Don’t Wait for the Burning Platform (Start Your Procurement Transformation Now)

Today’s guest post is from Robert A. Rudzki, a former Fortune 500 senior executive of supply management who now advises other companies through Greybeard Advisors LLC, a strategic management consulting firm. Bob has authored several business books including the critically acclaimed Beat the Odds: Avoid Corporate Death and Build a Resilient Enterprise and Straight to the Bottom Line. Bob also writes the Transformation Leadership blog for the Supply Chain Management Review. Bob can be reached at rudzki <at> greybeardadvisors <dot> com.

A few years ago, US financial institutions were making so much money that their procurement departments were having great difficulty. They could not get any serious time commitment from their executive staff to discuss procurement and supply management opportunities.

I know that’s true, because I heard it directly from several chief procurement officers at insurance companies and banks, who approached me after I made a presentation on the West Coast. These CPOs were, to state it mildly, very frustrated in their jobs and with their senior management. They had a sense that there was real opportunity, but couldn’t get their senior management’s attention.

Today, the executives of many of those same companies probably wished that they had started paying attention to procurement and supply management back when they did not NEED to. In fact, the best advice for senior management, including senior supply management, is this: don’t wait until you are standing on a “burning platform”. Start the procurement transformation process now.

It may be easier, in some corporate cultures, to tee up a business case for change when things are going poorly; for example, when your company is on a “burning platform”. It’s a real sign of good leadership, and forward-thinking management, however, to decide to transform when you have no immediate urgency to do so.

One of the implicit challenges in building a case for procurement transformation in financial services is the atypical cost structure. Where are the direct materials (other than people) – that typically occupy center-stage in strategic sourcing? To a manufacturing eye, the banking industry cost structure appears strange – essentially all people and the so-called indirect spend. But, as some of you may know, indirect spend offers a larger percentage cost reduction opportunity – often well above 15% – when addressed with a robust strategic sourcing and negotiations management process (“SSNM” in Greybeard Advisors’ parlance).

Several of my colleagues at Greybeard Advisors have deep experience applying strategic sourcing in the financial services industry. The benchmarks from their experiences confirm the enormous potential to impact the bottom line at financial services companies.

Similarly, we have applied strategic sourcing in numerous “non-traditional” areas of spend at manufacturing companies, including spend for financial and marketing services. There are sizeable percent cost reduction opportunities – again, if approached with a genuine SSNM process.

Opportunities abound – but they don’t just happen by putting numbers and analyses on a PowerPoint chart. It takes real leadership, and a carefully thought-out transformation roadmap.

Thanks, Bob!