Translating the benefits of procurement for internal stakeholders at BP (part 2)
Aug 30, 2011 10:03:00 AM
The first part of our interview with Andrew Collopy [AC], Global Procurement Director, Downstream at BP concluded with a discussion around communicating the benefits of procurement internally and reducing stakeholder scepticism. Part two continues the internal validation conversation plus looks at how procurement can breakaway from it's typecast as a tactical buyer.
CG: You advised that it took around 18 months to get where you are today how much of your teams time is spent on the internal validation piece vs being immersed in the market?
AC: We aspire towards the 80/20 rule in terms of where our energy needs to go (80 percent focused on the external aspects and 20 percent on the internal) but we’re probably much more in the 60/40 region today. We want to obviously shift that focus to be even more external but that’s proving very challenging given where we are on the capability maturity journey, looking at stakeholder management pre and during the project but also post project in validating the savings.
The internal validation is becoming more streamlined and efficient primarily due to the maturity of the working relationship between procurement and the business, which I think grows all the time as you deliver more results and build up the trust of our internal partners but it is still too much internally balanced right now.
CG: Sure, if you look at your internal stakeholders (Marketing, HR, IT, Finance, operations, R&D etc) how is your time split up amongst those different internal stakeholders - do you say, ‘well we don’t tend to work with Marketing at all, we’re spending most of our time with IT and Finance’ or is it an even split across the business?
AC: No, it’s evenly split really. If I think about the fuels business which I look after, the main spend categories are logistics, CAPEX and maintenance associated with our retail sites and terminals in the network, marketing spend, IT, and cards activity (there’s quite a lot of stuff we do with the issuing and acceptance of credit cards and debit cards) and all of that wonderful stuff, and then there’s other indirect categories (in which we effectively have a category management structure in place which manages all of those key spend areas). I wouldn’t say that we’re spending more time with one group than another, however there’s probably more maturity in the working relationship with some areas than others. The logistics group is very good, the same exists in cards, the same exists in IT, whereas if I start to look at areas like Marketing, I would say that we’re making some progress but most people would tell you it’s always a challenging area.
CG: Fine, now obviously over time the 60/40 rule will change as you build the trust of the stakeholder, reducing the internal validation time. Do you anticipate another 18 months to be spent working on those areas like Marketing which are relatively new for procurement to be involved with?
AC: I think we have a tendency to underestimate how long this whole process takes. We effectively need to work to a rough benchmark of 18 months to be able to get to the point where you feel as though you have that working relationship and are being truly effective. So from the start to when we finish it could, in some cases, taken three years to get to that point.
I mean the challenge in most companies these days is the fact that we operate in a dynamic environment in terms of people moving from one company to another. Looking at Marketing for example, we work closely and get to a great place with the current Marketing Manager who then moves onto a new job – in which case we have to start the relationship building process again. Relationships are built with people not roles.
With new hires come new personalities and across many of my key stakeholders there are very strong advocates of procurement in which I have a very strong working relationship depending on their personal background. On the other, hand some stakeholders (particularly new hires with little exposure to procurement), require a lot of work building up that relationship – sometimes from scratch.
CG: How do you ensure the new Marketing Manager understands the working relationship you had with the previous Manager – so as you are not working entirely from scratch?
AC: I think there’s a couple of things. So one is, if procurement has the presence - and what I mean by that is, is if the new Marketing Manager or Director comes in, and if there’s a procurement director that sits at the same level as part of that leadership team, I think very quickly you build up that working relationship. What you find is some organisations is if procurement is lower down in the organisation, that’s not great in terms of building the relationship you want on an equal basis.
Secondly, the entire team doesn’t change and therefore any good Marketing Manager and/or Director coming in will listen to their team – if the say ‘our working relationship with procurement is good and we see what they bring to the party’, in most cases, the Marketing Manager or Director listens to that.
But, there is definitely a case that you have to go back over the education process for the new hire in terms of ‘this is what the role of procurement is, these are some of the historical wins that we’ve had together, and this is how I’d like it to work moving forward’ - the receptiveness of that is very much down to the individual.
CG: Okay. We’ve talked about the internal piece quite a bit and this is great because a lot of people forget that there is that internal side to procurement. You can spend 100 percent of your time in the supply market getting the best deals for everyone, but at the of the day if you don’t communicate that back, into the business, it’s not fruitless but it’s just not as impactful as if everyone understands the value of delivering back to the business. So if we take this one step further, what do you think Procurement means in it’s entirety?
AC: Wow, OK. Right where do you start with this, it’s a big question. Effectively I see procurement commercially accountable for the key interfaces with third parties (example suppliers) , ensuring that we are getting the best commercial deals and also managing the risk with these third parties (at any point that you end up not doing something yourself and you work with a third party, you run the risk of importing risk into your business).
But I also think that procurement are custodians of the process about how the company spends third party dollars. Procurement needs to build processes into the overall business processes which allows someone to say ‘I have a business need, how do I now fulfil that business need with a third party’, - what I’m talking about here is a requisition to pay processes.
So there’s a commercial element to the role, and I think there is an process element to the role. In addition, the very nature of the job is we work with suppliers on a day-to-day basis and therefore we’re able to extend our innovation capabilities internally and externally. If we say BP has 100,000 employees and we add in our supply base we are talking about a million contacts collectively, so tapping into that knowledge and that innovation, bringing that inside BP is something that we shouldn’t lose sight of.
After the innovation piece there’s what we almost describe as ‘licence to operate’ parts of the role really which is to say ‘are we ensuring that we are getting goods and services through the door’, that they are arriving on time and at the right quality’, so that BP can operate.
CG: Okay, great. Now if I walked up to your CFO and asked him/her the same question, would he/she define it in the same way you have?
AC: I think they’d probably define it in terms of procurements commercial role, ensuring BP is spending it’s dollars wisely in the marketplace.
CG: Okay, so why don’t they care about the internal or process aspect?
AC: I would say the CFO does care about that because that’s a control issue. So they would want to ensure that from a legislative perspective, we have segregation of duties and our delegations are clear and that there’s an operating process that fulfil the requirement of the business for example so I think that’s fair.
I think the bit which probably the CFO doesn’t always see is this whole management of risk because they’re obviously very financially focused.
We tend to talk about the commercial aspects of procurement quite often with the business and in some respects we’re our own worst enemy. Procurement has been elevated over time in BP primarily as a functional capability delivering competitive deals in the marketplace – which makes a direct impact on the P&L of the company – and that is what we have come to been known for. I think sometimes the risk and innovation parts of procurement’s role doesn’t get as much exposure purely because it’s just not as visible.
CG: So how are you going to break away from that typecast – towards a more strategic business partner?
AC: Well I think it comes through the elements which we discussed. Risk management has become a much bigger agenda item globally, and I think actually we’ve got a very pivotal role within the business now.
If something happens in the world that affects the supply chain, you need to ensure that you have appropriate risk management strategies and I think corporations are recognising the importance of procurement’s role within this greater business picture.
The same applies in term of innovation, but ultimately you only get to that recognition point when you have proof of delivery. If there’s a specific event that happens procurement needs to step up and proactively tackle the challenge - I think that is how we break away from the typecast and not simply seen as the guys who go out and renegotiate another deal.
CG: So obviously everyone is busy, where do you (as a procurement professional) find time to proactively look at inefficient processes or simply scratch around for new alternatives/opportunities?
AC: I think everyone should be proactive but I would say that tends to come in a more structured way. So what I mean by that is that any category manager, where you have deep subject matter expertise in specific spend areas, who is doing their job effectively will do the analysis in terms of internal requirements and what the supply market looks like, and they should therefore be bringing those options to the internal stakeholders.
As a corporation we may decide to go with option A, B, C or D, but ultimately part of the role of the category manager is to say ‘look, there are three or four ways of fulfilling this requirement, as a collective cross functional team, how do we want to fulfil that requirement?’ and the answer can vary considerably in some cases; there are very good business reasons why you wouldn’t go for what a procurement team would optimally view as the best solution.
CG: So, you are saying you think procurement should be working with the internal stakeholder from the start of the project to actually define the need? Or are you waiting for the stakeholders to come to you and say ‘we know what we want, can you get the best deal for us’?
AC: This is a pivotal question and it comes back to the role of procurement.
I would say the well known role of procurement is - somebody brings a business requirement, you don’t question what it is, you just go out into the market place and you fulfil that requirement in the most cost competitive manner and the most risk reduced way possible.
But, as you gain more respect and the maturity moves on, I think the role can question the specification in terms of whether that’s what you want to buy and I guess ultimately one of the roles of procurement is to question whether we need to buy it in the first place.
I’ve got very specific examples where people say to me ‘if you prove to me that you can do good deals (in terms of reducing the cost), then you can come along and challenge the marketing people in terms of how they are buying stuff’.
But I think if you start from a view point of quite hard faced (‘to be honest with you my job is to question if you actually know what you’re doing and if you’re setting the specification right’) I just don’t think you’ll build a strong working relationship with the stakeholder.
I think it’s a constant challenge to get involved at the start of the process. So again it constantly comes back to the maturity of the working relationship. I have everything from people working on very strategic projects early on in the project lifecycle to somebody going out and doing a deal, not involving procurement at all. That is always going to be the case, you have to thank the people who involve you very early on, maintain that good working relationship and continue to deliver for them (encouraging repeat business). For the other ones, you have to say that it’s not acceptable that they’re not involving procurement in the early phases of the project where they can have an impact.
The role of procurement is not to simply put the contract in place.