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.
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.
I have good news and less good news… The good news is that I added 8 webinars to the calendar on Friday (7 of which are in May). The less good news is that there are only 3 events to shoes from this week. Take a look at my comments below to see what I recommend.
If you are planning your webinar schedule beyond this week, I recommend ‘Executing a Successful Procurement Transformation’ hosted by Ivalua on May 29th. This webinar will be presented by Duncan Jones from Forrester Research on the study that generated so much buzz at the Ivalua NOW event in Paris a couple of weeks ago. If you are interested in some insights about the study, which focuses on the misalignment between procurement’s maturity and our perception of our maturity, you can visit Art of Procurement’s blog or read my own write up here on BMP.
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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.
“The only time they don’t say ‘Drop your pants’ now is at the Christmas party.” (p. 10, Epstein on sales' common interations with procurement))
The Ultimate Showdown Sales vs Procurement: The Secrets Unveiled at the Negotiation Table by Elliot Epstein and Paul Rogers (2018) is an absolutely fantastic book. In addition to getting two open and unapologetic perspectives on business, I was also left with the feeling that I had made two new friends.
The format of this book is unique, written entirely like a play (one paragraph at a time with the ‘speaker’ identified in the left margin), but it is fitting for the message and experience the authors want to deliver. We don’t need another buttoned-up, polite analysis of how sales and procurement have different approaches, challenges, and incentives – and the authors haven’t given us that. Instead, we get sales (represented by Epstein) and procurement (Rogers) having a debate. If the angel on your shoulder could have a sarcastic exchange with the devil on your other, I imagine it would read much like this. I won’t suggest which function (sales or procurement) is on which shoulder.
It was really hard selecting just three events to recommend this week – even the webinars that I’m not highlighting below sound fantastic. They include a Supply Chain Now Radio event on attracting top supply chain talent and an ISM/LexisNexis event on applying the PESTLE framework. We also have ProcureCon Direct taking place in San Diego, CA on Tuesday and Wednesday.
If you’re planning a little further out, I recommend “How a Leading Wine Producer Is Making Digital Order Management a Reality” from HfS Research on September 6th at 11am ET. Come for the wine, stay for the digitalization.
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Fleet operations can absolutely be an overwhelming category to manage. Between deciding on the right vehicle manufacturer, understanding the ever-changing vehicle features, selecting the appropriate maintenance plans, managing fluctuating fuel costs, and more – the active time required is substantial. However, rather than looking at this category as a mountainous challenge, Fleet should be seen as a major cost saving opportunity.
There are multiple triggers for evaluating the fleet category from the top down beyond just due diligence:
- Evaluating internal versus external management of the fleet.
- Mergers and acquisitions will prompt the evaluation and consolidation of fleet operations.
- A new company strategy may mandate the need for a new fleet policy.
- Maybe the organization lacks a concrete fleet policy or management structure and has outgrown a passive management phase.
In all of these hypothetical situations, a few best practices can be used for an effective category evaluation that enables both cost savings and process optimization.
For any of the reasons listed above, the fleet evaluation/optimization process benefits from taking a two-pronged approach that includes both a comprehensive OEM evaluation and a Fleet Management Services (FMS) provider evaluation. If the fleet administration and management function is housed internally, this two-pronged approach still applies in terms of analyzing the internally managed program (reactive and preventative maintenance programs, acquisition and resale processes, etc.).
As organizations continue to expand the use of contingent talent to supplement their full-time workforce, they are also seeking ways to optimize their contingent workforce programs to generate additional cost-savings. Historically, this was done through supplier rate rationalization, improvements in workflow and cycle time, and engaging a Managed Service Provider (MSP) and Vendor Management System (VMS) to drive efficiencies. While all of these measures generate cost-savings (particularly in first generation and early stage programs), more mature programs require the identification of other strategies like self-sourcing.
Procurement is undergoing a transformation, moving away from process and price and towards undertaking initiatives that demonstrate value for the business. Therefore, when the opportunity arises for procurement to demonstrate its value, you would expect them to seize it in both hands… or maybe not!
We want to share with you a real life situation undertaken this month. We have removed the names of those involved to limit embarrassment; both company names are fictitious, but the scenario is real.
Happy New Year! This week marks the start of a new year of webinars – and based on the first events out of the gate, 2016 is clearly going to be a year where it pays off to challenge the fundamentals. Click on the title of each event below to view the full description in our events calendar and to connect to their registration pages.
The eSourcing wiki series this week is about the Benefits of Contract management. There is a very positive story with statistics to back it up on why organizations should choose and implement a process for managing contracts.
Whenever you do business in a culture different from your own, there is so much to learn. There are many nuances that can make or break the deal. This blog from Smart China Sourcing outlines some of the common mistakes.
Most organizations do not have the time or resources to work directly with the manufacturers in China so they must rely on a third party to be their 'eyes and ears on the street'. Because of that, the process of selecting that agent becomes a serious selection process that requires serious attention.
When a sourcing professional is being reviewed or considered for a new position, we often look at their negotiation skills, analytical abilities and sometimes their communication style. However, it is rare when we review their project management expertise. This is critical and often overlooked and underrated. Without it, timelines get stretched and deadlines missed if projects are not managed properly. I myself have been frustrated by others when it becomes apparent they are not capable of developing a plan and following the process to completion. I would imagine you have been too.
Are you a morning person? I happen to be someone who requires very little sleep so I am a morning, noon and night person. Lucky for my family right? They have benefitted from it since I have more hours to get things done or to plan our next adventure! However, there have been some frustrations as I make too much noise while everyone else is trying to sleep in on a Saturday morning!!
One of the events this week that you might have attended was Gartner's webinar about the search for talented leaders to take sourcing and procurement to the next level. Well that is YOU regardless if you are leading one project, a small team or an entire organization.
So what does all that have to do whether you are a morning person or not?