This week’s featured webinar was presented by IASTA, with speakers from Spend Matters and Cushman Wakefield (a global real estate and facilities management firm). Together they provided a fair balance of general recommendations and practitioner perspective. You can view the slides (with audio) on Slideshare.
Setting the Stage
Jason Busch set the stage by describing current challenges in the global supply market. Total labor costs are increasing while export policy changes affect the cost of raw materials and currency volatility changes import/export pricing dynamics. Low cost country sourcing is no longer as automatically accepted as it was, as we learn to deal with differing cultural norms in lower tier supplier management. In the global economy, Europe continues to be unpredictable and China’s growth is slowing.
In 2011, supply management focus was predominantly on reshoring, compliance, risk, and supply volatility. Procurement took on a greater role in supply chain finance and workforce management. Staff augmentation models were often chosen over consulting engagements except in the cases of transformation and complex category expertise.
The priorities for the next 12-18 months will continue to be led by cost savings, but also strategic decisions about M&A activity or dividends based on working capital availability and shareholder expectations. Looking more closely at total cost models will keep the focus on risk management through supply chain redundancy and inventory planning.
A Practitioner's Perspective
Joanna Martinez, CPO of Cushman & Wakefield, shared some of her lessons learned from coming on board in a new industry and working collaboratively with other groups internally.
Procurement’s job is not to master all of the categories of spend they will source, but to master the transferable knowledge that can be used in projects across the organization. The idea is to create an effective project team where the members have complimentary competencies – process or regulatory knowledge v. category expertise. When possible, win over internal clients by co-locating procurement with them. The casual time they will end up spending together can be beneficial in the long run, and will give you a whole new kind of ‘visibility’ into the category.
Learn as much as you can about the language and discipline of the department you will be working with to bring spend under management. Brush up on your managerial finance or legal terminology as it applies – but never pretend to know more than you really do. Do as much preparation as possible, but sometimes the best way to establish your credibility is to confidently acknowledge that they are the category knowledge owner.
Real value can be brought to a project even when procurement’s role is limited to process ownership. An example Joanna gave was in managing the ‘process outside the process’. Even when you run an effective RFP, there will always be one on one phone calls or discussions with individual suppliers after the process as they try to craft their best and final offers. She worked with her team to make appropriate use of reverse auction technology – referring to it under other names to improve the responses from the supplier community. The approach was so effective that it was marketed by parts of their sales team as a competitive advantage in cost and supplier management.
When you are trying to work your way into categories that have been held ‘sacred’ in the past, Johanna recommends what she calls the ‘Captain Cook’ method. When Captain James Cook (a British explorer, navigator and cartographer) was looking for Easter Island in the 18th century, he reached the limits of the navigational tools available to him. When he reached the spot where the island was supposed to be, and saw nothing but open ocean, he began sailing in ever-widening circles until he reached land – and his destination.
The way his voyage applies to procurement is in how we approach off-limits categories. You can’t always control where you start, so work with anyone you can reach – even if the project and results are smaller than you would like. Keep making contacts and winning over stakeholders in ever increasing spend pools until you reach the elusive Marketing, Legal, or Human Resources… Island.
Jason Busch’s ’10 Ways to Drive Procurement Influence’
- Go beyond basic sourcing (RFx and auctions) – optimization and flexible data collection will allow a balance of specifications and supplier alternatives. Supplier capabilities should be weighted against organizational priorities.
- Moving sourcing activity into contracts – Getting to savings faster through shortened implementation timelines. Will require a closer working relationship with legal that may also include tying materials pricing to relevant cost indexes and developing a clause library that reflects the cost/risk tradeoffs made by the organization as a whole.
- Basic supplier management activities – such as quality, risk, and onboarding will need to be promoted through the entire project lifecycle. Gaining visibility into conflict minerals and predictive analytics based on past performance.
- Gain access to ‘sacred cow’ categories – using industry benchmarking to better understand pricing with current suppliers may allow you to restructure existing agreements rather than going to market and bringing in new suppliers.
- Bring in specialists or specialty solutions for the categories where they make sense – gaining market intelligence through established advisors may be the key to approaching a difficult category successfully.
- Work on true total cost with suppliers – Be active and creative in relationship with suppliers, discussing all opportunities to manage cost.
- Embed cost modeling at all steps in the sourcing process – start with cost targets up front and work to hit them.
- Engage suppliers in joint efforts to remove costs from your program. In many cases the lowest per unit cost supplier will be limited in terms of the other efficiencies they can offer, while larger, higher cost per unit suppliers can work with you on process, shipping, payment terms, etc.
- Savings implementation and cost avoidance – continue to track results after implementation and make sure that any reporting reflects additional information.
- Deploy commodity management alongside strategic sourcing – hedge as appropriate, look for exposure in direct spend.