Tag Archives: procurement value

Is Marketing A Procurement Blind Spot?

If your marketing expertise is a little below par, don’t despair! Marketers need your help and luckily there’s a lot procurement can do…

How much do you know about ATL, BTL and TTL? Learning marketing speak is the first step in gaining support of your colleagues over the fence and establishing your credibility.

The marketing services category has always been complex one and a bit of a blind spot for procurement. The learning curve is not only steep, it’s also a moving target. We have to invest considerable time in understanding their issues and concerns before we can provide any meaningful assistance. Category managers need to continuously build and refresh internal relationships at all levels; this requires perseverance, patience and stamina. Procurement veterans are fully aware of stakeholder expectations and the importance of having rock-solid relationships with marketing professionals before launching any sourcing projects.

Problems in sourcing marketing services

  • The decision makers may have entrenched relationships with advertising agencies and media houses, with or without formal contracts
  • There are often too many suppliers for the same or similar services and purchasing outside contracts is commonplace.
  • There may be little focus on achieving value for money or measuring effectiveness of the use of their limited budget.
  • Negotiation skills may be in short supply
  • Pricing models are less than transparent. Traditional agencies have pricing structures that would test the analytical skills of the best procurement professional.   

Some good news

On the upside, there is increased pressure on marketing departments to do more with less budget and they need procurement’s help, especially getting better value for money and formalising supply arrangements.

CMOs are becoming increasingly aware of the need to competitively source suppliers periodically, even if their main objective is to generate new and innovative ideas, rather than make cost savings.

Advertising agencies in their traditional form are disappearing; integrated marketing agencies are offering full-service solutions for all marketing requirements including strategy, brand management, advertising, media buying and the full range of digital and social media services. This is a real opportunity for procurement.

Where procurement can add value

Procurement is advised to pick its battles carefully, working from a firm factual base. The basic principles of spend analysis apply: collect and analyse all the data and know the landscape before tackling your target areas

Benchmarking

  • Develop a skills benchmark for each type of service. Establish what sets of skills are needed and determine fair rates for each
  • Apply supply market intelligence to determine the financial competitiveness of existing suppliers. Evaluate their rate cards and pricing against the market. Are they competitive?

Review existing supplier relationships

  • Identify incentives to improve relationships with incumbent marketing suppliers, and consolidate the supply base
  • Negotiate and improve unsuitable contractual terms and conditions, adjust pricing models and rates in line with benchmarks

Pricing of services

Many agencies use the tried-and-tested approach of consultants: billing is based on time-plus-expenses also erroneously called cost-plus. This is an open-ended billing system based on rate cards that apply hourly or daily rates per each skill level. Problems occur when lower skills are applied to the job while higher rates are billed. Where the scope of work is unclear or subject to change it can work but a cap should be set with only a small percentage  overrun of the budget allowed. Beware scope creep.

It is crucial to gain an understanding of other fees and mark-ups such as media commissions, margins on production costs and printing costs.   Where do rebates end up?

Measuring supplier performance

Managing supplier relationships with marketing firms needs to be focused on minimising bad behaviours and rewarding and incentivising those who deliver as per pre-defined requirements. Marketing departments may not necessarily have targets for upholding quality, reducing costs and measuring process improvements, procurement teams certainly do.

5 Top tips for getting along with marketing

  1. Understand important marketing concepts and terminology and recognize how marketing decisions support the company’s objectives.
  2. Invest time in building relationships and understanding the day-to-day challenges. Category managers should reassure marketing teams that they understand the value of strong relationships with creative agencies.
  3. Pick your battles. Identify areas that procurement can really influence
  4. Know your stuff – drill down into the data and understand the detail so that you can discuss issues intelligently
  5. Procurement should share stories of how they helped other functions in the business in ways that Marketing can relate to. Find ways to translate sourcing ideas into their language.

The ability to tactfully handle supplier/marketing/procurement relationships is the key to success. There are no secret tricks, just applying sourcing and contracting best practices will pay off provided that you prioritise service and performance standards over cost savings.

Do you want to be embraced warmly by marketing?   Know your numbers, respect their skills and ideas and work together to develop solutions that will work for both functions. Many marketing functions trundle along with little or no support from procurement.

Whose fault is that?

Measuring Value – All That Glitters Isn’t Necessarily Gold

The Five Gold Rings might be the most expensive of the gifts listed in the carol, but does that mean they’re the most valuable? Not necessarily. It depends on how you measure value.

five gold rings

The traditional 12 days of Christmas might not start until the 26th of December. But this festive season, we’ll be bringing you the 12 days of procurement Christmas in the run up to the big day. Catch up with the story so far on the Procurious Blog.

“On the fifth day of Christmas, my true love gave to me…five golden rings.”

In 1982, the late, great Irish actor and singer Frank Kelly released a hit single called “Christmas Countdown”. The song is a parody of the 12 Days of Christmas, where the hapless narrator writes a series of thank-you letters to his over-indulgent true love, getting increasingly frantic as each day passes.

As his small home fills up with various aggressive birds (doves and geese in the living room, swans in the bathtub), he and his elderly mother become overwhelmed with the noise, the smell, and the veterinary bills.

By the time the maids-a-milking, drummers drumming and lords-a-leaping add to the pandemonium, the singer’s letters have turned from thanks to abuse, and his mother has been taken to a home for the bewildered.

But, amongst all the inappropriate gifts of birds and musicians, there’s one gift that makes him pause.

“Your generosity knows no bounds! Five gold rings! When the parcel arrived I was scared stiff that it might be more birds, because the smell in the living-room is atrocious. However, I don’t want to seem ungrateful for the beautiful rings.” 

Finding Gold Among Feathers

As procurement professionals, we often need to take a step back and look at the true value of the product or services we’re procuring. Below we’ll take three different approaches to the measurement of value – according to price, utility, and cultural value. 

Value Based on Price

To be clear, judging the value of an item based on price alone is not good procurement practice. It’s a gross oversimplification of the concept of value. But sadly, it’s still an ingrained way of thinking for many practitioners.

If you want a chuckle in the lead-up to Christmas, check out PNC Wealth Management’s “Christmas Price Index. The Index totals up the cost of the 364 gifts (including all the repetitions) listed in the carol. The total cost is a staggering $156,506.88 for 2016, which is a rise of 0.7 per cent over last year.

The tongue-in-cheek economic indicator pulls its prices from a range of local sources, including a Philadelphia nursery for the pear tree, a local jeweller for the golden rings, and the Pennsylvania musicians’ union for the drummers’ wages.

Value Based on Utility

The 18th-century mathematician and physicist Daniel Bernoulli hit the nail on the head with this memorable quote: “The value of an item must not be based on its price, but rather on the utility it yields.”

Apart from the potential egg yield of the three French hens and six geese a-laying, the only other material return to be had from this gift bonanza would be quite a lot of milk from the eight maids a-milking and, possibly, a few pears. All the other gifts have little to zero utility, but do have significant cultural value. 

Cultural Value

This carol is packed with cultural value. There’s atheistic value in the ornamental birds, sentimental value in the golden rings, and artistic value in the performing musicians.

Think about some of the goods and services you’ve procured for your organisation. Which ones have had cultural value? Cultural value tends to attract a price premium, but often pays off in raising customer perception of your brand. 

From the Value Experts

According to the experts, organisations are also increasingly using the concept of value to define their strategies. Alex Kleiner, General Manager, EMEA at Coupa, explained more at Big Ideas Summit 2016:

Different companies will view value in different ways. This concept of Value-as-a-Service takes in everything from usability, to lives saved, and everything in between. It’s down to each individual organisation to decide how to measure this.

From a procurement point of view, it’s also good to remember that we shouldn’t be constrained by one particular definition. All that glitters isn’t necessarily gold. The profession just needs to define the stakeholder needs, and go from there.

While value might be difficult to define as one concept, we like to think procurement is worth its weight in gold. But can the profession survive in its current form? Or will the golden goose meet its end? Find out tomorrow.

Speaking the Language of The Three French Hens

Feel like you speak a different language to the business? Then imagine how the French hens felt with the other birds in the song.

three french hens

The traditional 12 days of Christmas might not start until the 26th of December. But this festive season, we’ll be bringing you the 12 days of procurement Christmas in the run up to the big day. Catch up with Day 1 and Day 2 on the Blog.

“On the third day of Christmas, my true love gave to me…three french hens.”

So the gift giving continues, and so does the avian theme. And yes, we are well aware that although the French Hens might have been French, the language barrier probably wasn’t an issue. Forgive us for stretching a metaphor, but we do aim to make a valid point!

One of the common themes we have come across in 2016 has been the concept of language. Specifically the concept that procurement needs to start speaking the language of the business to get ahead.

Communicating the value of procurement can be tricky. However, it’s up to all of us as professionals to make sure our voice is heard.

Bonjour, French Hens

While we were at ProcureCon Europe in Berlin in November, a number of keynotes discussed this perspective. Both Finance and Engineering were represented, and both speakers highlighted the different language the business speaks.

One speaker, Gordon Tytler, Director of Purchasing at Rolls-Royce, did state that procurement was valued in his organisation. The issue was that it wasn’t fully understood, neither in value, nor in activity.

Tytler also warned against insularity in procurement, arguing that this means the function can’t be sure it’s delivering what the business actually wants. As procurement adapts and changes to organisational requirements, it’s vital that our role is understood.

How do we go about communicating this value? Well, first we have to define the value we are delivering. Value is underpinned by four key aspects – service; innovation; risk; cost. Find out how here.

The Value of Procurement

Communicating the value of procurement to stakeholders is all very well. But the profession needs to ensure that strategy is following suit. This was one of the topics on the agenda at this year’s Big Ideas Summit.

Gabe Perez, Vice President, Strategy & Market Development at Coupa Software, discussed how disruption is forcing procurement to put value at the core of all its activities. According to Gabe, procurement needs to start with the value proposition, and work backwards.

It’s the same whether it’s a manufactured good, or a service (Gabe used the example of buying procurement technology). This sort of focus will allow procurement to move forwards with the value agenda.

The transition from cost to value was also on the mind of ISM CEO, Tom Derry. You can see what Tom had to say here.

Understanding how procurement is delivering value is a good first step for the profession. Communicating it is another matter, though, unlike the french hens at least, we don’t have a language barrier to cross. Maybe just a terminology one instead.

Our avian theme continues tomorrow on the fourth day of Christmas. But we’re looking at a bird with a difference – it’s blue, digital, and a great tool for procurement to use in its communications. Stay tuned to find out more.

Big Ideas Summit 2016: Big Idea #16 – Everyone Can Contribute

You might not be a “Game Changer”, but you, and everyone else, can contribute to the success of an organisation.

At the Big Ideas Summit 2016, we challenged our thought leaders to share their Big Ideas for the future of procurement.

From ideas that have the potential to change the very nature of the procurement profession, to ones that got the assembled minds thinking about the profession’s impact outside of the organisation, the response we received was amazing.

Everyone Can Contribute

Nathan Ott, CEO e.g.1 Ltd and Director at The GC Index Ltd, argues that while not everyone is a ‘Game Changer’, everyone is capable of making a game-changing contribution, from the top to the bottom of the organisation.

However, in order to do this, organisations need to create a culture where it is safe to fail, and these ‘Game Changers’ are not seen as disruptive, pigeon-holed, or made to conform. Only by doing this can organisations create real step change.

Catch up with all the delegates’ Big Ideas from the 2016 Summit at the Procurious Learning Hub.

Want to find out more about Big Ideas 2016? And maybe what we have planned for 2017? You can visit our dedicated website!

Contribute to Change

If you enjoyed Nathan’s Big Idea and you want to hear more from him, then you’re in luck! Nathan is one of the career coaches for the Procurious Career Boot Camp.

Coming on Monday, on Day 11 of Career Boot Camp, Nathan discusses how each and every procurement professional can make a disproportionate difference.

If you’ve missed the other podcasts, then all is not lost. Enlist here, and you can catch up on topics from becoming a CPO, to taking your conscience to work.

If you like this (and you haven’t done so already) join Procurious for free today. Get connected with over 17,000 like-minded procurement professionals from across the world.

Big Ideas Summit 2016: Big Idea #6 – Strategic Brand Value

Tom Derry believes procurement needs to move away from a traditional cost focus, and create a more strategic brand value for the profession.

At the Big Ideas Summit 2016, we challenged our thought leaders to share their Big Ideas for the future of procurement.

From ideas that have the potential to change the very nature of the procurement profession, to ones that got the assembled minds thinking about the profession’s impact outside of the organisation, the response we received was amazing.

Tom Derry, CEO of the Institute of Supply Management (ISM), believes that it’s time for procurement to have a more strategic brand value, and transition away from a traditional focus on cost, to support the greater dimensions of value for organisations.

As CEOs are becoming more concerned about risk profiles (brand risk; risk of disruption), the brand of procurement is being enhanced by offering value in risk management and mitigation, as well as adding value and managing cost.

Catch up with all the thought leadership and ours delegates’ Big Ideas from the 2016 Summit at the Procurious Learning Hub.

If you want to find out more about Big Ideas 2016, and what we have planned for 2017, you can visit our dedicated website!

If you like this (and you haven’t done so already) join Procurious for free today, and connect with over 15,500 like-minded procurement professionals from across the world.

Why Indirect Procurement Fails to Deliver Savings to the Bottom Line: Fear

Fear of numbers, and using the language of finance is holding back indirect procurement teams from delivering real value and bottom line savings.

Fear

This article was first published on LinkedIn.

One thing you hear at every procurement event is how hard it is to really achieve indirect savings and bring them to the bottom line. Then the discussion inevitably moves to how finance and business heads just don’t understand the real value impact of the procurement team.

If you could fix this, all would be solved. However, this completely misses changes that procurement itself needs to address first.

While leading a major transformation of a large global indirect team, I was completely surprised by two blockers of a talented and motivated team. While they loved tough, numbers-focused supplier negotiations, there were two hidden fears about numbers that jeopardised their capturing savings.

1. Fear of Using the Language of Finance

The team’s comfort zone for numbers was in spend analysis, supplier pricing, total cost of ownership and benefits from a given negotiation. However, many had bad experiences with finance and business heads who were not interested in cost avoidance and best-negotiated prices, making the procurement group feel unappreciated, misunderstood and not part of the team.

There was immense cost pressure, and through the CFO and other senior leaders, this translated into a drive for year-over-year savings that could be translated into budget reductions. As the leader, I thought this was reasonable and went back to the team explaining that the measure of our performance from now on would be hard savings.

But two issues became clear immediately:

  • The team’s lack of basic financial acumen and the ability to understand and speak about numbers in the same way as the finance colleagues.
  • Their resulting discomfort and fear of not looking knowledgeable.

The journey to addressing this gap started with working together with finance to define the company’s accepted savings definitions. This handbook became the bible for all of the savings and budget reductions. It was also:

  • A training tool for procurement, finance and the business clients.
  • A way to take out the emotion and bad feelings via clear rules and definitions.

Learning by doing was a key part of the change process for the team. With regular and granular numbers reviews, the team had day-to-day opportunities to become familiar with the calculations and fluent in financial language and concepts.

This led to greater confidence in speaking with colleagues and became the new common language of how procurement contributed to the bottom line.

2. Fear of Committing to Accurate Numbers

Although procurement people will tell you that they like being measured on the numbers, what they also often say is ‘it’s better to under commit and over-deliver’. Unfortunately, what this really means is, ‘I can’t predict my performance so I will low-ball my guesstimate’.

This fear of not meeting targets was going to be even more problematic with the sharper focus on year-over-year targets. But it had to be urgently addressed:

  • As savings were being directly linked to and partly taken out of budget up front, being very accurate was an imperative.
  • While it is less bad than under-delivering, over-delivering in November usually means the money has already been spent on something else.

Over optimistically, I thought it was just a matter of explaining why accuracy was so important, and using a sales pipeline approach to enable it all. But as we got into the details, a few things became clear:

  • There was a lack of understanding (back to the topic of financial language) of how to organise projects at a ‘material’ level.
  • The team wasn’t used to thinking about their projects in terms of a pipeline over a longer horizon.
Addressing the Gap

The key to addressing the gap was again to improve the collaboration with finance as well as commit to senior management to deliver against the planned pipeline of projects. In turn, team and individual targets were set accordingly and we got two benefits from this effort.

  • Creating the pipeline got procurement involved in the business discussions much earlier than previously
  • The team learned how to set up a clear and material set of projects which reinforced their new financial knowledge

At the end of the first year, and for the very first time, the team got recognition from all sides. They felt new confidence in speaking about numbers and the increase in visibility from ‘real’ savings based on the clear pipeline. They couldn’t conceive of going back to the days of estimated benefits, fuzzy savings calculations and unclear targets.

Implementing both the formal processes between procurement and finance as well as the needed change management for the procurement team need to be fit for purpose to how the company really works. It might be as simple as agreeing the basic savings definitions or as complex as introducing a full workflow supported process.

Conquering these fears is worth the financial results!

Pauline King is the founder of Rapid Results Procurement focused on working with a company’s existing team to deliver tangible financial results. She is a recognised expert in indirect procurement with deep operational experience in procurement transformation. Pauline also works closely with The Beyond Group AG where she heads up the Indirect Procurement Practice.

Leading with Value – The Uber-ization of Procurement

Disruption in industries, heading towards major disruption in procurement too. Gabe Perez talks about the uber-ization of procurement.

Uber-ization of Procurement

We’re off to a flying start after lunch here at the Big Ideas Summit 2016. Sometimes a graveyard slot at conferences, Gabe Perez, Vice President, Strategy & Market Development at Coupa Software, got the audience energised discussing the disruption heading our way in procurement.

Gabe challenged our audience to start with the outcome, changing the way we traditionally look at going to the market as procurement professionals. The Uber-ization of procurement starts here, with a focus on value, rather than features.

Just What us ‘Uber-ization’?

Put simply, ‘Uber-ization’ is about being able to access value in real-time. In our personal lives, everything we need, we can get in real time – products within the hour from Amazon, cars from Uber, even setting up a site to sell our product on Etsy.

According to Gabe, you don’t have to do the same legacy tasks now in order to sell things. From selling or buying products, to driving a car for Uber, you just need to have a pulse! There is a new type of workforce, making money in ways that have never been imagined before.

In the real world, there’s little enablement. It’s totally the opposite in the business world, where we’re really just at the beginning in terms of this real-time penetration.

Issues in Procurement Technology

The biggest issue in procurement technology is that it is was originally developed and evaluated in a legacy way. That means is was evaluated on the features and functions, built for the organisational ‘power users’ years ago, and not with the best practice and innovation that is available in today’s economy in mind.

Gabe told the delegates that an RFP isn’t the best way to start. A better approach might be an RFV – a Request for Value. Procurement needs to start with the value proposition, and then work backwards, starting with who the best partner to achieve this outcome will be.

The issue for organisations is they are trying to do the same things over and over, not making any changes, and not making any difference. Features and functions shouldn’t be the focus, but the tools that allow procurement to get to value.

Organisations need to frame evaluations of procurement technology on the value delivered based on the business outcomes your organisation is looking to achieve.

Power of Networks

Gabe went on to talk about business networks, and involving more suppliers. The more companies, or “suppliers” procurement are connecting with, the more opportunities they have to leverage knowledge and expertise for innovation.

A lot of this innovation is coming from the suppliers in the ‘tail’, ones who are traditionally consolidated or ignored.

These smaller organisations don’t always have the opportunity to work with larger companies, thanks to traditional processes, protocols and business portals. All of this adds up to a higher business cost for small companies, making doing this work unprofitable.

There are so many processes and boxes to tick in most companies processes and evaluation, that small companies are out of the work at the beginning either because they did not get an opportunity, or did not see the value because of the cost of doing business.

Failing Networks

Business networks have historically failed in the supply chain, as they have been designed by the software vendor, with the vendor’s priorities and strategies in mind. They are not designed to be open networks, and because of this, they don’t drive value on both sides of the equation.

The other problem is that they only cover a fraction of the total number of suppliers worldwide. There are close to 200 million suppliers in the world. Traditional procurement methods and business networks only enable access to approximately 1 to 2 million, which is a dismal result.

An open network turns this on its head completely. What suppliers need is the simplest way to connect with buyers, other suppliers and collaborate with them. This is the key to unlocking innovation and value creation in the supply chain.

In a perfect world, there would be no user interface at all, but we need to open up the networks before we can get to that stage. And then we will have found the path to the Uber-ization of procurement.