza, Senior Director, Global Services, at Corcentric, believes that your competitive advantage may not be just one thing, but rather it should evolve over time: 

‘Your competitive advantage should evolve as the environment of the organisation changes, one day the organisation is ripe to capture savings and the next is prioritising process automation. 

‘Procurement competitive advantage is predicated on its ability to deliver value to what the organisation needs most.’ 

Even if your competitive advantage is something that evolves, it still can be challenging to discover. For example, it clearly doesn’t make sense for procurement as a function to compare themselves against other internal functions, such as finance. It also doesn’t make sense for procurement to compare their own function to procurement in another organisation, as that business may have a totally different strategy. Procurement, as with all other internal functions, has an effective monopoly within each individual organisation, so comparison is hard. Often, the most effective comparison is an outsourced provider. 

This can often be a useful starting point to define your competitive advantage, though. All things considered, what value can you deliver that an outsourced provider cannot? 

Step 4: Play to win 

Once you start to understand what value you might be able to offer your organisation, and your stakeholders in particular, create several different strategies with different focuses, and then decide on the one you believe will have the highest chance of success. For example, with the situation described above, you may decide to focus on procuring higher-quality suppliers, or alternatively, technology that can guarantee better quality assurance. 

You won’t know which strategy will be the most successful, of course, but ensure that you’ve comprehensively consulted your stakeholders to maximise the best outcome. Then, throughout your implementation, make sure everyone is continually consulted, and informed, especially if requests akin to the ‘your wish is my command’ strategy start creeping in. 

Stakeholders are well and truly key to a successful strategy, says Dave Pastore: 

‘A key to ensuring the successful adoption of your procurement strategy is to collaborate with those who will be most impacted by it: your stakeholders.’  

We all know that strategy is important – but equally, that it’s hard. But by understanding your company’s strategy, then figuring out your competitive advantage as a function and, finally, consulting with your stakeholders, you’ll have the best chance of creating and implementing a strategy that will add the value you know you can bring. 

What challenges have you had in setting your procurement strategy? Let us know in the comments below. 

How To Set A Procurement Strategy Part 1: What You’re Currently Doing Wrong

How do you set a strategy for your procurement function? Discover what not to do. 


In 2020, we’re all au fait with the word ‘strategic.’ Procurement needs to be strategic, metaphorically yells every advice piece we read. What’s the strategy behind that, what’s your function’s strategy, what’s the strategy this year? Exclaim C-suite executives we run into; or perhaps a strategy consultant they’ve engaged. 

But when it comes to procurement – what does a strategy even mean? 

As an internal function, a procurement strategy is a complex idea. As procurement’s purpose is inherently to serve our stakeholders, should our strategy simply be to do just that? Or should we set a separate procurement strategy, based on best practice we observe in our particular function, elsewhere? Both approaches have their benefits, but also significant downsides. So which one is it, or is it neither? Here’s a detailed explanation of the two different ‘strategies’ that most procurement teams execute, and exactly why they may not be the best choice going forward: 

Bad strategy #1 – The ‘Your Wish is My Command’ Strategy

What is the ‘Your Wish is My Command’ strategy? 

Ken had not long been in his role as CPO at a utilities company when a meeting entitled ‘Procurement Strategy’ appeared in his diary. He hoped – and assumed – that the meeting would be about the business’s long-term strategy, which he would then translate into a roadmap for his team. 

But he was wrong. 

Alison, the company’s CEO, told him that he need not bother himself with strategy, because ‘that’s what I’m here for.’ She said, unapologetically, that the job of internal functions like procurement was to ‘keep all internal stakeholders happy’ and that she expected his team to ‘do whatever was required’ to do just that. 

‘That was the problem with the last CPO,’ she told Ken, ominously. ‘She was always on a different wavelength, always chasing her own version of success. But while she did that, no one here was happy. Don’t repeat that same mistake.’ 

Why is the ‘Your Wish is My Command’ strategy so appealing? 

The ‘Your Wish is My Command’ strategy, or the idea a procurement function exists to simply do whatever is required by stakeholders within the business, is frighteningly common. This is because the basic premise of this strategy – the idea that internal functions are created to serve the wider corporation – is in fact correct. Many CEOs believe that the business units that create products or support customers should be supported by internal functions. While this is true, it can also be deeply frustrating for functions that need – and deserve – to create their own strategy. 

But the problem with the ‘Your Wish is My Command’ strategy runs much deeper than just frustration. 

What’s the problem with the ‘Your Wish is My Command’ strategy? 

The ‘Your Wish is My Command’ strategy works in theory only; as many CPOs will have now no doubt learnt. By granting ‘wishes’ – so to speak – to a multitude of different commanders, without any regard for what to prioritise or how to allocate resources, staff quickly become overworked, resources get spread too thin, and stakeholders are often underwhelmed. All decisions become reactive and nothing is done well, meaning that the all-important procurement influence is lost, with little room to show value added. Business units start ‘insourcing’ – either doing part of procurement’s job themselves, or looking for cheaper, external resources to do it for them. 

Overworked staff, insourcing and little value perceived to be added leads the C-suite to fundamentally question whether procurement is ‘worth it,’ meaning ever-more pressure on cost savings, and eventually, redundancies. 

The ‘My Wish is Your Command’ strategy is something that Dave Pastore, Senior Director, Sourcing Operations at Corcentric, has seen too many times – but, in his opinion, it never works: 

‘Any strategy that reduces the procurement function to a shared service without providing it with the ability to challenge the organisation is a squandered opportunity at best, and a self-inflicted wound at worst.’

On the surface, the ‘Your Wish is My Command’ strategy seems to make sense. But dig deeper, and it’s a deeply fraught concept that deprives procurement as a function of fundamentally doing what they need to do – adding value. 

Bad strategy #2 – ‘Market Leader’ Strategy

It’s clear that the ‘Your Wish is My Command’ strategy is no way forward. So is the opposite strategy, one whereby procurement makes clear choices that set the company apart vis-a-vis other procurement functions externally, the better choice then? 

Not quite… 

What is the ‘Market Leader’ strategy? 

As a new CPO in one of the world’s fastest growing tech companies, Karen thought she’d secured her dream role. And in her first few months on the job, that seemed to be the truth. 

As someone who was quite entrepreneurial and strategic herself, Karen knew that to become a ‘market leader’ in procurement, the company needed to invest heavily in tech. The CEO, himself a young entrepreneur, gave Karen the green light to do whatever she needed. ‘Just make sure we’re the best,’ he said, while signing off on a budget that made Karen’s eyes water. 

But as time passed by, problems materialised for Karen. It turned out that being ‘the best’ wasn’t as easy as emulating best practice in the marketplace, for a number of reasons. 

Why is the ‘Market Leader’ strategy so appealing? 

For ambitious CPOs, the chance to implement the ‘Market Leader’ strategy can feel like a career-defining moment. Firstly, it treats procurement with the respect it deserves, and places it equally with the rest of the business in terms of power and importance. Secondly, it just seems like the right thing to do. If you’re trying to be ‘the best,’ why not look for an example of that and then try and do the same? 

Creating a ‘market leading’ procurement function may well look good on your CV. It may be the case study that nets you media coverage; that amplifies your personal brand and that makes you an authority in the space. But at the same time, there’s every chance it will fail within your organisation. 

Why? 

What is the problem with the ‘Market Leader’ strategy? 

The ‘Market Leader’ strategy seems perfect until you consider one thing: context. And given that procurement is not separate to an organisation, but an integral part of it, context is hugely important. 

Take the example of Karen detailed above. What evidence did she have, beyond the fact that she was working for a tech company, that investing heavily in tech was what was needed for her function? Precisely none. Many procurement leaders have chased ‘best practice’ before, only to discover that what might be best in the marketplace may not suit their organisation for a number of reasons. 

Jennifer Ulrich, Senior Directory, Advisory, at Corcentric, believes that the idea that you have to be a ‘market leader’ in all aspects of procurement is misguided: 

‘You don’t have to be a market leader on every aspect of procurement in order to generate a competitive advantage to the organisation. 

‘Doing what is right for the business will put you in a winning position more often.’

While market-leading strategies look externally focused, they actually function more like internal monopolies, where procurement serves themselves, rather than the needs of the business leaders around them. As a result, the function falls victim to the typical problems experienced by monopolies, including arrogance and overresoucring. Managers within the business complain that resources are being used for ‘show’ as opposed to invested in things that would actually give the company a competitive advantage. 

As a result, backlash ensues. The ‘value’ added by procurement is again called into question, and the function is seen as the exact thing it is trying to rebel against: burdensome cost. 

So how should you set a procurement strategy? 

If a ‘Your Wish is My Command’ strategy doesn’t work, and neither does a ‘Market Leader’ strategy, then how should procurement create a meaningful, long-term and effective strategy? 

Diego De la Garza, Senior Director, Global Services, at Corcentric, recommends you begin by doing the following: 

‘Start with defining what success should look like for procurement in your organisation, finding those answers early is a relatively easy way to build a strategy that will drive healthy support across the organisation.’ 

Want more detail? Discover exactly what to do in our next article: How to Set a Procurement Strategy Part 2: What to do. Join Procurious now to be notified immediately when it’s published.

3 Things Stopping You Doing What You Need To In Procurement

Big things, small things – there are probably countless things stopping you doing what you need to in procurement. What blockers are in your path?


We’ve all had that day or that week. You get to the office with a task list in your head or in hand, sure that you are going to make a huge dent in it before you even get to your morning coffee. But then you sit down and within 10 minutes your plan is blown out of the water and you spend the rest of the day playing catch up, with the bottom of your to-do list getting further and further away.

This is the reality for many procurement departments too, just on a larger scale. While an individual’s blocker might be a rogue email or the wrong phone call at the wrong time, a department’s could be any one of a number of things, from lack of resources to questionable IT systems. The thing about the blockers is that most people will already be aware of them, either as conversation around the watercooler, or something that people think is the responsibility of senior management to sort.

However, responsibility doesn’t just rest with an individual or small group, it is on each and every person to recognise these blockers and help to minimise their impact. This list is far from definitive and will change from organisation to organisation, but they are common across the profession as a whole.

1. Being Distracted by the ‘Next Big Thing’

“Procurement deserves a seat at the top table.”

“Procurement needs to be seen as a strategic business partner.”

“The next big thing for procurement is…”

If you attend procurement events or read industry literature, much of the content will concern the ‘next big thing’. Category Management, Supplier Relationship Management, Business Process Re-engineering, Strategic Stakeholder Engagement – all of these things have been touted as procurement’s ‘next big thing’ at some point in the past decade.

But, hand on heart, how many of us could say that they have been fully achieved before the next big thing came along and stole people’s attention?

Too many of these terms have become useful jargon for consultants and advisors to use, rather than the core principles for procurement departments to be working with. The relentless pursuit of the next idea to make procurement a strategic partner has blinded the profession to a major blocker to progression – getting the basics right.

Instead of chasing the metaphorical white rabbit, procurement instead should focus on ensuring that it is delivering on its principal duties – ensuring good relationships with suppliers (and paying them on time!), delivering on time and in full and delivering value, not just savings, to the business.

This can be achieved in a number of ways including cutting down unnecessary tenders, ditching non-strategic strategic activities, creating more open supplier markets and two-way communication in relationships. Whatever the best way to do this, organisations need to find their own path to it which will ultimately allow them to get back to basics.

2. Not Being ‘Besties’ with your Stakeholders

For procurement to realise its goal of a more strategic role in the organisation, it needs to create good relationships with its key stakeholders. We’re not talking about being ‘besties’ with stakeholders, but gaining support and buy-in for ideas and projects.

There is plenty good literature written about stakeholder engagement, and many organisations talk a good game about the importance of procurement and supply chain. However, just as many organisations fail to live up to these words and aims when it comes to having it as part of their key tasks.

Getting stakeholder buy-in is a critical first step in the success of any project or for any part of an organisation. This can range from ensuring that maverick spending practices are limited, or that procurement has the necessary level of support in terms of resources, time and money to build robust and fully risk-managed supply chains.

There is something of a chicken and egg situation with gaining key stakeholder buy-in. Procurement needs to meet internal expectations to prove its value, but may need a level of support to achieve this.

There are good ways to engage internal stakeholders and for procurement to get an organisational BFF! Strong two-way communication, ensuring what is required from stakeholders is clear and developing plans in conjunction with stakeholders are all good things to bear in mind.

3. Being Buried in Paperwork

At the Big Ideas Summit 2020 in London, Justin Sadler-Smith, General Manager at Basware, argued that technology solution providers have failed procurement in not providing good technology solutions. This, combined with a lack of utilisation of existing technology, has led to many procurement processes continuing to be done manually – effectively burying procurement in a deluge of paperwork, wasting valuable time and resources.

This just isn’t an issue for procurement, but across the wider organisation. The lack of technology also has a knock-on impact on the quality of data being used by procurement. Poor data means procurement can’t fully define things like the length of its tail spend, or even understand fully what its annual spend with individual suppliers is.

This can then lead to poor contract management (and over spend) and poor supplier management, including late payments. Late payments lead to delays, which can then lead to organisational issues. Late payments can undermine supplier relationships, put the suppliers themselves at risk and ultimately cost an organisation more than the original payment was worth in the long-run.

It goes against one of the foundations of the profession and means that procurement fails to meet its own basic requirements of operation.

Unblocking the Blockers

Procurement, as the entry point for suppliers and the supply chain into the organisation, will frequently be where the buck stops. However, the blockers for procurement have the potential to derail everything from individual activities to organisational strategy making it a collective responsibility to solve.

For procurement, the blockers ultimately boil down to getting the basics right, meeting the needs of the organisation, putting systems in place for better management and delivering on its core principles. Something as simple as ensuring that appropriate systems are in place to facilitate on-time supplier payment can mitigate a number of risks, many of which can have a domino effect across the organisation.

Could unblocking the blockers be as simple as treating suppliers better? Perhaps not, but it seems like a very good place to start.

Join Procurious to connect with 40,000 other ambitious procurement professionals and get free access to networking, industry news, training and much more. 

Design Thinking Applied To Procurement

Don’t reinvent the wheel, apply design thinking tools to help you plan your next procurement.


Agile processes and design thinking are not fads, they are here to stay. During a three day design sprint that I participated in recently. I was bombarded with many different models designed to stimulate creativity. The result was a continual stripping down of our ideas until they were polished and on target.

Using these tools to break down our assumptions and continually test and probe ourselves for new answers was both exhausting and inspiring. Tools to aid design thinking don’t have to be high tech, new or complex to be effective. They are simple and freely available, so why aren’t we utlising them more in procurement?

Design thinking in action

Here are some of the design thinking exercises that I have used recently in my work:

  • Lightning Demos: before a workshop set the attendees homework to discover relevant tools or examples of either how your problem has been dealt with elsewhere, and/or things you’ve interacted with in your daily life that you find easy to use e.g. pay wave credit card for ease of transacting, a website you’ve used, etc.
  • ‘How Might We…’: takes challenges and poses them as questions.
  • User Journey Maps: These help to build empathy and understanding. Start with how your user first encounters your business / product and map out their experience end to end.
  • Crazy Eights: You fold your A4 piece of paper into eight sections and set the timer for eight minutes. Try and think of any solution possible, no matter how out there.
  • Game theory: Using cards to stimulate combinations of thinking differently e.g. event cards, theme cards, product idea cards. Draw one each from the pile and see what ideas it generates.
  • The Five Whys: the idea is to keep interrogating the cause of the problem to ensure any solution has dug to the actual root cause. In the example below often the response would end at fixing the leak.
  • Personas: Another empathy building tool. Build up a detailed persona of the core or target user and use them when designing ideas.
  • SCAMPER: The acronym represents seven techniques for idea generation: Substitute, Combine, Adapt, Modify, Put to another use, Eliminate and Reverse
  • Dot voting: With an overwhelming amount of post it notes and ideas, each person gets two dot stickers to place on the post it note that they feel is the most important and contributes to addressing the problem statement.
  • Decision matrix: Because everyone loves a four box diagram in procurement. This Is a great way to clear on priorities, especially if there are a lot of dot stickers!

Want to find out more? Google has made their design sprint kit free, its open source and available for anyone to use. You can find further information about each design thinking tool cited above by visiting their website.

How can you apply these to your procurement project?

Many internal customers come with pre-formed solutions and ideas of how to solve the problem or opportunity they wish to approach the market about. The design thinking exercises are quick ways to ensure that the right solution is being reached for. If the customer is not willing to participate, you can do these by yourself.Test for new ways to solve the issue and test that the problem or opportunity has been correctly identified in the first place.

Ditch the 400 page strategy

The Lean Canvas is where we can start to bring all the creative thinking together on one page. It should be clear, concise and make a convincing case for change. There are many free examples online. The lean canvas can be used to replace the traditional procurement plan document for low risk procurements. It can also cut down a category management paper to it’s essence, making the perfect executive summary for others to digest at a glance.

This sounds bonkers

Are people really doing this? Yes! My current workplace is central government agency and we are using the lean canvas approach in the place of traditional procurement plans.The co-design process can replace tenders effectively. The theory of change model is the perfect framework to accelerate an idea and unlock its true impact.

Get inspired and start thinking outside of the procurement box!

This article is solely the work of the author. Any views expressed in it are those of the author and do not necessarily represent or reflect official policy of the New Zealand government or of any government agency.

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.