Procurement Can Be Exciting
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Procurement can be exciting
Gregg Barrett A CARTOON by American cartoonist Randy Glasbergen goes: “My team is having trouble thinking outside the box. We can‟t agree on the size of the box, what materials the box should be constructed from, a reasonable budget for the box or our first choice of box vendors.” For me, this sums up the problem most procurement functions in South Africa face – stagnant thinking and behaviour. This has led to procurement being stifled in a world driven by a myopic focus on cost with innovation and value creation. I was chatting to a friend recently about the economic environment in Botswana. She works in the retail sector and her response was that times are tough. She is also going to write her exam on procurement and strategic sourcing which I felt should “be a walk in the park”. She agreed (somewhat) but said it was not the most exciting topic/subject to study and she was not too enthusiastic about it. I can‟t blame her, she is absolutely correct – procurement, strategic sourcing and the like are not that exciting, but it does not have to be that way. One of the problems is that procurement has focused too long on things like cost and burdened itself in manual administrative processes. Innovation, being a service provider to business and value creation have dropped off the radar screen and do not form part of the procurement skill set. Based on experience, procurement people, the function and the subject matter require a kick in the rear to generate new thinking to deliver greater value beyond those over-referenced “cost savings”. Leadership and talent In the February edition of the IACCM Contracting Excellence publication, a leading practitioner said that “we seem to hear endlessly about how procurement has „made it to the top table‟, and how today‟s contracts procurement office (CPO) is part of the core strategic team. Well, if they are there, why do they still need to write about it? This supposed leadership and strategic influence is definitely the exception and few CPOs seem up to the task of making a real difference.” I was recently browsing through a few articles about procurement professionals being in demand during recessions and followed this up with some research into procurement positions available with required qualifications and remuneration. The maths did not add up. The skills/qualification sets are generally whimsical and remuneration borders on the excessive. I am starting to feel that many organisations are out of touch with the global procurement environment and what it requires to realise value.
Invest in talent, technology and process According to the CPO Agenda ¹, Nokia is doubling its savings target and cutting 50 procurement team members. In the article, Geraint John says “staff levels have been reduced from 460 to 410”. Nokia‟s vice-president of procurement is doing this at the behest of his CFO who wants him to “do more with less”. To capture the savings, Nokia is targeting initiatives that include new spend categories. It is also focusing on implementing existing projects. Nokia is also attempting to move “indirect sourcing away from a traditional category focus to a knowledge focus which means more interaction with other functions and more of a consultant role for procurement staff”. This means procurement is becoming a services provider to the business. The only problem is that procurement at most organisations is not geared to the role of a service provider but forms part of the “organisational process”. Take data from Hackett ² which continually suggests that top-performing procurement organisations do more with fewer resources by making aggressive investments in the right combination of talent, technology and process. The data indicates that world-class procurement organisations spend roughly twice the amount on technology but can process every billion dollars of indirect spend with roughly half the number of resources – at significantly reduced costs that go beyond labour savings. Think out of the box In an article for Spend Matters ³, Jason Magidson recently cited some out-of-the-box thinking at GlaxoSmithKline. He used the example of acquiring industrial gas for GSK‟s R&D operations where the procurement professional who managed that category assembled a group of scientists and had them design their “ideal industrial gas process”. Here‟s what the scientists wanted: - Ideally, there would be an available supply of gases piped from bulk tanks into our labs at the desired pressure. - We would not have to get involved in checking or changing small tanks. - The bulk tanks would have sensors that automatically re-order as needed. This would reduce time re-ordering and worry about disruptions to research. “In essence, the scientists were saying they wanted to be freed to focus on doing their science. So the ideas were shared with suppliers, the business was put out to bid and GlaxoSmithKline and the chosen supplier were able to reduce their costs while implementing several key ideas. One of these, converting to more bulk-tank supply and getting rid of a lot of the small tanks, saved a lot of money and time,” says Magidson. So the time for change is now, the need is to be leaner and meaner and to get there requires investment in technology, processes and talent. Talent that cultivates innovative out-of-thebox thinking will hopefully bring some enthusiasm and passion back into the field and drive value creation beyond airy-fairy “cost savings”.
Lastly, and as a side note, I was at the Tshwane SMME BEE Development Conference this week as a panellist on one of the plenary sessions. The conference was titled “Entrepreneurship and Business Development – Accelerated Shared Economic Growth and Development”. I am optimistic that the conference will help organisations in South Africa to take the right steps in fostering economic development across the board. So, if you are in the area, be sure to drop by and weigh in on the discussion. ................................................ ¹ http://tinyurl.com/cfx3ct ² http://www.thehackettgroup.com/ ³ http://www.spendmatters.com/
Gregg Barrett A CARTOON by American cartoonist Randy Glasbergen goes: “My team is having trouble thinking outside the box. We can‟t agree on the size of the box, what materials the box should be constructed from, a reasonable budget for the box or our first choice of box vendors.” For me, this sums up the problem most procurement functions in South Africa face – stagnant thinking and behaviour. This has led to procurement being stifled in a world driven by a myopic focus on cost with innovation and value creation. I was chatting to a friend recently about the economic environment in Botswana. She works in the retail sector and her response was that times are tough. She is also going to write her exam on procurement and strategic sourcing which I felt should “be a walk in the park”. She agreed (somewhat) but said it was not the most exciting topic/subject to study and she was not too enthusiastic about it. I can‟t blame her, she is absolutely correct – procurement, strategic sourcing and the like are not that exciting, but it does not have to be that way. One of the problems is that procurement has focused too long on things like cost and burdened itself in manual administrative processes. Innovation, being a service provider to business and value creation have dropped off the radar screen and do not form part of the procurement skill set. Based on experience, procurement people, the function and the subject matter require a kick in the rear to generate new thinking to deliver greater value beyond those over-referenced “cost savings”. Leadership and talent In the February edition of the IACCM Contracting Excellence publication, a leading practitioner said that “we seem to hear endlessly about how procurement has „made it to the top table‟, and how today‟s contracts procurement office (CPO) is part of the core strategic team. Well, if they are there, why do they still need to write about it? This supposed leadership and strategic influence is definitely the exception and few CPOs seem up to the task of making a real difference.” I was recently browsing through a few articles about procurement professionals being in demand during recessions and followed this up with some research into procurement positions available with required qualifications and remuneration. The maths did not add up. The skills/qualification sets are generally whimsical and remuneration borders on the excessive. I am starting to feel that many organisations are out of touch with the global procurement environment and what it requires to realise value.
Invest in talent, technology and process According to the CPO Agenda ¹, Nokia is doubling its savings target and cutting 50 procurement team members. In the article, Geraint John says “staff levels have been reduced from 460 to 410”. Nokia‟s vice-president of procurement is doing this at the behest of his CFO who wants him to “do more with less”. To capture the savings, Nokia is targeting initiatives that include new spend categories. It is also focusing on implementing existing projects. Nokia is also attempting to move “indirect sourcing away from a traditional category focus to a knowledge focus which means more interaction with other functions and more of a consultant role for procurement staff”. This means procurement is becoming a services provider to the business. The only problem is that procurement at most organisations is not geared to the role of a service provider but forms part of the “organisational process”. Take data from Hackett ² which continually suggests that top-performing procurement organisations do more with fewer resources by making aggressive investments in the right combination of talent, technology and process. The data indicates that world-class procurement organisations spend roughly twice the amount on technology but can process every billion dollars of indirect spend with roughly half the number of resources – at significantly reduced costs that go beyond labour savings. Think out of the box In an article for Spend Matters ³, Jason Magidson recently cited some out-of-the-box thinking at GlaxoSmithKline. He used the example of acquiring industrial gas for GSK‟s R&D operations where the procurement professional who managed that category assembled a group of scientists and had them design their “ideal industrial gas process”. Here‟s what the scientists wanted: - Ideally, there would be an available supply of gases piped from bulk tanks into our labs at the desired pressure. - We would not have to get involved in checking or changing small tanks. - The bulk tanks would have sensors that automatically re-order as needed. This would reduce time re-ordering and worry about disruptions to research. “In essence, the scientists were saying they wanted to be freed to focus on doing their science. So the ideas were shared with suppliers, the business was put out to bid and GlaxoSmithKline and the chosen supplier were able to reduce their costs while implementing several key ideas. One of these, converting to more bulk-tank supply and getting rid of a lot of the small tanks, saved a lot of money and time,” says Magidson. So the time for change is now, the need is to be leaner and meaner and to get there requires investment in technology, processes and talent. Talent that cultivates innovative out-of-thebox thinking will hopefully bring some enthusiasm and passion back into the field and drive value creation beyond airy-fairy “cost savings”.
Lastly, and as a side note, I was at the Tshwane SMME BEE Development Conference this week as a panellist on one of the plenary sessions. The conference was titled “Entrepreneurship and Business Development – Accelerated Shared Economic Growth and Development”. I am optimistic that the conference will help organisations in South Africa to take the right steps in fostering economic development across the board. So, if you are in the area, be sure to drop by and weigh in on the discussion. ................................................ ¹ http://tinyurl.com/cfx3ct ² http://www.thehackettgroup.com/ ³ http://www.spendmatters.com/
