Sourcing Innovation Cross-Blog Series: Seven Grand Challenges for Supply and Spend Management

Michael Lamoureux, the "Doctor of Sourcing Innovation", is currently sponsoring a cross-blog series on the Seven Grand Challenges of Supply and Spend Management. It is with great humility and not a little London pride that I submit the United Kingdom's entry to this esteemed competition.

1 PROCUREMENT PLACE'S SEVEN GRAND CHALLENGES FOR SUPPLY AND SPEND MANAGEMENT

1. Continue the Strategic Elevation of Procurement

Although much progress has been made in this area there is a lot more to do, particularly in the mid-market and in the public sector. The motherhood and apple pie statement here is “procurement strategy must be an integral component of corporate strategy” or something similar. This is the truism but the hard fact of life is that procurement must do the work internally to make itself worthy of such a lofty positioning. Technical and leadership skill levels must dramatically improve in many procurement departments, salaries must be raised to attract talent, and ultimately the procurement function must be respected and held in awe by internal stakeholders and suppliers alike as a focal point of bleeding edge sourcing practices.

2. Achieve a Truly Seamless Cross-Functional Strategic Sourcing Process

What I DO NOT mean here is inventing another seven-step consulting methodology. What I do mean is reaching a state where the right organizational players are facilitated smoothly into the strategic sourcing process at the exact time that their respective value-adds are required. This could be Engineering during specification rationalization, Manufacturing during supplier capability assessments, or Legal during contract development just to give a few examples. Procurement with its overall end to end responsibility for the sourcing process is in the perfect position to perform this facilitation activity, provided of course it possesses the skills and organizational credibility to perform this task effectively.

3. Optimize the Outsourcing of Indirect Materials

Enterprises will continue to evaluate their investments in the indirect procurement area. Some of the decisions they will ponder include which spend categories to outsource, which processes to outsource for these categories (sourcing? spot buying? purchase order processing? category management?) and whether to utilize “semi-outsourcing” strategies such as Group Purchasing Organizations. My personal belief is that very few organizations will outsource procurement “lock, stock and barrel” but that many will outsource selective processes for selective categories on an as-needed basis, sometimes utilizing more of a staff augmentation model than true outsourcing (“hiring commodity mercenaries” as one of my customers termed it). I also predict more use of accelerated, quasi- outsourcing techniques such as pre-negotiated contracts, particularly in the mid-market and private equity sectors.

4. Pursue Enterprise-Wide Spend Visibility

Organizations will continue to struggle in their quest to obtain visibility of who buys what from whom at what price across the enterprise. Without this knowledge they will be unable to effectively leverage their total spend with suppliers. Some enterprises will continue to believe mistakenly that they will be able to drive all spend through a single e-procurement system and achieve global visibility that way. The leaders in this area will realize that they need a tool to consolidate and analyze data from all systems that could potentially contain valuable spend information whether they be e-procurement systems, accounts payable, p-card or other sources. Oh, and the smart organizations will also realize that you don’t pre-select spend data for analysis based on accounting codes (see A Cautionary Tale of Zero Investment )!

5. Pragmatically Manage All Elements of Supply Risk

Talk about buzz. This one has rattle & hum. Personally, I see a little too much talk of virtual reality dashboards and not enough about what is really important. This means identifying the 20% of uncertainties in the supply chain that drive 80% of service and cost performance and figuring out how to provide accurate and timely information on these uncertainties to commodity managers to guide them in their supply management decisions. I would be ecstatic if organizations would simply improve internal reporting of incumbent performance, routinely subscribe to third party supply risk data sources, and implement formal methodologies for assessing the total cost impact of alternative global sourcing strategies that holistically consider all financial, quality and physical supply chain variables. I agree that the sky is the limit in this area, but let’s get the basics nailed down first.

6. Maximize the ROI of Sourcing and Procurement Technology

Oh so much to relate, so little space. The ongoing headaches here will include answering such questions as “Why do I need an e-sourcing tool if I always get good results with a traditional RFP?” or “Do I really need a spend analysis tool if I have an analyst who’s a wizard with pivot tables?” or “should I buy e-procurement or use my ERP purchasing module?” Those organizations that realize the greatest ROI from their procurement technology investments will be those that ground their decision-making in good old Procurement 101 fundamentals. If your solicitation meets the criteria for a low risk, competitive bid commodity like office supplies then try out a price-focused reverse auction. If you are preparing for a complex RFP such as LTL freight then ask an e-sourcing provider to demo an e-sourcing optimization event. Take stock of where the tool adds value over your standard approach and where it doesn’t. If it doesn’t, stay with what works (though you may be surprised). As for e-procurement, stay grounded in what will ultimately drive most spend through your preferred supplier contracts. Compliance is all about users finding what they want quickly and easily, not about the color of the swoosh or the sound of the bells and whistles. If you are in a state of paralysis by analysis, consider a hybrid approach that utilizes the best of the ERP and the e-procurement worlds (see The Age of e-PERP ).

7. Make Procurement “Chill” or “Tight”

The supply management profession must make itself attractive to young, degreed job seekers who would typically shun a career in Procurement for something more Generation X/Y such as, well, almost anything really. This challenge will revolve around positioning Procurement as a business function that someone can use as a launching pad to progress to the highest echelons of an organization, even the top job itself. This is still a far cry from how “Purchasing” is viewed today, with the exception of a few leading “Medal of Excellence” companies such as United Technologies, Proctor & Gamble and Hewlett Packard. I won’t be satisfied with our progression in this area until the day my college-bound daughter comes home excitedly babbling to me about how she is so, like, awesomely looking forward to embarking upon her Ivy League college experience in the field of Strategic Supply Management.

The Age of e-PERP: ERP and E-Procurement - Can't We Just Get Along?

One of the most common misconceptions since "eggs are bad for you" or "England can win the next World Cup" is that, when it comes to selecting an automated purchasing system, an organization must choose between ERP and e-Procurement. A large number of Fortune 500 companies that have implemented best-of-breed e-Procurement systems over the last few years have shelved or are considering shelving their software due to problems pushing enough spend through the system. On the flip side, a considerable number of mid-sized companies (and state governments, who often track the mid-market sector in technology adoption) are, like their Fortune 500 counterparts did in the late 90s/early 2000s, considering the switch to e-Procurement due to its perceived functionality superiority over ERP purchasing applications.

What many Fortune 500 enterprises, mid-market companies and state governments fail to realize (with the exception of a few progressive organizations that I will case study in the weeks ahead) is that your e-Procurement system can peacefully (nay, productively!) co-exist with your ERP purchasing module. The secret lies in what each player brings to the table. Your ERP purchasing application brings purchasing transaction workflow that is, by definition, integrated seamlessly with your accounts payable, general ledger, and inventory systems. Your e-Procurement system on the other hand delivers the best-in-breed catalog and content management capability that ultimately represents the secret sauce for driving maximum potential spend through your preferred supplier contracts.

After making a presentation at my local ISM chapter recently I was talking to a VP of Procurement of a local Fortune 500 company who was relating their use of a "hybrid" e-Procurement/ERP approach (let's call it e-PERP, shall we?) that they had been using successfully for nearly a year. In this company's model, users select the products and services they need from multiple online catalogs all hosted in one consolidated "common look and feel" environment by a best-in-breed e-Procurement provider (at least a provider you would think of as an e-Procurement provider although in this model it is their catalog functionality, not their workflow functionality, that is being taken advantage of). But what is key is that once they have made their selection, the complete requisition through payment workflow is conducted within the ERP application. Sounds a bit like the old e-Procurement punch-out, right? Well it does a bit but with e-PERP there are two critical differences, these being:

1. Punch-out (or "round trip" for those of us who remember CommerceOne!) has historically been a method for bringing catalog item data from a supplier's web site into e-Procurement for PO creation purposes. An organization would then need e-Procurement/ERP integration to bring the item data into ERP for reconciliation, payment, posting and inventory purposes. The e-PERP model brings item data directly into ERP, bypassing e-Procurement workflow which is not being utilized. This accomplished by the best-of-breed e-Procurement/catalog provider implementing XML integration directly with the ERP application (Oracle/PeopleSoft and SciQuest do this today as part of their partnership).

2. Whereas punch-out only worked (effectively) for the larger vendors like Grainger and Corporate Express who had the resources to build punch-out compatible web sites, the e-PERP model works even for "Mom and Pop" vendors. This is because the best-in-breed catalog providers have built core competencies for creating and maintaining web catalogs for any supplier (even small local vendors that have never had a web presence before). This means that by using e-PERP an organization - with the help of its best-in-breed provider - can upload all of its preferred supplier contract content to the web catalogs in as little as 2-3 weeks, leading to rapid and effective utilization of its agreements by users and very high levels of contract compliance. This is in contrast to the ERP-only approach where an organization would have to build and maintain supplier catalogs behind its firewall, a far more lengthy and costly endeavor. And the e-Procurement-only approach? Well here you have the integration issue and the need to explain to your CEO why you are not using the ERP system you spent millions of dollars implementing!

Over the next few weeks I will be researching additional case studies of e-PERP in practice. I will be reaching out to companies, public sector entities, e-Procurement and ERP vendors to validate that I am not "smoking something" in thinking that such historically fierce adversaries can co-exist in value-added harmony. I will be looking for further examples of organizations who have realized that you really can have your ERP Purchasing cake, eat it, and enjoy lashings of e-Procurement ROI for dessert.

Oh, and England's chances in the 2010 World Cup? Not a hope.

Surefire Strategy #8 For Producing a Consulting Train Wreck: “Just Focus on What You Can Control, You Can’t be Blamed for the Actions of Others”

The next of my guaranteed approaches for driving the 4:55 to Deliverable City off the tracks at Milestone Curve is “Just Focus on What You Can Control, You Can’t be Blamed for the Actions of Others”. Strategy #8 typically unfolds something like this –

During the development of your strategic sourcing consulting proposal you include a section, usually somewhere near the back, called “Project Assumptions and Risks” (or something similar) where you lay out all the things that could possibly go wrong on the project and define all the assumptions that must be true for these things not to happen (e.g. business unit buy-in to ensure adequate spend is available to negotiate best possible pricing with suppliers, availability of client resources to support collection of all required data, etc.). You might even define a proactive risk management plan describing actions that can be taken to doubly ensure that the dark events do not occur. This could include steps such as forming executive steering committees, cross-functional project work teams and stakeholder focus groups. You submit your proposal, win the work, and arrive at the client site. You engage first gear and start rolling down the work plan track, confident that (i) you have every possible eventuality covered and (ii) that if something does go wrong it must be some force majeure, the fault for which cannot possibly be laid at your door…..

About six weeks into the project disaster strikes. One of the client’s largest business units decides it will withdraw from the project and instead renegotiate with its incumbent supplier (who had declined to respond to the RFP), effectively removing over 40% of your spend base. Within 48 hours, five of your shortlisted supplier candidates have got wind of the spend that has “left the table” and not surprisingly become much less willing to extend the type of pricing you were hoping for. At a hastily convened executive steering committee meeting, some key of the key dialogue includes:

CLIENT CFO: Quite frankly I was concerned about something like this happening. The complete value proposition of the sourcing exercise was always questionable if we lost business unit support.

YOU: I have to admit I’m very surprised. Sarah seemed completely on board at the kick-off meeting. I guess their supplier decided to do what it took to keep the business.

CLIENT VP PROCUREMENT: Colin tells me that our five shortlisted suppliers from the RFP first round have rescinded their pricing based upon the lower spend. The average contract savings is now only 3% - hardly the solid business case for persuading the other business units to switch….

CLIENT CFO (turning to you): I thought your risk management plan was designed to address every contingency. Don’t we have a plan B? I put my neck out for this project – really hyped it to the business units and the board.

YOU: Well, we did specify that a major assumption was having full business unit support, and like I said Sarah was saying all the right words at the kick-off. I don’t know what else we could have done...

(CLIENT CFO shakes his head in frustration).

Shortly after this meeting takes place the client cancels the sourcing project, pays your firm for services rendered to date and you are left scratching your head about whether you could have done anything differently. Well, could you have? Sarah turning to the Dark Side was outside of your control wasn’t it? Well, it turns out that you could have done something different and you might even have been able to prevent Sarah succumbing to the siren call of her incumbent’s bargain basement pricing. What? You could (in fact, should) have implemented a Stakeholder Management Plan.

A stakeholder management plan is the only way to deal with those pesky client folks who sneak up on you and drop grenades into your project team’s bunker just as you are all enjoying the idyllic peacefulness of a smoothly unfolding work plan. A stakeholder management plan is an approach to unmask these individuals in the earliest stages of project planning so that you can understand their motivations, their objectives and – most importantly - their ability to derail your engagement. A best practice stakeholder management plan should be incorporated into any consulting project that requires the involvement and support of influential individuals that are not members of the core project team. This will certainly be the case in the majority of strategic sourcing projects, particularly those addressing categories where procurement has not historically enjoyed a strong decision-making role. In these cases the following steps should be taken:

Step 1: Immediately post-sale, work with your client’s project sponsor to map key stakeholders on a matrix of “Influence (low or high)” against “Support (low or high)”. Utilize your sponsor’s knowledge of his/her organization to surface issues that may not be instantly apparent such as Sarah’s long term relationship with her business unit’s largest incumbent supplier and the ease with which her support might crumble if the supplier moved to aggressively protect its business.

Step 2: For stakeholders like Sarah you should work with your sponsor to secure her support by suggesting ways that her objectives could be met by supporting the project. For example this could involve asking her to persuade her incumbent to participate in the RFP, or perhaps to more aggressively market the impact that the sourcing project’s savings will have on her business unit’s P&L.

Step 3: Enlist the help of high influence/high support stakeholders to market the positive aspects of the project to the “Sarahs” of the organization, particularly those in similar situations, e.g. ones that have their own incumbent suppliers who stand to be impacted by the sourcing project. Ask these stakeholders to explain why they are supporting the project – task them to bring Sarah into the “high support” camp.

Step 4: Monitor stakeholders like Sarah closely during the project to make sure they stay committed. If they waver, do the work to understand their concerns and leverage your supportive stakeholders as needed to help her maintain her resolve.

Follow the steps above and you will avoid the derailing of your project by client stakeholders over whom you have no control. In fact, by following the steps above – by proactively identifying and managing these stakeholders – you will in fact have a large measure of control over any individual who could foil the success of your project.

In other words – yes, AVOID AT ALL COSTS Surefire Strategy #8 for Producing a Consulting Project Train Wreck “Just Focus on what You Can Control, You Can’t be Blamed for the Actions of Others”!! Implement the antithesis of Strategy #8 instead! Always include Stakeholder Assessment & Management as a formal, integrated component of your project work plan.