The following are some of the lessons learned shared by some of the participants at this year’s Hackett Best Practices conference in no particular order.
01. A highly leveraged IT model brings a lot of capability and scalability
Well designed and implemented software can scale with the business with the addition of more relatively cheap servers and storage devices. In fact, with todays high-density, low-power, blade servers, even the largest fortune 500 can often run off of a single rack (as a single server can pack 64 cores and 256 GB of memory which is a lot of processing power if the organization is not running bloatware like Microsoft Exchange). This brings a lot of processing power to the business with minimal increases in cost. Plus, the entire business can take advantage of the sourcing and procurement platforms that are available.
02. All shared service needs are not the same
This is why many purchasing groups or business process outsourcers for procurement fail. Different companies are at different levels of procurement maturity and different businesses have different needs even in the same category. It’s often difficult to go beyond office supplies and telecom contracts and get any agreement among participants.
But it is often worse than this. In a large multinational, different business units will often have substantially different needs in the same category due to local market needs, operational requirements, and existing (manufacturing) processes.
03. Always have a clear vision
In most companies where Procurement has a seat at the table, it is still sitting at the kiddie table or viewed as the young college graduate who still has a lot to learn and who needs to let the big boys run the business. Without a clear vision, there is no chance for Procurement to be taken seriously.
Furthermore, without a clear vision, it will be hard for Procurement to sell its services to the various units of the business and Engineering, Marketing, and Legal in particular where new product design, advertising, and legal services are “sacred cows” that Procurement “cannot possibly manage”.
04. Be able to measure success and failure
It takes more than a clear vision to get attention and respect. It also takes results that are objectively measured and clearly communicated. But more than that, it also takes a willingness to admit failure. Not every project will be a stunning success. For example, in a buyer’s market, it was often the case that a category expert consultant would run an auction 9 times for 9 different companies and save substantially each time but fail to see savings the 10th time because the client was a leader in managing the category or had inefficiently located manufacturing facilities and transportation costs were unusually high.
A similar situation will exist in an average organization. A crack sourcing team might hit a home run on the first nine categories they go after but fail to find savings on the tenth, even though an initial analysis indicated a high probability of savings, because of unique manufacturing needs, relative lack of supply, or unusually high transportation costs. And for the organization to truly get respect, it must be able to admit when the results weren’t as expected and do a public post-mortem to understand why and learn for next time.
Our next post will continue our overview of the lessons learned that were shared by some of the participants at this year’s Hackett Best Practices conference.