Connectivity is at the core of the modern business. Whether your organization is comprised of one small office with 10 people or a large multinational employing thousands, it is key to find the correct connectivity mix to support your business needs.
Data analysis has an image problem. Despite the fact that data collection is priority one, regardless of how common “big data” buzzwords have gotten, and setting aside all the calls for data-centric decision making… The boots on the ground, those of us who manage this analysis daily, have a problem.
Too many analysts are viewed as tactical cogs in a machine. We aren’t brought in to own and manage projects. We aren’t consulted on big ticket company objectives beyond the reports we’re asked to push out. Why? Because we aren’t doing enough to show value.
From buyers to suppliers, everyone knows that the Request for Proposal (RFP) process is… less than ideal. At the same time, it is often central to the procurement process, so sales teams everywhere should be prepared to put their best foot forward when responding.
I’ve run plenty of sourcing initiatives that included an RFP and have seen responses range from good to bad to “why on earth would you submit this?” levels of ugly. In this article, I will point out some of the bigger issues I see that keep otherwise best-in-class suppliers from winning the business they bid on.
The uncertainty surrounding Mergers and Acquisitions (M&A) can be frightening for all employees involved, but often overlooked is the potential a merger can bring for procurement to hit the “RESET” button – both with their internal procedures and with their suppliers. With common M&A buzzwords like “increasing shareholder value” and “synergies” thrown around by management, procurement is provided with an abundance of short term cost-saving opportunities.
In this post, I’ll outline the steps, tips, and strategies procurement can use to generate cost savings during M&A activity and boost that ever sought after shareholder value.
In part 1 of this series, I addressed the misaligned nature of the past relationship between procurement and marketing – as well as the disruptive potential for companies that can bring these two teams together. In this post, I will build on the intangible steps marketing and procurement can take to work as a more cohesive partnership by discussing what they can really do to harness collaboration?
We’ve seen a recent trend of Fortune 1000 companies reducing their agencies by almost half to optimize spend and increase productivity within marketing. This has been a gradual, strategic consolidation effort to improve the effectiveness of their investments.
Although marketing budgets are experiencing significant cuts, it is critical to understand marketing is a complex—arguably THE most complex—spend category, and procurement must not treat it the same as other spend categories. As Jon Moeller, CFO of P&G explained about its consolidation efforts, “we are not looking for cuts, but to shape spend to increase efficiency and effectiveness.” This statement may beg repeating as 94% of procurement professionals continue to focus on cost-cutting metrics as the key measurement of success, according to an ANA survey. A cost-only focus may significantly reduce marketing ROI and deliver poor brand performance. To maximize the benefits of both departments’ strengths, marketing and procurement have to focus on ONE underlying theme: teamwork.
In my article Data & Socially Responsible Procurement, I discussed how data analytics is located at the intersection of corporate social responsibility (CSR) and procurement. In particular, I explored why CSR is an essential component of modern-day procurement practices and the ways in which data can help organizations achieve their CSR goals. As a follow up, this article will dive into socially responsible procurement for small businesses.
Small businesses – defined as companies with less than 500 employees – make up about 99.7% of all employers in the United States, and, as recently as 2008, were responsible for about 46% of private-sector nonfarm output. The prominence of small businesses in the US economy makes it essential to include them in conversations about CSR and procurement. Faced with greater constraints of scale, how can these organizations maintain sustainable procurement practices?
While the strategic vision of an organization is usually consistent across departments, each function’s strategies to achieve that vision do not always align. Just as legal and HR are there to ensure that all actions and hires are made in the best interest of the organization and its people, procurement exists to ensure that all purchasing decisions are made in the best interest of the organization.
As a strategic sourcing consultant, one of the biggest challenges I face on a daily basis is convincing the stakeholders in a particular category that we are not there to be an unnecessary roadblock to them securing goods and services. As more and more companies are transforming the way they purchase, it is critical that internal perception of procurement shifts for the better. It is time for procurement to become its own PR department.
Below are some common perceptions of procurement and the truths we need to communicate to unite everyone in pursuit of overall organizational goals.
The Perception: Procurement is a necessary evil that delays the purchase of goods and services
The Spin: Procurement is a help desk function, similar to IT
The most common reason stakeholders avoid working with procurement is because they want to avoid a long, drawn out sourcing process that requires them to do a lot of heavy lifting. Procurement provides purchasing expertise to support the decision making process in any scenario. Stakeholders should feel comfortable reaching out for ad-hoc advice on supplier searches, negotiation tactics, service level agreement development, and supplier management. If stakeholders are able to tailor the level of involvement that procurement has, they are more likely to reach out and ask for advice and support. This is a win/win for the organization as the stakeholders are less constricted and decisions are made in line with a strategic procurement mindset.
The Perception: Procurement only goes after lowest cost and does not know enough about the product or service to identify quality
The Spin: Procurement is a stakeholder liaison with expertise in negotiation and relationship building. All final decisions are based on collaboration with and acceptance from the stakeholder team.
Procurement should not be positioned as an absolute expert in all areas of operation or categories of spend. Engineering and quality departments often distrust procurement as they seem to exist just to cut costs. Procurement should emphasize their expertise in building mutually beneficial supplier relationships and best-in-class contracts. While the sourcing process does (and must) evaluate cost, it also looks at qualitative aspects of supplier capabilities and aims to align those with stakeholder needs. Quality and competitive pricing can coexist.
The Perception: Procurement still runs lengthy RFPs when I already know which vendor I want
The Spin: Procurement can ensure best in class pricing with any vendor, and can assist in building a business case to warrant an award or a switch
There are plenty of justifications for switching and selecting suppliers that go beyond price, from increased service levels to superior reporting capabilities and product mix. Procurement is actually focused on the total cost of ownership within each category. When a stakeholder receives a proposal from a prospective supplier and does not engage procurement, the result may be an increase in cost beyond the unit price of the product. By bringing procurement into the conversation, they can evaluate soft cost savings and value adds outside of price, and assist in building a business case to justify the transition. If the total cost of ownership is above market, procurement can take the lead in negotiating better pricing, leading to a win for the stakeholder and the organization’s bottom line.
The Perception: Engaging procurement will only hurt my future budget allocation
The Spin: Procurement exists to stretch your budget dollars
The final perception needs to be tackled by procurement, stakeholders, the finance team, and enterprise leadership. Reducing costs should allow for the creation of emergency funds to be used throughout the year, and reinvested back into the department. Procurement should be engaged in the annual budget planning process and optimize all spending.
The key to addressing all of these perceptions is exposure, consistency and familiarity. Procurement needs to be proactive in establishing their value proposition and communicating it to other departments. Once traction is gained, success stories should be communicated via newsletters and case studies to further drive engagement and reinforce improved perceptions. Alignment across all teams is critical to organizational success, and procurement can play a huge role in increasing the bottom line.
I recently read about ‘Broken Windows Theory’ from a 1982 Atlantic article by George L. Kelling and James Q. Wilson. It is a criminological theory that suggests small but visible signs of public disarray, such as broken windows, abandoned vehicles, litter, and disorderly behavior, create an environment that encourages more serious crime and a systemic breakdown in orderly conduct. Kelling and Wilson note:
“This is as true in nice neighborhoods as in rundown ones. Window-breaking does not necessarily occur on a large scale because some areas are inhabited by determined window-breakers whereas others are populated by window-lovers; rather, one unrepaired broken window is a signal that no one cares, and so breaking more windows costs nothing.”
This means that no matter how affluent or destitute the neighborhood, no matter who inhabits it, a non-compliant action will inevitably inspire further non-compliance.
Globalization has transformed the world into one big economy. Capitalist theory suggests that markets in an open and healthy economy promote widespread well-being by increasing competition and ensuring the availability of goods and services. Increased competition then drives production cost optimization, research and development, quality management, differentiation, innovation, and other positive externalities. Broadly speaking, competition generates wealth.
Procurement organizations often note one pursuit above all else: getting a seat at the table. I think we have coined this phrase more than any other in the procurement space in the last decade. If you’re not familiar with this concept, it is the desire for procurement to been viewed as a valued asset in strategy building and decision making by its customers: the broader organization. Put simply, procurement wants to be heard early and clearly by their internal peers.
Metrics are a critical aspect of measuring the success of any business function. The importance of quantifying progress against goals and objectives cannot be overstated. Without a metrics program, underperforming organizations are unable to target functional areas that require improvement, and growing organizations are unable to set goals or scale resources to align with the changing state.
Because procurement organizations are often challenged by stakeholder resistance and a lack of executive-level sponsorship, metrics are key to demonstrating value. Sourcing efficiencies, cost savings, stakeholder satisfaction, and overall procurement ROI are just the starting point for capturing bottom line impact. While these are often viewed as the foundation for a metrics program, the final structure can’t be established without being certain of data quality and availability.
When working with transformation advisory clients, we often talk about the role of procurement and the need to change how they are perceived within the organization. Changing stakeholder perceptions is not an easy task, nor does it happen overnight.
So where do we begin? Stakeholder relationship management.
To effectively and efficiently run a business, you need two simple elements – someone to spend the money and something to spend the money on. In other words, your stakeholders and your suppliers. There are many other complexities to be ironed out, like where the money comes from (revenue) and who assigns the authority to spend it (governance). Procurement acts as the liaison in this process, serving as the key intermediary between stakeholders and the suppliers.
Have you ever wondered why your savings projections supersede the realized savings? Have you ever been challenged by your finance department to validate the projected cost savings one year into an agreement? Has your C-suite ever complained that procurement’s estimates and projections go unrealized? If you have faced any of these or similar situations, you are not alone. Savings projections often fall short of reality, but why? For many procurement organizations, their sourcing efforts aren’t felt due to noncompliance.
In Part I of this series, Managed Print Services Models Part I: Lease vs Buy?, we looked at the key business considerations when making the lease vs. buy decision for acquiring copiers/printers. The other decision point within an MPS program is determining the service/maintenance agreement structure.
In a world where everything seems to be moving to ‘digital’, many people may assume printing is going the way of the dodo. And yet, managed print programs and the costs associated with copiers, printers, and maintenance of these devices are still quite common - and even necessary - for many organizations. While this may be driven by specific industry needs or be the result of an organization’s comfort level with printing, managed print services (MPS) are evolving and continue to be an area of opportunity for procurement to review and help optimize.
Whether your organization is just now making the move to MPS, looking to consolidate your MPS supply base, or trying to better manage your current MPS supplier(s), there are two main cost drivers to focus on within the category: 1. obtaining the device and the associated financing model and 2. The cost per click (CPC) (or the maintenance/service component). [As a side note, the maintenance component goes by a variety of names (cost per page, cost per copy, service cost, maintenance cost, click rate, etc.) and may have slight variations depending on what is actually included in your service agreement. I will refer to all of the above examples as ‘CPC’ throughout this post for simplicity’s sake.]
Have you ever wondered what other company’s fleets look like? How other companies source their fleet units, parts, and services? What information is needed to begin? The first thing to know, is that no two fleet profiles are the same. The second thing to understand, is that there is no right place to start; it all depends on your corporate procurement goals. Are you trying to maximize upfront funds? Is your goal to streamline services and optimize vehicle performance? Are you attempting to marry two fleets after a merger or acquisition? There are endless scenarios that will benefit from strategic procurement thinking.
The ‘app boom’ is widely recognized to be slowing as we approach the half way mark of 2017. Success stories such as Snapchat and Uber remain (in terms of continued, steep growth), but the aggregate growth in the app market has started to decline for the first time Apple introduced the App Store in 2008. The truth is, most people have already downloaded all the apps they need. The market is already saturated with apps that satisfy our basic needs: travel/directions, calendars, messaging, social media, gaming, news, weather, etc. This fact is well known by tech giants such as Facebook and their eyes are already on the next opportunity: bot technology.
“We take a buck, we shoot it full of steroids and we call it leverage.” -Gordon Gecko (Wall Street 2)
Leverage - a word that has such meaning it could be used to define itself. When it comes to negotiating, leverage is king. Whether you’re trying to negotiate a multimillion dollar contract or figuring out how to get an extra quart of strawberries included with your purchase at the local farmer’s market, people are always searching for it, and without it you have nothing. Having no ground to stand on when attempting to ask for a compromise from another party is not an ideal position.
Each purchasing category, whether indirect or direct, has a unique set of parameters that can be optimized to take full advantage the savings opportunities in the market. The packaging category is no exception, offering major opportunities for cost savings beyond the basic volume leverage approach.
Packaging, which may be considered either a direct or indirect product depending on the use and company, can be particularly complex to take to market. Many organizations strive to find a supply base that can support the company’s needs while generating value. Taking into consideration the upfront investment of time and resources (without a guaranteed ROI), running a competitive bid process can be an intimidating endeavor for many companies. However, with the proper expertise, packaging is an area of spend with major cost reduction and value added opportunities.