Consider the Source

Reinventing Procurement as a “Go-To” Organization

By Michael Kushner, Director, CFO Services, TPI

No other department has as much reach both internally and externally as procurement. It supports every department and employee in the company, commits significant financial obligations on behalf of the company and has the ability to view and manage consumption. And yet, in most companies, procurement is not seen as the “go-to” department. A variety of challenges can dull its reputation, but it is possible to turn these negative perceptions on their head.

Here are the Top 5 essentials to make procurement a “go-to” group:

1. Find a strong leader. An effective procurement leader is NOT a procurement person – s/he is a sales and business leader who focuses on business objectives, leveraging procurement skills as a means to support them. An effective leader will build buy-in from the business, demonstrate a “service” mentality to foster a culture that enables the business units, and will develop people even as roles change.
   
   
2. Create a meaningful set of goals. A vibrant procurement organization will know what the department stands for, what it is trying to accomplish, and what to communicate to the business units and service providers. While the group’s objectives will include cost reduction and savings reported, more importantly, the goals need to align with the company’s larger imperatives and demonstrate how procurement enables the business units to deliver on the company’s mission.
   
   
3. Establish C-suite support. Procurement needs a consistent executive message that declares its significance to the business imperatives. Executive-level support provides a credible platform for procurement to demonstrate its value and build buy-in from the business. To maximize results for the enterprise, business unit executives should invite procurement to business unit meetings and department planning sessions.
   
   
4. Motivate individuals. Empower members of the procurement team to be in charge of their decisions and their relationships, and the business units will want to work with them. Well-developed roles and activities will give the team members a sense of ownership of their actions and the outcomes they generate. Align goals for individual employees with the procurement group’s goals to drive the appropriate team actions. 
   
   
5. Build a good reputation. Procurement needs to execute consistently and market itself, reaching out to the business units and sharing success stories. Let people know you are the group to call when they need to get something done, and the team will become recognized as a partner for the business units. Once a good reputation begins to take hold, it will snowball, driving more procurement demand from the business and more interest from people who want to be a part of the team.

For procurement groups that can reinvent themselves, a domino effect brings other positive changes. Attrition will increase as other parts of the company look to hire people from the team. Demand to get into procurement will increase as colleagues realize its broad reach and influence. And business unit demand will increase, driving the need to assess procurement’s growth and focus.

For more information about how to turn your procurement department into a “go-to” group, contact Michael Kushner, Director, CFO Services, TPI at michael.kushner@tpi.net or +1 435 327 2349.

Use Best Practices to Drive Procurement Credibility at the C-Suite

by Bill Huber, Partner & Director - CPO Services, TPI

Multi-tasking can be fatal in procurement… 

Sourcing and procurement organizations routinely work extensive overtime to juggle multiple priorities. Among many procurement organizations that we work with, a “can do” attitude morphs into a tendency to resist crying “uncle” when the opportunity for additional involvement comes along. 

An ingrained presumption exists among many procurement leaders that expanding their level of influence requires never “giving up ground,” always striving for a seat at the table in any area that touches spend. This mindset results in procurement organizations tackling resolution of a myriad of resource-intensive administrative issues while simultaneously trying to shape strategic behavior around spend.  

Many CPO’s reputations have been damaged by over-committing to more activities than can be effectively staffed. In trying to be many things to many people, some procurement organizations talk “strategic” but act “bureaucratic,” are ill-prepared to address an impractical scope of work, become a bottleneck within their organizations, and — ironically — lose the credibility that they have worked so hard to gain. In today’s environment of diminishing corporate staffs, a CPO’s budget to build a large enough organization to effectively manage all of the potential volume of procurement-related activity can be severely constrained, so throwing more people at the problem is not an option. 

Here are the TPI Top 5 ways that the strategic CPO can prioritize team imperatives and modify behaviors to drive procurement credibility at the C-suite:

1. Choose your field of engagement strategically. Realistically assess your resources and identify which projects you can execute flawlessly within your available resources. Utilize a prioritization tool to identify what projects will have the greatest impact with the highest probability of a successful outcome in a reasonable amount of time.  Focus on these first. If new critical projects come in from the businesses, identify the probable risks and benefits associated with the projects and the resources that would be required to execute them well.  Present a pro-forma business case and justification for additional temporary, consulting or outsourced resources to either support the project, or — if you wish to shift internal resources to the new project — to backfill a current project. 

2. Never do anything that you can automate or get can someone else to do well for you. The role of the CPO is to aggregate resources. Identify competency centers and set a realistic set of processes that everyone can live with and monitor the degree to which the processes are being achieved. Examples of efficient alternatives to current processes are using Cloud-based procurement applications and outsourcing service providers that allow your procurement organization to focus on higher-order work that includes project management, strategic trading agreements and critical vendor management activities.

3. Focus on data, insight and strategy. Strategic procurement management should be focused on driving outcomes through establishing an environment that will provide enablement, visibility and control.  Procurement processes and tools that are easy for the end user will maximize adoption, and with higher adoption will come more complete and timely data. The effective procurement executive will focus resources on continually reviewing data, analyzing exceptions and determining how insights gained can improve strategy.  

4. Hold every member of your staff accountable to do their homework. First impressions are powerful and all-important. Strategic sourcing staff should understand the business drivers of each client organization by formulating a targeted set of questions and clarifications when preparing for an initial meeting. When possible, complete a preliminary market analysis (competitors, other customers, common transaction structure, historical spend, potential leverage points) for the product or service that the business seeks to procure. Consistent preparation will quickly gain the respect and confidence from business leadership.

5. Take accountability to drive decisioning. This is a frequent weak point in procurement. Procurement traditionally is beholden to corporate and business leadership to approve decisions and internal organizations such as finance or legal to provide key inputs to the process. Thus we frequently announce slips in schedules for completing agreements and other projects. Stronger project management can improve this situation. By clarifying stakeholders early in the process, obtaining reasonable turnaround commitments from each and building these into a realistic project plan that is well-managed, procurement can significantly improve the on-time realization of its projects. 

The credibility of the procurement organization hinges on adding value from the initial point of contact forward. CPOs who practice these five tips will quickly notice a change in how they are perceived and the degree to which they are included in key strategic spend decisions for the enterprise.

Contact me for details on each of these points plus more best practices that can help you make a significant difference in driving procurement credibility among senior leaders of your company. 

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…