The following are some more of the lessons learned shared by some of the participants at this year’s Hackett Best Practices conference in no particular order.

30. Procurement must be run like a business
Just like a business is profitable, Procurement must be profitable and must be seen as a profit-generator, not a sunk cost. If Procurement is being run as a services organization and has to charge the other organizational units internally for its services, it must insure that the charges cover its costs. Furthermore, it must reduce it’s cost per dollar of value generated year over year just like it reduces the costs of product or service acquisition on the projects it participates in. If it is not profitable, it will not have the respect of the C-suite.

And if it doesn’t have to charge the other business units to cover its costs, it should find a way to directly contribute to revenue generation to such an extent that it not only shows savings, but profit for the organizational unit for the balance sheet. Even if it can’t roll up its expertise and sell outsourced Procurement functions to smaller businesses like IBM, maybe it can still package some market expertise in a market intelligence service or offer NPD consulting to Engineering or manage the SRM projects internally to deliver even greater value to the organization.

31. Show sensitivity and respect for existing external relationships
Just because the current provider for a certain component required in production of the flagship product is the most expensive on the market doesn’t mean that Engineering will think that Procurement has the right to replace a vendor they’ve been working with for 10 years, even if the proposed vendor can deliver a higher quality product at a lower cost. Depending on the nature of the relationship, Procurement will have to either accept that this supplier is going to get some categories no matter what and will have to focus either on introducing a new supplier as a back-up, secondary source, that can also be used by Engineering to secure non-critical parts of the business or on working with the supplier on a lean initiative to take costs out over time.

32. Simplify and standardize
This may be among the most challenging initiatives the Procurement department ever takes, but it is one of the most essential. First of all, the last thing the organization wants to do is automate a broken process. Secondly, it can’t just throw a broken or inefficient process over the wall to a BPO or outsourcer and expect efficiency and costs savings. Thirdly, the organization will never achieve economies of scale if it uses three different systems for completing organizational transactions (such as a P2P e-invoicing system, a p-card system, and an accounting-based AP system where paper invoices are manually entered and paid) or for conducting e-Negotiation projects.

33. Sometimes its easier if services precedes manufacturing when expanding into new markets
As stated above, Procurement needs to be an enablement function. One of the ways it can do that is to use its knowledge of emerging economies where it sources from to help Sales and Marketing or Engineering expand into those economies. When expanding into new markets, its often easier if services are introduced before new plants are built or new products are introduced. Services provide “a personal touch” and can help the local talent pool (which will be needed to staff a new plant) and early adopter consumers (who will be counted on to buy the new products being introduced) get comfortable with the company.

34. Strong leadership is a must
It take more than the right people, processes, and technology for a Procurment organization to become world class. It takes strong leadership that will rally the troops to advance to the next level of performance, that will speak up and get the organization a seat at the big-boys table, and that will go out and make the case for Procurement involvement in each organizational unit of the business — sacred cows be damned. Without strong leadership, the talent, who will need to be critcal parts of cross-functional teams, will never advance beyond the status quo; the CPO will never graduate from the kiddie table (and that’s if she even makes it that far); and the

Our next post will continue our overview of the lessons learned that were shared by some of the participants at this year’s Hackett Best Practices conference.

The following are some more of the lessons learned shared by some of the participants at this year’s Hackett Best Practices conference in no particular order.

26. Operational transparency is a must
This is especially true if the Procurement organization is based in a (global) shared services organization and is forced to charge-back the organizational units for its services. Keep open books where the other organizational unit excutives are involved and be prepared to show how the value generated per Procurement dollar increases with time, otherwise the Procurement organization might be accused of attempting to make a power grab.

27. Perception always trumps reality
This is why the Procurement organization has to communicate, communicate, communicate, and communicate again. In the executive offices. In the hallways. With the line managers. Through the corporate newsletters. At the training sessions. If the rest of the organization does not have the true picture regarding Procurement and the value it contributes, the old-school perceptions of Procurement being non-value add tactical paper-pushers and process enforcers will persist and Procurement will risk losing its seat at the kiddie table.

This is also true when current processes and supplier relationships are on the table. If the organizational personnel perceive them as effective and efficient and the “right way to do things”, even if all three perceptions are false, it will be almost impossible to get the personnel to change the processes until they see the limitations and weaknesses and see that the proposed processes are better and come with additional benefits. The same holds for supplier relationships.

28. Procurement can never be satisfied with the status quo
Since the value delivered is never enough, and the cost of delivering that value is never low enough, no matter how good Procurement is, it still has to improve — even if it is world class (as this is a moving target that moves as soon as a competitor passes an organization that has stopped to take a breather). The reality is that no one cares about what Procurement did yesterday, they are only concerned about the value Procurement is going to bring tomorrow and how they are going to make their numbers.

29. Procurement needs to be an enablement function
It needs to go beyond cost reduction and avoidance and consider the end-to-end financial implications for working capital management, the risks associated with the supply plan and appropriate mitigations, and the innovation it can bring to the table. Procurement has the greatest impact when it is consulted early on in new projects, not after almost all of the designs have been completed and decisions have been made and the only cost left to take out are in the transaction. If Procurement is involved in NPD, it can take cost out before 80% of the costs are locked in.

If Procurement is involved in Marketing vendor selection, it can make sure that contracts disassociate creative from copy and bid out commodity print or production jobs to the lowest bidder. If Procurement is involved in law firm selection, it can help steer Legal to those that are capable of doing the work and willing to do AFAs (Alternate Fee Arrangements) on a project or task basis and steer the business away from the costly unlimited billable hour. And if it is seen as an enablement function that can help in project definition as well as project implementation, it can not only play a larger role in the business, but secure better results in the long run

Our next post will continue our overview of the lessons learned that were shared by some of the participants at this year’s Hackett Best Practices conference.

The following are some more of the lessons learned shared by some of the participants at this year’s Hackett Best Practices conference in no particular order.

21. Make people a priority
Sourcing Innovation has already established that talent management is a top priority, and that must start with making people a priority. They must be supported, empowered, recognized, and rewarded appropriately as they are the most vital part of the Procurement organization. After all, results require more than processes and technologies, they require intelligent and creative people driving them.

22. Move to One System
Larry Ellison has always known the power of One. That’s why Oracle was one of the first companies to have the enterprise system vision as it is impossible to get more leveraged than one system across your entire enterprise.

If the organization has one system, then it has one transaction store. If it has one transaction store, then even the most unsophisticated transaction processor can easily do highly accurate and levaregeable spend analysis and spend forecasting at any time.

If the organization has one system, then it has one maintenance contract and one head to roll if something goes wrong. No worries about the endless finger pointing and blame games between two (or more vendors) refusing to admit fault when they should be getting it fixed.

In other words, the fewer systems the organization has, the more the organization can leverage its IT model, which is often a key to success.

23. Never forget the value add
Just like a consumer will always prefer the product from the manufacturer with a great warranty and a great service record if everything else is equal, the internal business partner will always prefer the Procurement organization that goes the extra mile to deliver more value. To insure that the Procurement organization, and not a GPO, outsourced / shared services center, or consulting / vendor organization is seen as the go-to organization when needs and challenges arise, the organization constantly has to add value, otherwise the Marketing department might be swayed the next time a specialist consultancy calls up and explains how they just saved the competition 30% in their advertising budget.

24. No matter the value delivered, it is never enough
It’s a great success that Procurement managed to get the customer free maintenance for two years in their IT buy, or a few weeks of free lean training from the consulting organization that is designing the new plant, or managed logistics for their retail distribution channel, but it’s not enough. The internal customers of the Procurement organization will always expect more, and to continue to be seen as the go-to organization, Procurement will have to find new ways to constantly delier more value every time it re-sources a category or undertakes a major new project for the organization.

25. No matter how small the fee is, it is never small enough
This is especially true if the Procurement organization is based in a (global) shared services organization and is forced to charge-back the organizational units for its services. Even if it saves the Marketing organization 10 Million dollars, they’ll still bicker over the 500 Thousand support bill (that will barely cover the personnel and systems cost) despite the 20:1 ROI. Procurement will have to find ways to constantly lower costs internally or add value externally and raise the ROI, be it hard or soft, over time to maintain credibility and gain influence.

Our next post will continue our overview of the lessons learned that were shared by some of the participants at this year’s Hackett Best Practices conference.

The following are some more of the lessons learned shared by some of the participants at this year’s Hackett Best Practices conference in no particular order.

15. Fish where the fish are
If a fisherman wants to catch a fish, it’s more likely that he will catch a fish in a lake filled with them then in a lake that is devoid of aquatic life. Similarly, it’s easier to find savings in a category rife with overpayments, maverick spending and/or contracted rates (well) above market average. Thus, if the Procurement organization wants to get some quick wins to establish credibility, it should focus on those categories that represent the largest opportunities.

16. Focus on efficiency of the company
Procurement efficiency is important, but corporate efficiency must come first. Procurment must put the good of the company first, especially if it wants to graduate from the kiddie table.

17. Governance and Sponsorship must start from the top
Since Procurement success will usually require change, and organizations generally resist change, support will be required to achieve success. However, success will be a lot more likely if support comes from the top as it may be difficult to overcome resistance without executive support.

18. Have a Talent Management Strategy
Procurement transformation and success will require top talent, and top talent, which is in critically short supply in Procurement, will require a talent management strategy to identify talent, recruit talent, retain talent, advance talent, and capture their knowledge when they move up. A critical part of this strategy will be to transition or use critical resources from other parts of the business either through cross-functional teams or re-assignments.

19. IT is Procurement’s new best friend
Not only will Procurement transformation generally require new processes and systems, which will require the support of IT (as reengineering takes time and expertise), but IT is often in a situation similar to Procurement — being asked to reduce cost while delivering more value. Together, Procurement and IT can work together to reduce costs, increase value, and gain more recognition and respect for both business units as they transform the organization to a world class organization.

20. Leverage outsourcers and outsourcing relationships
Sometimes the best way to get ahead is to outsource part of the Procurement function to allow the organization to do more with less or maximize the capabilities it has. Sometimes this will involve outsourcing the tactical parts of the Procurement function, such as transaction processing; sometimes it will be outsourcing generic categories such as office supplies, tellecommunications, or commodity hardware buys to a GPO where the organization “fits”; and sometimes it will be working with consultant organizations to get better results on strategic categories where the organization doesn’t have the (market) expertise to get savings (without sacrificing quality or reliability of supply) on its own.

Our next post will continue our overview of the lessons learned that were shared by some of the participants at this year’s Hackett Best Practices conference.

The following are some more of the lessons learned shared by some of the participants at this year’s Hackett Best Practices conference in no particular order.

09. Data is King
Cost savings reports are good, but savings reports backed up by hard data are better. Forecasted savings are good, but detailed projections backed up by proven models and years of hard data are better. Targetted spend categories are good, but spend categories known to have considerable overspending backed up by a data-rich spend analysis are better. Any which way one chooses to look at it, data is king.

10. Demonstrate an interest in your client’s business
Just like the most successful service companies in the consumer space put the interests of the customer first, the most successful Procurement organizations put the needs of the client’s business first. But they go beyond that and develop, and demonstrate, an interest in the business of the client and try to understand what the internal client organization — be it Engineering, Marketing, or Legal — will need before even the client organization understands what it needs.

11. Do not minimize country specific needs
It might be tempting to globalize successful sourcing and procurement practices as is, but each country will have specific needs with respect to its culture, language, and accounting systems. As a result, it may not be possible to globally deploy certain systems or processes with respect to transaction management and global trade documentation management if the systems do not have customizations for those regions.

12. Empower the Global Teams
If the organization uses global teams for Procurement or Sourcing, be sure to empower them to do the jobs they need to do. Don’t outsource invoice processing without the authority to resolve discrepancies. Don’t outsource categories without the authority to contract on the award decision. Otherwise, the teams will not feel like they are a critical part of the organization and, once the team members get the skills and experience they need, they will depart for greener pastures.

13. Establish common methods of approach
Even though there may be category or country specific needs, generally speaking, the 80/20 rule is in play and 80% of processes, methodologies, and technologies can be standardized across the entire Global Procurement organization, which should be center-led.

14. Everyone wants the benefits, but no one wants the risk
The category owners will want the benefits of lower cost and higher quality that can come from a new supplier, but will want not the risk of the unknown. The users will want the advertised benefits of a new IT system, but will not want the risk that it will cost more and take longer to be deployed than advertised, or the risk that it might not even meet the big audacious goal that was advertised.

Our next post will continue our overview of the lessons learned that were shared by some of the participants at this year’s Hackett Best Practices conference.