Consider the Source

Top 5 Staffing Considerations for Building a Procurement Team

By Bill Huber, Director ─ CPO Services, TPI

The most effective procurement organizations are able to attract, stimulate and retain top talent; and retain the energy and momentum to continuously drive change to their companies. Less effective organizations can succumb to bureaucracy, marginalization and the loss of talent.

How your procurement organization approaches staffing can make all the difference. Here is an overview of the
TPI Top 5 considerations for building and staffing your procurement team:

1. Focus on the 21st Century procurement leader. The traditional procurement focus on cost savings, negotiations and contract terms are all critical, but they have become non-differentiating table stakes for procurement leaders. 

2. Don’t overstaff. Every procurement organization is resource constrained and has more work than it can possibly complete. However the strategy of bulking up with bodies results in more overhead and the perception of an organization peppered with administrators, compliance cops and transactional buyers, all of whom will be accused of slowing down business. Find ways to make other organizations accountable for lower value activities, and reposition a smaller procurement staff as managers of spending strategy, governance and relationship performance. 

3. Build in flexibility. Create an environment that will ensure that the procurement staff is able to move across commodities and business areas. This means cross-training and balancing subject matter depth with adaptability and flexibility. 

4. Manage customer intimacy. To the extent possible, co-locate your key personnel with their most important internal clients. Your clients should see procurement leaders as members of their teams. Build formal partnership agreements with key clients, and involve them in the evaluation process of your leaders. 

5. Compensate well. A smaller team is easier to make a well-compensated team. If the core procurement organization is able to focus on the activities that will bring the largest bottom-line impact to the organization, and if budget is freed up through the strategies identified in consideration #2, it will be easier to attract top talent. 

Read Bill's entire TPI Top 5 here . . .

TPI’s seasoned sourcing experts can help you achieve your global sourcing goals through objective advice, robust market data, knowledge of your industry and extensive experience with sourcing negotiations.
 
E-mail Bill Huber, Director ─ CPO Services, TPI, or phone him at +1 704 806 3910 to learn more.

Growing Evidence that Procurement Outsourcing is Rapidly Moving to Strategic Sourcing, Category Management and Technology

By: Bill Huber, Director, CPO Services, TPI

Recently, ICG Commerce announced that it signed a four-year agreement with Houghton Mifflin Harcourt Publishing Company ─ the world's largest publisher of educational materials for pre-K–12 schools ─ to provide ongoing sourcing and category management services. HMH will leverage ICG Commerce's deep category expertise, supported by a robust market information and technology platform, to drive cost reductions across its indirect spending in areas including IT, telecommunications, marketing, facilities management and travel.

Advance Auto Parts also recently signed a procurement outsourcing agreement with IBM. It will “allow Advance to focus resources on achieving its key strategies, provide savings opportunities by leveraging IBM's buying power during vendor negotiations, give access to IBM's global expertise and best practices for both sourcing and expense accounts payable, and improve processes and organizational capabilities with both procurement and accounts payable policies.” Click here for Advance’s full news release.

Over the summer, IBM announced that is has expanded its procurement outsourcing services offering with new strategic sourcing services and new procure-to-pay services. Writing in Supply and Demand Chain Executive, IBM’s VP of Procurement Services Bill Schaeffer noted that, “Once a company has gained full advantage from the potential value offered by sourcing and procurement, the only remaining direction to look is outside of the company for additional leverage and value. At the simplest level, this begins with benchmarking and application of ‘best practices.’ However, benchmarking really only begins to point us in the right direction and cannot deliver the full value that a company seeks. True spend leverage occurs not just when a company uses the best ideas of another business, but when it actually leverages the resources, infrastructure and spend of other businesses in concert with its own to derive more value than it can by itself.”

India-heritage service providers have also moved solidly into sourcing and technology. Infosys launched its “Sourcing and Procurement Academy,” focusing on a “sourcing and procurement curriculum to enhance competencies and meet the goals and objectives of both the employees and the company. Our academy enhances the skills of procurement professionals to deliver better value to customers.” Infosys has also launched a sourcing and procurement business platform based on the SAP SRM platform with niche applications such as workflow, OCR and document management. Other leading India-heritage providers such as Wipro, TCS and Cognizant have also built strategic sourcing capabilities by leveraging their technology capabilities and growing consulting capabilities.

Global leaders Capgemini and HP are also investing in procurement capabilities. Capgemini announced that it is working with European e-purchasing solution provider IBX to launch a BPOpen technology platform for procurement. Capgemini has indicated that “this new solution is aimed at reducing the cost of procurement for companies while also accelerating and reducing the time to ROI on the deployment of e-procurement” to “enable their clients to incur one-tenth the implementation costs over traditional implementation approaches in their sourcing efforts.”

There are a number of reasons that procurement outsourcing has expanded so visibly into strategic sourcing, category management and technology:

·   To increase spend under management, procurement outsourcing providers bring in additional, specialized category expertise, typically by expanding a company’s sourcing team from tens to hundreds.

·   These additional resources leverage real-time market intelligence gained from continually analyzing sourcing categories for multiple companies throughout the year (versus once a year or every three years) and use this information advantage to deliver better sourcing results.

·  To help companies achieve high levels of compliance and maximize realized savings, providers have invested heavily in developing:

  

o    Reporting and analysis tools to identify, monitor and continuously improve savings programs

o    Integrated processes, infrastructure and dedicated resources to actively manage categories and savings initiatives post-sourcing

Combined, these capabilities can help companies achieve and sustain greater results in a shorter period of time.

 

Procurement executives and CFOs are using this advantage to position procurement as a key source of cash or working capital that can be used to meet strategic objectives such as improving margins or funding growth and innovation. The procurement outsourcing sector is continuing to evolve, moving into project-based sourcing, logistics and other supply chain management functions. It is currently one of the most dynamically developing areas of outsourcing.

Stay tuned … post your own thoughts here, and feel free to contact me at bill.huber@tpi.net to discuss further.

Top 5 Actions to Heighten the Strategic Impact of Your Procurement Organization

By Bill Huber, Director, CPO Services, TPI

During tough economic times, procurement is often called upon to “win” price and payment term concessions from suppliers and service providers in order to boost the bottom line. While there is no question that part of procurement’s role is to ensure that a company is paying the best price, the “blunt instrument” approach tends to simply focus on supplier profit margins without doing anything to improve quality or drive innovation that ultimately, permanently removes real costs from the supply chain. 

                                                                                              

Here are five actions that you can take to raise the strategic impact of your procurement organization.

1. Define the target role for your procurement organization. Review your department objectives and formalize the role and results that you would like procurement to achieve for your company during tough economic times. Set strategic objectives in terms of innovation, quality, cost savings and customer service that the procurement organization will embrace as a response to recessionary times, and measure your progress toward those goals.

2. Segment your supply base. A formal tiering of your supply base, with best-practice supplier management processes for the top tier, can have a dramatic effect on the value that you derive from your most important suppliers. Set frequencies for reporting, monitoring, collaboration and financial reviews with each, and require that your most strategic suppliers bring a certain number of innovation suggestions to the table each period. Set a formal process whereby these suggestions will be vetted, with the best ideas submitted for review by an executive-level procurement governance team.

3. Realign your resources. Identify underutilized or misaligned resources, and shift roles to focus talent on your greatest areas of opportunity. Often individuals who have been focused on a particular commodity because of their expertise could bring a fresh perspective to other categories. People who make the greatest impact in their current areas can have an even greater effect on an entirely different category.   

4. Review processes and technology to identify roadblocks and underutilized capabilities. Processes can be slower and more cumbersome than they need to be. Stay on the lookout for procurement processes that were designed to address a past problem that is no longer relevant today. Also, organizations often have only partially deployed procurement technology solutions for lack of resources to support a more ambitious rollout. A second look can reveal underutilized technology that could be leveraged with a different support model to drive faster cost savings or improve visibility or user satisfaction.

5. Evaluate governance structures, and change if necessary. Good procurement governance should enable transparency and balanced decision making. In order for it to be effective, procurement governance must be designed to ensure that important decisions are made at the right level to balance risks with rewards, and to ensure a timely flow of information to the right levels of the organization.  

Implementation of these five actions could ultimately improve the effectiveness of your procurement organization by 3 to 5 percent or more, increasing your impact on the bottom line and transforming the role that procurement plays within your company.

TPI’s CPO Services experts can collaborate with you to assess your current procurement processes, then help you identify and implement strategies to improve quality, drive innovation and permanently remove real costs from the supply chain.

Contact us today to begin the dialogue.

Insights from the IACCM Americas Conference (Part 1)

By Bill Huber, Director, CPO Services, TPI

The 2009 International Association for Contract and Commercial Management (IACCM) (http://www.iaccm.com/americas/) Americas conference opened yesterday in Orlando.  The conference theme focuses on the tools, techniques and organizational models that result in the responsible management of risk and ensure high-performing business functions.

In the words of IACCM President Tim Cummins, “Today's market conditions have increased the pressure for responsible risk management. In such an environment, it is tempting to respond with increased review and greater emphasis on compliance. Yet this presumes that risks are themselves well understood and that market needs and opportunities will adjust to fit an accepted risk profile.”

During the opening panel, Conoco-Philips Chief Procurement Officer (CPO) Mark McDaniel focused on the fact that risks are analyzed by various constituents: finance and procurement, suppliers and service providers, partners, government entities and others.  However, as Mark pointed out, “The trick is getting alignment of risk profiles and risk strategies between these constituents.” 

An effective risk strategy cannot be built around risk transfer, as such an approach merely shifts the weak link within the chain, and does nothing to mitigate the overall supply and services chain risk. As a better approach, examples were provided of frameworks to integrate multiple risk scenarios into the negotiation process to encourage a joint mitigation approach as standard part of negotiation strategy

Pervasive challenges also remain in adoption of models that link risks on the enterprise level with those at the contract portfolio level and those within individual relationships and specific contracts. 

In the case of Conoco-Philips, they have taken the approach of conducting regular meetings between the procurement organization and finance, internal economists, and legal to facilitate the formation of this common view.  McDaniel also pointed out that he will ask supplier sales representatives whether they know the names of the CPOs within their companies and uses this approach to gauge whether his suppliers have implemented integrated risk strategies within their own organizations.

Those organizations that are effectively managing supply risk have implemented a formalized governance structure to institutionalize an integrated view of risk and enable efficient communication, analysis and decision making at the right organizational level.  TPI’s presentation; “Global Procurement Design – An Agile Engine During Recession” provided an example of the type of framework that companies can implement to provide an integrated view of risk by leveraging both functional competencies and leadership processes.  While technology is clearly helpful, implementing the appropriate communications and decisioning processes can be highly effective in the absence of any special technology.  This also appears to be the consensus of many of the presenters at IACCM.

THE ROLE OF PROCUREMENT IN A RECESSIONARY ECONOMY – HOW TO ATTAIN SAVINGS QUICKLY – Part 2

By Bill Huber, Director, CPO Services, TPI and Shahid Bhatty, Senior Advisor

In our previous post, we commented on the recent IACCM (International Association for Contract and Commercial Management) survey of procurement professionals, across a broad spectrum of industry verticals, on the most pressing issues facing them in the current recessionary environment.  Similar to other business functions, effective procurement leaders will prepare and secure executive support for a business plan annually, and update it as required through the year.
 
However, in order to create and implement a procurement business plan (planned strategic sourcing activities), organizations need resources and tools to gain visibility to spend, change management skills to implement procurement policies and procedures, and their key resources focused on the core activity of generating savings.  Many organizations have attempted to take on these challenges and have had varying degrees of success, as attested by the results of the IACCM survey. As a consequence, some procurement organizations have lost credibility.  In fact, in the IACCM survey, when asked how procurement is viewed by internal stakeholders, only 20 percent viewed procurement as a trusted advisor!

This is not surprising, since it is uncommon to see organizations or individuals perceived to be in a compliance role treated as trusted advisors.  We believe that in procurement, governance needs to be clearly differentiated from compliance. Enterprise governance must rely on an effective compliance approach to provide real time business intelligence to executive decision makers and reinforce the objectives of procurement policies, but the two activities need not be performed by the same set of individuals.  In fact, it is usually more effective to separate the two, since governance requires leadership and influencing skills and compliance requires transactional and auditing skills.

One way to raise the effectiveness of procurement governance is to engage outside service providers to perform many of the activities that will improve compliance.  Based on an organization’s maturity profile, these service providers can be engaged selectively to:

• Perform transactional activities and a few non-core functions/categories so that retained resources can concentrate on the core activities of managing critical relationships and driving savings strategies
• Conduct strategic sourcing activities for certain commodities where they bring the category expertise and necessary tools to achieve rapid time to savings; the scope can range from a few categories to almost all non-unique indirect spend categories
• Provide or support tools and technology that procurement can leverage to offer greater spend visibility
• Provide change management expertise to help procurement implement the new programs and create greater visibility across the stakeholder/user community
• Support governance structures with participation from key executives within the company that outline defined/structured programs to generate savings create operational efficiencies and manage the associated change, thus helping raise the profile of procurement within the company

This approach optimizes the strengths and economic advantages of internal and external resources. In today’s recessionary environment where procurement is under tremendous pressure to achieve greater savings, working with outside service providers may be the quickest and most cost effective way to meet objectives. 

THE ROLE OF PROCUREMENT IN A RECESSIONARY ECONOMY – HOW TO ATTAIN SAVINGS QUICKLY

By Bill Huber, Director, CPO Services, TPI and Shahid Bhatty, Senior Advisor

IACCM (International Association for Contract and Commercial Management) recently commissioned a global study of procurement professionals, across a broad spectrum of industry verticals, on the most pressing issues facing them in the current recessionary environment.  Almost 80 percent of the respondents indicated that the most pressing challenge facing them in 2009 was generating cost savings for their organizations.  The other challenges outlined were risk management (resiliency of supply/service chain, managing of legal terms and risk) followed by an ability to procure goods/services.

The survey respondents were also asked to identify which areas had the greatest impact on their ability to achieve their stated goals. The results are listed below:

 

So, the question is – how can procurement organizations overcome the barriers listed above? What can a procurement organization do to raise its profile within the company and be seen as the primary vehicle in setting up supplier relationships and performance? How can it overcome the lack of resources or the lack of visibility into spend patterns? How can it ensure that procurement policies and procedures are implemented? 

One obvious solution is to grow from within and raise the stature of the procurement organization with the C-suite.  But in order to do this, a procurement organization has to know how to relate to the C-suite. This includes abstract skills such as managing perceptions, framing procurement in the context of the big picture (not single mindedly framing the big picture in the context of procurement), and managing provider relationships judiciously and collaboratively (not autocratically).  It also includes the financial savvy to articulate the business case, risks and operational requirements for real benefits. For example, the procurement group of a major IT services company created a procurement business plan every year outlining:

• Savings to be generated by the group, typically via planned strategic sourcing activities
• Planned investments by the group in order to attain the savings
• Participation level required from internal stakeholders/users to participate in sourcing activities
• Operational services levels that will be established with internal stakeholders/users of the procurement group

The plan, presented to C-suite annually co-signed by business unit leads, ensured that the group received a higher profile within the company and that changes implemented for savings were used to monitor the group’s performance in a similar manner to any other business unit. 

SIG Conference: Day 2 - Procurement, Supply Chain & Day 2 Reflection

By Bill Huber, Director, CPO Services, TPI

 

Procurement Outsourcing:

Here at SIG, Rajeev Menon, VP & head of Procurement Services for Genpact based in Hyderabad, and Judy Burds, VP Business Development, reported that Genpact has seen a significant pick up in procurement outsourcing awards in recent months.  This has included stand-alone purchase transaction processing for a global pharmaceutical company, expansion of addressed spend with existing customers, and significant procurement work as part of several larger F&A engagements.  Genpact is also seeing interest growing in their tail-end spend management services.

New Position Chief Supply Chain Officer (CSCO)

IBM showed its recent research on “The Supply Chain of the Future” which included fascinating data on five critical issues: Cost Containment, Visibility, Risk, Customer Intimacy and Globalization.  According to IBM, the CSCO combines the role of the CPO and the COO.  It was a visionary session which provided much food for thought for all in the room.

Our view

We have rarely seen a higher level of intellectual engagement at a conference, and there has been significant exchange of best practices. The consensus is that despite the current political climate, sourcing decisions are now, more than ever, critically focused on solutions that will provide greater value to the customers for the same or lower price. This suggests an increase in the emphasis of capability in the “3C Framework for Successful Sourcing Strategies” (Capability, Capacity and Cost).  I expect to see many of the approaches discussed at this event increase and become more mainstream during the next year.  The silver lining in all this is likely to be meaningful innovation and improved productivity in sourcing.

SIG Conference: Day 2 – eSourcing Insights and BPO Innovations

By Bill Huber, Director, CPO Services, TPI

eSourcing:

SAP and WE Energies provided some excellent, practical insights on how eSourcing auctions have been successfully conducted, and how they were able to diffuse the frequent arguments that reverse auctions destroy value.  As we have noted in the past, reverse auctions and other sourcing technologies are simply tools, and it is always the human element that determines whether tools will help to create or destroy value.  Gail DeVeau’s work at WE Energies is an example of how the tools can work in capable hands. 

The BPO Market:

Phil Fersht from AMR Research provided a broad overview of the direction of BPO. He shared many excellent nuggets with the group.  There were several highlights that stood out:

• There is a new breed of executive emerging that is looking at globalization and outsourcing.  In the 90’s the CIO had to move forward with enterprise resource planning (ERP) or be left behind.  Now, senior finance executives are feeling the need to move forward with globalization or be left behind.
• Healthcare analytics and sourcing from federal funding will be a growth area for sourcing professionals.  The stimulus plan confirms this.
• Many things that AMR Research has been telling clients not to do in outsourcing for years is now happening. Now companies are simply saying, “Take 30-40 % off bottom line. We are willing to take a leap of faith. We just want it done.”  The reality is that it takes 3-4 years to do effectively. 
• In outsourcing, client satisfaction trumps other service level agreements (SLAs).  If clients are satisfied and they feel that they are working with the provider, they will tend to be pleased even if there are problems in other SLAs.
• Procurement outsourcing will increase, partially because of the skill set issues facing procurement organizations, and knowledge process outsourcing (KPO) options available that are executable with relatively small headcounts. 
• Customers are asking procurement software vendors to provide more process support to      drive greater collaboration between procurement software providers and outsourcers.  Currently only about 15% of procurement BPO implementations involve technology transformation, far below other areas of BPO.
• KPO resources are often used to bring high value service to clients with the objective of ultimately growing the business into more scalable BPO. 

More insights from day 2 to follow…

 

SIG Conference: Day 1 Review – First Impressions

By Bill Huber, Director, CPO Services, TPI

The 35th Sourcing Interests Group kicked off its summit yesterday in Baltimore, MD.  There are over 325 attendees this year, up slightly from last fall.  The healthy attendance at a time when discretionary travel has been restricted across the board underscores the critical importance of current sourcing issues. 

I had the opportunity to speak with a number of the delegates during the opening reception and breaks.  Several themes are emerging:

Increased focus on domestic outsourcing:

• A document management outsourcer discussed how the past year has been net neutral in terms of full time employees (FTEs), despite the declining economy and the loss of some customers from industry consolidation.  Most of the work performed is domestic and on site at client locations. 
• A financial services executive was looking for domestic outsourcing providers.  Looking for opportunities to save money that would not get them into political trouble since the strings attached with TARP funding are onerous.
• An Indian based provider outlined recruiting activities around certain U.S. hub cities.

Increased focus on procurement outsourcing:

• One company case example discussed indirect procurement as one of three “towers” outsourced along with IT applications and Finance and Administration.  Of these three towers, procurement has the smallest impact on headcount and the largest business case impact and overall cost savings.

Shortening of outsourcing cycle times:

• Unisys CEO Ed Coleman used the term “sourcing speed dating”  in reference to what he described as a “12 month cycle to make an outsourcing decision.”  Coleman pointed out that many companies simply don’t have time for that when  thriftiness and simplicity are prevailing themes.    If outsourcing can save money, how can companies afford to take 12 months to implement it?  Every month that goes by means savings dollars out the door. Coleman also predicted increased movement to “platform as a service” delivery models where customers can “buy by the drink.”

Innovation:

• During the “Less is More” period, companies must wring additional value from existing capital investments, including outsourcing relationships.  Several providers indicated that their customers are constantly looking for price concessions, but only now are they beginning to act on cost savings opportunities through innovation that were previously ignored.  While customers still expect to see some movement on price, they are appreciative of those providers who can bring meaningful suggestions for improving operations and reducing overall costs. 
• In his keynote presentation, TCS America President Surya Kant identified three techniques to improve innovation in outsourcing:
  1. Contracts with funding budgets specifically set aside for innovation initiatives
  2. Contracts with cost savings guaranteed through innovation provisions
  3. Joint governance metrics on the number of proactive innovation proposals submitted by the service provider, the percentage accepted by the customer, and the benefits realized from implemented innovations

Where will this lead?  Here are my initial predictions:

• Indian and multi-national service providers will increasingly develop approaches to export some of their operational capabilities in employee on-boarding, training, process mapping, technology, and performance measurement to North America to increase delivery of outsourcing within the U.S. to complement their offshore capabilities.  Reduced labor arbitrage benefits will be partially offset by a more favorable political/regulatory climate for domestic approaches, especially within certain industries such as financial services and automotive. 
• Similarly, providers will continue to increase their philanthropic participation in their customers’ communities.   
• Sourcing will increasingly include elements of provider/customer collaboration during the selection process, focusing on innovation and flexible relationships that can mature over time. 
• Companies will shift more of their sourcing energies from the transaction to the governance process to optimize their strategic relationships. Governance will be accomplished at a more strategic level, focusing on capability alignment and innovation as equally important to operational and financial metrics.

More to follow!  Stay tuned…

Sourcer, Heal Thyself

By Bill Huber, Director, CPO Services, TPI

As I speak with procurement colleagues, I consistently hear of corporate mandates to negotiate an across-the-board price reduction or change to payment terms with all suppliers.  While companies will see some short term benefits from this behavior, it of course is not sustainable.  By not differentiating based on supplier performance and innovation, the quality of the supplier base will ultimately be degraded. Also, because this approach tends to focus on price it can starve innovation that might more significantly reduce total cost

I was asked by Tim Cummins at IACCM to speak on a panel along with Dan Mahlebashian, Chief Contracting Officer at General Motors and Tim McCarthy, Worldwide Director of Pricing and Contracts at Rockwell Automation on the subject of Renegotiation – The Silent Killer of Expected Results.  The topic clearly resonated with the sourcing community and was subscribed to by an audience of over 400 representing a who’s who of leading corporations.

The prescription for procurement was clear: We must possess the courage to resist knee-jerk tactics and lead through strategy, prioritization and alignment, leavened with a touch of old fashioned ingenuity

If anyone is attending SIG’s Global Sourcing Summit this week in Baltimore, MD, I’ll see you there. I’ll be posting between presentations throughout the week.