Procurement-In-The-Middle: How to Play the Game...

Reinventing Procurement (and Ourselves)

Makeover Magic:

Vantage Partners

Danny ErtelPartner

sig.org/eval

Danny Ertel | SIG Fall 2016 Summit

Make-Over Magic: Reinventing Procurement (and Ourselves)

About Vantage Partners

Mission

Drive measurable business results by transforming the way companies negotiate with, and manage relationships with, key business partners

Practice Areas

Sourcing and Supplier Management, Sales and Key Account Management; Alliance Strategy and Management

Copyright © 2016 by Vantage Partners, LLC. 3

CSR and pro bono

Leaders in international conflict resolution through CMG (now part of Mercy Corps)

Arias Peace Accords

Post-apartheid South African constitution

Spin-off of the Harvard Negotiation Project

Faculty at Harvard University, the Tuck School of Business at Dartmouth, and the US Military Academy at West Point

Key topics for today

What is changing for Procurement, and what does that mean for what we actually need to know how to do?

Three big “got-to”s that we don’t want to see turn into gotchas:

1. Got-to see the big picture

2. Got-to create business value

3. Got-to bring our stakeholders along


A bit of context: what are we transforming to?

A new sourcing continuum


Sourcing Goods

Sourcing Services

Sourcing Solutions

Sourcing Innovation

Core Value of What is Being Sourced

Ideas

Investment

Expertise

People

Process

Scale

Key Strategies and Skills Required

Joint problem-solving and co-creation

Communicate Context Apples to Oranges

Comparison

Creative Compensation and Incentive Structures

Competition

Tight Specifications

Traditional View of Suppliers

Suppliers are companies from which we purchase goods and services

Cost is the primary driver and measure of value from suppliers

Our interactions with suppliers are fundamentally zero sum

Leverage over suppliers is the key to value

Changing views of suppliers

Alternate View of Suppliers

Suppliers are a source of knowledge, expertise, assets, and innovation

Suppliers can help us gain/maintain a competitive advantage in myriad ways

In a world of competing supply chains, our success is tied to that of our suppliers

Collaboration with suppliers is an essential means to create value


Traditional Procurement and SCM

Leverage over suppliers

Focus on internal stakeholder compliance

Analytical skills

Primary value is cost reduction/management

Manage transactions

Secure external supply of goods and services

Own/execute

The evolving role of Sourcing and Supply Chain Management

Engagement with suppliers

Trusted advisor to internal business partners

Soft skills

Primary value is competitive advantage

Manage relationships

Solve business problems

Facilitate/enable

New Procurement and SCM Paradigm


Advancing our maturity level is no longer an option

Execute transactions (Reqs, POs,

etc.)

Focused on price reductions

Competitive bidding

Stakeholder compliance

Focused on total cost of ownership

Strategic sourcing

Post-award supplier management

Stakeholder engagement

Focused on total value; delivering competitive

advantage to the business

Strategic category management

SRM across the lifecycle of supplier interactions

Trusted strategic advisor to business stakeholders

Sourcing/Supply Management Maturity Model Overview

Val

ue

real

ized

Level 1

Level 2

Level 3

Level 4

Integration with overall business strategy and operations

Bu

sin

ess

stak

eho

lder

invo

lvem

ent

& b

uy-

in


There’s a lot at stake as we approach this transition

0

50

100

150

200

250

300

350

400

450

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

OEM Supplier Working Relations Indices 2002-2015

Ver

y p

oo

r –

po

or

Ad

equ

ate

Go

od

–V

ery

goo

d

Source: Professor John Henke; North America Automotive – Tier 1 Supplier Working Relations Index

Poor supplier relationship management costs US automakers $2 billion

SUPPLY MANAGEMENT: MAY 2015


Suppliers deliver more to their “customers of choice”

Percentage of respondents

57%

77%

79%

0% 20% 40% 60% 80% 100%

Top 10% of respondents (in terms of value generated by suppliers)

Suppliers provide access to the best people, pricing, and ideas

Suppliers are open and proactive about problems

Suppliers are perceived as fully transparent

about strategies, cost structures, etc.

26%

42%

35%

0%20%40%60%80%100%

Percentage of respondents

Bottom 10% of respondents (in terms of value generated by suppliers)

Source: Vantage Partners Supplier Relationship Management SurveyCopyright © 2016 by Vantage Partners, LLC. 11

See the big picture

Got-to #1

Why was this difficult?


Perspective mattersAssumptions and

expectations matterRelationships matter

?

In our day-to-day, it is easy to get focused, and to zoom in tactical choices


CategoryStrategy

Actual and Potential Suppliers

S&PCategory

Strategy

Actual and Potential Suppliers

Actual and Potential

Customers

Zoom out for a broader perspective of what we are solving for

Category Strategy

Go-To-MarketStrategy

Our Suppliers’ Other

Customers

Our Suppliers’ Suppliers

Our Customers’Other

Suppliers

S&P

Fin

ance

Dev

elo

pm

ent

Op

erat

ion

s

Bu

sin

ess

Un

its

Our Suppliers’ Other

Customers


Our Customers’Customers

Perfectly Fine Questions

How do we extract more savings from the supplier?

Why is the supplier failing to meet our expectations, and how do we get them to change/improve?

How do we define clear requirements for what we want the supplier to do?

How do we get more innovation from suppliers?

These broader, “bigger picture” achievements require considering different questions

Different Questions

How does the supplier make money?

What do we do that creates cost or risk for the supplier, or inhibits their ability to deliver maximum value to us?

What does our business need, in order to compete?

How can we define the business problem we want the supplier to help us solve?

How do we create more innovation with suppliers?


Reflect on your own experience

In your Reinventing Procurement action plan handout, start to make some notes about what you may want to reconsider and re-explore.

1. What challenges does our enterprise have that some of our suppliers could help solve? (If I have no idea, how will I find out?)

2. What challenges do our best suppliers face in dealing with us, with which we could start to help them? (If I have no idea, how will I find out?)


What else do we have to know how to do?

Attitude/MindsetEnabling people to accept, internalize, and apply new knowledge and skills

Analytical Skills Behavioral Skills Business Acumen

Functional Skills

Soft Skills


Some critical business skills

Strategic thinking and analysis (competitive analysis, SWOT, core competency evaluation, scenario planning, etc.)

Change management

Systems thinking

Market research and analysis

Risk analysis

Financial analysis (ROI, ROIC, ROA, P&L statements, activity based costing, cash flow, etc.)

Business acumen is a blend of skills and of knowledge about our business and supply chain

Necessary company-specific knowledge

Copyright © 2016 by Vantage Partners, LLC.

Underlying business unit/end-user needs and priorities

Company’s overall business strategy, and how sourcing and supply chain strategy relate to and support it

Our supply market (number of suppliers, degree of competition, supply relative to demand — current and projected, etc.)

Key suppliers’ strategies, business models, financial position, organizational structure, and culture

19

Building a change agenda

In your Reinventing Procurement action plan handout, start to make some notes about what might help improve your team’s business acumen.

1. What kinds of conversations could we have with stakeholders, in what fora or setting?

2. What kinds of experiences (assignments, projects, or other opportunities) could our managers provide to help us get stronger at this?

3. What kinds of training should we prioritize to address this need?


Create Value

Got-to #2

Arm “Exercise”

ACTIONS

Arm Exercise: Two models


Arm “Wrestling” Assumptions

Beat them

Use strength to get ahead“Win/lose”

Tense upStart just before “go”

Little/no value createdConflict

GOAL

STRATEGY

Maximize my income

Collaborate and work together

“Win/win”

Nod head, wink Pull my arm down

Lots of value createdCooperationRESULTS

Single issue negotiations drive us toward zero-sum bargaining


Our walk-away alternative

Their walk-away alternative

Outcomes acceptable to us

Possible Agreements

Outcomes acceptable to our supplier

But in real life, while cost matters, it is not the only thing that matters


Val

ue

to

Us

Value to Supplier

X

Wasted Value

Wasted Value

Val

ue

to

Us

Value to Supplier

X

We don’t HAVE to play a zero-sum game

Copyright © 2016 by Vantage Partners, LLC.

Improve access to talent (ideas, expertise)?

Jointly manage risks (prevention, mitigation)?

Become lower cost to serve?

25

We have lots of levers to choose from to deliver value


Value Levers

Reduced costs

Business Value Business Benefits

Value Enablers

Increased revenue

Reduced risk exposure

Demand reduction

Process efficiency

Specification simplification

Reduced inventory

Supply chain effectiveness

Favored customer pricing

Total cost reductions

Reduced capital expenditures

Service level improvement

Quality level improvement

Product innovation

Joint process innovation

Increased speed to market

New market access

Strategic alignment/influence

Supplier resource investment

Reduced supply disruption

Fewer quality or service issues

Balance of dependency

Reputation protection

Remuneration model redesign

Process redesign

Demand management

Specification analysis

Supply chain redesign

Volume consolidation

Total cost modeling

Shared investments

Performance scorecards

Joint review meetings

Relationship governance structure

Post-award contract management

Preferred access to best talent

Joint product design

New technology access

Shared marketplace insights

Joint strategic planning

Gain sharing

Preferred capacity access

Joint forecasting

Supply chain visibility

Joint risk management

Gain sharing

Mutual understanding

Mutualrespect

Opencommunication

Mutualtrust

Imp

rove

d e

nd

-use

r sa

tisf

acti

on

Use those levers to solve problems, sustainably

Dig into interests

Prioritization: Ours? Theirs? Do they change over time?

Relative strength of interests: Are some things less important/lower value to one side than the other?

Categorization: Same? In conflict? Just different?

Developing options that exploit differences to create value

Different preferences

Different risk profiles

Different predictions

27Copyright © 2016 by Vantage Partners, LLC.

Make efficient trades

Lower price for higher volume; lower price for faster payment; faster delivery with reduced order lead time for higher price; etc.

Jointly develop creative contract structures

Contingency agreements; pricing tiered by volume; price floors and ceilings; risk-reward sharing; etc.

Jointly develop creative technical solutions

Change requirements; material substitutions; component redesign; etc.

Benefits of enhanced collaboration between customers and suppliers


For customers

Preferred access to supplier’s best people

Preferred access to supplier ideas

Increased influence on supplier investments and technology roadmaps

Increased innovation from and with suppliers

Increased operating efficiencies

Improved quality

Enhanced service

Which results in:

Lower costs

Increased revenues

Sustainable competitive advantage

Greater visibility into customer plans and projected purchases

Increased operating efficiencies

Longer term customer commitments; greater predictability of future business

Opportunities to develop, pilot, and showcase innovative solutions

Deeper insights into customer strategy and plans; ability to align investments leading to increased ROIC

Which results in:

Lower costs of sales

Increased margins and revenue

Sustainable competitive advantage

For suppliers


Return to your Reinventing Procurement action plan handout, start to make some notes about possible sources of value.

1. For the supplier I know best, what are the three most valuable things we could do to help them be more profitable and/or “win” in their space, at relatively low cost? (If I don’t have any idea, how can I find out?)

2. What are some things that suppliers could do for us (other than just cutting price) that would help us get our products or services to market better? Faster? Cheaper?





Functional Skills

Soft Skills


Some critical functional skills

Supply chain mapping and risk analysis

Spend analysis and demand forecasting

Total cost of ownership calculation

Category strategy development

Sourcing strategy development

RFP reverse auction development and administration

Contract drafting and contract management

Functional and soft skills complement each other in value-creation

Increasingly urgent soft skills

Stakeholder engagement (supplier and internal stakeholders)

Influence

Negotiation

Communication

Conflict management

Creative joint problem-solving

Facilitation

Building and sustaining constructive interpersonal relationships (supplier and internal stakeholders)



In your Reinventing Procurement action plan handout, start to make some notes about what might help improve your team’s functional and soft skills.

1. Which topics or skills seem to be especially important for us?

2. What kinds of experiences (assignments, projects, or other opportunities) could our managers provide to help us get stronger at this?

3. What kinds of training should we prioritize to address this need?


Bring our stakeholders along

Got-to #3

How do your internal clients and business partners view Procurement?


Initiative and Assertiveness

Serv

ice

Ori

enta

tio

nHigh

High

Trusted AdvisorOrder-Taker

RivalDead-Weight

Low

When things go wrong... perceptions often diverge

Each of us tells a story about what happened based on:

Different information

Different interpretations of ambiguous information

Different assumptions about missing information

Different conclusions are inevitable

Debating conclusions is unpersuasive, escalates conflict and hurts the relationship

Seeking to understand (and combine) different stories generates new insight, resolves conflict and strengthens the relationship

“And” accurately captures this complexity; “but” denies it


Framing matters

Trusted advisor relationships start with a belief that you understand, and care about, my priorities

The “trusted” part requires stakeholders to be comfortable with both our competence, and our character

The “advisor” part requires us to be assisting, not imposing requirements or demanding compliance

My problems Your problems

Tod

ayTo

mo

rro

w



Return to your Reinventing Procurement action plan handout, start to make some notes about possible opportunities to demonstrate we can help.

1. What are my most significant internal customer’s top priorities? (If I don’t know …)

2. How can I use my specialized knowledge and skills, my relationships, or my tools to help with those?





Functional Skills

Soft Skills


As the paradigm shifts, our own attitudes and mindset must provide a supportive platform

Why do they believe that?

What are they solving for?

How can we solve for bothsets of interests?

Which metrics actually help us make good choices?

What comparables or benchmarks are likely relevant to them?

Collaboration and curiosity drive a useful mindset

Traditional Procurement Paradigm

New Procurement Paradigm

Primary value is cost reduction and securing external supply of goods and services

Primary value is solving business problems and delivering competitive advantage

Competitive pressure and leverage over suppliers is key to value

Collaboration with suppliers and balanced dependence is key to value

Internal focus is on stakeholder compliance

Internal focus is on being a trusted advisor to the business

Manage transactions Manage relationships

Analytical skills Business acumen and soft skills

Own and execute Facilitate and enable



In your Reinventing Procurement action plan handout, start to make some notes about what might help your team instill the right mindset and attitudes?

1. How do we build the right mindset internally (within the Supply Chain organization)?

2. How do we get buy-in or the right mindset with our internal stakeholders?

3. What change management activities should we prioritize to address this need?


Key Take Aways

The next wave of savings will come more from innovation than from competition

Sourcing and supply management teams need to think like businesspeople, not buyers

Cost (almost) always matters — but it is rarely the only thing that matters

Worry less about getting credit from the business, and more about contributing value to the business

Being of value in the new world will take additional skills and capabilities, and those (like all good things) take some time to build


This publication may not be reproduced, stored in a retrieval system, or transmitted in whole or in part, or in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without prior written permission. Copyright © 2016 by Vantage Partners, LLC. All rights reserved. All rights reserved.

A spin-off of the Harvard Negotiation Project, Vantage Partners helpscompanies achieve breakthrough business results by transforming the way they negotiate with, and manage relationships with, their suppliers, customers, and alliance partners —and enhancing collaboration across internal organizational boundaries.

10 Guest Street

Boston, MA 02135 USA

T +1 617 904 7800

F +1 617 904 7850

www.vantagepartners.com

Thank you!

Danny Ertel

Partner

[email protected]

mailto:[email protected]

Evaluation How-to:

Your feedback drives

SIG Event content

By signing and

submitting your

evaluation, you are

automatically entered

into a prize drawing

Why?

Option 1: App

1. Select Schedule2. Select Schedule by Day3. Select Day4. Select Session5. Scroll to Description

6. Click on the Evaluation link

Option 2: Browser

1. Go to www.sig.org/eval2. Select Session (#WS02)

How?

COMPLETE &SUBMIT EVAL

Tweet: #SIGfall16

Workshop # 2

Makeover Magic: Reinventing

Procurement (and Ourselves)

Speaker:

www.sig.org/eval

Download the App: bit.ly/SIGfall16

Vantage PartnersDanny Ertel

Partner978-397-6990

[email protected]

Procurement-In-The-Middle: How to Play the Game...

Documents

Transcript of Procurement-In-The-Middle: How to Play the Game...