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Redefining procurement series: Strategic planning (part 2)

Chris Gayner
Jul 27, 2011 5:17:00 PM

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chris-gayner

 

Part one discussed the importance of strategic planning and some tools that can be used in developing your strategic plan. We now look a little deeper under the surface and dig into the actual make-up of your procurement operation.

Team structure and size

A strategic plan is only as strong as the people implementing it. The structure of your team is a vital to the impact, reputation and overall success of the procurement operation within your business.

With literally infinite possible combinations of skills, size, cultures, backgrounds, experiences, knowledge that can be retained and developed in your team, it is impossible to come up with a template or definitive answer of how you should structure your team. During a recent interview with Tom Kinnaird, Head of Commercial and Procurement Services at WPP, the concept of simply being seen as useful was discussed. Tom advised the first step in building a successful team is to truly understand what the business (and various stakeholders) want from you.

“"I think there'’s a real temptation, from a CPO’'s point of view, in building big teams. At the end of the day we all feel wonderful if we’'ve got hundreds of people working for us and it’'s about building empires. But I think there’'s a challenge for CPO’s in which you have look at your operation and ask yourself, is this operation really adding value or is simply getting bigger for the sake of getting bigger.”"

Coming back to my point of being useful, starting with the wants and needs of your customers rather than going to them with solutions to problems which you may think are important but are simply not a priority to them, will ensure you are seen as useful – leading to happy stakeholders and repeat business.

Having this mind-set enables you to look at your operation and really ask yourself:

  • Do I need a dedicated resource focusing on this activity?
  • Do I need to have transactional capabilities in house or should we only focus on the strategic/high level activity?
  • How much time and how many resources do we need to dedicate to stakeholder management?
  • Does everyone on my team know exactly what they should be doing to drive value (and what value means) back to the business outside their day-to-day?

Tom concluded our discussion by saying that ultimately your team should be made up of “"high performing people who know what they’'re doing, who are business people first and procurement people" second”  led by a capable and business savvy leader. The overall size of the operation is completely dependent on your team’'s ability to effectively deliver value back to the business.

Skill sets, tools and technology

A common misconception by many senior executives is that the skill set associated with managing direct procurement can be simply applied to indirect procurement and yield the same results. This however, is not so.

Directs_vs_indirects_chart
(Click the image to enlarge)

The skills required to effectively manage Indirects differ substantially from those of directs primarily due to:

  • The indirect supply market having hundreds of categories, all of which require deep knowledge to procure effectively. Also, there are tens of thousands of suppliers, all who invest heavily in selling to you (the buyer) –- for large contracts it is not unusual for a supplier’'s account management team to be larger than the entire procurement function it is selling to.
  • The large number of low £ value transactions being carried out (frequently)
  • The supply market being made up of thousands of stakeholders (internal and external), all with knowledge about their area but need procurement’'s support. This is turn means that procurement must act as an internal advisor, influencing functional decision makers and budget holders about their spend
  • The fact that indirect procurement professionals do not actually have any mandate over internal stakeholders budgets

Managing indirect expenditure effectively requires a huge variety of skillsets to overcome these challenges.  Skillsets such as category expertise, change management, stakeholder engagement (from senior executives down), facilitation, negotiation, supplier management, data analysis, technological know-how– - and so the list goes on.

To also help overcome the above mentioned challenges, a magnitude of tools and technologies are available -– benchmarks, spend analytics, indices, RFX, Contract Management Databases, e-Auction tools, P2P automation tools etc. Each of these pieces of technology requires integration, development and on-going management plus human and cash resources to ensure they are being implemented effectively. As such, introducing a new piece of technology should not be viewed as a quick win or shortcut but rather needs to be considered with your stakeholders AND your goals in mind.

Some quick questions you might consider when looking at new tools and technology:

  • What is the cost (time and money) implication of both implementing and not implementing the technology?
  • Will this piece of technology enable you to realise significant improvements in performance or drive increased value back to the business?
  • Is this piece of technology scalable across the business?
  • How easy is it to switch providers?
  • What are the security implications or risks (for your business)?

Overall the technology needs to enhance your team’s ability to drive value back the various stakeholders.

Control and scope

A great question I heard last week was -– ‘'How wide should you cast the procurement net?’' In other words should procurement be involved with all purchase decisions across the company?

Many procurement professionals take the view that procurement are the only ones who can deal with suppliers professionally and effectively, returning the best results back to the stakeholder. This is not true. In many cases, a CMO who has worked in the industry for 15 years has just as much or maybe more experience buying marketing services than any marketing category manager and most likely has built up a substantial network of contacts and relationships along the way.

Ultimately it comes down to relativity - will procurement add more value to being involved or slow the process down - should procurement instead focus its time elsewhere to drive relatively more value?

Whilst we strongly believe that procurement should be '‘involved'’ in the procurement process (ideally at the start rather than rubber stamping the contract at the end) we do not necessarily believe that procurement should always own the entire process. When we say involved it can be as little as a chat in the kitchen, some professional advise on how to approach the market or some hot tips on where to start supplier research.

Coming back to my initial point of being seen as useful, procurement needs to support the business and the various stakeholders. Control and scope go hand in hand with trust and reputation. Increasingly however, communication is a major determinant of procurement expanding its scope within the business. The ability to communicate with the business about successes, ideas, opportunities and generally converse on a business level rather than a procurement level, more often than not (according to our research) is a vital skill which is missing from many procurement operations globally.

Wrapping this up, the structure and size of your procurement operation, and skills, technology and tools within, should support the needs of your stakeholders whilst delivering on the overarching objectives of the business.

This is nothing new however, I am interested in hearing from those who strongly believe they have built their procurement strategy with the stakeholders needs at the core of the overall operation?

Proxima Group

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