Category Archives: Best Practices

A CoE in a CoE? Are we going too far?

SI is all for Centres of Excellence, CoEs, but when he read the recent post over on Spend Matters on “Why Your Procurement Organization Needs a Market Intelligence Centre of Excellence”, one has to wonder if we are taking the CoE concept a bit too far.

Now, the post is not really advocating for a CoE in a CoE, as it is advocating a Market Intelligence Centre of Excellence (a MI CoE) in any organization with over 2 Billion of spend, which is a reasonable suggestion given the importance of market intelligence in Sourcing endeavours, but one has to ask, where is this CoE going to live? Presumably it will live in Procurement. But managing a CoE is no small endeavour. A CoE requires good management practices, and good management practices generally stem from a CoE. In particular, a Procurement CoE should manage the MI CoE. And the net result is we have a MI CoE within the Procurement CoE.

A Procurement CoE should have functional excellence in all of the functional areas relevant to Procurement. It should have excellence in market intelligence, spend analysis, should-cost modelling, sourcing best practices, optimization, contract negotiation and management, order and inventory management, payment management, and procurement project management. But these should not be individual centres of excellence, as many of these activities overlap and support each other and market intelligence supports all, and is supported by all, of them.

The Procurement organization Centre of Excellence should definitely build its Market Intelligence competence up to the level of functional excellence, as that will improve all of its Sourcing and Procurement activities and enable it to realize better results, but it shouldn’t take the CoE concept too far. A CoE in a CoE just gets a little redundant.

What Does it Take to Be CPO?

The short answer is, fulfill the CPO Job Description, even though the order is as tall as it is wide. Use their skills, education, and experience to execute the primary responsibilities efficiently and effectively.

However, this doesn’t help you understand how to

  • define the organizational Procurement strategy
  • create and manage short, mid, and long-term goals and objectives
  • create and leverage on-going value from the supply base
  • manage BPO activities
  • identify, realize, and maintain cost-saving and cost-reduction opportunities
  • etc.

So what do you do?

First of all, become A Procurement Leader.

Then, understand the primary responsibilities.

Support these responsibilities with the right procurement technology.

Use your leadership skills and technology platforms to both manage staff and develop staff.

Then, be sure to practice good budget management and align procurement with the other business functions.

And, finally, don’t forget to focus on continual learning and self-improvement. While the maverick and the doctor covered a lot in our series on the CPO job description and what it takes to succeed as a CPO, one thing we didn’t spend a lot of time on was the importance of continual learning. Nothing about Procurement and Supply Management is static. Everything changes, and everyday provides a new challenge that must be death with. New disruptions. New innovations. New opportunities. New threats. That’s why SI and the new spendmatters.com/cpo site exist. To help you identify new practices, process, technologies, and ideas that will help you deal with all of the change to come but yet get through it.

There’s Nothing Wrong With Using Upstream vs. Downstream

Only with trying to fix a continuous process to a discrete point in time.

Confused? Let’s back up. Last Friday the doctor‘s co-conspirator in the definition of Contract Lifecycle Management (CLM) went on a rant about the use of upstream and downstream without a paddle in contract management. In his Friday rant, the maverick claimed that if you put supplier management in the upstream bucket, you’ve violated the whole naming convention and that upstream can have a time dimension to it and represent earlier processes, but it can also have a supply chain connotation and represent multiple tiers farther upstream in the inbound supply chain – working back to raw commodities. So, it’s confusing in that regard in terms of time vs. space. However, the maverick‘s biggest gripe seems to be it puts the signature of the contract artifact as the singularity of the procurement universe – sort of like using B.C. and A.D. to define world history to non-Christians.

So what? We need a way to measure time and a milestone against with to measure progress.

As humans, we don’t know exactly when we first evolved (or, if you follow a religion based on a form of creationism, were created), so we can’t choose that date as a reference point for a precise timeline. We barely have decent records back to 0 AD, and if we go back more than a few hundred years beyond that, we don’t really have enough to establish a good date system. So the date chosen is just as good as any other date during that period.

Similarly, if you look at the full contract lifecycle, just when does the project start? When is the first analysis or opportunity identification performed that leads into the business case. Hard to say. We know the date a sourcing project is approved, but just like 0 AD, before that gets a bit fuzzy, but there could still have been significant events that led to approval which are really part of the Procurement process and which should not be overlooked just because a date can’t be fixed. Similarly. When does it end? The date the contract officially finishes? The date the post mortem is done? The date a new contract is signed? The date the switchover actually occurs to a new supplier? The date the supplier is officially retired from organizational service? Hard to say.
So choosing the date of signing as a reference point is a logical choice for dividing up the process and English commonly uses the same word to mean different things in different contexts so there’s no reason it shouldn’t be clear when someone is talking about upstream in the contract/category management process and upstream in the supply chain. (After all, we live with sourcing and sourcing in Procurement is much different than sourcing in HR.)

In other words, the definitions make sense and since they are now commonly accepted, let’s not bicker about how they are defined but about how some providers and analysts tend to misuse them by trying to fix-point activities that actually need to occur throughout the process, like category management, supplier management, compliance management, and risk management. Use upstream and downstream to indicate when particular activities in a process should occur, not to categorize processes that exist simultaneously with the contract lifecycle, and that build off of the primary artifact, the contract, in new and interesting ways (when done right).

Not everything fits in a one or two dimensional model, and we need to be prepared to accept the true complexity of the situation. That’s why many tenders these days are complex and why organizations that don’t have spend analysis can’t identify the inherent complexity and why organizations that don’t have strategic sourcing decision optimization can’t adequately deal with the complexity. Just like the world is not flat, neither is the sourcing model or the necessary execution process that follows. A spreadsheet won’t cut it and neither will point-in-time processes. However, we still need fixed points in time to measure against (forward and back), and at least the date a contract is signed is a point in time everyone across all departments in the organization can agree on.

Data Analytics is Big Money, But

Last Friday, Palantir raised $450 Million in a new round of funding, at a valuation of almost $20 Billion, making it the fourth most valued “startup” to date with almost 1 Billion in funding including Founders Fund, Tiger Global Management, and In-Q-Tel, the CIA’s investment arm.

But it’s not just big data that generates big money (for the software provider) and big value (for the organization that has [access to] it). It’s big analytic power. And, as SI has indicated repeatedly, the data set doesn’t necessarily need to be that big to identify considerable savings opportunities.

A million transactions might not be more insightful than 1,200 transactions. If the transactions are for 10 different products from 10 different suppliers over the course of the year, a single summary transaction for each month for each supplier-product pair that summarizes the lowest price paid, the average price paid, the highest price paid, and the total paid is just as informative from a spend analysis perspective. Given this data, the buyer can see, for each product, how much money it would have saved if it always bought at the lowest price, how the price is trending, and how much could be saved by using a contract to lock the product in at a price less than the current market price. The other 998,800 transactions are not needed.

In other words while you need large spend cubes to find value opportunities, which will often depend on redefining categories, redefining shipping lanes, redefining delivery schedules, and so on, you can often get away with cubes that are at most, hundreds of thousands of well defined (summary) transactions (for the right time period). Millions of transactions are typically not necessary, and that’s why you can do enterprise wide spend analysis on a laptop with the right spend analysis tool (like busiq.com) as you can generally define a transaction set of just a few million transactions that covers the last three years and fits in memory!

Tips to Advance Your Procurement Career

Earlier this month, over on Spend Matters, the prophet coined an article on “5 insider tips to make more money in Procurement” which is quite interesting, and in the doctor‘s view, mostly on the money. According to the prophet, if you want to earn more money, you should:

  • Choose Your School Wisely
  • Take Advantage of Scholarship Programs
  • Become a Hacker
  • Start Out in Consulting
  • Learn the Language

the doctor certainly agrees whole-heartedly with 1, 3, and 5. 2 and 4 are good suggestions, but they are not necessarily always the right move. In order to explain, we’ll first discuss the tips that are always relevant, with a few slight modifications.

Choose Your Education Wisely

Maybe Sales and Marketing, which are led by MBAs*, which can be earned by any dummy while squatting on the toilet, only care about the name of the school (because it’s not like they actually learned anything in school anyway), but smart Procurement professionals — who realize that you have to analyze spend; do in-depth Kraljic, SWOT, and Kaplan & Norton analyses; develop detailed category strategies; build sophisticated cost (and optimization) models; negotiate detailed, risk mitigating, contracts with exit strategies, and execute. This requires a lot of knowledge, skill, and experience. And while experience cannot be taught, a good mentor will not be able to guide you if you do not have the skill, and foundational knowledge, to understand his teachings. It does not matter how good your sourcing sensei is if you are not ready to learn the lessons she is prepared to teach. So choose the right program in school, and the right continuing education or professional association after school as learning is a life-long process in Procurement.

Expand Your TQ

A hacker is someone who can do a heck of a lot more than use Access or a data mining tool. A heck of a lot more. However, in order to excel in Procurement, a Procurement professional needs to know a lot more than how to use Microsoft Office. Learn how to access public market data sources, how to use use open source or share ware data analysis tools to analyze data sets, how to apply basic statistics to a population to identify a distribution and appropriate pricing or sales trend algorithm, and get any hands on experience you can with best-of-breed operations research or Procurement platforms.

Learn the Lingo

It’s critical to not only learn the language of Procurement, but also the language of Finance. In order to be taken seriously by the C-Suite, you have to speak the language they understand, and that is Finance. Being able to talk in their language, which includes measurements like ROI, ROIC, RONA (which does not refer to the home-improvement chain), etc. gets their attention. It’s not just the language, because most multi-nationals use English as the official language, it’s the lingo.

Now onto the tips that are normally good, but sometimes iffy.

Take Advantage of Scholarship Programs

You want to search for these, but not all scholarships are beneficial. If they just give you cash, that’s great. If they connect you to a good network, that’s great. But if they require you to do an internship with a laggard company or, even worse, agree to work with that laggard company for two years upon graduation, that might not be the best deal.

Start Out in Consulting

the prophet thinks this is a good idea because a big-5 background or strategy firm background gives you a pedigree [that] can help with compensation. This is true, but great results can also get you a great compensation package. Maybe you’ll have to change jobs to get it, but, in Procurement, money talks, and the more you save, the more it talks. So, when deciding on your first job, take the job that will present you with the greatest opportunity to make a mark for yourself, which is not necessarily the job with the biggest name firm. But if all opportunities are equal, then it makes sense to go with the pedigree.

the doctor has deep disdain for many MBA programs, and many executive MBA programs in particular, that promise a lot but, in actuality, deliver very little. In other words, the doctor believes that educational program investigations should not be limited to, the now defunct, Trump University. (He understands why though. Trump is now a prominent figure, so it’s no surprise why the investigations are focused on an institution that he is connected with.)