World class procurement and your business

What is world class procurement?

Gerard ChickChief Knowledge OfficerOptimum Procurement Group

My Agenda today

An quick outline of Optimum Procurement Group

A little bit of background on procurement’s evolution

A look at what has brought this change about – and how you can take steps to position procurement in your organisation

Some discussion on contemporary procurement skill sets

What good looks like

A couple of takeaways for you to think about.

Value through procurement

Optimum Procurement in 30 seconds…

Procurement outsourcing and consulting across

all sectors UK, Europe, North America and MENA

A recognised global player

in procurement outsourcingdelivering sustained improvement

An enterprising approach to market

© 2014 OBS Group Ltd.


http://www.optimumprocurement.co.uk/press/177

What is contemporary procurement?

The emergence of procurement as a profession…

Supply Management, unheard of in the 1970s, core to today’s organisation; as a concept it was born at the beginning of the 1980s.

So why is that… well predominantly due to the rise of professional managers (1960s on) and the focus on annularity as a consequence of the principle of Shareholder Value Maximisation in the 1980s

Looking back the trends this created are easy to spot:

•The 1980s was about the demands of just-in-time

•The 1990s it was all about outsourcing and offshoring

•The 2000s it was the emergence of IT solutions

•The 2010s thus far has been all about risk

built in the previous 3 decades!

Value Proposition Role of Supply Management

Incr

easi

ng v

alue

and

dev

elop

men

t of

supp

ly-s

ide

capa

biliti

es

… and at the right price and quality;Purchase Cost

ReductionNegotiations

Total Cost of Ownership Reduction

… and by reducing total supply costs.Cost modelling; supplier/market analysis; supplier management; SRM; supply planning; project management; risk management.

Achieving Cost reducer

Supply Assurance

Site-level tactical sourcing, ordering and expediting

Right stuff, right place, right time;

Demand Management

Reduction of unneeded demand activity, complexity, immediacy and variability;

Customer relationship management; money management; demand/specification influence

Exceeding Supporting

business strategy

… ultimately stimulating good demand and increasing business value derived from spend (and supply markets) rather than simply reducing spend magnitude.

Value Management Safely harnessing the power of

supply markets for competitive advantage

Leading Influencing

business strategy

World Class Procurement

Value-add Procurement

Procurements accepted role

Lagging Fire-fighter


Procurement maturity: understanding performance versus value…

Modern Procurement’s ‘operating space’

Managing Markets

Performance Measurement

Risk

Governance(public-private)

Supply Management

InnovationManagement

Knowledge & Learning

Sustainability

Product-serviceInnovation

Discontinuity Procurement

Outsourcing

Relationships

Contracts

Alliances

Complexity

Through Life Capability

Complex Products

& Services

LifecycleManagement

Temporal Dynamics

4 domains


Low

High

High

Profi

t im

pact

Supply risk

1- 9 yrs 10 - 50 yrs

Co-c

reati

on o

f val

ue

Cont

ract

ual f

ocus

Rela

tiona

l foc

us

Traditional procurement

Procuring routine performance

Complex contractual

management

PCP

CoPS

Project management c

apability

Product-service

complexit

y

e.g. PFI

Has your remit moved beyond just traditional procurement?

PCP: Procuring Complex Performance e.g. the contracts; relationships; integrations necessary to deliver and manage complex performance

CoPS: Complex Product Systems e.g. capital projects, oil rig production, industrial machinery, and aerospace

(Adapted: Kraljic, 1983)


The five game changers

CORPORATESOCIAL RESPONSIBILITY ROCKS

D E V E LO P I N G EC O N O M I E S

18%

18%

15%

25%

24%

CHANGINGDEMOGRAPHIC

CORPORATESOCIAL RESPONSIBILITY

ROCKS

Taking a practical approach to improvement: introducing the Ace Model - Aspiration, Capability and Execution

Capability : How good are the people and processes you have today what do you need to bring about change?

Execution : What performance level is required for efficiency and effectiveness?

Aspiration : What do you want Supply Side Management to be?

ImplementingChange

Readinessfor

ChangePlanning

Leadership& Direction

Processes

Organisation& Resources Behaviours

Systems& Controls

Need forChange

External/internal drivers of change

Planning

Leadership& Direction

Processes

Organisation& Resources

Behaviours

Systems& Controls

Need forChange‡

‡

‡

‡‡ ‡

‡

‡

Procurement professionals need to get savvyprofessional; polished; intelligent; respected; influential; persuasive; visionary; strategic; sharp; global; collaborative; executive; business savvy. These are what procurement and business leaders will expect of the future supply professional.

A new definition of ‘expert’a significant characteristic of the new supply professional is the extent and depth of his or her knowledge; they will become “students of their industry”. They will know everything, from the science, economics, law and politics of their supply markets on a global scale.

The battle for Talentthere is considerable opinion regarding the talent pipeline. Is it too sparsely populated to meet the demand for strategic supplier-facing professionals that will develop this decade? The outcome will be intense competition to attract the best and brightest but on their terms.

The skill sets of procurement professionals must change!

PROCUREMENT COMPETENCE

Knowing whatprocurement toolsand techniques are

available to you the practitioner.

Understanding when it is appropriate to

use particular tools andtechniques under

specific circumstancesto deliver corporategoals operationally.

Knowing in detail therange of contingentsupply chain market

circumstanceswhich face you the

practitioner.

Strategic goals must be clearlyarticulated in supply chain terms.

KNOWLEDGE 1 KNOWLEDGE 2 UNDERSTANDING

STRATEGIC CLARITY

Procurement competence is based a knowledge mix


Technology - smart phones, tablets, embedded chips, have created a mobile work environment for procurement professionals

Tech SavvyThey will be professional; polished; intelligent; respected; influential; persuasive; visionary; strategic; sharp; global; and collaborative.

Business Savvy

Procurement professionals will know everything, from the science, economics, law and politics of their supply markets on a global scale.

Students of Industry

Procurement professionals will generate consensus around how to measure risk, and access standardised, readily available information for operational risk assessment.

Risk Aware

Procurement professionals need to be data experts, able to see major trends and important takeaways in a mass of data at a glance.

Analytics

Procurement professionals will deliver strategic impact, in organisations they just won’t be part of a large, discrete, enterprise-level function any more.

Enablers

Procurement professionals will focus on profitability, but will they concentrate on cost savings or revenue growth to get there. These people will make and take that decision

Executive

Procurement professionals will share risks and rewards in contracts, and will accept greater risk in relationships so as not to de-motivate suppliers.

Commercially Prudent

Part Commercial

Part Analyst

It’s all about people: the ‘bimodal’ procurement professional

Positive Value Drivers

Cost

Capital assets

Revenue

Negative Value Drivers

Defects/Failures

Cost

Cost of Next Best

ViableSubstitute

Economic Value

Unique costsUnique

economicadvantage

DifferentiationValue

Value is difficult to define precisely moreover it is used frequently, loosely and in a number of contexts. In Supply management value has the following connotations: • Value is relative to an alternative – value cannot be judged in isolation.

• Value is composite and decomposable – value can be analysed into a set of value drivers – for example - time, cost, quality and service

• Value can be used in several contexts – in B2B relationships it tends to be economic in nature, but it is essentially qualitative the emotional, environmental and social value may also be considered.

• Value is measureable/quantifiable – economic value might be see as revenue generation , or cost savings; but other aspects have their own forms of measures such as Intellectual Property Rights.

Value in the context of procurement

“The customer never buys a product. By definition the customer buys the satisfaction of a want. He buys value.” Value is in essence, utility, i.e. the total satisfaction derived from a good or service.

Value: procurement’s latest game changer

Is it time to re-evaluate strategic procurement and look to establish Value Procurement?

Today procurement professionals are under considerable pressure to deliver value adding business performance – but what might this entail?

It is no longer enough to build a supply management capability that is efficient, demand-driven and transparent – perhaps this requires a market facing mind-set

Procurement must offer the organisation something that is value adding; a new supply management where the strategic scope of procurement’s value is delivered via – innovation; a networked function and focus

Will value procurement will be category management’s legacy?

Today procurement leaders face a dichotomy: Cost (reduction) - v –Value (creation)

CPOs have think hard about how well they understand the market

CPOs must be truly market facing; not focusing only on their internal clients and stakeholders;

Procurement has reached a ‘tipping point’

CPOs must create an equilibrium in their focus between the business and the market it serves

This is where the next big windfalls will come from, the next big gains, the next competitive advantage.

10 things the best procurement organisations do!

Leverage the full capability of their supply marketsThey help their organisation safely harness the power of supply markets to glean additional value from external spending – gate opener as well as gate keeper. Value can mean spending less, but also it means getting more utility from spend; so you influence (not just support) the business strategy.

Have flexible rather than rigid operating modelsAdapts service delivery and transformation model to a diverse set of budget holders (functional partners) in the value chain rather than fixating on how to organise and control an n-step procurement process.

Create clear value propositions that are understood and valued by stakeholdersThey create a very clear value proposition and “brand” that can be understood, articulated, and championed by the spend owners themselves. Performs “customer management” processes to ensure that they’re getting most value both from the suppliers, as well as Procurement.

Engage in business spend planning, not just “spent analysis”Work with the business on “spend planning” as part of financial/operations planning and budgeting, gaining earliest influence, and providing forward-looking economic spend/supply information rather than forensic “spent analysis” activity – “post mortem” strategizing.

Explicitly align to the business through a project portfolio planThey “join the dots” in tying metrics, processes, and capabilities to their value proposition (rather than working on them individually). There are many disjointed activities within the Procurement Project Portfolios of organisations.

10 things the best procurement organisations do! Protect the business from supply risk and from itselfUses formal risk management and market intelligence techniques to provide the business not only with visibility into risk, but also with a governance structure and process to gain consensus with Finance /Business on which risks to treat and how to best treat them systematically - often with limited funds.

Shift the game from talent to knowledgeMoves from a purely talent management model (“throw the best people at it”) to a knowledge management model by:

1) shifting from current FTE staffing models to more flexible/variable resourcing models and 2) providing better IT support for better capture and re-use of knowledge/intelligence.

Turn data into information, intelligence, knowledge and insightUse information management as a weapon to transcend basic ERP/e-sourcing to a more thoughtful information architecture that helps manage extended supply chains and external intelligence.

Measure suppliers, but also tap their hearts, minds and budgetsNot only measures the suppliers through automated scorecards, but works collaboratively with suppliers to reduce total supply costs (not just supplier margins) and create innovations that will deliver economic value. Around not just when you most need them, but also when they most need you.

Uses P2P transactional processes as an asset –not a liabilityProvides not just “hands free” processes to make life easier for Procurement, but rather a failsafe “guided buying” experience to channel employees to preferred buy-pay channels. This implies integration between P2P and sourcing as well as a deliberate “P2P transactional channel optimisation” methodology (i.e., think about applying Lean to the P2P “transaction factory”).

Question Time

World class procurement and your business

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