Lessons Learned from Best-in-Class, Part VIII

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.

35. The key to success is to change the score from cost to desired result (without losing cost control)
Procurement can no longer be an organization focussed on cost savings but must be focussed on results and value if it is to become a Next Level Supply Management organization. It’s only possible to take out so much cost. Eventually there is no fat left in the raw material buy, the manufacturing process, or the supplier’s margin and as costs rise with inflation, not only will savings stagnate, but costs will increase unless the organization has shifted to focussing on the end-to-end product and service lifecycle and the value that can be generated. If the goal is an affordably priced product with a great warranty and service, then maybe Procurement will have to find the savings in quality improvement (to minimize the defect rates and return costs) and service level improvements at the same cost point.

36. The Procurement roadmap must be milestone driven
The only way to keep Procurement truly focussed on results and value is to define milestones at a macro level, a category level, and a project level and keep the team working towards those goals. If the team is constantly focussed on meeting the milestone and the associated result, it will keep the team from slipping back into a cost focus, which is no longer a behavior that can be tolerated in a Procurement organization that wants to get to world class.

37. There is only ONE procurement team
Even if the organization is centre-led and there are individual teams scattered across the business units and geographies, and even if projects are managed at a category level, it must still be one unified Procurement team focussed on the overall goals of the business and the needs of its internal customers. For example, if logistics costs can be greatly reduced by syncing two different category buys, then the teams will work togehter to sync the buys and reduce the overall TCO and increase the value delivered. The team must speak with one voice in its requests for new systems and processes. And the team must speak with one voice when dealing with suppliers, or they will either not take Procurement seriously or try to sneak in a back door during negotiations.

38. Transition Management is Key
It is absolutely crucial that change management not be overlooked when a new supplier is being brought on board or an old supplier is being removed from the day to day Procurement equation. If change is not managed carefully, and planning not done sufficiently in advance, there can be significant disruptions as the new supplier is ramping up, especially if the old supplier decides to retaliate and delays orders or skips the quality check.

39. Use customer terminology
One of the quickest ways to gain respect when trying to get the support of the business units is to talk in their language. Engineering, Marketing, Legal, and Finance will be significantly more impressed if Procurements learn the language of design, of advertising, of contracts, and of finance, demonstrates that Procurement has done its homework, and makes an extra effort to show the business units that their success comes first.

This concludes our eight part series on lessons learned from best-in-class companies that were shared by some of the participants at this year’s Hackett Best Practices conference.