Category Archives: Guest Author

Procurement Transformation

Today I’d like to welcome Charles Dominick of Next Level Purchasing (now the Certitrek NLPA) with his post on Procurement Transformation.

Procurement transformation. It’s a buzzphrase. It’s a goal. And it’s a reality for some organizations.

But what does it take? What are the necessary ingredients to take a purchasing and supply management department from a state of being mired in the tactical to being a key driver of the strategic success of the organization?

Look at the marketing materials of vendors touting their ability to assist a procurement transformation. You’ll see software that will transform your organization. Consulting services that will transform your organization. Outsourcing services that will transform your organization.

And they all can – and, possibly, should – factor into a successful procurement transformation. But there is one constituency associated with a procurement transformation that doesn’t market to you. There are no glossy mailers. No full-page trade journal advertisements. And (thankfully) no spam.

Who is this constituency?

It is the personnel who fill the seats in your purchasing and supply management department. And they are arguably the most important ingredient that differentiates successful procurement transformations from those that only sounded good on paper.

For success and sustainability in a procurement transformation, you need a great team. You need people to establish synergy with your internal customers. You need people to develop continually improving relationships with suppliers. You need people who are aligned with the long-term goals of your organization.

Many purchasing and supply management leaders recognize this, but don’t always approach building their teams in the best way. Many of them think that having a team primed for procurement transformation simply means firing their current staff and bringing in “new blood.” I’ve seen this approach fail. And cost the organizations a lot of money in the process of failing. I’ve seen the poachers become the poached.

So, having the right talent for procurement transformation isn’t just about recruiting. It’s about three cornerstones:

  1. Talent Development
  2. Recruiting
  3. Retention

Talent development is first cornerstone and the topic for the rest of this post. Almost every purchasing and supply management leader will look at her own team and not be 100% satisfied. The grass is always greener on the other side of the fence.

But why is the grass always greener?

If Company A across town seems to have a more talented team, why is that? Was your organization’s recruiting that bad? Or could it be that Company A just focused more on developing their talent through the years? And if your talent development efforts paled in comparison, don’t blame your team members.

Purchasing and supply management is a rapidly changing field. Your team can’t do the same things day after day, year after year and expect to keep up. Your team needs exposure to what is going on outside of the four walls of your office.

The responsibility for the talent in your department lies squarely with you – the leader. So what exactly do you do to develop the talent for your procurement transformation? Here are a few ideas that you may find helpful, though these certainly do not exhaust all of the possibilities:

  • Enroll your team in training.
    Training is a great way to really get your team to focus on nothing but true learning. Have a clear picture of what you want your team to know or be able to do. Then find the training that is specifically designed to give you those results. Training should offer a step-by-step, how-to approach for teaching your team how to meet your goals.
  • Share relevant trade journal articles, newsletters, and even blog posts with your team.
    These types of media can help your team understand what is going on in the world. They will get to see how other organizations are going about achieving success in purchasing and supply management. They will be exposed to some great ideas and will eventually be able to separate real-world ideas from textbook theory.
  • Coach your team.
    You are the expert. Your team will only appear “dumb” if you think that they don’t know what you know. So impart your knowledge and your experience. Don’t withhold it. You will have a stronger team for it.
  • Employ shadowing.
    Sometimes one of your experts will be working on a challenging project. Think about having one of your more junior employees assist on the project. No, it is not the most efficient use of resources especially if you have a busy department. But will it pay long-term dividends when you have a more experienced team and less dependency on one specialist? You bet!
  • Rotate your team.
    One of the richest assignments in my career was when myself and three coworkers were in a two year program to switch positions every six months. Even though we were in the same company, each position taught me something new about purchasing and the organization. Job rotation can give your team new skills and reinforce those purchasing and supply management principles that have cross-category applicability.

Having the optimal talent to support your procurement transformation isn’t an accident. It takes leadership. It takes effort. It takes a plan.

Be a leader. Develop your talent. Then your procurement transformation will be a reality, not merely a buzz-phrase.

Procurement’s Expanding Role and the Executive of the Future

Today I’d like to welcome Jon Hansen of Procurement Insights.

In 2006 CPO Agenda’s London-based editor chaired a panel discussion asking the question “are there any limits to procurement’s role?”

The panel which included senior procurement personnel from organizations such as Nestle, Danone, British Airways and Merrill Lynch provided some interesting insights into the prevailing (and emerging) attitudes towards procurement from an executive suite perspective. (You can obtain a copy of the panel’s discussion through the following link.)

While the panel’s discussion was generally interesting, there were a number of noteworthy revelations (especially in the context of my recent posting on the pending talent crunch). An example that immediately comes to mind was the assertion by one executive that truly talented individuals “should move out of purchasing after five or six years and do another job, whether it’s finance, human resources, manufacturing or marketing.” Taking into account the fact that some of the panel members by their own admission are either “new” to procurement or do not consider themselves to be “a purchasing professional” makes me wonder if this represents an expansion or an assimilation of the purchasing department’s role within an organization?

There is a significant difference between expansion and assimilation in that expansion acknowledges that purchasing can have a broader role in the organization’s overall success while still recognizing and working within its unique operating framework. Assimilation on the other hand tends to view procurement as an adjunct of a core practice (i.e. finance) where there is a greater tendency to overlook important attributes that are indigenous to the practice. One panel member’s opinion that “procurement is becoming more a profession for generalists, rather than specialists,” represents the assimilation view to which I am referring.

Another comment that caught my attention was the position taken by one panel member that out of his organization’s 20,000 suppliers only a few (i.e. 100) will merit engagement from a strategic perspective. As a result, there is going to be a continuing need for what was referred to as “low-level” buyers. However, the same individual concluded that “one strategic business thinker with the right skills and capabilities is worth 10 or 12 of your normal, run-of-the-mill purchasing people.” This “class distinction” as I will call it is certainly not new to the industry. It is however a potentially detrimental viewpoint in that it can increase the risk of a serious disconnect with and between key stakeholders. Particularly if you are of the opinion that there will be a continuing need for traditional purchasing personnel.

Procurement through the looking glass?

Recognizing that there are “hard-nosed purchasers” as well as “creative and innovative guys” (the reference to guys only is duly noted) one panelist highlighted the benefits of the increasing number of CPO’s that are “coming from outside the procurement world.” Referring to these individuals as “people who come from business . . . and therefore understand the business language,” the executive indicated that the new CPO’s “tend to be wonderfully connected in their organizations” bringing an element of creditability that will “help to bring procurement into the mainstream.”

While collaboration is essential to the ultimate success of any initiative hence the benefit of being “wonderfully connected,” is this necessarily the most important qualification for a CPO? Or is it the hallmark of a project champion or a key stakeholder contributor? This is another important distinction given that the panelist later made the statement that “I come from business and when I leave procurement I’ll go back to business.”

I have a first hand understanding of the corporate mindset in terms of increasing one’s value through a diversity of experiences (one day I will have to tell you the story of a top sales manager’s decision to accept the head position in his organization’s service department solely to increase his odds of being promoted up the corporate ladder). However the risk of being perceived as an outsider or an interloper under these circumstances is very real, especially if you already have your foot pointed to the exit door.

Unfortunately departmental resistance has been one of the most common challenges associated with a failed procurement initiative. This poses the question, are the only individuals who possess the capability to run the procurement department of the future, the ones who do not think of themselves as being procurement professionals?”

If the answer is yes, what does this say about corporate commitment in terms of personnel development within their purchasing ranks?

A question of corporate culture

How an organization views the role of its procurement department differs from one company to the next. One panelist made the following observation when asked if the shortage of talented people was the greatest constraint a CPO faces: “the context, history and the culture of the company is important. Take a specific category as an example. I moved to Nestle from a company where procurement was heavily involved in any new capital expenditure project right from the start. Now I find myself in a situation where we have very limited involvement to actually influence the buying decision.”

This indicates that some companies confine their purchasing departments to a narrowly defined functional role versus being a strategic contributor. While I do not have specific data regarding the percentage of organizations that operate under this misconception, the consequences of doing so can be catastrophic.

One example is the computer manufacturer who built the Hot Wheels and Barbie PC’s for Mattel in the late 1990’s. Operating on razor thin margins the pressure to use low-cost components from off-shore OEM’s was great. Unfortunately, the power supply that was ultimately selected failed in 60% of the machines (adding insult to injury was the fact that the failures occurred on Christmas morning when excited children attempted to turn on their new PC’s).

The company, whose sales grew from $27 million per year to $118 million in just 18 months collapsed under the wave of return costs which eroded the aforementioned paper-thin margins. The manufacturer went into bankruptcy in early 2000, while Mattel was left to deal with a public relations nightmare.

What role did the PC manufacturer’s purchasing department have in the power supply selection? Did upper management’s pressure to meet an unrealistic selling price unduly influence their decision? Finally could the purchasing department’s management have done anything to avert the disastrous outcome? Not wanting to pick on Mattel, the same questions could be asked regarding Thursday’s recall of 967,000 plastic preschool Fisher Price toys that were manufactured by a China-based supplier. The recall was due to “excessive amounts of lead” used in the products’ paint.

The above examples certainly demonstrate the breadth and width of the potential impact that is associated with the purchasing process. What needs to be seriously considered is whether the purported benefits of handing the reigns to a CPO who does not have a purchasing background versus developing a leader from the existing talent pool within the department itself make sense in this period of dynamic change?

It is really a question of creditability. In which individual would the CEO and board have the greatest level of confidence?

Referencing Jim Collins’ book Good to Great*, if an organization fails to invest in developing its leaders from within then it is likely that they will look to someone outside of the corporation. In the majority of such cases (note that I did not say in every case), the odds of sustainable success will be limited.

*Note: The book Good to Great referenced the practice of looking outside of an organization for leadership. While there are certainly instances where an individual outside of a company was brought in to run a particular procurement department, I believe that the term outsider can also be extended to include individuals from other unrelated areas of the same business.

Musings on Talent Management

Today I’d like to welcome Dick Locke from Global Supply Training.

Thank you to the doctor for the opportunity to contribute. Here are my thoughts from the perspective of someone involved in the training aspects of globalizing supply management.

I’m optimistic overall. The caliber of people attending my seminars has improved, and the caliber of commentary on supply management issues has gone up. In my field, the nadir was reached in approximately the year 2000 when ISM removed all international content from their C.P.M. exam. The reason? Very few of the companies that participated in ISM surveys sourced internationally. (That included their retail participants, believe it or not.) Since then, ISM essentially reinvented itself and scrapped not only their own Board of Directors but also the whole C.P.M. program. Their new certification is intended to have strong international content.

The reasons that we are seeing better talent, in my view, is that there is

  1. a significantly better recognition of the strategic nature of sourcing and supply chain management and
  2. a better division of those strategic functions from the tactical aspects of procurement.

Sourcing and supply chain management are complex and challenging. Sourcing in a global environment requires skills in analysis, human relationships, laws, regulations, economics and a great deal of flexibility. Complexity and multi-faceted challenges attract talented people as long as the tasks they tackle are achievable.

In the computer industry, we realized sourcing remains a core competency even when manufacturing isn’t. All the computer companies use the same small group of component suppliers and subcontract manufacturers. To differentiate the cost or flexibility of manufacturing products, the computer companies have to be able to negotiate better deals than either their competitors or the subcontract assemblers can.

Now, a couple of caveats.

One is that talent is one thing, knowledge is another. In the United States, Japan, and a few other countries, imports and exports are a low percent (around 18-20%) of the country’s GDP. People can come away from training programs or even university degrees with very little global knowledge. I have a 10-question quiz on international skills on my website. About 4 people per day take the test. Up to a few years ago, people typically got one or two questions right. Now they are typically getting four or five right. While both talent and knowledge are increasing, don’t assume even the most talented professional will know about foreign exchange risk management, for example.

The second is that it’s easy to drive talent away. Talented people don’t tolerate bureaucracy and routine very well. I can think of three types of bureaucracy that need to be contained.

One is just plain rules and regulations. I know of one ex-client with a good reputation whose people couldn’t carry on a substantive conversation on procurement issues for more than a few minutes without reference to their book of rules. Back when I worked at HP, I inherited a department who believed they had to ask companies such as Texas Instruments once per year if they were a small business or not. When suppliers see that kind of silliness, it diminishes the buying company. When talented people see that kind of demand on them, they vote with their feet and walk away.

Another is giving too much power to departments such as legal and finance. As a consultant, I’ve received 30 page contract proposals with a quarter page of statement of work in them. It takes a mighty big potential level of business for me to spend any time on those proposals. If you have a standard purchase contract, it’s reasonable for a legal department to control maybe five or ten percent of it. The rest is pure business issues that your professionals should be able to (and expected to) control. Lawyers are wonderful people but there’s an old saying that “when your only tool is a hammer, every problem looks like a nail”.

I’ve also seen finance departments unilaterally decide to pay suppliers late. Successful heads of procurement must be able to claim and maintain their department’s role as the manager of the relationships.

Finally, I’m a bit concerned about “technological bureaucracy”. Hard-to-operate software can become all-consuming or can result in the technical wizards being given all the recognition. And the idea that all interfaces (such as e-RFX) can be automated can eliminate the human aspect of procurement. That aspect of procurement is vital for business relationships in most of the world. The challenges of doing this will also attract talented people.

So, for obtaining and maintaining talent effectively, here are a few guidelines.

  • Create jobs that talented people will want.
    Don’t try to put talented people into bureaucratic situations.
  • Separate the tactical and strategic functions.
    Tactical problems will too often take priority over stragegic issues. Not only will your strategies not advance, your most talented people will leave.
  • Train your people.
    Talent and knowledge are two separate issues.
  • Fight fiercely against practices that can drive talented people out.

Services Sustainability

Today I’m pleased to welcome John Martin of and Building SaaS.

Sustainability and social responsibility aren’t often associated with services purchasing, as most people tend to think of social responsibility in conjunction with the performance of manufacturing and resource extraction in lower-impact and more-sustainable ways. However, especially with the recent trend toward low-cost-country sourcing of services, the concept of “socially responsible outsourcing”, as one example, is taking root.

Companies buy services to utilize expertise they don’t have internally, to access a different talent pool (at an offshore location), to match their workforce to workload variability, or to take advantage of a supplier’s economies of scale or scope (though this is far less achievable or important for services than for most goods, as many outsourcing buyers have found out the hard way).

Most large companies use a large and growing group of external providers for a broad range of services, from thousands of temporary workers around the world to high-end consulting services. Services are inherently tied to the people that deliver them, and so the key sustainability concept for services is talent pool sustainability. To purchase services in a sustainable and responsible way, companies should adopt practices (and engage with suppliers who adopt practices) that don’t negatively impact the talent pool.

For example, a large employer in a cyclical business has been a significant employer in dozens of small towns for over 50 years. To ensure the development of a talent pool that can support their seasonal business long-term, they have several types of contingent workers such as long-term temps, temp-to-hire, day labor and seasonal part-time temps, each with different responsibility possibilities and education investments. Known as a preferred employer who invests in people long-term, they have worked with their staffing providers to ensure a sustainable talent pool for their highly seasonal business.

Engaging services responsibly is especially important for low-skill services and temporary workers, since they typically receive less training than employees, and hence are more easily left behind by shifts in technology or skill requirements. Responsible companies extend skill-development practices (via their suppliers or sometimes directly) into their contingent workforce. Wages, benefits, and training for temporary workers can often be directly controlled by buyers, and other “Labor Practices and Decent Work” guidelines of the Global Reporting Initiative can also be extended to services suppliers.

When working with services suppliers, some key metrics help demonstrate their commitment to a sustainable talent pool:

  • Staff Turnover: Turnover is the ultimate measure of good employment practices. The specific rate is highly industry-specific, however, so compare suppliers within the same service category.
  • Training Investment: Good training will result in higher productivity and lower turnover – both positive results for the buyer. While training investment is fairly easy to game, it’s still helpful to track it and the positive results that derive from it.
  • Pay Rate: Especially for lower-skill services, many buyers negotiate and track the actual pay rate to the individual worker, to ensure that the worker is getting not only correct pay, but sufficient pay. As a beneficial side-effect, this can also help ensure a sufficient quality level in the work force.

In short, work with suppliers who invest in their services delivery chain – their people.

Supplier development is also important, just as it is for goods. Some types of services that have more innovation are also sourced quite frequently (e.g., consulting engagements, legal services, marketing services), which allows finding and rewarding the innovators who deliver more value.

Part of working with responsible suppliers includes engaging them responsibly. Many services businesses are cash-flow businesses, required to pay their workers weekly, long before the terms of their invoice – so paying them on time can be even more important.

In short, sustainability in services revolves around sustaining and growing the talent pool, which requires responsibly engaging and working with services suppliers who engage in positive practices for their talent.

Some Thoughts on Sustainability

Today I’d like to welcome Paul Martyn of Track Management Group with his thoughts on the sustainability debate.

Friedrich Nietzsche loves sustainability.

I feel safe in saying this because sustainability is inline with Nietzsche’s philosophy of perspectivism. Not to bore you to death, but, according to Wikipedia, the basic idea of perspectivism “is that there are many possible conceptual schemes, or perspectives which determine any possible judgment of truth or value that we may make; this implies that no way of seeing the world is more correct” – much like today’s sustainability discussion, there are many ‘sustainability’ perspectives/schemes, however, in the absence of an absolute ‘standard’ (i.e. Kyoto) there is no way to say which perspective/scheme is more correct – this is where, I believe, the sustainability debate is today …

So, why all the philosophy talk?

Sustainability is enormous in scale and suffers a shortage of predictability – a philosophical approach to sustainability looks at logical tradeoffs, often, in contrast to empirical methods. As a math problem ‘sustainability’ is impossible to solve, so we must develop ‘common sense’ methods for evaluating our decision making at policy, corporate and individual levels. Philosophy has, by definition, helped us look at how we should live when confronted with an uncertain end. Sustainability is more a question of how we should live rather than a question of right/wrong. Philosophy is well suited to address the questions posed by sustainability.

Economically speaking, modern sustainability is based on the premise the current system is going to break and systematic changes need to be made to maintain a ‘set’ level of supply and service, indefinitely. It’s the ‘indefinitely’ part that makes sustainability a tricky problem to approach with a strictly mathematical approach. Given the system’s unpredictability, empirical methods are, often, less effective than common sense or a ‘sustainable’ philosophy. Not to mention the troubles that arise when trying to maintain ‘fixed’ levels of supply and service indefinitely – talk about a planning conundrum.

As Nietzsche said ‘A man without a plan is not a man’.

Sustainability must become a process or commitment to get better rather than a destination in and of itself. A sustainable plan needs to make sense in a broad and inclusive context and make more sense than just what’s best for the US or what’s ‘most profitable’ or ‘least expensive’, etc.

There are many perspectives to view sustainability and one near and dear to our hearts is ‘purchasing’; in a purchasing sense, sustainability includes a focus on responsibly evaluating the environmental, economic and social impact of your actions. Sustainable purchasing looks to put cost and quality in a context that includes looking at the environmental impact, supply levels, efficiency, consumption, labor and other, yet gathered, perspectives. A sustainable purchasing ‘common sense’ includes evaluating the environmental, economic and social impact of purchasing decisions.

At the end of the day, the value of debate is to regularly question our beliefs/definitions of living in a sustainable world and then act in a manner, across all of our roles (husband, father, consumer, professional, etc) consistent with our beliefs.

Kudos to Michael – this cross-blog series is an excellent example of gathering perspectives to define sustainability. I look forward to reading lots of other perspectives on sustainability and to keeping the dialogue lively in 2008.

Lastly, a little humor to lighten up this post:

“Heating bills this winter are the highest they’ve been in five years, but President Bush has a plan to combat rising bills. It’s called global warming.” — Jay Leno