Recruiting Top Procurement Talent is More than Just Standard Best Practice Recruiting …

A recent article over on the Supply Chain Management Review proclaimed to offer 9 Ways to Recruit Top Procurement Talent in Today’s Competitive Market. So of course it caught our attention. However, the tips it offered were just standard Best Practice Executive Recruitment, and it was quite disappointing. According to the article, the best way to recruit top procurement talent, which is the rarest talent out there right now, is to:

  • Personalize the Recruitment Process
  • Optimize the Candidate Experience
  • Clarity and Transparency on the Role
  • Tangible Opportunities for Growth
  • Flexible Work Arrangements
  • Holistic Compensation Packages
  • Consistent Employer Branding
  • Empowered and Inclusive Workplace
  • Understand and Act on (Current) Employee Priorities

… and absolutely, positively NOTHING here is specific to Procurement talent. It’s the basics you should be employing when recruiting for ANY role as you are seeking out the talent (which is NOT coming to you). If you want Procurement talent, you have to do more than this. For starters, we recommend

  • Parity Compensation with Sales … in an average company, if that company is lucky, 10 cents of every sales dollar goes to the bottom line but the sales person, on top of a nice baseline salary, will get a 10%, 20%, and even 30% of the sale; in comparison, every dollar of spend reduction achieved by a Procurement professional goes straight to the bottom line (i.e. 10X the ROI, or more) and their commission is a pat on the back and maybe a trip to ISM … they should be incentivized to go above and beyond baseline expectations if you truly want the best (of the best)
  • Adequate Technology Budget … as almost half of organizations don’t have any modern sourcing and/or procurement technology solutions/platforms and the majority that do have not yet digitized the full Source-to-Pay+ process to maximize Procurement productivity and profits
  • Adequately Sized Procurement Department … while technology will allow the team to do more with less, as per the Hackett Book of Numbers, there’s still a minimum number of personnel you are going to need to sufficiently analyze and monitor the spend, strategically analyze and source all the necessary categories, keep the tail spend under control, improve sustainability, support the brand, etc. etc. etc.

… but what we really recommend is not trying to lure away more than one high talented Procurement individual (to be your Director / CPO if you don’t have one) but instead lure away top talent with the potential to become Procurement Rock Stars because they have deep category expertise in multiple categories the organization needs to source; outstanding project management, technology/math, and management skills; and the right EQ to be both a team player, team leader, and supplier development professional.

In particular, you should consider looking for:

  • new age logistics leaders (who can model supply chains, complex landed / ownership costs, and understand lead times and extended supply chain risks);
  • astute supply chain modellers and designers from consultancies who have particular expertise in your domain
  • engineering leaders (who know their categories inside and out, do complex modelling on a daily basis, have been trained in project management and managed projects, and have leadership and people skills
  • corporate / supply chain insurance actuaries and professional economists who have the expertise to appropriately predict, cost, and manage risk and create proper risk-aware sourcing events and risk mitigation plans

… and then training them on your Procurement processes, which will be easy-peasy for them to learn compared to the complex logistics, supply chain modelling, science/technology/engineering/math knowledge, and actuarial science and econometrics they had to learn to do the job they’re doing now.

Moreover, depending on your domain, you may also be looking for chemists (chemical manufacturing), biologists (pharmaceuticals), lawyers (if you do a lot of contracting / contingent labour / outsourcing), etc. The reality is that the best of the best for your organization likely aren’t in Procurement yet (because, as we pointed out in our recent article on how If You Want Good Procurement People YOU NEED TO TRAIN THEM).

Don’t Overlook the Network (that Corresponds to the Award)

According to a recent Forbes article on Supply Chain Software’s Best Return on Investment, per $1 Billion in company revenues, no supply chain application has a better return on investment (ROI) than network design! And the doctor couldn’t agree more.

Just like strategic sourcing decision optimization is the best bang for the buck in Source to Pay, with documented, average returns of up to 12% year-over-year (by multiple analyst firms) as it can minimize total landed cost, and even total cost of ownership in some cases (including internal inventory costs, waste costs, etc.) and not just bids, while ensuring all business constraints are adhered to, an optimization-backed network design application can help minimize overall organizational supply chain costs. This is because a supply chain network optimization platform can minimize transportation costs, intermediate warehousing costs, tariffs, waste, emergency replenishment in the case of an unexpected stock-out, carbon/GHG, etc.

Plus, as the article notes:

  • network design solutions are absolutely necessary to uncover business value when the production-distribution infrastructure is large (and not just because you just can’t model that infrastructure in a spreadsheet)
  • network design solutions can look at Total Cost to Serve (TCTS) across a wide-range of fixed and marginal costs (and identify unintended circumstances of network design changes that could cause marginal costs to skyrocket)
  • network solutions can allow for multiple scenarios to be defined and multiple models to be run and cross-model and cross-scenario Pareto analysis to be run, trade-offs to be analyzed, and the best decisions to be made

One point that should not be overlooked is that projects will take some time, and it’s not because of the complexity of the network modelling or the time it takes to run the scenarios (as modern computing architectures are super powerful and modern algorithms highly optimized to be efficient and take advantage of massively parallel processing), it’s because you need a lot of good, clean, data. It can take months (and months) just to identify, collect, clean, and enrich the data required for global supply network optimization. But once you do that, the ROI will be beyond the expectations you have for every other supply chain solution.

The article, which describes a project to redesign the spare parts supply chain for a global automotive manufacturer, resulted in a redesign that immediately reduced network costs by 4% and identified transportation cost reduction opportunities through consolidation and re-allocating of routes to a smaller set of 3PLs that will save another 2.5% at contract renewal time. In today’s climate, especially in direct supply chains, a savings of 6%+ across the entire supply chain, and not just one category, is phenomenal!

Plus, as the article notes, in the age of sustainability, reduced transportation mileage and fuller trucks also equate to significant reductions in carbon emissions. WHAT A BONUS!

Automation is Good Across the Board! But Automation still does NOT mean Automated.

Not that long ago, we penned Procurement Automation: Good. Automated Procurement: Bad because organizations that embrace the right digital technology do much better than their peers, but organizations that go all in and put too much trust in unproven technology without human oversight (while trying to run before they’ve learned how to walk) or good data (and then make worse decisions than having no technology at all, as recently determined by Gartner) are making a huge gamble while forgetting that it is the house who always wins. (And in this case the house is the technology provider that is charging you a lot of money for the technology that eventually fails and costs you time, money, and in the worst case, your job and/or business. But we digress.)

And while this blog is a Sourcing, Procurement, and related Supply Chain Technology blog, it was very happy to see a recent release from the Hackett Group, as advertised in a recent press release on Yahoo! Finance / BusinessWire, that noted that while HR (and Humans are VERY important to successful Procurement Operations) operating costs increased significantly in 2023, Digital World Class organizations continued to spend significantly less than their peers while delivering more resiliency, employee productivity, and greater business value with less staff than their peers. The Hackett Group concluded that increased spend on technology plays a key part in driving the superior performance.

Other key metrics that Hackett pointed out is that companies with at least one business services function operating at Digital World Class levels see a five-year average performance premium over their industry medians -– an 80% improvement in net margin; 24% higher earnings before interest, taxes, depreciation and amortization; 89% greater return on equity; and 44% higher total shareholder return. (So imagine how good your organization would be doing if you were world class in Procurement and HR, and ensured that your organization always acquired, trained, retained, and promoted the best of the best.)

Hackett found that a key aspect of Digital World Class Organizations in HR, just like Procurement, was a greater use of technology (to the tune of 60% more likely to have and use the full capability of Human Capital Management applications).

There are a lot of great applications that a leading HR organization can employ that go beyond the specific applications mentioned of:

  • Human Capital Management
  • Time Sheet Management (for hourly employees / contractors)
  • Health (& Welfare) management

and, as Hackett points out, include the use of emerging technologies such as:

  • smart automation (not automated Gen AI applications)
  • advanced analytics
  • collaborative tools

For example, a good HR department will employ platforms that:

  • will use smart automation to onboard employees, ensure they get paid on a regular basis, ensure that their expense claims are properly routed and evaluated on a timely basis (and OCR use to reduce receipt processing), ensure that all information they enter on health/disability/etc. claims is auto-routed to the right third party systems (and not lost/transcribed wrong), etc.
  • will use advanced analytics to analyze its highest contractor/third party costs, determine what functions should maybe be brought (more) in-house, analyze it’s biggest employee benefit plan costs, optimize those costs (without reducing benefits), etc.
  • use collaborative tools for onboarding, training, and continued professional development, especially for remote learning and self-study

Just like a good Procurement department will employ platforms that

  • use smart automation to onboard suppliers, automatically distribute and collect RFPs, verify data that can be verified by a third party, do automated sanity checks, do initial analysis for presentation to a HUMAN, automatically generate POs from carts/contract schedules, automatically match, to the extent possible, invoices to POs, etc.
  • use advanced analytics to identify not only the greatest costs but the greatest opportunities available to the organization based on PPV (purchase price variance), market opportunities, consolidation, demand management, substitution, etc.
  • use collaborative tools to involve all stakeholders and make sure processes are automated to the extent possible

Because modern technology is far superior for tactical processing (thunking) than we are as humans. However, the leaders understand machines, while they can augment our intelligence with finely tuned applications, cannot think and leave the final decisions to the humans. Technology is applied appropriately for maximum success.

As Hackett says, the bottom line is that Digital World Class HR organizations are better at enabling their companies to succeed. They have streamlined the day-to-day transactional elements of their operations, and through systematic use of global business services and process automation have freed up an additional 12% of their teams’ efforts to focus on value-added activities. Now, they can more effectively focus on attracting, retaining, developing and engaging employees. The right digitalization helps people, and that’s why the right digitalization helps Procurement.

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.

Will a Circular Economy Work with Leakage?

Sustainability is one of the big buzzwords, and the biggest verbal pushes, in today’s Procurement. (In practicality, most organizations won’t put their money where their mouth is and if the more sustainable solution is more than a point or two more cost-wise, environmentally damaging sweat-shop production, here we come!) We need to get there, because only an idiot would deny global warming (the last 13 years have seen 10 of the hottest year on record), and no one can deny the correlation between carbon emission, atmospheric carbon increase, and global warming. (You can argue just how much is due to carbon emission and how much due to other factors, many of which are indirectly caused by warming, but not that carbon is a problem.) Thus, even though we don’t know how much carbon reduction will help, we know it will, so we need to get there.

One big way to reduce carbon is to reduce production, which can done by reducing waste, which can be done through more refurbishment, repair, re-use, recycling, and reclamation — which are all part of the circular economy. Which is where we really need to get to (because waste is a problem — in addition to overflowing landfills that can pollute nearby water suppliers and make nearby land unfarmable, and even uninhabitable, think of the great pacific garbage patch and the containers of e-waste being sent to India, which has been a problem for well over a decade, see this 2010 article on the Times of India, and you start to get a grip on the magnitude of the problem).

But how efficient does the circular economy have to be to be effective? Theoretically, anything more that we do is one step better than what we are doing today, but, given that most products weren’t designed for recycle and reclamation, technologies for recycling and reclamation are immature and possibly carbon/generating themselves (especially if the answer is extract what we can, bury or burn the rest), and that there are breaks in the chain, is this leading to new waste that could possibly offset (or exceed) the expected (carbon) savings?

It’s a question Karolina Safarzynska, Lorenzo Di Domenico, and Marco Raberto recently tackled in an open-access paper on how the leakage effect may undermine the circular economy efforts available on nature.com. In the paper, the authors examine the impact of the circular economy on global resource extraction by way of an input-output analysis using an agent-based model of the capital sector. Through a detailed analysis they find that an appropriately structured circular economy economy can significantly reduce the extraction of iron, aluminum, and nonferrous metals if
implemented globally but the leakage effect may also cause some metal-intensive industries to relocate outside the EU, offsetting the circular economy efforts because an overlooked requirement for the circular economy is not just a reduction of waste, but a reduction of transport as transportation (air, rail, truck, and ship) contributes a significant amount of global carbon. In fact, if you go to Our World in Data, in the United States, the transportation sector accounts, like the energy (electricity and heat) sector, for approximately 30% of transportation emissions. The statistics right now are similar for the EU (24% for transportation and 28% for energy). So, if all of a sudden products need to be shipped halfway around the world to be recycled and reclaimed and the core materials shipped back, transportation-based emissions would increase significantly and possibly even overtake the extraction and raw material processing emissions!

In all fairness, we should note that the paper is pretty technical and metric heavy, and this is a bit of a simplification, but it’s the core idea we need to be aware of. It’s not an improvement if the carbon you take out of one segment is exceeded by changes in another. Just like we need to home/near-source for anything we can grow/mine/make at/near home, we also need to home/near reduce/reuse/refurbish/remanufacture/recycle whatever we can. It might be that the rare earths can only be mined in certain areas, but that doesn’t mean they have to be reclaimed and re-used there.