Lessons Learned from Best-in-Class, Part VII

The following are some more of the lessons learned shared by some of the participants at this year’s Hackett Best Practices conference in no particular order.

30. Procurement must be run like a business
Just like a business is profitable, Procurement must be profitable and must be seen as a profit-generator, not a sunk cost. If Procurement is being run as a services organization and has to charge the other organizational units internally for its services, it must insure that the charges cover its costs. Furthermore, it must reduce it’s cost per dollar of value generated year over year just like it reduces the costs of product or service acquisition on the projects it participates in. If it is not profitable, it will not have the respect of the C-suite.

And if it doesn’t have to charge the other business units to cover its costs, it should find a way to directly contribute to revenue generation to such an extent that it not only shows savings, but profit for the organizational unit for the balance sheet. Even if it can’t roll up its expertise and sell outsourced Procurement functions to smaller businesses like IBM, maybe it can still package some market expertise in a market intelligence service or offer NPD consulting to Engineering or manage the SRM projects internally to deliver even greater value to the organization.

31. Show sensitivity and respect for existing external relationships
Just because the current provider for a certain component required in production of the flagship product is the most expensive on the market doesn’t mean that Engineering will think that Procurement has the right to replace a vendor they’ve been working with for 10 years, even if the proposed vendor can deliver a higher quality product at a lower cost. Depending on the nature of the relationship, Procurement will have to either accept that this supplier is going to get some categories no matter what and will have to focus either on introducing a new supplier as a back-up, secondary source, that can also be used by Engineering to secure non-critical parts of the business or on working with the supplier on a lean initiative to take costs out over time.

32. Simplify and standardize
This may be among the most challenging initiatives the Procurement department ever takes, but it is one of the most essential. First of all, the last thing the organization wants to do is automate a broken process. Secondly, it can’t just throw a broken or inefficient process over the wall to a BPO or outsourcer and expect efficiency and costs savings. Thirdly, the organization will never achieve economies of scale if it uses three different systems for completing organizational transactions (such as a P2P e-invoicing system, a p-card system, and an accounting-based AP system where paper invoices are manually entered and paid) or for conducting e-Negotiation projects.

33. Sometimes its easier if services precedes manufacturing when expanding into new markets
As stated above, Procurement needs to be an enablement function. One of the ways it can do that is to use its knowledge of emerging economies where it sources from to help Sales and Marketing or Engineering expand into those economies. When expanding into new markets, its often easier if services are introduced before new plants are built or new products are introduced. Services provide “a personal touch” and can help the local talent pool (which will be needed to staff a new plant) and early adopter consumers (who will be counted on to buy the new products being introduced) get comfortable with the company.

34. Strong leadership is a must
It take more than the right people, processes, and technology for a Procurment organization to become world class. It takes strong leadership that will rally the troops to advance to the next level of performance, that will speak up and get the organization a seat at the big-boys table, and that will go out and make the case for Procurement involvement in each organizational unit of the business — sacred cows be damned. Without strong leadership, the talent, who will need to be critcal parts of cross-functional teams, will never advance beyond the status quo; the CPO will never graduate from the kiddie table (and that’s if she even makes it that far); and the

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.