As procurement organizations design tools and models to improve the process of supply management, they begin to create more idealized systems that can actually be implemented, bridging the gap between visionary “clean sheet” design and small, incremental redesign efforts relegated to narrow process silos. Yet there’s a more subtle and powerful effect in this effort. By focusing on constantly improving the design of the many inbound value chains in the enterprise, procurement begins to elevate its role beyond just strong, hands-on execution in delivering cost savings, but also towards a leadership position in intelligent design, transformation and enablement. These three attributes can seem like high-level words, but they’re important.
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In the world of quality management, even well-designed products can only be manufactured by equally well-designed processes that are not just controlled but also capable. Such a process capability for manufactured items is formally engineered by a “manufacturing engineering” function that works collaboratively with design engineering on one side and operations on the other. So, it stands to reason that a procurement process for purchased items (and services) should similarly be engineered with upstream internal partners who specify the design and downstream with those involved with execution. This process of the design of procurement (i.e., the process of how to best engage external suppliers to maximize value) should be collaborative too.
Understanding Objectives, Trade-offs, and Constraints: Design-Centered Procurement (Part 6) [Plus +]
In previous installments of this series, we talked about how good design applies not only to a product (or service) or the supply chain that produces it but also the design of the procurement operating model that is the architecture of the supply management services delivered in a procurement organization. In that design, we talked a little bit about reducing trade-offs between the diverse requirements and objectives of the many stakeholders, and the constraints placed on a solution that optimizes everyone’s needs. To do this, we should be fairly precise around the terms requirements, objectives, constraints and optimization. If you might notice, these are terms familiar in the parlance of bid optimization in strategic sourcing. So, let’s explore the learnings from that domain and apply them to designing an optimal procurement organization rather than an optimal sourcing event.
In our previous installment of this series, we looked at design approaches for using software to help digitize procurement and the supply chain. But technology is only one aspect of a broader procurement operating model (or “service delivery model” if you prefer) that also includes process design, organization design, outsourcing, performance measurement, talent management and knowledge management, which is basically a combination of talent management and specialized automation. These have impacts on each other and can’t be designed in isolation. This area can seem abstract, so we’ll use a specific process area (sourcing) and some relevant examples to illustrate how a holistic design approach is important.
In our last installment of this series, we spelled out in great detail some the fundamental software “architectural” (aka design) changes that are happening with modern cloud-based software that is absorbing the emerging practices in B2C-focused software and services. But we didn’t spell out the benefits of such a componentized, platform-based architecture that uses true user-centered design principles that is also tailored to meeting the broader design requirements of the department, business unit, supply chain and enterprise. The problem is that as you broaden the scope, the more design conflicts arise, as design goals from different user groups conflict. But if you do it right, you’ll be able to reduce trade-offs and be able to more easily “mix and match” lower-level solution components and provision more flexible solutions
In Part 1 of this series, we introduced the idea of design-centered procurement and how procurement needs to put is “users” (stakeholders) at the core of what it does. The heart of good design isn’t just about aesthetics, but about solving a problem — or lots of problems at once. Those problems are very situational, but there can be many common problems as well. The trick is to tease out the problems that are situational to the environment versus dispositional regarding the person experiencing the problem. Both are valid — you need to understand “where people are coming from.” I know this sounds like an eHarmony line, but the reason why Google/Alphabet is worth nearly half a trillion dollars in market capitalization is due in part because its search results are deeply compatible to your situation and relevant to the problem you’re trying to solve when you go searching (i.e., Google is a finding engine, not a searching engine). If you’ve noticed, your search results, especially on your smartphone, are increasingly freakishly relevant, because Google (and an ecosystem of other mega vendors) is constantly watching you and has a digital profile of you (i.e., who you are) that uses your behaviors (and your attributes) to predict what you want so that it can help you find the solution to your problem — and also serve you up to its advertisers. It all starts with you as the customer and your problem as the context. In the rest of this analysis, we’ll discuss how to do this.
This week we present Torchlite as the WIP of the Week. The company, just out of the blocks in 2015, specializes in providing the full-range of digital marketing services through a unique “service provider” platform-based model. In many ways, the company acts like an outsourcer of digital marketing services for companies that are not in a position to execute digital marketing on their own — or do so at a very high cost with unsatisfactory results. In this brief, we provide an overview of Torchlite and its unique platform model and, as usual, offer our own commentary.
Procurement in the Middle East: 10 Observations on Regional Practices and Requirements (Part 2) [PRO]
As our Spend Matters PRO analysis of procurement in the Middle East continues, we turn our attention to five additional areas that warrant understanding, investigation and consideration by any procurement organization (or individual) wanting to prioritize specific efforts and programs, or simply come up to speed quickly on the regional culture of procurement and supply chain including where it has been and where it is going. The prioritization of procurement activities is becoming more important across the Middle East, including the United Arab Emirates, Saudi Arabia and other countries. And it will become even more important as Iran — not exactly the Middle East by definition, however — is increasingly welcomed back to the international community. Indeed, the move to market economies, even in countries with strong legacies of ruling families and state control, is accelerating with the support of government. This is playing a role in helping organizations build cases for investing in procurement. As one local CPO recently remarked in conversation, in the past, “if you were the first one in the market in a given sector, you did well, as there was no competition.” But this is changing, as “low cost” is now becoming a differentiator for organizations as competition and market economies take shape across the Middle East.
Procurement in the Middle East: 10 Observations on Regional Practices and Requirements (Part 1) [PRO]
For multinational organizations today — and for those expanding globally — creating the right procurement operating model, structure and culture for operations in the Middle East is critical. Using the right technologies is essential not only to leapfrog others but also to address specific business cultural nuances. As countries like the United Arab Emirates look to increasingly become global business and logistics hubs and the entire region looks to move past dependence on the energy sector in the coming decades, procurement will take on an increasingly strategic role (despite the fact far too many executives in the region continue to view procurement tactically). This multipart Spend Matters PRO analysis provides a primer on building and running an effective procurement organization in the Middle East and offers recommendations for procurement solution and services providers operating in or targeting the region. It is based, in part, on discussions with more than a dozen procurement executives and consultants based in the UAE. In the first installment of this series, we provide a snapshot of the state of procurement in the Middle East starting with a list of 10 observations. Further coverage will include a checklist for accelerating new or existing regional procurement programs and recommended solution vendors with on-the-ground presence (and customers) in the region.
In our first article, we noted that sometimes good RFP responses are hard to come by. We noted that there are a variety of reasons why this is the case and tried to give some insights on what makes a good RFP. Then, in Part 2 of this series, we defined some critical requirements of a good RFP in an effort to help you write better RFPs. In Part 3, we discussed how to understand and incorporate the supplier’s perspective into your RFP so that you can be a “prospective customer of choice” by presenting an “RFP of choice” that makes your business even more attractive to the prospective supplier. Finally, in Part 4, we highlighted some best practices to consider in creating one. To close out this series, we’ll examine how the best way to write a better RFP is to make the task easier via automation. That’s what a good software solution will do. Modern RFX solutions that support requests for information (RFIs), proposals (RFPs) and quotes (RFQs) bring with them a host of benefits and should be adopted if you aren't using them already. The only possible exception is when the RFX is for an RFX solution, in which case you may have to use a system (“free” supplier-funded solutions or a homegrown/spreadsheet tool) that doesn’t compete with the solutions you’re considering!
In our first article we noted that sometimes good RFP responses are hard to come by. We noted that there are a variety of reasons why this is the case, and tried to give some insights on what makes a good RFP. Then, in Part 2 of this series, we defined some critical requirements of a good RFP in an effort to help you write better RFPs. Before we move on to some best practices and benefits, we feel it’s important to consider the supplier’s perspective more formally. If you are going to be a “customer of choice,” you should present an “RFP of choice” that makes your business even more attractive to the prospective supplier. One of the best ways to signal that you are more than just a checkbook is to demonstrate leadership right from the onset.
As we began outlining in the previous installment of this Spend Matters Plus series, better RFX management and, in particular, better modeling and cost analysis are just the beginning of the value good procurement platforms and processes can bring to marketing. The next level of value is in what procurement, and marketing, can do with the data collected not only from the RFX but also from deliverables and metrics throughout the creation and implementation of the campaign the agencies are engaged to support. With the unprecedented spend detail that a good procurement platform can capture, a good analytics and business intelligence platform will provide marketing with visibility into actual costs and comparisons with benchmarks, analytics by spend type, project type and agency, and cross-correlation with sales for insight into value-generating spend. Letting the light shine in through marketing-specific spend analytics capability represents a huge opportunity. But this is nearly uncharted territory for far too many organizations. The first place to start is investing in the time and effort to capture sufficient detail in all transactions so that you can create meaningful reports and trends. Join us as we conclude this series, outlining how to tap into the intelligence, visibility and value-add training that could ultimately help procurement get marketing spend under management this year.