Category Archives: Best Practices

How Do We Solve the Top Procurement Challenge?

A few weeks ago, we mused on what is the Top Procurement Challenge when the average Procurement organization has so many challenges to deal with and indicated, for many organizations, the top, immediate, procurement challenge might be to align Finance and Procurement on the ROI of platforms and processes Procurement wants to implement for the good of the organization because, in many organizations, not only do we have the situation where Procurement don’t get no regard, but we also have the situation where they don’t get no money for essentials either, trying to survive on life-support when over half of organizational spending goes through them and organizational livelihood depends on them.

But how do we accomplish this alignment? How do we align Finance and Procurement on the value of good Procurement processes and platforms when everyday Finance sees proposals from various departments proclaiming mega (but unrealizable) savings and has an instinctive negative reaction to any savings claim put in front of them. Especially when Procurement and Finance don’t speak the same language. As far as Finance is concerned, a model only depicts savings if it is described in terms of ROIC (Return on Invested Capital) or ROE (Return on Equity) against the organizational balance sheet. It has to include not only financial outlays and expected cost reductions but overhead, indirect costs, assumptions, and potential variations due to unexpected interruptions.

The model has to be conservative, all risks have to be clearly identified, and the best and worst case savings ranges have to be precisely defined, with conservative estimates all the way. The savings process has to be outlined, the timeframes (especially if implementations and integrations have to be accomplished) and ranges have to be specified, and contingency plans have to be defined for delays. Only then will Finance even listen and start to take Procurement seriously.

But even then Finance may not understand how Spend Analysis or Decision Optimization can save 10% or more. Especially when previous investments in “analytic” technology resulted in glorified reports that resulted in no savings and previous investments in “auctions” supposed to “optimize” spending with the market, which had limited success in the beginning, ended up increasing organizational costs when demand started to exceed supply and inflation returned.

And convincing Finance might not always be the best idea because explaining that Procurement is not doing an optimal job might result in negativity, or even hostility, from Finance that might believe Procurement is doing a very lousy job if 10% savings are feasible. Finance might not be capable of realizing that sometimes global sourcing scenarios are so complex that it is literally impossible to get a grip on everything in a spreadsheet and there is no way any human can find an optimal solution to a complex sourcing problem without a sophisticated decision optimization tool that might have to analyze millions of possible award scenarios to find the best one. Nor can any human attempt to make sense of millions of transactions with a real spend spend analysis system that allows the user to cube, slice, and dice the data in a myriad of ways looking for patterns that simple reporting systems will forever miss. Procurement could be doing an exceptional job under the circumstances but still be leaving 10% on the table — 10% that can never be claimed without proper technology.

It’s a puzzler to say the least.

Your SRM is in a State of Flux. Shouldn’t You Find Out Where?

Last week we reminded you about State of Flux, a provider of Supplier Relationship Management (SRM) software and services, and the initiators of the SRM Research Report that we highlighted in our 3-part series on why you should focus on essentials, plan against the pillars, and be a customer of choice.

Your supply chain success is ultimately dependent on your supply base and their failure is your failure. Your customer doesn’t care why the order is late. He just cares that the order is late. Your customer doesn’t care why the product is crap. He’s just upset that he forked over good money for bad product and only cares what you are going to do about it. Thanks to omni-present supply chain disruptions that are increasing at a rapid rate (to the point that less than 15% of companies will not experience a major supply disruption over the next 12 months), something is going to go wrong. And the question is, do you have a good relationship where your supplier will proactively notify you of a potential disruption so that you can collaboratively work together to prevent it, or a not-so-good relationship where you won’t know the shipment isn’t coming until it’s two days late and someone calls the supplier who admits that, because of a missing raw material shipment, production line breakdown, or simply poor scheduling (which lets you know how important you are to them as a customer) it just isn’t coming.

Unlike RFX or e-Procurement, for which there are a plethora of good platforms that walk you through good workflows by the hand and make it hard for you to do it wrong (although they don’t prevent you from designing the process or event wrong), there are not as many platforms for SRM, and SRM cannot be fully automated. SRM is more than just performance monitoring and corrective action management, it’s also nurturing, development, and partnership. It’s a good process, with appropriate best-practices embedded within, that focusses on the soft factors as well as the hard factors.

But what the the best-practices that are appropriate for your organization? What’s the right process? How do you get started? And, more importantly, how badly are these needed? Unless you want to wait until a major disruption or disaster occurs, that could have been prevented with a better supplier relationship, the only way to find out is to measure up against your peers. Probably the best way to do this is to proactively participate in the 2015 State of Flux SRM Research Report and get the full results ahead of the market. Time is running out to complete the SRM Survey, which, in it’s seventh year, is focussed on helping you get executive sponsorship and support for your SRM initiative.

Follow the bright blue hyperlink today and take the 2015 SRM Survey today. Given the depth (and breadth) of work consistently produced by State of Flux (compared to the average over-priced and under-researched analyst report), the 45 minutes of time that is required makes the effort infinitely more valuable than the cost.

State of Flux Fooled You

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

  1. Procurement is still the Rodney Dangerfield of the organization (and still don’t get no respect) and
  2. 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

  1. building an effective organization
    because you can’t sell an ineffective one
  2. deploying process enablers
    people and platform powered
  3. managing the supply base
    because while you can fail on your own, you cannot succeed without
    the support of the supply base
  4. 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

  1. Procurement is, in many organizations, still the Rodney Dangerfield (and still don’t get no respect)
  2. 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.