Talk to any procurement leader in an international company and you’ll hear some common issues being raised. The lure of technology (especially big data and AI) and dangled carrots of opportunity to digitally transform the whole procurement function are all great but hard facts are getting in the way. Corporate immune systems (“we’ve always done it like this”) can lead to insufficient executive buy-in; lack of skills, time and financial resources to tackle the complexity of multi-phased transformation projects mean it’s hard to predict outcomes or completion dates; growing evidence that many transformation projects fail causes nervousness with CFOs. The list goes on.
Billions of dollars are spent annually on Statement of Work (SOW) projects. Yet, despite this considerable financial investment, many organizations are attempting to manage this area through overburdened internal resources and/or ill-fitting ERP, SMS or HRM systems – if they’re capturing the details of SOW spend at all.
As a result, many stakeholders and influencers across the contingent workforce management ecosystem are faced with the daunting challenge of not only trying to centralize SOW management, but also to capitalize on benefits such as enhanced visibility and reporting, risk mitigation, rate benchmarking, improved cost control, etc.
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.
“When a country (USA) is losing many billions of dollars on trade with virtually every country it does business with, trade wars are good, and easy to win. Example, when we are down $100 billion with a certain country and they get cute, don’t trade anymore-we win big. It’s easy!” – President Donald Trump on Twitter, March 9, 2019.
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.
Momentum and Sustainability Create Impact: How Marketing and Procurement Can Deliver Business Growth (Part 2)
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?
Momentum and Sustainability Create Impact: How Marketing and Procurement Can Deliver Business Growth (Part 1)
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.
CSR is No Longer an Option . . .
In an evolving landscape of regulations, social values, and consumer preferences, the Triple Bottom Line has become an essential framework of business design. The concept underpins Corporate Social Responsibility (CSR) by asserting that growth and profitability should not have negative social and environmental impacts. CSR is becoming an imperative for success, one that procurement plays a central role in. Socially responsible procurement aims to ensure that suppliers are adhering to quality practices in key areas such as diversity and inclusion, environmental protection, health and safety, and human rights.
Adherence to the Triple Bottom Line is more than just the right thing to do; it also comes with a number of competitive business advantages. In particular, it reduces the risk of both supply chain disruption and negative publicity.
These are tough times to be in business. Costs are rising but selling prices are not, mainly due to global competition. The arithmetic is simple: profits are being squeezed. Finding ways to drive down costs lower than your competition's has become more important than ever – but value and customer service can’t be ignored either.
I like to take an approach to supplier negotiations that I believe will help you gain an edge in these tough times. It starts by finding an answer to the ‘procurement conundrum’.
Many procurement pros are handicapped by having to wear two hats:
First there's the tough-negotiator hat. Driving down costs is a fundamental part of the job; that's why we spend so much time negotiating.
Then there's the good-relations hat. Production requirements and customer needs are constantly changing. Procurement needs suppliers to react quickly to fluctuating demands. As a result, we need to cultivate give-and-take relationships to make sure this happens.
It's easy to see how the two ‘hats’ conflict. Imagine phoning a parts supplier on Friday to coax him into running an unscheduled weekend shift, then on Monday asking for a better price. It’s hardly a recipe for long term success.
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.
Between the new technologies available and the tidal wave of talented individuals with people analytics experience, companies can now see their entire workforce in new and exciting ways. But while most organizations recognize the benefits of full workforce visibility, their efforts stall when those that need it can’t clearly articulate the benefits to company leaders and decision-makers.
While there are a number of ancillary benefits of full workforce visibility (e.g. worker quality improvements, access to talent, vendor performance comparisons) this article focuses on the different ways an organization can leverage new levels of visibility to drive cost savings.
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.
With the popularization (and even consumerization) of cloud computing, the as-a-Service (-aaS) business model has emerged as the predominant choice for enterprise software. The ability to bundle core software with value-added features and services for an ongoing fee has proven valuable for vendors and customers alike. As-a-Service delivery of software (SaaS), platforms (PaaS), and infrastructure (IaaS) are now common market offerings, while other examples including communications (CaaS), databases (DBaaS), and networks (NaaS) are emerging as viable business models.
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.
Automation and Artificial Intelligence, terms that generate both controversy and wonder, have established themselves as critical elements of our future. Not everyone is pleased by this; the looming prospect of a sci-fi world has engendered fear and reluctance throughout the workforce.
In August 2017, Hurricane Harvey struck a significant blow to the Houston, Texas metro area, home to the sixth largest import terminal in the world as well as all of the shipping lanes in the Gulf Coast area. Given the strong economic linkages between the Gulf Coast and the country as a whole, Harvey impacted the U.S. economy far beyond the local region.
Supply management professionals were on the front lines of the economic side of this environmental disaster. Imagine yourself as one of them: your facility and/or your suppliers’ facilities are in the hurricane’s path. Damage is done during the storm, and you will have to deal with the after-effects, including ongoing impacts on transportation and labor. How do you prepare for the unexpected? How will you cope with the aftermath? What do you do?
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.