Most procurement organizations complain about diminishing savings on re-sourced categories – and rightly so. But rather than beating the same horse, why not hitch up more than one, and in new ways that you may not have considered? In this Plus piece, we’ll outline five of them, with the first one being "expand the 'lots' in your current market basket."
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Yesterday, we discussed the first five of 10 possible strategies to justify a spend analysis initiative to finance/IT despite the catch-22 that comes from not knowing the potential value that may come from the initial investment. Today we pick up with recommendations six through 10 and close with some final remarks and recommendations.
Change management is a seemingly "soft" topic that can have a highly adverse impact on hard ROI. If you need a practical framework for change management, Pierre Mitchell highly recommends ADKAR as a good default approach. In this post, he evaluates ADKAR in a procurement context and show it can be applied in a few different scenarios. The acronym stands for awareness of the need to change; desire to participate and support the change; knowledge of how to change (and what the change looks like); ability to implement the change on a day-to-day basis; and reinforcement to keep the change in place. Read on to see how ADKAR can be applied in a few example procurement scenarios.
In a world where everything is quickly becoming a service (XaaS), perhaps the single most important differentiator is being customer-focused and aligned in order to allow you to deliver value to them over the long run. It is a simple principle, but procurement is not so easy to implement. Everybody who spends money in the enterprise has the potential to get more value from their spend and is a potential “customer” for procurement to help. Given procurement’s limited resources, adopting and adapting CRM principles, practices, and tools can help. As we get started, note that CRM for “supply” and suppliers is not the buy-side of “SRM” or supplier management – it’s a much bigger, hairier, and more encompassing beast.
So who are the customers? And should they even be called customers?
Many procurement organizations do not like the term “customers.” Some use the term “clients,” and others use the term “stakeholders.” Still others use the term “internal partners.” It doesn't really matter as long as the organization defines the nomenclature that works best for them. That said, it is important to understand who all the various stakeholders are within the procurement process, so that they can be appropriately targeted to drive more value out of the process. In fact, if you think of the term "stakeholders," it means anyone who has a stake in the process and who consumes the outputs of that process: information, materials, services, cash, goodwill, etc.
So, to be a stakeholder in a procurement process means to be a customer of that process. This means that procurement needs to be explicit in defining and working with 10 key stakeholders – and reconciling which of these will get the most attention.
Let’s get to the list (and beyond that, 14 critical areas of CRM begging to be addressed).
The idea of “tail spend” doesn’t seem very complicated at first.
Run a Pareto analysis on your spend categories and suppliers to make a cutoff at, say, the 80% that represent only 20% of your spend. Your numbers will, of course, vary, but the idea is to find a way to better manage such “nuisance” low-dollar spend that doesn’t detract from your efficiency, or worse yet, from spending time managing the truly strategic spend categories more deeply.
You might think of this as the spend in the lower-left quadrant of the famous Kraljic 2x2 matrix, which describes a strategy of “purchasing management” to manage non-critical, abundant supply that can be sourced locally in a de-centralized manner for maximum efficiency. And, maybe, if you manage this nuisance spend properly, you can even extract some value from it (e.g., a “quick source” process to gain some speedy spend savings).
Sounds straightforward, right?
Well, it’s not, and I have purposefully led you astray to prove a point.
The problem is that I never really defined tail spend in the first place – and if you can’t define it or see/measure it, you can’t manage it. And herein lies the rub (and the opportunity):
Tail spend could better be described as “nuisance spend” or “tactical spend,” and is comprised of many sub-segments — not just one or two.
Let’s return to our examples above. Segmenting on a spend-per-supplier basis, like in our Pareto diagram, is by no means perfect. What about low-spend, sole-source suppliers tied to large revenue or profit? OK, well, you might then refer to the Krajlic matrix as the solution. It’s better, because it helps profile the categories into complexity vs. impact (or risk vs. reward if you view it as such), but again, these are only two variables, and do not factor in any others.
Which ones? Let’s list six of them and ask whether you’d consider the resulting spend segments as ‘tail spend,’ or at least ‘nuisance spend.'
In the never-ending quest to deliver more value, procurement organizations are trying to squeeze more savings and innovation out of spend categories. But, eventually the well starts to run dry, and when that happens, you need to either get more out of that well (fracking for spend savings, perhaps?), dig a deeper well, find another place to dig, or find another way to get the water.
My point? To improve category management, which we sometimes affectionately refer to as CatMan, you sometimes have to expand it or blow it up completely. Here are some ideas that I’ve seen work elsewhere that can hopefully give you some inspiration and raise your category management game.
Nearly all progressive organizations have some sort of Procurement Center of Excellence (CoE). A Procurement CoE is an internal entity that performs internally facing knowledge-based services on a one-to-many basis to procurement (and to broader stakeholders) in order to drive scale, repeatability, and best practice. What we’re talking about is the industrialization of the Procurement portfolio of services. In this Spend Matters Plus article, we will investigate 14 procurement competencies that are being enabled and improved in a Procurement CoE. We will evaluate the relative priorities across these based on some key research and provide insight on how a Procurement CoE can not only make procurement processes more effective, but also align with broader enterprise services delivered in a “Global Business Services (GBS)” environment.
News of the Trump presidency was arguably the largest trade (and policy) shot heard round the world in decades. Earlier this week, we discussed a range of issues that can potentially affect the broader economy –– not to mention procurement and supply chain organizations and, in particular, manufacturing. Yet two additional areas warrant additional study, not as standalone policies per se (at least for one of the two areas) but in situ conditions arising from a Trump presidency: infrastructure spending and the U.S. dollar.
In addition to the previous considerations explored in Part 1, our analysis considers these additional items in the context of three concrete procurement tactics organizations can take: improving their capability to support total cost modeling/landed cost models; investing in supply chain risk visibility; and approaching commodity strategy and commodity management in new ways. This Spend Matters PRO analysis provides key analysis, talking points and actions steps for procurement and supply chain organizations to understand the impact of a Trump presidency on their firms and where they can start 2017 from a position of knowledge. It also offers recommendations for technology areas and technology vendors for consideration given these broader issues, including direct procurement technology suites, commodity management solutions, supplier network/connectivity solutions (direct spend), analytics, and supplier and supply chain risk management.
An n-step chevron process is a siloed procurement-centered sourcing methodology geared towards supplier rationalization. It’s a fine start for procurement hitting cost savings goals, but it’s not a great way to align to the broader organization as procurement evolves. So, we’re proposing DMAIC as an emerging, superior approach, but it’s far beyond the DMAIC that you usually think of. The n-step sourcing process has had a good run, but let’s not try to make it do unholy things. Read on to see how other companies have used DMAIC.
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.
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.
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.