Category Archives: Best Practices

Procurement Trend # 11. Transparent Pricing

Only eight anti-trends remain. Doesn’t sound like much, but when you consider that we have been blasting away at these for two months now, it’s still a lot, especially since it’s going to take us another two and a half weeks to reach the last anti-trend that the futurists gave us. At least most of the “future” trends are recent enough that the older generation can actually remember their inception. (No, not the Leonardo DiCaprio movie!) But I have to agree with LOLCat that it would be nice if there was a way to stop the beat of the futurists‘ drum because, even with these trends that started in some of our life-times, the drum has been beaten to death and I fear, like LOLCat, that the futurists’ may soon return to the age old art of cat-skinning to make a new one!

So why do these hopped-up historians (who’ve obviously had one dozen lagers too many) keep pushing transparent pricing as a future trend? Besides alcohol-induced brain-cell asphyxiation, possibly because they’re still trying to figure out this new-fangled thing called a computer and still struggling to understand just what the world wide web can do for them. Regardless, it’s clear that they’ve just figured out that:

  1. the internet makes global commodity market data instantly accessible

    even in far-away places like China and Russia and Australia

  2. online marketplaces makes average market price data instantly accessible

    including prices that are actually paid by the public or contract prices that will actually be honoured because the contracts are with the public sector

  3. should cost models allow for reasonably accurate price estimation
    which can be calculated in real time using the data from #1 and #2

    so there is no excuse for not knowing when you are being over-quoted 20% by a supplier’s sales rep who thinks you are too dumb to know otherwise

So, what does this mean to you?

Commodity Markets

You should always know the current market price of any base commodity that you are buying and/or that the products you are buying are dependent on (if that commodity generally accounts for 10% or more of the product cost). You should subscribe to commodity market feeds, track them, and set up alerts anytime there is a significant change in prices one way or another over a short time period as this is often a signal to lock in a new contract (before prices climb to high), extend a current contract (if it looks like prices are going to skyrocket and then stay high for a while), or spot buy (if prices are declining and are expected to steadily drop over a period of time) until the time to lock in a new contract is right.

Consumer Marketplaces

You should always know the average price of any consumer good that you are buying in the open market or in the public market as public contracts are public! Don’t just rely on 3-bids and a buy for standard consumer goods, office suppliers, or other off-the-shelf purchases. Get baseline market data and negotiate from there based on leverage, economies of scale, and projected pricing trends.

Should Cost Models

Raw market data combined with local labour market data, local energy market data, and good should cost models will give you a good idea of what you should be paying for any custom manufactured good. Don’t go into a sourcing event without this baseline. If the suppliers have a history of colluding, and you don’t know it, that 5% you knock off of current pricing could still be 15% higher than what the supplier needs to charge to make a profit margin at the high-end of what suppliers in the vertical typically make.

It Might Be Wabbit Season …

But you don’t have to go all Elmer Fudd and shoot everything in sight …

Even though it would appear to be the case that this is precisely what some bloggers would have you do. A few weeks ago we published a two-part piece on It’s Conference Season And That Means it’s Travel Season on why — even though it’s very, very, very important to get your Travel and Expense spend under control — it’s not Procurement’s job to question the validity of the spend or whether or not it aligns with organizational goals put in place. That’s the C-Suite’s job because, when it comes to T&E, it’s not always about immediately measurable financial ROI.

However, last week saw yet another post over on CPO Rising on T&E, which purported to give you “the three goals that every travel and expense management program must achieve” which, like the previous post, illustrated two of the right things to be doing and one potentially wrong thing because, doing it could be akin to shooting yourself in the foot. Presumably that is not something you want to do?

The post was right in theory when it said that you should strive for alignment between the travel and expense management program and both procurement and finance, but only right in practice if alignment is appropriately defined. According to the author, alignment is achieved when three goals are achieved. The first two goals, which should be achieved, were:

  • Linked capabilities that can capture all booking options which is important because no spend, and no relevant detail, should be lost and
  • Seamless, repeatable processes that result in “straight-through” expense-processing and the ultimate elimination of manual intervention for any expense that does not require manual intervention

because once you see where the spend is going and what the spend should be, and put the right rules in place, there’s no point in wasting a whole lot of manual effort on it.

And the third goal, which should never, ever be pursued without proper definitions was:

  • Pure alignment between the travel and expense management program and both procurement and finance objectives

Why? Because pure alignment dictates that an exception to the rule is never allowed, and there will always be situations during travel where the rules need to be relaxed, and full adherence to the objectives defined in the author’s previous post means that no T&E without an immediate financial return is justified. We already did a two-part rant on why that is not the case (in parts I and II), but it seems we have to remind you of the importance of controlling spend and keeping departments on budget, and the importance of keeping your hands off of policy.

Track, measure, report, and process efficiently — but stay out of policy. The minute you over-step your bounds, the minute the other departments turn against you. And that’s not what you want.

Procurement Trend #20. Increased Strategic Focus

Seventeen anti-trends still remain. And while somedays it might seem like this series will never end, we assure you it will and now that LOLCat has figured out that the best thing to do is just take a nap, dream of his grandfather’s adventures as an archaeologist cat uncovering lost tombs, and wait for the series that is regurgitating topics of his past lives, we can march on knowing that as long as other LOLCats do the same, the series will do no our poor LOLCats more harm. And in fact, when we lay bare each and every one of the futurists’ lies, you’ll be in a better position to learn the truth and seize upon the real trends that lie ahead and the opportunities they contain.

So why do the historians keep pegging increased strategic focus as a future trend? Besides asphyxiation as a result from breathing in too much of their own hot air, probably because:

  • Supply Management is still tactically focussed in many companies

    on purchase order creation, invoice processing, and other forms of paper document and contract management.

  • Supply Managers are too focussed on survival, not control

    Procurement in many companies is comparable to the Island of Misfit Toys where the toys are all wandering around aimlessly trying to figure out how to find what they need to get through another day, instead of taking control of the situation.

  • Reaction is the name of the game, but Planning is the key to winning

    but most Procurement departments spend their days reacting to requisitions, supplier mishaps, late deliveries, stock-outs, and other unplanned events.

So what does this mean?

Strategic Focus

Procurement has to acquire and implement automation management to reduce tactical focus from mundane processing to exception management to give it time to focus on more strategic sourcing tasks, category planning, process review and improvement, and other tasks that will allow it to not only find any savings it has not yet tapped but identify new sources of value to the organization.

Transition to Farming and Harvesting

When you’re just trying to survive, all of your efforts generally go into hunting and gathering to meet the day’s needs. But in order to get ahead, you have to start farming and harvesting. You have to work together and divide up the work in such a way that someone has time to focus on more long term tasks while others handle the emergency situations of the day. While Procurement cannot avoid doing what it takes to put out the fires to avoid burning to the ground, it has to regularly step back, step up, take a wider view, and come up with ways to advance its methodology and operations and implement those so it can progress towards a path of proactive strategy and not reactive data processing.

Forward Planning

Procurement has to not only look for ways to get better today, but for ways that will allow it to continue progressing in efficiency and capability and potential beyond next quarter and next year. True forward planning looks five years into the future, not five months. While it won’t be able to see that far right away, when it has truly matured as a strategic organization, it will be working on projects for the current the year, next year, and on preparing for projects that will happen three to five years in the future that take a lot of planing and preparation to get right, such as factory and warehouse relocation as a result of a supply chain redesign project.

Procurement Trend #22. Process Convergence into Supply Management

Nineteen anti-trends from the hinterlands still remain. As much as we’d like this series to be nearing its end so that LOLCat can come out of hiding, this delirium has to stop. We have to shine the light on all these half-truths and lies and put an end to them once and for all. We will continue until each one is laid bare in the hopes that the outback futurists crawl back into the sand caves from once they sprang and leave us alone to push forward.

So why do so many historians keep pegging process convergence into supply management as a future trend? Besides their inability to remove the blinders, there are a few reasons, but among the top three are:

  • Supply Management used to be office supplies and pushing manufacturing POs
    and the most sophisticated process was getting quotes from three office supplies vendor and selecting the lowest but
  • Now its product, services, marketing and legal
    each with their own needs, own processes, own languages, and own regulations and
  • Processes and talent haven’t kept up
    as change management and training wasn’t a priority as not much was needed when all you were doing was buying office supplies or cutting POs for a contact signed by another department

But, as we all know, it’s not that way anymore! So what does this mean for you?

Supply Management is the New Heart of the Organization
and needs to be structured and positioned as such.

All of the functions of the company are, to different degrees, becoming dependent on Supply Management. Supply Management must now be a leader in collaboration, supplier relationship management, and transition management, among other modern processes and technologies, that will be discussed in an upcoming series.

Back-Office and Front-Office are Converging

Its not just AP (Accounts Payable) merging with AR (Accounts Receivables) or Sales merging with Marketing, its the CRM (Customer Relationship Management) and SRM (Supplier Relationship Management) processes merging and Sales, Finance, and Supply Management getting an end-to-end view.

Transition Management to a new operational paradigm is required

And processes like ADKAR, as we discussed in our recent post #25 on More Stakeholder Collaboration, are going to be required. More on this in an upcoming series as well.

Procurement Trend #27: Inter-Departmental Collaboration

Twenty-four trends remain
Together they bring disdain
We’re trapped in the mundane
They are Lucifer’s bane
… and we cannot rest until they are slain!

We cannot give up. We cannot give in. We must shed light on the darkness that each and every false prophecy brings. Only then can we move forward.

The journey is long and hard, but at the end of this thirty part series, you should not only understand why so many historians are still talking about the false trends we debunked in our Future of Procurement series, what you need to do to prevent staying in the past with your organizational “peers”, but what you need to do to not only stay in the present but start marching towards the future, which is coming faster than you think.

So why do so many historians keep pegging this as a future trend? There are a number of reasons, but among the top three today are:

  • Stakeholders are multiplying
    as Supply Management spreads
  • Stakeholder review and participation is increasing in importance
    as more knowledge work is being outsourced
  • Fiefdoms still exist in large(r) corporations
    as many organizations still measure your worth by the number of people under you or the budget you control and not the value you bring to the organization.

Multiplication of Stakeholders

Team management skills are now at a premium. A Supply Management leader not only has to manage a cross-functional team to be successful, but a team where each department being represented is typically at odds with each other and itching for a full-contact rugby match. (It wouldn’t be unrealistic to suggest that your organization might want to start by bringing in a career kindergarten teacher.)

Project Management skills are also becoming more important by the day, as the Supply Management team will need to maintain appropriate focus in each of the cross-functional team members to insure that things get done when they need to get done to keep each sourcing event and procurement project on schedule.

The Knowledge Economy

While often overlooked, knowledge management and collaboration portals will soon become a key part of your organization’s technology infrastructure. Your organization needs to capture all input and organizational knowledge (before it walks out the door), track all relevant issues, and make sure all of the relevant information not only gets in the hands of who needs it, but when external parties are involved, capture their knowledge, decisions, and processes (and not just output) as well in case it needs to be reconstructed or redeployed later on.

Fiefdoms

Off with their heads! Well, figuratively at least. If your organization has one or more fiefdoms, then your organization has someone unwilling to relinquish control, even if that is what is required for the greater good. In this case, your organization has to fight the urge to try and fix the problem with more training or yet another reorganization (which is typically very, very disruptive) and simply do what the kings of old did when they had problems with the dukes — and take off their heads!

If, and only if, the leader can be reformed, give her another management position within the company (and possibly initiate some inter-departmental collaboration at the same time as she will more than likely be more than willing to work with her old department). But if he’s stuck in his ways and can’t be reformed, bite the bullet, give him a fair severance package, and push him out into the outside world. Just like a ship that’s dropped anchor can’t sail, a company with a lead filled sandbag can’t rise above the clouds, no matter how much hot air that individual puts out on a daily basis!