Procurement Is More Than Just Buying

Negotiations or digital buying tools? Ups and downs of linking achieved savings to salary size. Importance of different experiences and learning. Similarity to other functions.Those were the questions I shortly (I promise, I tried!) answered to Procurement Network (interview).

“Procurement Network interviewed Vaida Maksims, a qualified member of CIPS (MCIPS) and PMI (Project Management Professional). Vaida holds a bachelor’s degree in International business management and EMBA qualification in Applied Organizational Psychology. Vaida held many different roles in procurement (from buyer to Chief Procurement Officer), in project and in supply chain management. She had the opportunity to lead teams and businesses in different countries and now enjoys the opportunity to share her knowledge and experience speaking in conferences, teaching CIPS evening classes and writing her blog (www.futureproofitable.com).

These are Vaida’s thoughts about procurement’s role: “The best buyer is the one that does not like buying for the sake of buying – like me. I am known for being able to first question everything on demand side: types of spend, quantities, processes and buy only what is really needed. And once you buy it – it has to serve the purpose and meet all current and potential future business purposes. Procurement is not only about buying. Proper buying means you need to know your customer, sales and marketing, technical capabilities to manufacture and definitely logistics – the whole supply chain. That is how procurement can bring benefits to the business: by giving insights of proper buying.”

 In our digital era, how important are negotiation skills in procurement?

I think these two things are not alternatives – as in, you cannot have one or the other. No matter how many pencils, canvases, frames or types of colors the artist has – they are only tools. The most important things for the artist are brain, imagination, emotions, and creativeness – everything that constitutes the art itself.

In procurement you will have a lot of different strategies, which can be implemented using many different tools. Digital tools and digital information are a part of procurement’s toolset. Do not get me wrong – a very big and important tool, but still – only a tool.

When it comes to comparing negotiations as a tool and digital tools, I consider the question in a wider perspective. Negotiation skills is something people can apply every day in every aspect of their life – personal as well as professional. Negotiation skills is a part of communication skills (a big one!). I am a strong believer that good communication is 80% of your success – whatever it is that you do. After all, you will need negotiation skills to agree on what kind of tools and how to use them!

How would you react to the idea of linking savings to actual salaries of procurement experts?

 Depends – that is the shortest answer that I could come up with. Just like everything in life and business – it is relative. Depending on the arrangement, it can have positive and negative sides. Positive:

·        Better reward (% of savings) would motive procurement specialists better;

·        Better rewards would attract better specialists to the field;

·        Clear cost structure would motivate business to use the specialists and implement their proposals better;

·        Good TCO and business needs understanding would help making better business decisions.

However, if the reward system design is poor, you might get the opposite:

·        Buying only “like for like” – to get comparable “price savings”;

·        Short term savings which might affect long term business results negatively;

·        Reduced quality and service levels;

·        If a company does not embrace change and does not support procurement specialists, they run into the risk of “underachieving”. Then all the motivation system will start working against them (and against the company).

 

The best short word I can think of to describe how it should be done – balance. Proper balance in setting goals, rewarding achievements, supporting actions would be the best outcome for everyone.

How important is it to have procurement experience in different industries and/or countries?

 It is important (I would even say crucial) to have different experience. Full stop. The more different it is, the better. 

Firstly – to be able to analyse anything, you need to understand background (benchmark). Various philosophers and anthropologists call it relativism, and there are various forms of it. There is no such thing as completely only “good” or “bad”. It is more about perceptions and what is suitable for the situation (business, including) at the moment in time and space you are in. How do you know if administration costs of £300 per PO is good or bad? How do you know, if route-to-market of 12 months in food manufacturing is competitive? How do you know, if £50/hour for data entry is a reasonable amount? The answer is – only by comparing it. Comparing with something: other companies, other industries, other countries.

Another aspect to the question is learning. Procurement is not a rocket science. I know, it might sound cheap, but it is the truth. It is pure classic in management and most of the models, tools, templates or processes have been invented. You always have a choice to try creating something by yourself – but most likely, it will be highly time consuming and costly, unreliable at the beginning. While if you find a working model, you just need to adapt it to your needs.

Knowledge of other industries, other functions, other countries, other roles – everything contributes to a person being (becoming) a better professional. That is a rule and it applies not only for procurement.

What profession is the closest to procurement?

All functions (or professions, if you like) in business are very close. Procurement in one company is not the same as procurement in another, therefore, it is not that straightforward. Also, depending on a company size and industry, you will see different functions existing (or not) within the company.

Procurement can be close to an internal auditing. It can form a part of a finance department. Sometimes, it will be a part of the operations. Some companies have “commercial” departments and procurement sits within them. It is not uncommon, that procurement manages the whole supply chain. In cases of outsourcing, procurement specialists become business managers (consider outsourcing full packing services – part of production, for example).

What would you advise to junior procurement professionals?

 If there would be only one advice I could give, it would be: do not stop learning. Learn from mistakes you make – that means, you have to make them! Learn from colleagues within the company – that will teach you to cooperate and be more than just a procurement specialist. Learn from recognized industry or profession leaders – you will find lessons, which were not in your school books. Learn from politicians… or not – that is the expert judgement lesson that life will teach you. Sometimes in a really tough way. Learn from children – simplicity and unrestricted thinking comes from minds, which are not yet damaged by stereotypes. Learn from fighters – determination, persistence, focus is a very big part of success.

And, if you are still reading these lines – you are on the right path! Congrats!

Thank you!”

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Procurement Is More Than Just Buying

Strategy Map for Procurement

 

The Reality of Strategic Planning

I wish I could say Dilbert is completely wrong (I had the best time ever trying to choose illustration for this post, I must admit). I wonder – if anyone was to carry out an anonymous survey of what people REALLY think about strategic planning process in THEIR companies (not OURS, please note), what would they find? (And, let’s assume, respondents would be on honesty and anti-political-correctness pills – not to distort the reality with interpretations)? I think that would be a wake-up call for many.

Strategy for Our Companies

Anyway, this post is about the strategy for OUR companies and OUR procurement departments, which have nothing to do with Dilbert.

treasure huntStrategy is about knowing where you are now, defining, where you want to get to (by the way, according to the definition of the strategy, it really has to be a better place) and deciding how you will achieve it. As you can see per the very informative map to the right of the text, there are a lot of things to think about when you are planning your journey. Thankfully, in business, there still are things you can plan. Procurement is no exception.

Classic Factors to Consider

There are quite a few classical models to analyse strategy for businesses and I would not want to re-write Wikipedia or Google. To understand your business (or department), you would be looking at marketplace, industry, your companies strengths and weaknesses (products, teams, organization structure and culture). The same is applicable for individual departments, including, but not limited, procurement. McKinsey’s 7s is very simple and clear tool to use. Combine them with generic business strategies (customer intimacy, cost leadership and differentiation), and you will have decent evaluation of where you are in comparison where you would like to be.

Strategy Map for Procurement

I wrote before about the importance of aligning Procurement’s strategy to company’s strategy. This time I would like to share a fuller version of checklist points that I use and a visual communication tool. I call it P4S – Procurement for Success.  Whenever I plan procurement’s, I think about these factors: p4s strategy wheel

  1. People. McKinsey calls them “staff”, but, to me, it is much more than just staff. You should also consider suppliers, environment – people, who are not yet staff, but might potentially become one day. Also, most important part, before becoming role players and employees, they are people. Things to analyse: attitude, engagement, involvement, capabilities.
  2. Systems. What tools does the company use to run business? That includes everything: HR, P2P, ERP, project management, task management, document and knowledge management. I bet many CEOs would be surprised after a thorough system audit: about the quantity of different systems and the data quality within the systems, about how far from reality are the decision paths, designed on the system.
  3. Process. The way HOW company lives and breathes. Mapping out value chains, work streams will help to understand and improve – if needed – the ways of working. I consider various KPIs (efficiency, accuracy, discipline) and, also, the results. Not only hard results, but also, softer ones – like customer satisfaction. The company might be interested in Net Promoter’s Score, while procurement might focus on the internal stakeholder satisfaction and relationships with suppliers.
  4. Structure. You might want to examine structure of supply chain, structure of the wider organization, structure of procurement department. The smaller parts have to support the bigger picture and fit into the puzzle. AND!!! – they have to work well together! I would consider also the scope – area of responsibility and authority for procurement (directs / indirects / full cycle vs maybe only internal auditor’s function); empowerment – decision making points within management structure (usually, business decisions, based on financial threshold). Communication methods and channels (tools) are another important part of the structure.
  5. Strategy. The WHAT part of the organization’s existence. What is the strategy? What is the success? What is our unique selling point / differentiation? What is the message to the outside world? What is procurement’s role in all that?
  6. Values. Another important part to focus on, which will also influence procurement. Company’s core values might go into the supplier selection criteria. Team and corporate culture will define the way how procurement will work. It would be funny to observe a CPO trying to implement OJEU or legal company’s procurement policy in creative agency’s life. Possible, but highly unlikely.

Those are my main points I study to work out strategy. Companies are different and expert judgement is vital. In case you consider to run similar exercise at your department, I am adding a Procurement strategy map 2017 03 10 to make your work easier. I would welcome any different thoughts and opinions in comments!

Strategy Map for Procurement

Make Budgeting “Logic Friendly (-ier)”

budgeting

Another routine task that we go through every year. Some more than others – but, admit, once a year a time comes when everyone starts looking into ceilings. Well, you know, for numbers. However you call it – budget plan, benefit plan, delivery plan, opportunity analysis, business plan, zero base budgeting – we all live and breathe numbers. Procurement HAS to deliver. But how do you decide what to promise?

Whatever your category / buying / supplier management plan is, once a year you will sit down to review what has been done, how successful it was and, most importantly – WHAT’S NEXT? I’ve had that question more than once and, to help me and others save time, came up with a small grid of assumptions and recommendations. It looks like this:

savings-grid

Looks scary? Actually, it is quite simple. Please read on for further explanation which criteria is being taken into account when deciding the numbers. Opportunity analysis should reply two questions: WHAT to target (to prioritize bigger opportunities) and HOW to do it. This time it will be more about the first question.

Category maturity

First criteria – category maturity. Basically, you have to consider, how well you know the category. It does not have to be copied word by word, but you will get the meaning. Category maturity abbreviations in the grid above are given in the first column. Here is what I use:

  • NA: Never addressed. And it means straightforwardly that – never addressed. Maybe you are trying to address your tail spend for the first time. Maybe, finally, you got the support and courage to address “we have always done it that way” spend and suppliers. Maybe it was never managed by procurement. Whatever the case – it should, as a rule, allow you to expect bigger opportunities. Signs: very big number of suppliers; or on the contrary – only one supplier who has been there for ages. Contracts, signed long ago (ten, fifteen years or more). Lack of internal processes in buying administration, big number or buyers. You might not be even aware that the category exists.
  • I: Immature. Categories, that were on someone’s radar, but still having some “grey” areas. Categories, where, if asked suddenly, you would not be able to remember contract start and ending dates or even contact people at supplier’s side. Or even – what is the full list of suppliers in the category. You know, that spend is there and someone some time somehow did something, but what exactly that was…? Well – potentially a nice opportunity.
  • SM: Somewhat managed. Here you might even know suppliers and their representatives! And the contract duration. But, most likely, procurement’s efforts to deal with prices were limited to pretty much one or two challenging questions about the price over the phone.
  • MTE: Managed to an extent. You know the items, services, SLA’s, specifications. You have been having tenders and negotiations. You have been buying “like for like”.
  • M: Mature. You know ins and outs: if needed, you could set up a business to become your own supplier. That is how well you know it. Demand management? Been there. Make or buy? Solved that. Outsource? You have outsourced, re-insourced and re-outsourced again. Face it – you’ve done it all.

A good tool to check how well you know your category – check how many of the 64 methods, proposed by A.T. Kearney, you have applied to the category. That should also give a good indication on how much is still out there to be done.

Price / Market / Source flexibility

Another criteria to consider, while evaluating opportunity – how flexible are you to challenge the supplier, the product, market, and ways of buying? After all, it is not only about you and your wishes. There is a thing, called market outside of your office walls.

In the grid above, abbreviations are on the lowest line. My categorization is provided below:

  • SS: Single sourced. Wider explanation is in another blog post. Link here.
  • LS: Limited sources. In this case, you will be able not to only imitate negotiations, but actually have one. Surely, those two or three suppliers will know everything about each other and you will have a very slippery road to go, but, still, better than nothing. Right?
  • FCEC: Flexible, change with effort and cost. In these situations you might have more than three suppliers out there in the market, but any change will cost money and will require effort. In other words – no restrictions for “procurement show”, but quite a few restraining factors for real change.
  • FCE: Flexible, change with effort. There will be occasions, where market / prices / specification will be flexible. But you will still have to think about effort and resources that it will require. When prioritizing your activity plan for the upcoming year, proper planning is important. All in all – it is not just about identifying the opportunity – it is also about implementing it.
  • VFEC: Very flexible, easy change. Not much to comment. You will not find this very frequently, but if you do – it is all of your “quick hits”. If you have any of them, you should be hunting them right now – instead of reading this post. Seriously!

Ready, Steady, Go!

The process of budgeting will be exactly that: preparing data, analyzing it; making assumptions and decisions, which will, hopefully, lead to implementing them.

This time around, making logic assumptions, I hope, will be easier. Look at the maturity of the category and flexibility of the market (and some other factors) – and suggested savings’ number is just there. I am adding template with the grid in excel. The file also contains some more suggestions and formulas to make your budgeting process faster (opportunity-analysis-template). Numbers and category names are just suggestions – feel free to adjust according to your expert judgement.

Then choose methods of working and administration: simple tasks, project teams. Choose strategies and action plans (the HOW bit) – tenders / e-auctions / partnerships, outsourcing, etc. And go after the numbers! Happy hunting!

 

Make Budgeting “Logic Friendly (-ier)”