strategy

6 Ways To Kill Business With Procurement. Part 1

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…and I mean it. Procurement can bring the company to the point of no return. And there is more than one way to do it. One quick stab in the back or “death by a thousand cuts” – you can choose a method closer to your heart (ironic, right?). So the next time you even think about complaining that “your CFO does not love you” – take a second look at the list below and consider if potentially any of the phenomena analysed below apply to you and your function.

A Recipe for failure

If you read “Outliers” by Malcolm Gladwell, you will know by now that a success or a failure is rarely an outcome of only one factor. Most of the time, it is a combination of a few of those. In my experience, procurement is frequently guilty of more than just one of the below:

  • Unnecessary purchases.
  • Narrow framed TCO approach.
  • Contractual suicides.
  • Laziness
  • Business bottlenecks.
  • Poor objectives (which can be implied or self-imposed).

If you identified only one of the above and think that you are off the hook, think again. Those are the factors that your department can influence directly. However, there are always external factors that work as multiplicators of the failure. Think about fraud. Think about suppliers, genuinely abusing the situation, and overcharging the clients. Think about supply chain and risk costs. External factors, not managed properly, could become strong enough to cause issues to a business. But if a CPO adds additional internal obstacles – you have a recipe for failure. Let’s review the first one today and others in my next posts.

Unnecessary purchases

Many of us at least sometimes find ourselves staring at the wardrobe with a blank face and only one thought in the head – “nothing to wear, again…”. It’s just that the closet is not empty. We buy things – gadgets, vitamins, tools, gym membership – and never use them. Or use them so frequently that the gym administrator does not recognise us in the photo on the member pass.

I am not sure if this will surprise you, but the same rules apply at work. Really! Let me give you some examples. IT license list being the first one. I bet not all companies analyse the functionality of the software that different stakeholders buy across the organisation: there are plenty of duplications and lost negotiating power. I bet that not all of the organisations stay on top of various users that have licenses – and overpay for things they do not need. I could continue. I know, I know, these would not kill the business.  It is difficult to track the ones that really would. And there is a good reason for it. I mean, would you brag about something that is not going to get you an award?

However, the European Union publishes the findings of public procurement audits. Official conclusions say that approximately 5% of all spend could be a waste of money. A lot more than that were simply very well covered. Lifts that take you to no-where and other Italian adventures with EU money (Patrick Browne, “Five insane ways EU money was blown in Italy”, thelocal.it). MEPs charging for the offices that do not exist (Jonny Wrate, occrp.org). Donkeypedia and many more. Most of these projects cost millions. Consider how many private businesses work with a much smaller margin than this… I realise that some of these projects are under investigation for good reasons – but someone approved the plans in the first place! And paid for them!

Lift-in-Italy-to-nowhere-557323

Most of the times, it is not the procurement department who initiate such purchases. But many times, they participate – if not lead – the procurement process. In the time of increasing popularity of inclusive and engaging company cultures, procurement should be able to speak up if they see strange requests coming through, surely? Yes, people are wasting money on the things they do not need. And yes, procurement could help stop them if they wanted.

Have you witnessed unnecessary purchases in your organisation? What were they? If you want to share your experience anonymously, text you story to me and I will upload to the comments without specific details.

I will post explanations about other phenomenons in my blog later.

Stay safe and stay healthy!

 

 

6 Ways To Kill Business With Procurement. Part 1

Types and levels of proofness

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For instance, I blog under Futureproofitable: that is future proof and profitable in one word. You can buy things cheap. But if they are of no use – you are not getting far as a business.

The same rule applies across all of the organisations (private or public). You can have the strongest Procurement processes and function in place, but if the decision itself to buy something is wrong, then nothing can save you.

There are few levels of proofness, as I categorise it:

  • Idiot proof: if you know there is a risk of completely failing at the task or a project, just do not do it.
  • Future proof: you know there is a risk, but you choose to address it in advance.
  • Future proof and profitable: you know there is a risk, you choose to address it in advance in a way so that you can turn it into revenue stream in the future.

I will be sharing more examples in the future as I come across them. Today, I already have a bit of a library gathered. Here’s one example.

A PFI object. A health institution. You would expect the highest standard of cleanliness and hygiene. And still… you come across an artwork hanging from a ceiling like this:

ceiling art.jpg

Can you think of all the things that can go wrong? Cost of cleaning it? More like not affordable to clean? And if you cannot afford to clean it – what kind of risks are you exposing everyone to?

What has that got to do with future proofing? Here you go:

  • Level 1, #idiotproof: don’t do it. Just don’t. It adds no value, costs a fortune itself, the maintenance costs even more; without maintenance – it becomes a source of various risks.
  • Level 2, #futureproof: make it machine washable. I am not suggesting I know HOW to do it. But if you really need it in the first place – make it machine washable.
  • Level 3, #futureproofitable: make it machine washable “hall of fame”: hang a small artwork in the name of everyone who has contributed through charity to the purpose of the object.

Do you have any examples like this?

Types and levels of proofness

Make Procurement Great Again

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Does it not frustrate you, when you think you are doing everything that’s best out there, and you still end up in conflict situations with other business stakeholders?

You implement best tools – you hear noise, until people stop using them.

You write best-in-class policies – and the Pareto works against you: 80% of time people do not comply (versus anticipated 20%).

You achieve “improvement” in processes, that procurement controls – but overall business results are worsening.

You hire best negotiators – and they leave the business faster than you manage to pay recruitment bills.

Again and again, you find ways how to “make procurement great again”, but nothing seems to satisfy the business… I was talking about ways to assess the situation and adapt procurement strategy to meet the business needs in a conference and am sharing the material here.

I would gladly share working files and templates to those willing to use them. Thank you for reading, commenting and sharing.

Make Procurement Great Again

Strategy Map for Procurement

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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