Last month, the ISM awarded a number of individuals and organizations the R. Gene Richter Award for Leadership and Innovation in Supply Management. The recipients were primarily organizations that had demonstrated massive improvements in their sourcing and procurement functions which came about through concentrated improvement efforts. These improvements were the direct result of the adoption and consistent implementation of best practices across the sourcing and procurement functions in the organization. This week we are going to discuss the best practices that helped one or more of the recipients transform their organizations and win these coveted awards.
Today we are going to talk about skills development and review how it helped BP transform their sourcing organization, as described in the article Accelerating Procurement Capabilities in the latest issue of Inside Supply Management.
In July 2004, BP introduced the Capability Accelerator Program, a modular skills development program focused on improving the skills of its sourcing professionals over a rigorous six month period. Consisting of eight modules, the program was tailored to each participant based on independent assessments of each individual against a role model job profile. The program included hands on expert coaching and peer learning groups. Surveys indicated that nearly 50 percent of the participants indicated a perceived significant improvement while the remaining responses indicated some improvement for an average of 3.3 on a 4 point scale.
The program was developed because BP realized “There is a direct link between the skills of our procurement professionals and our ability to capture value.” The reality is that the effectiveness of your sourcing organization is ultimately not dependent on the technology you use or processes you put in place but the people who staff it. Yes, tools will make them more efficient and process that institute best practices will increase the value of each activity they perform, but the real value stems from their ability to find innovative savings opportunities, streamline processes, and lead innovation. The more skilled they are, the better they do (especially if they have good tools to support them).
As with Information Technology, Sourcing and Procurement is an area where star performers really shine. I’ve read studies that demonstrated, based on bug free lines of code, that your best developer is up to 22 times as efficient as your average developer (with an average efficiency of 10 to 15 times). This sounds astounding – one star performer can do the job of up to 20 average performers, so you can hire 10-20 warm bodies at market rates or one star at 2X to 3X the market average rate and save a bundle, huge ROI – how else can one person save you that much money? Well, if you’re a large organization with over 1B in spend, with a sourcing manager who manages 100M in spend, and she finds an innovative way to squeeze 2% out of your production costs above and beyond what is obtained by using auctions to drive down prices and decision optimization to optimize award allocations, that’s 2M in savings that directly resulted from the action of one individual, sans technology or process. Every event she conducts is going to save you money, whereas your star IT performer just reduces fixed headcount costs!
Thus, investing in skills is one of the best innovative practices that you can employ. (Innovative because most companies do not invest near enough in employee skills development, regardless of the function). There are multiple ways you can go about this. In addition to designing and implementing a program in house, you can quick start a good skills development program by partnering with universities that offer customized programs (such as the W.P. Carey School of Business at Arizona State University or the Supply Chain Resource Consortium at NC State University), organizations that offer training and certifications (such as the CSCMP or the ISM), or even specialist consultant and training organizations (like Next Level Purchasing). Each of these options can bring you tremendous value, so just go for it!