Learning From FreeMarkets Procurement Org. Design

When consultants take out the pen, you never know what's going to come out. But I was pleasantly surprised at the actionable level of detail that Carrie Ericson, Mike Arenth and Cara Dunaway (all members of Ariba's consulting practice) got into in their recently bylined article in Supply and Demand Chain Executive. Granted, there's some high-level consultant-speak in the piece (and they recycle a framework that's been circulating around AT Kearney since many of Ariba's younger consultants were in Pampers), but there's a couple of great points in the piece as well. Clearly informed by the FreeMarkets experience that broke down the strategic sourcing process into different elements (allowing specialization for more senior team members, and a strong "bench" of available resources for routine processes), the article describes how leading, "companies are beginning to break up the sourcing work into discrete parts to encourage task specialization. This approach "link[s] discrete activities ... [to] drive collaboration into a sourcing assembly line."

The process the authors describe mirrors how FreeMarkets eventually set up its sourcing operations to mirror a lean shop floor environment: "In the sourcing factory concept, junior staff drives the technology components of the sourcing process to support the experienced category managers, who retain the supply market expertise. In addition, key business units or departments are assigned sourcing/procurement specialists who understand their unique needs and business issues. This triad of supply market, business knowledge and technical support assemble on an ad-hoc basis to define and drive individual sourcing initiatives. Through this teaming process, the junior staff learns the sourcing process and category and stakeholder management strategies from the veterans while driving down the cost of operations. This enables the more experienced staff to focus their energies on higher, value-added supplier, stakeholder and category management activities."

As I recall, Kent Parker, an operations guru (who is still at Ariba), led the original effort at FreeMarkets to create the environment described in the article, which resulted in much greater process efficiency and staff utilization, as well as fewer mistakes and better throughput (translation: reduced costs, faster project turnaround, and happier clients). Perhaps most important, it enabled FreeMarkets to figure out how to lower the cost of labor for strategic sourcing activities. This was a huge change for the provider. In the early days, before specialization and a lean operations approach, the hiring profile for FreeMarkets Market Makers was the same as traditional consulting firms, resulting in expensive labor costs. But with this new approach, MBA-types were only necessary for specific tasks, not the majority of the process.

Ultimately, other services firms and procurement organizations will move to the structure described in this article. But I'd argue that specialization and a "lean" approach to Spend Management activities should only occur after a team of more senior practitioners gets the proverbial house in order first. If your consultant is pushing you in this direction too early, push back, and tell them you need to walk before you can run. Also, I'd argue that when it comes to setting up procurement operations that require this level of change management, internal leadership is the most important element (without Kent Parker, I doubt FreeMarkets could have pulled it off). The right set of consultants might be critical, but they'll only get you so far.

Jason Busch

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