Category Archives: Procurement Innovation

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.

Procurement — Why We Matter Even More!

Last week, we re-ran a post by David Furth, former VP of Marketing at Hiperos and current President of Leap the Pond, on Procurement – Why We Really Matter. In this post, David explained that Procurement is on the verge of its next major transformation where it will continuously assess risk and introduce integrated processes and controls across the company to mitigate the risk by working closely with other functional areas, business lines, and geographies. In addition, Procurement will implement management control programs that actively monitor both performance and compliance to help ensure suppliers are meeting all their obligations.

David was, and is, right. Now that everything is outsourced, resourced, and optimized to razor-thin JIT models, risk management — and continuous monitoring — is key. But that is just the beginning.

It’s not just risk monitoring, but compliance monitoring and performance monitoring. (Safety) regulations (like RoHS, WEEE, and REACH) are coming into effect fast and furious around the globe, as are bans on toxic substances, materials and products that can be used to create dangerous weapons, and conflict minerals and diamonds. As a result, compliance monitoring is becoming more and more important.

But so is performance monitoring. You can’t ignore the importance of quality, reliability, and safety as it is your reputation — and bank account — on the line. If the products you deliver continually break under warranty, even if you have a policy that you can return for replacement, you’re still losing the profit, the customer’s trust, and the costs associated with processing the return. If the products hurt someone — you’re getting sued, not your supplier. And if the products don’t perform up to spec, even if they don’t break, the customer ain’t coming back.

And even though savings aren’t everything, because it all comes down to ROI — value delivered by your organization. However, if your organization is to remain competitive, it still has to keep costs in check and at least keep costs in line with your competition. Often the only way to do this is to identify when you need to help your suppliers decrease their costs and increase their productivity, and this requires constant performance monitoring.

And who else in the organization can properly monitor risk, compliance, and supplier performance? Not manufacturing. Not logistics. And definitely not finance. That’s why Procurement Matters — Now More Than Ever.

Once You Get the Three T’s, What’s the Next Step To Asia Pacific Dominance?

In our last post on Why There Are No World Class Procurement Organizations in Asia Pacific, we noted that the primary reason that no business head or CPO in Asia-Pacific reported their Procurement capabilities as great is the classic Triple-T problem — a lack of talent, technology, and transition management. When we reviewed the seven things that Bain indicated procurement teams lack, we noted that all were fundamentally an instantiation of a talent, technology, or transition management problem.

However, getting the three T’s in place is just the first step. The next step is to apply them properly. Where do you start? One place to start is with the six enablers outlined in the article. While the doctor thinks it is debatable that these enablers will help a company establish 4th generation Procurement, like the article suggests, it will definitely up an organization’s game and put them on par with their counterparts in the western world.

So what are these enablers?

1. Better Organization

This requires the organization to acquire a clear procurement mandate, a streamlined organization that appropriately delineates global vs. regional vs. local responsibilities, and clear roles and decision rights across Procurement. In addition, the organization needs to elevate critical decisions to senior management (to ensure they not only have senior management buy-in but support), implement a feedback loop from internal customers to end consumers, and establish effective reporting channels.

2. Better Processes

This requires better category management, vendor management, and information management. Sustainable savings come from holistic category management, not point commodity sourcing. Suppliers only improve when properly managed. And information quality is key to Sourcing, Procurement, and all related aspects of Supply Management.

3. Better Tools & Systems

Leaders have integrated and transparent data for both direct and indirect spending. Good decisions require good data. Good data can only be obtained from good tools.

4. Better P&L Effectiveness

Leading companies have pull-based demand management with enforced compliance and formalized budgeting for all categories. They employ sourcing platforms that allow a company to see the direct effect of a sourcing decision on the bottom line.

5. Better Talent Management

Just because you have talent today, this does not mean you have talent tomorrow. If you don’t continue to educate and advance your talent, they will leave you for a competitor who will. Plus, as your organization grows, you will need to add more talent. Without a proper talent management strategy, your talent equation can only be solved for a single point in time — if you are a lucky one.

It’s a hard climb, but a feasible one. And if you review the SI archives, you will find many posts about how to improve in each of these areas. Happy Hunting!

Procurement – Why we really matter! (Repost)


This post originally ran on November 10, 2010. However, it is still as relevant today as it was then and, for those of you who did read it before, not too much of a distraction to you as we approach the World Cup Final :-;


Today’s guest post is from David Furth, VP of Marketing at Hiperos. David has been in Procurement for over 20 years and has held senior positions at Perfect Commerce, BasWare, RightWorks/i2, and Deloitte Consulting.

Procurement is on the verge of experiencing its next major transformation. During the past ten years, the emphasis has been on optimization – leveraging spend, improving the sourcing process, and becoming more efficient across all aspects of the P2P and Order-to-Cash value stream.

As a result of these improvements, companies now rely on suppliers, outsourcers, and other third parties more than ever. A fact now recognized by C-level executives, boards of directors, and regulators, alike. Why? The increased reliance on these third parties has occurred without implementing the same level of control or having the same level of visibility that was in place when the work was being performed internally. The result is increased risk to company performance and brand reputation.

As a result, forward-looking procurement leaders are transforming their organizations. They still maintain the same obligation to keep costs down. But they have added the responsibility to continuously assess risk, pre- and post-award, and introduce integrated processes and controls across their companies to mitigate that risk by working closely with other functional areas, business lines, and geographies. During the next few years, procurement will be looked upon to provide important guidance around how key external contributors to their companies’ value chains are managed.

This is why more and more procurement executives are stepping forward to introduce a consistent method for managing providers across a wider breadth of their extended enterprise. These executives recognize that just because the contract assigns responsibility/liability for just about “everything”, this does not absolve their companies from the responsibility of ensuring each provider is living up to all contractual obligations. This requires implementing management control programs that actively monitor both performance and compliance to help ensure suppliers are meeting all their obligations.

This is an enormous responsibility that requires consolidating requirements across a large number of stakeholders, communicating expectations to all providers, collecting information and documentation about current status, and collaborating with providers to remedy issues when shortfalls are identified.

To be successful requires a new attitude, a thoughtful approach, buy-in from key stakeholders, and the appropriate technology. Despite the best of efforts, responsibility or risk cannot entirely be outsourced.

So, when you consider the consequences of suppliers failing to meet their obligations, regulators handing out fines for poor oversight of third parties, and investors losing confidence in your brand, it is not surprising to see real action taking place. The past few years have made it abundantly clear, it is not a good strategy to expect that a great contract will get you great results, ensure providers follow the law, or prevent them from acting unethically. Therefore, it is imperative to have the appropriate level of controls to mitigate to the appropriate level of risk. This has not been the traditional way of thinking, but that is rapidly changing.

Thanks, David.

It’s Been Eight Days Since the First Procurement Independence Day

Eight years ago, Procurement Independence was Declared at the Coupa Cabana Cafe. Since then, there has been a surge in Enterprise e-Procurement Applications on both sides of the Atlantic, and many can be deployed to all employees across the global organization to handle requisitions and procurements.

In other words, an average organization has no excuse to be a slave to old MRP and ERP systems and the slow and inefficient procurement processes they enforce upon you. But many organizations still are slaves to broken systems that cost them over $100 to process an invoice (compared to the $30 to $40 average and the $3 to $4 average for a modern e-Procurement system with end-to-end invoice automation) and 30% to 40% leakage on negotiated savings due to overpayments and maverick spend.

So this year, make an Independence Day resolution to achieve Procurement Independence. Then your organization will have a real reason to celebrate.