Tag Archives: procurement strategy

Mastering the True Art of Saving

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

Art of Saving

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

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

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

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

Smart Saving

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

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

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

Addressing Demand Management

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

1. Understand your expenditure

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

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

2. Challenge usage

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

3. Start planning your workforce

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

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

4. Properly evaluate needs

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

5. Provide a detailed specification

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

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

Saving on Category Procurement

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

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

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

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

Why Is a Project Procurement Strategy Absolutely Necessary?

An effective project procurement strategy is based upon a shared understanding of the role and purpose for the procurement process.

Project Procurement

Frequently, there are different perceptions of this at senior management, project management, end-user, and supplier levels.

A shared focus needs to be built upon an alignment of perceptions and understanding around what the project requires from a well performing procurement process, which is consistent with the agreed aims and objectives.

A procurement strategy that is successfully integrated, and implemented, within the Project’s cascade of objectives and performance measures, is recognisable by the following five characteristics:

  1. Clear “buy-in” from senior and broader project stakeholders to the benefits of embracing an agreed role and purpose for the procurement process, and how people need to interact to ensure that outcomes are achieved in a satisfactory manner.
  2. Competent, professional commercial people playing a key role in the process, at the right interaction points, to ensure delivery of clear solutions from supply markets that meet project needs.
  3. Key suppliers and contractors who treat the project as genuine ‘preferred customers’.
  4. Processes, systems, measures and enabling structures that support delivery capability along the entire procurement process cycle.
  5. Capacity and capability that’s available at the right pressure points.

Setting out the Objectives, Goals and Guiding Principles

Strategy documents need to outline two key facets — the objectives of the strategy, and the goals which are necessary to achieve these objectives.

The goals describe what will actually happen, and objectives describe what will be achieved as a result. The guiding principles reflect the core values on which the strategy is based, and which will inform all the actions which are planned as a result.

Procurement will:

  • be transparent;
  • be driven by desired results;
  • create the most economically advantageous balance of quality and cost;
  • reduce the burden on administrative and monitoring resources;
  • lead to simplified or routine transactions;
  • encourage open and fair competition; and
  • follow all appropriate regulations and legislation.

These values in turn translate into key performance indicators that can be used to assess the quality of results.

Setting the Objectives 

There’s no short, definitive list of subjects to include in procurement strategy objectives. Priorities change over time – strategies need to be reviewed and revised to reflect changes in circumstance and focus.

Subjects to consider include:

  • Operating Structure – is it fit for role and purpose, influencing where it should and as it should in a devolved environment? Do end users know what’s available to them by way of contract access and the procedures that they must follow, and are these procedures benchmarked against best practice, reviewed and updated as required? Is there clear project leadership of the procurement process?
  • Expenditure Analysis – is project expenditure on bought-in goods and services analysed in such a way that amounts spent, with whom, on what, and by whom, are understood, under control and spent optimally?
  • Maximising Value – how is it intended to maximise value through procurement activity, the use of competitive tendering and established collaborative contracts, and the deployment of procurement professionals?
  • Supplier Strategy – does the project have a strategy for dealing with suppliers and markets, such as buying local and compliance with relevant Regulations? Is there available guidance to suppliers on elements of the procurement policies (sustainability, SMEs etc, key contacts and signposts), and core values?
  • Social Responsibility – how does the project plan to take account of its social, economic and environmental responsibilities through procurement e.g. sustainability, health, safety and welfare, environmental management, equality, ethical procurement, working with the local business and social communities?
  • The Use of Procurement Tools – is there a strategy for operating the most appropriate, efficient and effective Purchase to Pay systems and procedures including use of procurement cards, e-tendering, e-auctions and an e-procurement platform and are the benefits of such use – reporting, planning, measurement and cost control – clearly explained and understood?
  • Supplier/Contract Management – are key suppliers identified and, if so, who are they and why are they key? What is the Project approach to supplier and contract management and what are the plans for monitoring supplier performance and managing improvements?
  • Performance Reporting – are there mechanisms/indicators in place whereby performance monitoring within the procurement process is routinely reported to senior management? Do such mechanisms include benefits and savings reports, customer and supplier feedback on the effectiveness of procurement performance?
  • Risk Management – are key risks and dependencies relating to procurement process, legislative and regulatory non-compliance identified, understood, monitored and appropriately communicated across the Project?

ACTION: develop and adopt a clearly documented procurement strategy in terms of measurable and managed contributions to the achievement of procurement, and ultimately Project, objectives.

Stephen Ashcroft BEng MSc MCIPS is a procurement learner stuck in the body of a procurement veteran, and with over 20 years’ experience still sees the glass as half full. Check out this article, and more, on ThinkProcure.

Should We Stop Using the Term ‘Strategic’ in Procurement?

No other profession puts the word ‘strategic’ on their business cards. Why do we do so in procurement?

Strategic

A high-powered panel at ISM2016 drove a spirited debate about the use of the term ‘strategic’ in the profession. Chaired by Joe Sandor (Professor of Purchasing and Supply Management, Michigan State University), the panel included:

  • Hans Melotte (ISM Board Chairman, Senior Vice-President and CPO, Johnson & Johnson);
  • R. David Nelson (procurement veteran and Chairman, Dave Nelson Group);
  • Jeff Smith (Global Sourcing Director – Indirect at DuPont); and
  • Beverly Gaskin (Executive Director Global Purchasing, General Motors).

Actions Not Words

Actions speak louder than words. That’s the message from Hans Melotte, who argued that it’s unhelpful for the profession to continually emphasise how ‘strategic’ we want to be.

Overuse of the term dilutes the concept, especially when having a conversation with sceptical stakeholders. “Procurement needs to be strategic”, says Melotte, “rather than just talk strategic.”

Being strategic comes down to having the right people in procurement, who can talk the language of the business, define their value contributions in a way that resonates with stakeholders, are forward thinking, proactive, and focused on the future.

Historical Overuse

When did procurement start to use (and overuse) this term?

R. David Nelson, who started out in an enormously different procurement landscape in 1957, has watched the profession grow from a back-office function to a highly-influential business partner.

As any modern professional knows, there are plenty of stakeholders who still remain unconvinced, and it’s very possible that our constant repetition of the term ‘strategic’ was a somewhat ham-fisted attempt to convince these sceptics that we do indeed deserve a seat at the table.

Interestingly, none of the major organisations represented on the panel use the term any more. Hans Melotte explains: “At Johnson and Johnson we abandoned the use of the word strategic, because you shouldn’t label yourself who you want to be – you should be who you are. The whole notion has passed its expiry date”.

Divisive Term

The other problem with the term is that it’s divisive. By calling half the population “strategic”, you’re implying the other half of the function is non-strategic. This sends a negative signal throughout the organisation, and breeds resentment around job titles.

Beverley Gaskin agreed: “Strategic buying is like an oxymoron. If you’re doing anything in the buying field that isn’t strategic, you shouldn’t be doing it.”

Even the term “purchasing strategy”, says Gaskin, is misleading. “There’s no such thing as a purchasing strategy. There’s a company strategy and you have to understand your role in getting that done.”

The same concept appliers to how we talk about strategic and non-strategic suppliers. Again, it’s our responsibility to move away from divisive language. After all, you’re never going to tell a supplier that they’re ‘non-strategic’.

Definitions are important. Melotte reasons that if you define ‘strategic’ as something that serves the strategy – a choice wisely made, based on facts and intelligence – does that mean ‘non-strategic’ is defined as the opposite of this? No CPO would want any resources who are not aligned with the company strategy or value mission.

This isn’t to say that the term ‘tactical’ is the opposite of strategic. Professor Joe Sandor provided a valuable reminder that the word ‘strategy’ comes from the military, and simply means planning. ‘Tactic’ means execution, and a plan must be executed. Tactics, therefore, are strategy in action.

Jeff Smith of DuPont summed up the sentiment of the panel: “It’s time the profession moved away from the term”, he said. “If you behave strategically, you’ll always be invited back”.

Stay tuned for more from ISM2016 in the coming weeks. You can find out more about the event on the ISM website.

Can Introverts Really Thrive in Procurement?

While many aspects of modern business, including key skills, seem to favour extroverts, Susan Cain argues that introverts have as much to add and value to give.

Value of Introverts

 “There is zero correlation between being the best talker and having the best ideas.”

Don’t miss Quiet Revolutionary”, Susan Cain’s keynote speech at ISM2016.

There are almost certainly introverts in your procurement team – whether it be yourself, your boss, or your colleagues, a third to half of the population are introverts. Susan Cain’s game-changing book The Quiet Revolution champions the introvert cause and goes into detail about how workplaces are designed to benefit extroverts – but what about introverts in Procurement?

What is an introvert?

First up, it’s important not to confuse introversion with shyness. Shyness is about fear of social judgement, while introversion is about how you respond to stimulation. In Cain’s words, “Extroverts crave large amounts of stimulation, while introverts feel at their most alive, most switched on, and at their most capable, when they’re in quieter, more low-key environments.”

We all fall at different points on the introvert/extrovert spectrum, but 21st-century workplaces are predominantly designed for extroverts and their love of stimulation. A culture that celebrates action over contemplation, open-plan offices, constant noise, and (worst of all) endless group-work, means introverts are often forced to pass as extroverts in the workplace rather than be themselves.

Groupthink versus creative solitude

“Groupthink” means that we can’t be in a group of people without unwittingly aping their belief. Groups follow the opinion of the most dominant or charismatic person in the room, even though, as Cain emphatically states, there is zero correlation between being the best talker and having the best ideas. This reveals a serious flaw in the way workplaces, schools and even the legal system (think about what happens in the jury room) see group-work as the best way to get positive results.

Solitude is essential to creativity and productivity. Team members should be able to generate their own ideas by themselves, free from groupthink, then come together as a team to talk them through, while ensuring no single person dominates the discussion. Cain points out that collaboration is important, but we need to recognise that freedom, privacy and autonomy matters.

Rather than constant group-work, workplaces should encourage casual, chatty, café-style interaction where people can share their creative ideas. In Cain’s words, “we need to work together, but the more freedom we give introverts to be themselves, the more likely they are to come up with solutions to unique problems”.

Introverts make better leaders

In a culture that prizes extroversion, introverts are routinely passed over for leadership positions, despite the fact that they make the best leaders. Here’s why they’re a better choice for leadership roles:

  • introverted leaders are generally more careful and are less likely to take outsize risks
  • introverts are much more likely to let employees run with their ideas, whereas extroverts can’t help but put their own stamp on things
  • people recognise that introverts step up because they are driven to do what’s right, rather than because they enjoy directing others or being in the public eye.

What does this mean for Procurement?

As most CPOs would agree, Procurement is a “people skills” job. This means that alongside core skills such as supply market research, analysis, category and contract management, introverted Procurement professionals must be comfortable with networking, influencing, stakeholder engagement, supplier relationship management and negotiation. The best advice is to play to your strengths rather than try to be something you are not.

Extroverts love negotiating, – the thrill of the contest, thinking on their feet and coming out on top – but having to negotiate can make introverts very uncomfortable. Again, it’s not about shyness, but rather about finding yourself in a high-stimulus environment, with pressure, fast decisions, and no time to reflect in solitude to come up with creative solutions. Here are some suggestions for introverts to overcome their fear of negotiation by playing to their strengths:

1. Does the negotiation really have to be live? Carrying out a negotiation by email may be slower, but will allow you to make considered decisions rather than blurting out a rash offer in a moment of high pressure.

2. In a live negotiation, use the power of silence. A meaningful pause can make the person across the table so uncomfortable that they start to gabble to fill the silence.

3. Plan ahead. Use your solitary time to do your research and plan so thoroughly for the negotiation that you will be prepared for anything.

4. Listen. Have you ever had one of those conversations where the other party knows what they want to say and doesn’t appear to listen to you at all? Introverts make much better listeners because they don’t feel the need to dominate the discussion. Active listening makes people feel valued and will enable both parties to find common ground.

Susan Cain has a powerful message that resonates not only with introverts, but will be enormously valuable to extroverts who want to understand how to help their introverted colleagues thrive. Attendees at ISM2016 will learn how to create a better workplace Yin and Yang between introversion and extroversion, and join Cain’s Quiet Revolution.

Susan Cain

Time is running out to register for the biggest and best supply management conference on earth – ISM2016 – from May 15 to 18 at the Indianapolis Convention Center. More than 100 breakout sessions will feature some of the BIGGEST names in supply management, including Apple, Google and Coca-Cola. Get all the information you need to register on the ISM website.

Showcasing Your Big Ideas – Tackling Maverick Spend

Ahead of the Big Ideas Summit 2016 on April 21st, we’re on the hunt for your Big Ideas. Stuart Brocklehurst discusses how procurement can elevate its role by tackling maverick spend.

At the Big Ideas Summit 2016, which takes place on 21st April,  we will be asking our speakers and attendees to record their ‘Big Ideas’ live on camera for the whole of our Procurious community to see.

But we also believe that every single procurement and supply chain professional has a unique vantage point in the industries, communities and businesses they work in. You have been submitting your Big Ideas to us, and so far, we think they have been great!

Stuart Brocklehurst, Chief Executive at Applegate Marketplace

According to a survey by KPMG, on average 40 per cent of organisational spend happens without any input from procurement. At a time where procurement needs to be delivering value to the business, tackling maverick spend in the organisation is a good place to start.

Stuart’s Big Idea is exactly that. He believes that for procurement to be valued for its strategic role, it needs to demonstrate its impact on the whole organisation.

Stuart goes on to say that this can only happen through giving access to user-friendly solutions, and demonstrate the benefits of doing this across the organisation.

How to Submit Your Big Idea

We don’t mind if you film your submission on your phone, tablet, laptop or PC. However, to help you out we’ve compiled a list of some of our recommended methods for reaching out.

Once you’ve completed your film, you can reach us by email (Procurious@Procurious.com); on Twitter (@procurious_) or via Google Drive or Dropbox (using Procurious@Procurious.com).

You can find all the information you need on recording and submitting your Big Idea here.

Want to know more about Big Ideas 2016? Then visit www.bigideassummit.com, join our Procurious group, and Tweet your thoughts and Big Ideas to us using #BigIdeas2016.

Don’t miss out on this truly excellent event and the chance to participate in discussions that will shape the future of the procurement profession. Get Involved, register today.