Category Archives: Guest Author

Assessing A Procurement Team’s Skills

Special thanks to Charles Dominick, SPSM3 of the Next Level Purchasing Association for this guest post.

You have a procurement team. It isn’t performing quite as well as you’d like.

You instinctively know that there has to be mismatches between the skill levels required for each position and the skill levels possessed by the occupants of those positions. You know action is required. But you can’t exactly put your finger on a way to solve the problems that are preventing you from maximizing procurement performance.

Where do you start?

Well, you can’t solve a problem unless you identify it. And you can’t effectively go to war without knowing what weapons you have. So, at this point, you need to assess the skills of each member of your procurement team.

Now, conducting a world-class procurement skills assessment is a pretty involved process. For the brevity required by a blog post, we will have to cover some parts of the process by simply stating what tasks need to be done and not necessarily how to do them. For example, before you assess procurement skills, you need to determine which competencies are required to achieve organizational goals. That’s an hour-long seminar in and of itself. Let’s assume that you already know what competencies are required for success and, therefore, what skills you need to assess. There are many options for assessing procurement skills, so we will spend more time on that process.

There are three ways of assessing procurement skills. The following is an excerpt from a Next Level Purchasing Association white paper entitled, “The Procurement Leader’s Guide To A More Successful Team: Seven Steps For Improving Skills & Getting Better Results.”

Skill Assessment Method A — Self-Assessment

One commonly used approach is to have each team member complete a self-assessment. For example, you may list your desired competencies and ask each staff member whether their skill levels in that competency are high, moderate or low. While this can get the job done quickly, it is not likely to be accurate.

First, the assessment is inherently subjective. Any skills assessment should be able to challenge a skill level claim with the questions “according to whom?” and “compared to what standard?” The answer to these questions for this method would be “according to the individual” and “compared to that individual’s opinion,” respectively. Not the strongest benchmarks.

Second, there is a risk that a self-assessment might be completed defensively. Individuals may feel that the reason for the assessment is to identify candidates to be downsized or to award promotions or raises. Therefore, individuals may rate their skills higher than they truly are in order to avoid punitive measures or to achieve rewards. Attitudes of individuals in these situations may be characterized by statements such as “If I don’t recognize my skills, how can expect others to recognize them?” and “If they knew my real skill levels, they wouldn’t be asking me to do this self-assessment, so why be modest?”

Skills Assessment Method B — Manager Assessment

Another approach is to either

(i) begin with a self-assessment and validate it with a manager’s review and update of that assessment or

(ii) to simply have the manager assess each staff member’s skill levels independently.

Of course, this approach is still subjective and “inside the box.” An internal assessment does not compare skills with best-in-class procurement professionals — it compares it with internal expectations, which often can drift to one of two extremes:

(i) the current team has inadequate skills or

(ii) the current team has been here a long time and the team members know their jobs inside and out.

When it comes to mastering all aspects of procurement, you should always lean towards the mantra of “We don’t know what we don’t know.”

Skills Assessment Method C — Third-Party Assessment

Yet another approach is to have the skills assessment performed by a third party. A third-party assessment can provide the most objective data. And you may be surprised that, depending on the provider, you can have a procurement skills assessment performed at little to no cost and little effort.

Regardless of the method chosen, you need to have an idea of at least two tiers of skill level in each competency: acceptable and unacceptable. A graduated measurement with data between these two tiers is better, but you must at least know the demarcation point between acceptable and unacceptable.

Using Assessment Results

Once you have assessed the procurement team’s skills, you need to do a gap analysis. Again, that’s one of those things that I could write on and on about. I’ll simplify it by saying you’ll document which team members lack adequate skills in which competencies.

Once you have your skill gap analysis, then can develop a roadmap for training in order to close those gaps. That topic deserves plenty of attention, so I will dedicate my next guest post to that topic.

Stay tuned!

Thanks, Charles.

To “Term” or Not to “Term” … That is the Question


Today’s guest post is from Torey Guingrich, a Project Manager at Source One Management Services, who focuses on helping global companies drive greater value from their expenditures.

I sometimes hear clients say, “We are leaning towards Vendor ABC because they don’t make us sign a contract“. In most cases, Vendor ABC does have a contract (or something acting as an agreement such as a letter of authorization, etc.); it is just based on a month-to-month term with no termination penalties/liability. Some companies have a knee-jerk reaction to avoid contracts, but while there appears to be less risk in a “no-term” contract, there are risks and rewards for both “term” and “no-term” agreements. Part of the strategic sourcing process is educating stakeholders on the different consequences of contract components such as term. When evaluating what type of contract or what term to leverage for your next agreement, consider these different aspects before negotiating a shorter (or longer) term contract.

Availability of Supply and Criticality to the Business:

Consider the supply management strategy of the category you are working with and where the product/service lands on the axes of availability of supply and criticality to the business. Based on the classification of purchasing strategy for the product or service to be sourced, you can determine if that strategy is best supported by a long-term partnership or a shorter-term, more flexible agreement structure. For example, if you are working within a category that is scarce in the market and critical to your operation, a long term contract is necessary to guarantee supply. On the other hand, if the products you are sourcing are widely available and can easily be replaced, it may be in your best interest to forego a term agreement.

Pricing/Price Changes:

One of the reasons why many companies opt for longer term contracts is to gain deeper discounts and ensure negotiated pricing is held for a period of time. When entering a contract, pay attention to the language around pricing and the supplier’s ability to change that pricing. Month-to-month contracts typically give the supplier the opportunity to raise prices; if you are purchasing in a market with downward pricing pressure, ensure that language also allows price reductions based on the market. Having a short-term contract in a market under pricing pressure may prompt suppliers to reduce pricing to prevent you from moving to a competitor. Likewise, when a market is trending up in cost (whether it be from decreased competition, increased maintenance costs, etc.) it may be prudent to lock in pricing with a long term contract. Depending on the industry, suppliers may offer signing bonuses, rebates, or other incentives when you sign a long term contract; these should be in addition to more competitive pricing in the contract.

Changeover:

Month-to-month contracts can be very appealing because in theory they allow you to simply change to another vendor if you are unhappy with your incumbent. There are certainly plenty of goods or services where companies are able to be vendor agnostic, but there are other categories where the cost to change is substantial. Likely, changing suppliers will (and should) involve a sourcing activity, e.g. RFP or RFQ, and thorough review of other suppliers in the market. After a new supplier is chosen, the transition process can be a relatively simple for some products or services, e.g. ordering IT accessories from another reseller, but can get more complex for others, e.g. migrating network services to a new carrier. If you are unhappy with the current supplier and chose to change, you will still need to rely on them to some degree during the changeover period. Be sure to consider the ease of change before jumping into a short or no term agreement under the assumption that you can quickly switch suppliers if needed.

Flexibility:

The name of the game in short-term or no term contracts in flexibility. Companies may elect to pay slightly higher pricing to have the flexibility to terminate services or purchasing whenever they see fit. This tends to surface when companies are considering technology changes; they have plans to migrate their services to a different technology or platform and the flexibility of a month-to-month contract allows them to change over as necessary without penalty. This is all well and good, but before entering a higher priced agreement or one that allows for pricing increases, consider your company’s track record on executing migration/change and truly exam the pricing risks that can come with flexibility. If the migration will be based on small, incremental change over time, it is likely you can still use a longer term agreement to your benefit. Also examine the reasons behind the company’s need for flexibility: if the concern is around certain SLAs or KPIs, you can try to add termination rights related to these performance levels and still operate under a term agreement.

As you contract for new and existing categories, don’t get stuck using a one-size-fits-all contracting pattern. Where changes occur in the market, category management strategy, or category roadmap, ensure that the contracts you put in place support those changes and allow your Procurement group to perform optimally.

Thanks, Torey.

Ditch the Pepsi Blues, Already: Become a Marketing Procurement Asset Part II

Today’s guest post is by Brian Seipel, a marking project expert at Source One focussed on helping corporations achieve both marketing and procurement objectives in their strategic sourcing projects.

In our last post we noted that when Pepsi did away with their marketing procurement department, it was a big deal, but it wasn’t really a shock. Marketing teams have never had a great relationship with procurement. Procurement is still trying to get their foot in the door when it comes to marketing spend, so it isn’t too much of a surprise if that door occasionally gets shut in procurement’s face.

But, despite this example, Procurement should not have anything to worry about. Organizations don’t get rid of marketing procurement — they get rid of bad marketing procurement. And if Procurement can demonstrate value, Marketing will listen. How does Procurement do that? As per yesterday’s post, it starts by becoming an asset, not a roadblock. The next step is to …

REALIGN PRIORITIES

Work with marketing to establish which group should lead discussions on different aspects of agency selection. It may be a hard pill to swallow, but quantifiable apples-to-apples comparisons are difficult, if not impossible, for some marketing initiatives. Concede the value-oriented comparisons to marketing, but take charge where a number crunching comparison is warranted.
Procurement pros also need to do a better job at understanding marketing goals as well as how objectives are phrased using a marketer’s language:

  • Markets select agencies as partners, not vendors. There’s more at play than who can do a job at the lowest cost.
  • Tune into ROI. A marketer wins not by reducing the dollars they spend, but by improving outcomes of what those dollars buy.
  • Promote actions that achieve your long-term goals. Instead of focusing on cost avoidance, work with marketing teams and agencies to establish process improvements that lead to greater efficiency.

A failure to speak the same language or understand priorities is a big reason that procurement is alienated from marketing initiatives; getting on the same page in these ways helps.

These goals don’t always align with the costs savings mandate procurement pros are tasked with, which necessitates a discussion with the top brass to iron out inconsistencies. The point we need to make is simple; I would rather take part in guiding procurement on Marketing’s terms than have no say at all. All of our value counts for nothing if procurement gets overlooked and shut out because we don’t offer compromises.

PUT “MARKETING” IN MARKETING PROCUREMENT

Spend time with a marketer, and you’ll see what they want out of an agency. All of those key qualities need to apply to procurement, as well.

They want to have a relationship with their agencies, not just a series of transactions. They want to work with an agency that not only carries a brand’s identity, but can support their vision for how growing it. They want an agency that can turn on a dime to support new, hot, unconventional campaigns — and has the knowledge to assist in the decision making process for any uncharted waters.

They want an agency that “gets it”. If we want that seat at the table, procurement needs to “get it”, too.


Thanks, Brian.

Ditch the Pepsi Blues, Already: Become a Marketing Procurement Asset Part I


Today’s guest post is by Brian Seipel, a marking project expert at Source One focussed on helping corporations achieve both marketing and procurement objectives in their strategic sourcing projects.

When discussing marketing procurement, conversations still sometimes slide back to Pepsi’s big move at the end of last year, when they did away with their marketing procurement department. This was a big deal, but was it really a shock?

Pepsi’s news was huge, but hardly isolated; marketing teams have never had a great relationship with procurement. Procurement is still trying to get their foot in the door when it comes to marketing spend, so it isn’t too much of a surprise if that door occasionally gets shut in procurement’s face.

Let’s focus on the positive, instead. As long as dollars are still being spent on marketing initiatives, then there’s a spot at the table for you … if you are able to earn it.

BAD MARKETING PROCUREMENT

Let’s just be clear: Organizations don’t get rid of marketing procurement — they get rid of bad marketing procurement.

Pepsi is still devoting a good-sized budget to marketing and advertising, they just did away with a bad marketing procurement middle man. To be more specific:

  • If an agency search doesn’t move at a speed that keeps pace with marketing initiatives, that’s bad marketing procurement.
  • If you’re seen as a road block, that’s bad marketing procurement.
  • If short-term cost savings trump any other longer term considerations (“but it works when I buy office supplies!”), that’s bad marketing procurement.
  • If you don’t understand marketing, that’s very obviously bad marketing procurement.

If none of these concerns apply to you, then don’t worry. If they do apply, still don’t worry. Focus your energies, instead, on adding more value.

How do you do this?

START BY BECOMING AN ASSET, NOT A ROAD BLOCK

Procurement pros need to do a better job selling one of our greatest values: We allow marketing teams to focus on what they do best — marketing — by clearing the other stuff out of their way. We can make the process faster, not slow it down.

If you haven’t built this business case for yourself as an asset, then marketing teams have no idea what you can offer. They can, and will, view you as a stereotypical bean counter because you haven’t given them anything else to work with.

When I hear marketing complain that procurement slows the process down, I bang my head against a wall. Procurement has honed processes that help speed the process for identifying, vetting, and selecting agencies. Show marketers all of the procurement-based work you can take off their hands (they don’t go away even if procurement leaves the room) so they can focus on finding agencies that are the best fit.

But this is just the beginning. In tomorrow’s post, we will discuss the next steps.


Thanks, Brian.

Aligning Procurement Strategies to Business Goals, Part II


Today’s guest post is from Torey Guingrich, a Project Manager at Source One Management Services, who focuses on helping global companies drive greater value from their expenditures.

In Part I, we noted that if you are applying the same strategy for every category, e.g. consolidate suppliers and sign a three-year contract, you may need to reconsider the variances in the categories and how these differences should affect the chosen strategy. We also noted that, over 30 years ago, Peter Kraljic published his ideas around how Procurement can transition from purchasing to supply management in a still-relevant 1983 article, and that if you look at the complexity of the supply market and contrast that with the criticality to the business, you can fit Procurement’s spend categories into different quadrants and develop a sourcing strategy around each.

Before we discuss what type of strategy generally works in each bucket, we want to make it clear that it is important to track changes and moves in the degree of availability/criticality and adjust your strategy when and where it makes sense. Each classification is examined below; remember that a given product/category can change classifications based on your company and the market conditions; the examples given below should encourage you to think of a comparable product for your company:

Highly Critical, Low Availability [Strategic]:
These are the areas that will stop production or service to customers and are also the hardest products or services to secure and source. To guarantee supply, you will likely need to establish long-term contracts and high quality standards. Due to the criticality, ideally, you would have an alternate supplier pre-qualified for failover or shortages with your preferred supplier. If the market is extremely scarce, you may even need to supplement your supply with multiple long-term suppliers to meet the demand you require. Depending on the products or service, companies can examine the make vs. buy decision and consider vertically integrating the supply into your own company.

Take iron ore for a steel company as an example. If quantities and quality are not met, it can severely impact or even halt production; there are very few suppliers in the market and high barriers to entry. Many steel companies have long term contracts and their own mining divisions to lower the supply risk.

Highly Critical, High Availability [Leverage]:
These categories of spend are still very important to the business, but the products/services are much easier to secure. Due to criticality, you will typically need to establish quality standards, but you can make changes in suppliers more easily and the market should be able to absorb increases in demand. This is one category where other market conditions will likely play a major role in determining sourcing strategy, i.e. how is the market evolving and how are vendors differentiating themselves? Because there is high availability of supply, Procurement should look to leverage spend and focus on cost and quality.

IT products and services are a prime example of this. They are highly available in the market and these can be critical to keep core processes or systems running. For many software and hardware products, there are multiple options to get the same end product by going direct to an OEM, utilizing a reseller, leveraging a VAR relationship, or even one-off buys from local or online suppliers if necessary.

Less Critical, High Availability [Non-critical]:
These products and services are still necessary to run the business, but do not have a significant impact on the end product and results should not be drastic if there is a lapse in supply or an alternate product or service is used in its place. This is where you may cherry pick among suppliers to achieve the lowest cost, introduce alternates/replacements, and use regular RFx efforts to drive down cost. Procurement should look to streamline purchasing and not invest their time heavily on non-critical items.

Office supplies could fall under this category. While office supplies are needed, there are certainly options and alternatives if they are not available, e.g. if pens aren’t available, pencils can be used. Essentially, you can continue to push production without office supplies and the supply base for these items is rather abundant.

Less Critical, Low Availability [Bottleneck]:
Similar to the items above, these categories of products and services are less crucial to running the business and do not add much value to the end product, but because the supply is limited, there is increased risk of scarcity. Procurement will need to secure supply by fostering the supplier relationship to ensure supply, while simultaneously qualifying additional suppliers, considering alternatives, and creating a cushion of inventory where able.

For example: electricity – the market is limited and electricity doesn’t add value as an input into an end product. For many companies, electricity is a utility and necessary to continuing day to day business, so it is crucial to ensure there is a supplier in place. The strategy for something like electricity may lean towards assurance of supply as opposed to finding alternates, but that strategy could adjust depending on presence in deregulated vs regulated energy markets.

These classifications are a starting point that Procurement should use to begin looking at categories and sourcing strategies in a more deliberate manner (or validate the strategies in place today). Determining where a category or even a specific product fits on the scales of criticality and availability will take heavy partnership with business stakeholders. By partnering with end users, Procurement can transform itself from a “buying” department to a “business-enablement” partner and gain inherent knowledge of the business you are supporting each day. The onus is on Procurement to understand how categories being sourced affect and fit into the core business to ensure alignment to overall company goals and business plans. By understanding and tracking the changes in criticality and availability of different inputs to your business, Procurement can ensure the sourcing strategy, category management, and vendor management are aligned to both the supply market and the company goals.

Thanks, Torey.