Category Archives: Procurement Innovation

MBAs, for those of you who are hard of hearing … you have to put Procurement first!

We told you last Friday that whether or not you were 100% convinced, you have to put Procurement first. Hopefully some of you listened, but I’m sure some of you didn’t. Even though the seventh rule of acquisition is that you should always keep your ears open.

We will again start by reminding you that your organization depends on goods and services provided to it by suppliers. Those goods you sell come from somewhere, and even if the goods are made in house, the components and raw materials will come from suppliers. The days where a company was vertically integrated down to the raw material extraction and production are lone gone (and it’s all your fault — you started the outsourcing and “right”-sizing craze, and now you get to live with the consequences).

And the individuals selling those goods and services are your brethren (from another school) who have the same training, follow the same rules, and never forget the the one hundred and eighty first rule of acquisition that says that not even dishonesty can tarnish the shine of profit. They use the same tactics you do and sell the sizzle, not the steak, as per the one hundred and fifty third rule, and if that’s not enough, they’ll use the one hundred and sixty eighth rule and whisper their way to success.

And only Procurement understands this. They are trained to look past the sizzle, tune out the whispers, and look for the shadiness behind every corner. Procurement knows that, by default, satisfaction is not guaranteed (as per the nineteenth rule of acquisition) and that sales people live by the thirty ninth rule and don’t tell customers more than they need to know.

Like you, your MBA brethren trying to sell into your organization are trying to figure out how to learn the customer’s weaknesses, so that you can better take advantage of him (as per the eighty seventh rule). If you don’t want your profits to become their profits, you better make sure they only deal with someone that is tight lipped and won’t give away the farm … like a hard-hitting Procurement Professional. Plus, if they came from Engineering, you give your organization a bit of an advantage. Your brethren know to beware of the scientist’s greed for knowledge, as per the seventy ninth rule, and sometimes an Engineer can catch them off guard.

Who else besides Procurement knows that as far as MBAs are concerned, MBAs are not responsible for the gullibility of others (the sixty ninth rule) and that they will never give up because faith moves mountains … of inventory (as per the one hundred and fourth rule). And only Procurement lives by the rules that only fools pay retail (which is the one hundred and forty first rule) and that you should know your enemies … but do business with them always (as per the the one hundred and seventy seventh rule).

MBAs, If You’re Still Not 100% Convinced You Have to Put Procurement First …

… we’re going to make it even clearer in today’s post.

Let’s start by reminding you that your organization depends on goods and services provided it to by suppliers — suppliers who have also invested heavily in sales and marketing, and sales especially, in an effort to make sure they gouge as much cash out of you as they can. They’re always on the hunt to find those organizations with the least educated, experienced, and supported buyers that they can take the most advantage of while you are focused on marketing, sales, and revenue increase. And the more successful you are at fattening the revenue stream, the more successful they feel they can be. After all, they know the Rules of Acquisition as well as you do, and they are going to apply them to your fullest.

Those MBAs selling to your organization live by the first rule of acquisition which says once you have their money, you never give it back, so you better do all that you can to make sure you hand over no more than you need to, because even if you have what looks like an iron-clad contract that says you handed over too much, good luck recovering any funds without spending additional funds to get the lawyers involved. That will quickly wipe out any recovery you might realize. This means that you need to support Procurement in strategic sourcing to identify deals with value, support Procurement in their efforts to negotiate solid contracts, and support Procurement in their efforts to implement best-in-class e-Procurement software with m-way invoice match that insures that an invoice is not allowed to be placed in the payment queue unless the goods have been received and the invoices amount matches the contract or purchase order amount without an executive override that leaves a full, unalterable, irrevocable audit trail.

A properly supported Procurement department is in the best position to ensure that the third rule of acquisition is enforced. Their job is to make sure you never spend more for an acquisition than you have to . Similarly, as they are often charged with risk management, they are naturally in tune with the eight rule of acquisition, small print leads to large risk and are not likely to accept seller paper unless it has been thoroughly vetted by legal, even if it means that Engineering or Manufacturing or Marketing have to wait a little longer for their goods or services.

Plus, a great Procurement organization knows the eleventh rule of acquisition by heart, even if it’s free, you can always buy it cheaper. They know that every initial quote has a considerable margin built in, any value add that is “free” is included in that margin, and that if it really is “free”, it’s probably not worth anything, and the reason it’s free might just be because it would cost the seller more to pay someone to take it away or haul it to the recycling depot than give it to a customer as a “thank you” for the deal, on the condition the customer pays to have it shipped.

You know deep down the tenth rule of acquisition is the truest of all the rules. Greed is eternal and your suppliers are as greedy as you are, so while you’re out there doing what you do and living by the second rule of acquisition, the best deal is the one that makes the most profit, you need someone minding the fort making sure that deal is not undermined by a an even more cunning supplier. Remember the sixty-sixth rule of acquisition, someone’s always got a better sense for business, and only Procurement stands in the way of them getting the better of you.

Virtual Procurement Centers of Excellence: The Next Level of Complex Direct Procurement

We have already discussed Value-Based Sourcing in Complex Direct Supply Chains and how it can generate an ROI well beyond what cost-savings focussed Procurement can generate on its own. We also indicated that a key requirement of success for value-based sourcing was a platform designed for complex direct procurement, and outlined the basic requirements for such in previous posts.

However, the right platform not only allows Supply Management to extract more value from every event than it would otherwise, but, when properly implemented, also provides the foundation for a Virtual Procurement Center of Excellence — a VP-COE if you will. A VP-COE is the next phase of Procurement Evolution for leading Procurement organizations that have evolved from decrentralized models through centralized and center-led models but which now need another evolutionary transformation to excel in today’s increasingly sophisticated global supply chains.

Today’s leading Procurement organizations are center-led. These Centers-of-Excellence are focussed on the identification of appropriate supply chain strategies, strategic categories, best practices, and knowledge sharing and often leave individual buys and tactical execution to the individual units in an effort to get the best of both worlds.

These centers of excellence typically build cross-functional teams to tackle strategic categories that represent all of the key divisions and business units, allow for the creation of flexible supply chain processes and commodity strategies through collaboration, and find ways to fully leverage strategic category spend across the enterprise. They, theoretically, give the organization the best of both worlds and many organizations that employ this model have evolved to be leading Procurement organizations, often recognized in the Hackett Group Top 8%. But is this as good as it gets?

Not even close. The view painted by consulting organizations offering to transform your Procurement organization into a COE is one shared through rose coloured glasses. First of all only high dollar “visible” strategic categories will make the cut due to the limited manpower and additional time required to manage global communications and project teams. A lot of spend will go unmanaged, and a lot of opportunities left untapped. This does not sound like the definition of a true center of excellence to us. Does it sound like a true center of excellence to you?

The long and short of it is, in order to get all spend under appropriate management in a large, distributed, global organization, a virtual procurement center of excellence is required.

So what, precisely, is it and what, precisely, do you need to enable it? Good Questions! And you will find the answers in Sourcing Innovation’s latest white paper The Benefits of a Virtual Procurement Center of Excellence for Complex Direct Procurement, sponsored by Pool4Tool. Download Now! [registration required]

Procurement Sustentation (Collected Links)

Procurement Sustentation Prologue

  1. fiscal crisis
  2. Bank Failure
  3. (un)employment rate
  4. Gen X, Gen Y, and Gen Z
  5. Currency Conservation
  6. mega global corpos
  7. the 1%
  8. outdated financial models
  9. Oil & Gas Price Shocks
  10. Mini Trends and Macro Trends
  11. Postal Services
  12. Airlines
  13. ports & labour strikes
  14. roads
  15. Waste, ROHS, WEEE
  16. PETA
  17. Greenpeace
  18. Natural Disasters
  19. Water
  20. Oil & Natural Gas
  21. Climate Change
  22. Natural EMPs
  23. Food Shortages
  24. Rare Earth Minerals
  25. Government Actions
  26. WTO
  27. UNCLOS
  28. Customs Acts
  29. Trade Embargoes
  30. TPP & the Poison Pill
  31. China and the New Silk Road
  32. Political Unrest
  33. Taxation
  34. Tariffs
  35. Health & Safety
  36. Labelling
  37. Industry Associations and Standards
  38. The Sharing Economy
  39. Brand
  40. Crime & Piracy
  41. Fraud & Corruption
  42. Pandemics
  43. Urbanization & Mega Cities
  44. Education Quality
  45. A Lack of Match Competency
  46. Mass Hysteria
  47. XaaS
  48. Workers’ Rights
  49. Gamification
  50. Talent Tightness
  51. Talent
  52. Project Management
  53. Engineering
  54. Marketing
  55. Sales
  56. Legal
  57. Finance
  58. Logistics
  59. Warehouse Management
  60. Human Resources
  61. Leadership & Fiefdoms
  62. Shareholders
  63. Board of Directors
  64. Major Activist Investors
  65. Solution Partners
  66. Tier 1
  67. Tier 2
  68. Carriers
  69. 3PL Firms
  70. Outsourced Providers
  71. Government
  72. Corporations
  73. Individual Consumers
  74. Demand Planning
  75. Mobile Movement Madness
  76. Cybersecurity / CyberAttack
  77. e-Currency
  78. e-Privacy
  79. Big Data / Data Scientists
  80. The Cloud
    & The Cloud, Part II
  81. Social Media
  82. The Secret Seven
  83. Spreadsheets
  84. Dashboards
  85. Apps
  86. Template Mania
  87. OLAP
  88. Computing Leap
  89. IP Patents
  90. Open Source
  91. Proprietary Madness
  92. Data Loss
  93. Technological Disasters
  94. New Industrialization Era
  95. Competitors
  96. Consortiums
  97. Traditional Analysts
  98. Pundits/Futurists
  99. Conferences
  100. Bloggers

Give Your Procurement Practice Some Backbone! 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 Procurement expenditures.

In Part I, we discussed how as an organization moves from decentralized/departmental procurement decisions to a centralized procurement and strategic sourcing department, there are bound to be some growing pains when it comes to working with departmental stakeholders and that transitioning to an effective central procurement and sourcing model will require changes. We discussed two preventable gaps that undermine the transformation process and in today’s post we discuss two more.

  • Lack of management tools or processes.Procurement needs to be equipped so that once spend and suppliers come under purview, they can effectively manage each component. This doesn’t have to be a full software solution, but Procurement should be setting up some standards so that stakeholders can feel comfortable with handing off pieces of contract and supplier management to Procurement. This may start as a simple Excel sheet tracking contract notice and term dates, and can evolve to full contract management and compliance departments. With Procurement handling these components, stakeholders can reallocate their time to accomplishing departmental goals as opposed to tracking performance and dealing with contracts, SLA, and pricing issues. Having Procurement involved in supplier management can actually help the working relationship between suppliers and end users as stakeholders can rely on Procurement to play “bad cop” and push where necessary without putting the day-to-day relationships in jeopardy.
  • No clear way to provide feedback.When a business moves to a centralized model, there are sure to be some bumps in the road. It is key to have two-way communication between Procurement and other business units to continually improve and refine the process. Positive communication (e.g. sharing success stories) is a great to share how Procurement is benefiting the company and other departments (e.g. reducing costs, improving service, etc.), but be sure to also open a forum for constructive feedback. I have seen positive feedback shared through company announcements, newsletters or quick “blurbs” in departmental bulletins. Procurement departments can solicit feedback from something as simple as a quick email survey when projects close or by establishing more formal project debriefs to talk about what went right and what could have been improved with the stakeholders involved.

As Procurement professionals, it is key understand from a stakeholder perspective the challenges with letting go of control and autonomy for project and purchasing decisions. Procurement and executive-level management need to ensure that the Procurement department is being set up for success by establishing company policies and processes that will give Procurement the authority and standing it needs to be truly effective.

Thanks Torey!