In 2018, procurement departments find themselves positioned among an ever changing corporate and political landscape. Commercial acumen is top of the skills pile when it comes to navigating uncertainty.
The historical image of purchasers as 'penny pinchers' has seemingly universally morphed into that of specialists in red tape and bureaucracy. Whether factually untrue or not, there has never been a better time for CPOs to focus their teams on adding commercial value across their businesses.
Progress Procurement examines the top ten step changes procurement departments can make to increase their commercial worth.
Step One: Assess and Reward the Right Metrics
For too long objectives of buyers and category managers have either centered on achieving cost savings targets or illogically avoiding them through fear of the behaviour they may drive.
Commercial acumen encompasses achieving savings and sourcing at low cost but procurement practitioners should be focusing on creating value in a far broader sense.
By developing a suitable framework for measuring performance, CPOs can incentivise their teams to deliver value based solutions rather than chasing the lowest initial landed cost.
By measuring and reporting on this value generation, CPOs can also increase their standing within the corporate environment and distance their departments from the 'process driven' and 'rigid' labels.
Step Two: Don't narrow the focus
Organisations seeking change regularly implement 'initiatives' to instill the desired outcomes. This commonly results in employees viewing them as additional or extra-curricular to their core role, and goals are often lost in time.
Instead, injecting commerciallity is best achieved by embedding it culturally. This requires leadership focus, obvious reward of the right behaviours, and time to facilitate change.
Step Three: Challenge the requirements
Specifications are often produced by internal customers or by consultants based on what end users think they require. A key commercial skill for procurement professionals is to be able to challenge specifications, make them more output based, more functional and based on the real minimum technical solution.
This skill has huge potential value as many businesses gold plate or over-specify for their actual business requirement.
It also requires more than the knowledge of what to challenge. Challenging in the right way, not treading on toes and working closely to understand stakeholder needs are key to unlocking this value.
Step Four: Recruit the right people
A surprisingly common error, especially among larger procurement departments, is to inadvertently favour process driven candidates in the recruitment process.
This happens by stealth as interview questions generally centre on examples of where candidates have led sourcing projects, the steps they have taken and the resulting outcomes.
Instead, ask questions that give candidates room to explore how they would handle different situations that may arise in the role. Give credit to those candidates that show understanding of the industry and where the critical value generation areas are. A candidate who can identify these at this stage will be able to realise commercial benefit when in post.
Step Five: Give people the right tools
Using data is invaluable in understanding where commercial value can be created within the supply chain.
Manually collecting, cleansing, mining and interpreting this data would constitute a job in itself. It is therefore vital to provide the right technology and systems solutions that enable fast and agile data collection and output. This allows staff to focus on interpreting this data to provide value. This includes ensuring the data quality is right and working with internal customers to capture anything else which would help and is accurate.
Step Six: Manage demand
Suppliers naturally prefer a steady flow of demand rather than great peaks and troughs.
Staying aware of this and smoothing out the demand pipeline can create value in the supply chain.
Similarly, strengthening the information sharing between the company and its key suppliers can help to provide earlier visibility of demand, as well as strengthening the signal down the supply chain. Aim to have suppliers take responsibility for cyclical demand but provide them with accurate data with which to do so.
Step Seven: Develop cross-functional teams
Create an environment where all employees work together for the company, not just their specific function. This spreads knowledge and increases understanding and appreciation of the needs of different stakeholders.
Construct close environments with strong lines of communication between functions. Every action by every department has a commercial impact, so making sure everyone is aware of them and how they change the commercial picture is very powerful.
Encourage accountability for actions, both commercially along with conventional goals. Provide objectives that pull those cross-functional teams together rather than each fighting their own corner.
Step Eight: Upskill
Providing training in both commercial awareness and individual skills is nothing new. Providing it to technical stakeholders is, and this could help provide a baseline of understanding for what the firm is trying to achieve.
Additionally, procurement practitioners should not only be trained in specific commercial skills, but trained in how to think commercially and encouraged to do so in their day to day job role.
Step Nine: Create a 'no fear' environment
Mistakes happen. CPOs need to ensure that when they do, the consequences are not catastrophic. They shouldn't, however, create any fear of failure when it comes to pursuing commercial value.
If buyer's believe that misjudgments or small failures will be chastised either publicly or privately, they are far less likely to convert an idea with commercial potential into practice, for fear that any risks it brings may materialise.
Sourcing risks should be estimated, mapped, mitigated and measured, but ideas should be encouraged where long term value is currently being left on the table.
If buyers fear the ramifications of stepping outside the 'norm' of the department, they won't, and a company that stands still is always moving backwards.
Step Ten: Make problem solving a core activity
Humans rely on their automatic thoughts to assess situations and solve basic problems.
This is essential for everyday activities but means that value can be overlooked subconsciously by well-meaning buyers.
Applying a structure for problem solving triggers controlled thinking in the brain. Consequently buyers are equipped to find more innovative solutions to relatively routine problems - and evaluate if value can be created in the process.
The structure can (and should!) be basic - something that triggers staff to look beyond their initial instinctive response. It also should be light touch. Perhaps articulating the problem followed by the underlying cause. A solution to the cause can then be identified - rather then treating the symptoms.
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