Category Archives: Best Practices

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!

Procurement Needs to Expand its Horizons

On Friday, Pierre Mitchell published a great piece over on Spend Matters on how “Procurement Needs to Stop Benchmarking Itself Against Procurement”. According to the post, most procurement organizations know to benchmark themselves against others outside of their own industry, but they often don’t look to completely different functions, processes, technologies, techniques and even cultures to help them find and deliver new sources of value, of which there are many.

Some of the best ideas presented in the post are to:

  • use knowledge management to gather/store intelligence, catalog transformation projects for storyboarding, and model skill supply for resource planning like management consultants
  • get a grip on supply chain network design
  • master competitive intelligence and content/intelligence tools
  • predict model building using all data available to you
  • transition from quality control to supplier enablement and
  • manage the Procurement brand .

Taking these one by one, Procurement can definitely improve by:

  • documenting what it learns from every project and using that to define improved processes and transition management,
  • looking at the entire supply chain before defining the category and the bid,
  • making use of all of the market data available to it to determine how well it is doing and how well it could be doing,
  • building predictive trend models to understand likely order volumes for seasonal / limited life span products,
  • find new potential sources of innovation, and
  • improve the Procurement brand and the reach of Procurement.

We’ll discuss a few of these in upcoming posts, but for now check out Pierre’s post and remember, as we’ll also discuss in an upcoming paper series later this fall, improvement comes from reaching beyond Procurement’s current limited boundary.

Why Bidding Flexibility Is Important to e-Auction Success

Regardless of what you want to call it — expressive bidding, lotting, market baskets, informed sourcing, etc. — the ability to let a supplier bid the way they can give you the best price is very important to e-Auction success. If all you can support is simple auctions on an item by item basis, and quotes on an item by item basis, you are not going to get the best deal.

This is rather easily illustrated. For example, let’s say your business is clone computer assembly for mid-sized businesses who don’t want the Dell or HP premium. Let’s also say that you buy six different components for these computer assemblies: cases, power supplies, motherboards (with on-board everything to keep it simple), memory, hard drives, and cable packs.

If you are forcing a supplier into separate bids by item, and the level of detail they can quote is price per unit, shipping per unit, and extended warranty per unit, you’re probably going to end up with quotes looking like this:

Supplier 1 Supplier 2 Supplier 3
Component Unit Freight EW Unit Freight EW Unit Freight EW
Case 20 5 1 22 4 1 18 6 0
Power Supply 40 3 6 36 4 3 38 4 2
Motherboard 199 5 24 195 5 19 189 5 30
Paired Memory Pack 49 2 4 47 3 6 51 3 4
Hard Drive 78 4 12 74 3 8 81 4 7
Cable Pack 22 4 0 24 3 1 19 5 0
Total 49 2 4 305 12 30 37 11 0
Grand Total 450

Not bad for a clone server, but if you bid out the basket and allow the supplier to bid on just the components they want and do so as a bundle, you might find that you get this result:

Case Power
Supply		 Mother-board Memory Hard
Drive		 Cables Freight Warranty
S-1 B-1   19   38   20   8   5
S-1 B-2   45   71   5   8
S-2 B-1   20   33   6   2
S-2 B-2   195   14   5   10
S-3 B-1   45   72   5   9
S-3 B-2   185   14   7   30
Grand Total 414

An 8% savings by allowing a supplier to bundle bids according to their operational efficiencies!

Get it now?