Category Archives: Best Practices

Need Some Procurement Principles? Balfour Beatty Published a Great Starting Point.

Google sometimes digs up the strangest things when you ask for Procurement News. One thing it recently dug up was the Balfour Beatty “Procurement Strategy” page, which wasn’t so much a strategy, but a set of principles that every organization should subscribe to. (Regardless of what industry they are in.)

So, if you’re wondering what principles you should adopt before you set your Procurement organization strategy, you can start with these seven principles:

  1. Become the customer of choice
  2. Ensure that we have the right, skilled people for the job, a strong talent pipeline and that we provide an environment where they excel
  3. Put in place processes that work, are compliant and transparent, making the best use of technology to deliver for our business and for our supply chain partners
  4. Mitigate and manage risk through early and closer integration with our supply chain partners
  5. Work together to identify market risks and forecasts
  6. Keep safety and wellbeing at the forefront of all that we do
  7. Prompt Payment for Suppliers

The great thing is they will lead to a great strategy as:

  • it covers talent, technology, and process transformation
  • it places importance on the supplier, the relationship, and the supplier sustainability
  • it covers CSR (corporate social responsibility)
  • it covers risk

In fact, the only principle that is missing is Sustainability, so if you add this eight principle

  1. Embrace sustainability in all that we do

We’re pretty sure that if you were to start here, you won’t go too far astray in the creation of your Procurement Strategy.

There are Three Primary Parts to Procurement Orchestration

Procurement Orchestration is the craze, presumably because Procurement shouldn’t operate in a vacuum. There are a number of startups just focussed on orchestration, a number of analyst firms are jumping on the orchestration bandwagon, and a number of enterprise automation platforms are all of a sudden claiming to be procurement orchestration platforms to get in on the buzz. But there’s a lot more to Procurement Orchestration than just application automation. A lot more.

Procurement Orchestration, which we included in our 39 Part Series to Help You Figure Out Where to Start with Source-to-Pay in Parts 34 to 36 and 39, MUST Address, at a minimum, the orchestration of:

  • procurement data
  • procurement process
  • procurement stakeholders

First of all, good Procurement needs to be data-informed. (Not data driven, data informed. Data driven means that all decisions based on the available data, which is never complete. You can accurately capture all bids in an RFP, previous OTD metrics, previous defect metrics, subjective quality ratings, ESG data, etc. but you can’t capture relationship data, innovation support, etc. and these are also factors that are important in Sourcing and Supplier Selection.) This means that all available data needs to available to the Procurement team. It doesn’t have to be centralized in one system or pushed to a data warehouse / lake / lakehouse, but the source system (that holds the golden record of truth) for every piece of data needs to be identified and integrations created to allow the necessary data to be accessed as needed by the Procurement system currently being used.

Secondly, good Procurement needs proper processes. That’s more than just application orchestration as not all Procurement teams will have applications for every step of the process, and even those that have major applications for every major stage (intake / need identification, spend analysis / opportunity / procurement process identification, sourcing, supplier onboarding / management, contract negotiation and governance, e-Procurement/PO Generation and Management, Invoice Management and OK-to-Pay) will still need to orchestrate intermediate process steps such as stakeholder collaboration, external vendor risk/ESG review, etc.

Thirdly, good Procurement needs to involve all of the relevant stakeholders. The category manager, the risk manager, the budget holder / executive, the in house counsel, etc. All of these individuals need to be able to interact with the procurement process and artifacts at the right time, and through their applications if they have special tools to do the risk analysis, budget analysis, contract review, etc. Thus, supporting procurement goes beyond just supporting procurement applications and processes, but peripheral applications and processes as well so that all stakeholders can be part of the process and effectively contribute their expertise and experience.

Remember this the next time a jazzy tool tries to lure you in with pre-built Procurement platform integrations or easy, visual, procurement workflows. That’s just part of the puzzle.

THE Sign That You Need a CPO

The Supply Chain Management Review recently published an article on the top 10 signs that your organization needs a talented chief procurement officer. They were all good reasons, but they kind of suggested that you needed multiple reasons to hire a CPO. The reality is that you only need one reason, it’s very straight forward, and it almost needs no explanation. In fact, most of you will get it right away, so we’ll give it to you straight away, and you can stop reading now if you like.

The Sign That You Need a CPO: Your organization spends over 10 Million a year.

That’s it. Easy, eh? No top ten list. No long winded explanations. No complicated requirements. Just one number. Just one check.

Why is it this easy? Simple. Good Procurement practices will save your organization at least 10% across the board, regardless of current market conditions. Why? Even if costs are going up, if best in class Procurement practices weren’t deployed in the past,

  • even previously sourced categories will not have maximized savings
  • the process will have been inefficient, which would have cost the organization time, resources, and opportunity costs on other categories
  • most tail spend categories would have been completely ignored
  • many orders would have gone out without POs
  • most invoices would not have been closely checked, resulting in over-payments
  • etc. etc. etc.

So, if you’re spending 10 Million, a CPO is going to save 1M at a minimum. That’s going to be 3X or more the CPOs fully burdened cost in a smaller organization. Simple calculation, simple rule.

Procurement Needs to Change for the Better … But it is Currently Stalled!

A recent article over on Supply & Demand Chain Executive noted that Procurement is Changing for the Better, but if you look at the 5 most strategic objectives from the recent APQC survey they referenced, two of the five focus on costs — specifically, #2 on reducing procurement costs and #5 on maintaining of improving margin. Just like the recent Ivalua/Procurement Leaders survey, cost is the focus, and all the real value they could be delivering is being ignored — and the doctor would argue that while Procurement may have been changing for the better before the pandemic, the supply disruptions and successive inflation that resulted since has not only stalled that progress but reverted Procurement back to its early days.

The reason, as indicated in an article over on CIPS, which also references the Ivalua/Procurement Leaders survey, is inflation. Rapid inflation, which has not only wiped out prior savings for many organizations but resulted in the Procurement department blowning past budgets, has resulted in the C-Suite ordering Procurement to contain costs through any means necessary, and, as the CIPS article has noted, this has resulted in the ESG agenda, along with other agendas, being pushed to the sidelines, if not thrown out entirely.

This is very sad. Not only because ESG initiatives are critical, but because the other three priorities from the AQPC survey are also more critical:

  • avoiding supply disruption
  • improving social responsibility in supply chain
  • improving supplier relationships

First of all, the number one focus of procurement should always be supply, not spend. Doesn’t matter how great the negotiated savings are, if you don’t get the goods, you don’t get the savings and, more importantly, if that was product to sell, you don’t get the revenue. No cash-inflow, no business. (Or, as we say up North, No Sale, No Store.)

Secondly, with carbon emission limits and carbon taxes coming in globally, ESG needs to be a top priority, especially in jurisdictions where you are responsible for all of the carbon in your supply chain.

Thirdly, your quality and capability is limited to that of your suppliers, so you want to improve your suppliers, and that requires good relationships. Furthermore, suppliers can be a source of innovation and creativity, but you won’t get access to any of it without good relationships.

So how do we get Procurement over the hump and back to strategy and not cost reduction regardless of the true price that is paid? It’s a good question, especially when the focus is always short term and not long term. Long term, innovation, responsibility, quality, and sustainability will result in the best value for money, but this never happens in the short term. So, focus on long term sustainability, get back to value, and show the organization what Procurement can really do.

How Medium Sized Enterprises Can Better Manage Spend

McKinsey & Company recently ran a long article on how medium-size enterprises can better manage sourcing that noted that the big reasons that mid-sized companies have difficulty reining in external spending are:

  • a lack of spending transparency
  • a myopic focus on the short term
  • talent gaps
  • underused digital tools and automation
  • exclusion of procurement and supply chain in business decisions

And noted that any action plan that a medium-size enterprise comes up with for procurement cost savings should include:

  • establishing CoE (Center of Excellence) teams
  • improving forecasting
  • expanding use of digital procurement tools
  • gaining greater market intelligence
  • establishing a culture of — and process for — continuous cost improvement
  • incorporation supplier-driven product and service improvements

And they recommend a ladder model that consists of the following steps:

1) Set Aspirations
2a) Rapid renegotiations with top suppliers
2b) Make-vs-Buy Analysis
3) Build spec catalog to enable market engagement
4a) Conduct request-for-quote (RFQ) rounds
4b) Build parts catalog
5a) Validation of suppliers and production parts
5b) Consolidation of SKUs and modularization

And this is all very good, and when you read the article for the details you will understand why it’s all very good, but it doesn’t really provide a clear, step-by-step, roadmap on where you should start.

Fortunately, Sourcing Innovation did provide a partial roadmap in it’s 39 Steps … err … The 39 Clues … err … The 39 Part Series to Help You Figure Out Where to Start with Source-to-Pay which outlined the order in which an organization should get the tools (and thus the associated market intelligence) it needs to effectively tackle spend (and forecasting), work with suppliers, and establish a culture of continuous improvement. About the only item we didn’t address on the McKinsey list is the establishment of CoE teams — the right structure is highly organization dependent, and will be better enabled by the implementation and adoption of the right tools.

So, if you missed the series, go back to the beginning and understand where you start, why, and how a proper, ordered, logical implementation of Source-to-Pay in a modular fashion will help you maximize savings, efficiency, and even sustainability within your allowed budget.