Category Archives: Best Practices

Finding Your Procurement Mojo and Gettin’ Sigi With It!

As per my last post, my readers on the other side of the pond are probably well aware that Sigi Osagie’s Procurement Mojo has been available since late last year, but since Amazon UK had it well before Amazon USA and Amazon Canada, my readers on this side of the pond may not have noticed yet.

Procurement Mojo is an important book for many procurement professionals and organizations because it does not attempt to teach you what Procurement is, assuming you already know how to do your job, but instead attempts to teach you how to explain to the organization what Procurement does, which is a critical issue that needs to be addressed since

Procurement is still the Rodney Dangerfield of the organization (and still don’t get no respect) and
most Procurement Pros don’t know how to sell the organization on the unrealized potential that Procurement can bring.

The book addresses these issues by noting that the only way Procurement pros are going to be able to sell the organization on the true potential of Procurement and get the respect they deserve is to learn how to sell the Procurement brand. And this is what makes Procurement Mojo a great book. It gives you a how-to guide for building your Procurement Brand.

But before you build your Procurement Brand, as per our last work, you have to build the foundations — frameworks, process-based enablers, platform support, and good management. It takes time to get this all in place, but fortunately Sigi gives you a roadmap for this as well. In this post we’re going to discuss some of the key insights Sigi makes in the hope of encouraging you to check out his book and find your Procurement Mojo.

Sigi builds up to the plan to build your procurement brand by addressing

building an effective organization
because you can’t sell an ineffective one
deploying process enablers
people and platform powered
managing the supply base
because while you can fail on your own, you cannot succeed without
the support of the supply base
applying performance frameworks
you have to measure, manage, and perform

We’re not going to dive into deals on how to do each of these tasks, as you can read them in the book, but highlight some key points on why these steps are important.

Building an Effective Organization

In many organizations, the average employee might not even know that there is a separate Procurement department — assuming that each department might do it’s own buying. It’s scary, but it’s true. And many of the employees who are sort of aware of Procurement won’t really understand what they do, believing they only buy office supplies, direct materials, etc. That’s why the brand is needed, but the chances of anyone taking notice are low if the organization is not effective.

And an effective organization is not necessarily one that does a lot of work, it’s one that appears to be effective. And this is often accomplished not by employing hard process and technology skills that allow the organization to do more, faster, but by employing soft processes that encourage communication, collaboration, and conflict resolution. That’s why effective organizations make sure that they have capability, rewards, and culture aligned with goals (not just processes and platforms).

Deploying Process Enablers

Once an organization does a competency assessment and gap analysis and identifies what it needs to get to the next level, the next thing it will have to do is deploy enablers, be they process or platform based, to get to the next level. But this doesn’t mean that they will employ “best in class” enablers. “Best in class” are not always best for your organization — it all depends on the maturity of the function and the need. Sometimes a good enough enabler, which is easy to use and understand and provides an immediate 80% to 90% return is much better than a best-in-class enabler which is difficult for a novice to understand, requires three times as much effort, and is avoided at all costs by the average employee.

Managing the Supply Base

Procurement is about maximizing the value chain — and suppliers are a vital part of that chain. You cannot succeed if they do not succeed. It doesn’t matter how great packaging and marketing in if the product or service is crap. It just doesn’t. That’s why relationship management and development is critically important and must be well in hand before you can focus on selling the brand (as they can tank your brand faster than an oil spill will tank an oil and gas company’s brand when the media has their frenzy).

Applying Performance Frameworks

That which is measured is managed, but more importantly, that which is not managed is a misadventure waiting to happen. As a result, appropriately defined frameworks must be in place to make sure the organization remains effective, deploys the right enablers, and nurtures the supply base.

And now that we’ve discussed the foundations we could discuss how you build your Procurement Brand and Sigi’s Procurement Mojo game plane. But since customers of Trade Extensions will have a chance to hear Sigi talk about Procurement Mojo live on October 7, 2015 at their customer event at Emirates Stadium in London, the doctor is not going to spill all of the beans on what Sigi says and what he thinks about it until then. But just like your favourite series comes back after summer hiatus, this series will return!

Gettin’ Sigi With It!

My readers on the other side of the pond are probably well aware that Sigi Osagie’s Procurement Mojo has been available since late last year, but since Amazon UK had it in book form well before COM and CA, my readers on this side of the pond may not have noticed yet.

Procurement Mojo is a bit of an uncharacteristic Procurement book in that it does not attempt to teach you what Procurement is, assuming you already know how to do your job. What it attempts to teach you is explain what Procurement does, which is a critical issue that needs to be addressed since

Procurement is, in many organizations, still the Rodney Dangerfield (and still don’t get no respect)
And most Procurement Pros don’t know how to sell the organization on the unrealized potential that Procurement can bring

Sure this topic has been addressed in such books as Charles Dominick and Soheila Lunney’s Procurement Game Plan, but never has an entire tome been dedicated to this topic and it’s a tome that’s badly needed. (Procurement people really should get sales training because it’s often easier to sell a freezer to an Eskimo than to sell the value of a Procurement Investment to anyone in the organization.)

The reality is that in order to even get noticed, you have to first build a Procurement Brand — and building a brand, especially for something that most people would rather stay invisible, is not easy. You can’t just decide to build a brand and start tomorrow. You need frameworks, process-based enablers, platform support, and good management — and it takes time to get all of this in place. Only then can you build what Sigi calls Procurement Mojo and get your message, and value, taken seriously.

SI will be doing a more detailed review later on, but for now, be it known that if you are looking for a way to build your Procurement brand, start by gettin’ Sigi with it!

Top Procurement Challenge

What is it?

We all know the CPO has a jam-packed agenda. One just has to review “What is Top of Mind for CPOs” for a list of 20 hot issues that are keeping the CPO up at night. But what is the top CPO challenge?

If you Google Top Procurement Challenge, the top hit today is Spend Matters’ post on “The Top 5 Challenges for the Chief Procurement Officer”, based on an overview of the chief findings of a 2014 survey of European CPOs conducted by Xchanging.

The survey found that the top five challenges affecting those CPOs were:

spend creep and cost containment
realized savings visibility
compliance to contracts
technology leverage
a lack of deep sourcing or industry expertise in the team

Even though each of these is easily solved by way of an:

e-Procurement platform that enforces budgets
analytics and reporting platform that regularly produces savings visibility reports
contract management platform and procurement platform that enforces rules
e-Sourcing technology to support strategic sourcing
training, training, and more training

So what’s the problem?

It most likely relates to alignment with Finance (as recently investigated by the maverick, summarized in this recent post on When it Comes to Procurement, Don’t Forget Finance!), and, more specifically their alignment on ROI. As far as Finance is concerned, Procurement systems are IT systems and IT systems cost too much, return too little, and never do what they are supposed to. They don’t understand that it’s not the early noughts where systems cost (close to) seven figures. It’s the teens where the systems barely cost six figures. The systems are not first generation systems with limited functionality. The systems are second, bordering on third, generation with extensive functionality. It’s not the early noughts where it takes months to implement an on-site system. It’s the middle-teens where it takes hours to create a new instance in a true multi-tenant SaaS solution.

Most modern Supply Management Systems — including e-Sourcing, e-Procurement, SRM, and CLM — deliver a return within six months, and some, like Spend Analysis and Decision Optimization, can deliver a return in six weeks. The ROI is there, and is often substantial, but Finance doesn’t always see, or believe it. As a result, Finance doesn’t always support Procurement with the funding they need to acquire the platforms, services, and knowledge they need to not only be effective and efficient at their jobs, but successful. Which is a shame considering how far Procurement success can take an organization.

Which would indicate that the top Procurement challenge might actually be to align Finance and Procurement on the ROI of platforms and processes Procurement wants to implement for the good of the organization.

Addressing Tail-End Spend Management

Today’s guest post, which is part two of a two-part series, is from Gonzague de Thieulloy, a Managing Director at Xchanging Procurement who manages tail-end spend management programs at Xchanging’s largest European customers.

In yesterday’s post, we defined tail-end spend, which is the 20% or so of spend with the organization’s non-strategic suppliers that, due to its complexity, is typically left unmanaged and which, unaddressed, presents the company with significant risks of the financial and brand variety. In today’s post, we discuss the solution for tail-end spend management which will address the complexity, reduce the risk, and present the organization with an additional savings opportunity.

The Tail-End Spend Solution

Because of the high degree of complexity and risk involved with tail-end spend, companies are increasingly looking at support from specialist external providers to manage their 20%. It’s more efficient to subcontract the management of this tail-end spend rather than to manage it internally and, due to economies of scale, it makes more financial sense.

Key Success Factors when Managing Tail-End Spend

There are several success factors to consider when managing your tail-end spend. Here are three primary ones to consider:

C-suite buy-in — Senior buy in and support is imperative to the successful implementation of a tail spend management program;
Visibility and collaboration — The team responsible for implementing the change management process needs to ensure the new strategy is communicated clearly to the rest of the business, as well as ensuring the team is visible and on-site at least 50% of the time to help with any queries. In order to increase the success and adoption of the new processes put in place, they need to advocate it;
Utilizing procurement expertise and technology solutions as an integrated and managed service — The level of procurement support given to customers throughout the change management process is critical to ensure procurement and processes are fully connected.

Reaping the Benefits

When rolled out properly, a tail-end spend management solution can generate 15-17% savings, which can make a huge addition to the 5-10% savings typically generated from managing traditional spend. But the benefits go much further than just cost savings. Tail-end spend solutions typically:

Improve supplier management – A large supply base can be paired down to a few approved suppliers, with improved terms and associated cost savings, as well as reduced risk of working with unknown companies;
Increase spend visibility – Expanding the range of spend under management helps to create transparency around where the money is spent and what it is spent on, and results in new spend rules that strengthen the overall business;
Enhance spend efficiencies – Although categories of tail-end spend are often low value/high frequency transactions, they also always include high value transactions; managing this spend creates opportunities for companies to effectively allocate and control budget spend from previously unmanaged areas;
Streamline procurement processes – The key value-add of a tail-end spend management solution is it streamlines the entire tactical buying process associated with low-value spend.

It took more than ten years for leading companies to get the majority of their strategic 80% spend fully under control. We’re just in the early days with tail-end spend management, but by understanding the unique challenges of this 20%, it will take far less than ten years to have 100% of external spend under management.

More information on Tail-End Spend Management can be found on Xchanging’s Tail-End Spend Management page.

Thanks, Gonzague!

The Importance of Tail-End Spend Management

Today’s guest post, which is part one of a two-part series, is from Gonzague de Thieulloy, a Managing Director at Xchanging Procurement who manages tail-end spend management programs at Xchanging’s largest European customers.

Tail-end spend management is finally becoming a procurement priority, and for good reason. Historically, procurement organizations have been focused on trying to manage their strategic spend, the 80% of spend that represents around 20% of their suppliers. While companies have been striving to manage those strategic suppliers, they’ve left the myriad of smaller suppliers — the ‘tail-end’ of the spend — unmanaged. But that is starting to change.

Until recently, you would have been hard pressed to find any company managing their full strategic spend properly. Ten years ago, most organizations were only confidently managing 40-60% of that spend, at best. Now, due to procurement’s increased visibility and greater strategic role, many companies are managing their entire strategic spend effectively — the full 80%. This has left more than a few companies wondering what they can do with the remaining 20%, not least because of the financial benefits. Everest Group suggests that inclusion of tail-end spend increases procurement outsourcing savings potential by 1.5 times. But this is just one reason to manage tail-end spend.

Complexities of Tail-End Spend

However companies are discovering that they can’t use the same procurement methodologies for tail-end spend as they have for their strategic spend. For one thing, tail-end spend is far more complex than strategic spend: there are many more suppliers, the spend is very fragmented, and there are a lot more individuals buying. Tail-end spend “buyers” are end-users: people in HR, marketing, finance, IT, and so on — ordering goods and services as needed. They are not professional buyers, in the traditional procurement sense, which means trying to manage this spend requires change management — an added layer of process. As long as the total cost is less than the agreed threshold for tail-end spend, then these “buyers” can place orders with whomever and however they want.

Tail-End Spend Risks

Not only is the 20% tail-end spend complex, it can also be very risky, which is another reason organizations are now starting to pay attention to it. With the 80% spend, companies typically have an experienced buyer managing key suppliers and auditing those suppliers on a number of different aspects. The company that is on the ball knows everything there is to know about their strategic suppliers: whom they work with, their values, their practices, their working conditions, who their suppliers are, etc. With unmanaged tail-end spend, nobody is looking after these suppliers. Companies have no idea who they are buying from, making them susceptible to a number of risks.

One such risk is the potential damage to a company’s reputation. With all of the corporate sustainability issues now in the spotlight, unmanaged spend means companies may be doing business with suppliers that violate their own CSR principles. Imagine the harm it would do to your brand if it were discovered that one of your suppliers was using child labor or heavily polluting the environment. The damage could be irreparable. Beyond brand damage, you would also be responsible for supporting companies carrying out these practices. The reputational impact alone could put your company into a tail-spin.

Another type of risk that is common of unmanaged tail-end spend is a best practice risk. When companies let people from across the business buy from whomever they want, there is a chance that they will just buy from a personal connection, or from a supplier with whom they have a historic relationship. This often results in individuals overpaying for what they are buying which is, of course, financially damaging to the company. But more seriously, they may be in breach of fair practice regulations, putting the company at risk of being sued.

Companies that fail to address this complexity and risk are leaving a lot more on the table than they think. In tomorrow’s post, we will discuss the tail-end spend solution.