Procurement Transformation – Finding True North and Building the Foundations for the Transformation Journey
Gone are the days where suppliers have room to squeeze savings by reducing margins. After the third letter asking a 20% reduction in price, it means that there is only really 40% left of the original price. Another supplier has in all likelihood replaced the original supplier by now too. Who knows if the new supplier will survive if the morning breeze suddenly changes direction? The changes in the way we do business, require procurement to adapt to a much faster paced, demanding and dynamic business environment. Only the strongest, the most agile and those willing to transform, will have a chance to survive, succeed and excel. The question is whether business and their procurement leaders are ready for the procurement transformation that has to follow?
Procurement transformation is challenging. Especially given that only a select few in procurement are recognised as performers and the majority of people play in the middle stream, not really going anywhere. More sadly, a significant number of people in procurement do not contribute to business growth and really is a burden to the bottom line, as they are bottom dwellers and somehow manage to remain in procurement.
In addition, sourcing for innovation requires a different focus and attitude and can be challenging for traditional procurement.
So, where to start on this journey of procurement transformation?
By recognising a few home truths that will keep us aligned with procurement’s true north.
- Firstly, it is important to realise that any transformation requires a change in culture. This does not happen overnight but is a journey. Changing culture takes commitment and consistent, ongoing time investment.
- Secondly, one cannot transform by doing the same old stuff in the same old way. Transformation requires business to look at what has work, is still working and what ultimately is just a waste of time. Transformation requires getting rid of old baggage and bad habits.
- Thirdly, neither business nor procurement transform if “transformation” is just a buzzword and an added responsibility to an already overfilled in-tray.
- Lastly, as part of the transformation journey, procurement has to get a grip on how to source innovatively and source innovative solutions. Traditional sourcing practices and rules obstruct sourcing innovation.
Who in business decides that it is time for procurement transformation?
Depends on whom you ask.
We know that many chief procurement officers (CPOs) and chief financial officers (CFOs) often do not see eye-to eye. CFO’s want EBITDA improvements, forecasts and accruals – real hard dollar improvements. Many CFOs do not recognise the value or importance of cost avoidance and the exposure to business if procurement does not manage this risk and recognise the importance of cost avoidance and good relationships. Business after all is not only about reconciling the bank balance or ticking the boxes in green or red.
CPOs look to find hard dollar savings but also look at cost avoidance and the requirement to build key relationships. Those relationships keep businesses afloat in times when the fan is at the wrong spot at the wrong time and things go really wrong. When business runs the risk of slowing down or stopping in its tracks, EBITDA is impacted. You then often need those suppliers who now have no more margin or goodwill left. It becomes a rather costly experience to buy back goodwill, thus relationships are important in keeping business running and succeeding.
The clash between CPOs and CFOs continues but in my opinion, both have a role to play and both have to play their roles in their particular area of responsibility and accountability. They both have their own boxes to tick and their own transformations to manage.
What do I think?
I think procurement transformation is a key strategic business decision.
Procurement transformation impacts business directly both from an EBITDA and hard dollar perspective but also from the perspective of building key relationships that will allow business to operate and succeed. The question is not who or why to transform but how to start the transformation as soon as possible.
Time is of the essence.
Procurement transformation starts with leadership. Many have roles to play in business but the responsibility and accountability to transform procurement rest with procurement leaders.
What are the key elements or foundations that will keep the procurement transformation on track?
The four key elements that will keep procurement on track on their procurement transformation journey are:
Purpose determines our what and why. Who we are, what we do and why we are doing it.
If procurement understands its purpose – the what and why – then procurement knows where it fits into business and why procurement has such a crucial role to play in successful business.
Procurement’s purpose is to source and procure goods and services in a sustainable manner that aligns with:
- the overall business vision and strategy
- hands-on knowledge on how procurement impacts the end product and the end customers of the business
- The requirements of the internal customer to keep business ticking along in the most productive and cost effective manner, whilst keeping the CPO’s green pen happy;
- sourcing from a total cost of ownership basis.
When procurement has a vision of what the end state looks like, procurement can determine the path and the requirements for the path.
The goal is excellence not perfection.
Without a detailed vision of the end state, the majority people in procurement will to impact the bottom line adversely.
Purpose and vision become compass that will keep procurement focused on the true north of the procurement transformation journey.
Focus is the plan for transformation broken down into steps, goals and specific outcomes.
It does not mean that focus cannot shift over time, but we really need to be able to understand if that shift in focus will deliver the outcomes we want for our purpose and vision. Any shift in focus has to align with procurement’s purpose and vision.
The focus for procurement transformation requires procurement leaders to step out of comfort zones and dare to be different; it also requires procurement leaders who have the courage to say no to the things that make no difference or adds no value in terms of the purpose and vision.
Application is the “how” of the journey.
Once procurement knows its purpose and vision and procurement sets its focus on transformational outcomes, application becomes easier. We have a plan, we have our goals and we can pack our bags and set off on our journey.
As part of the application, procurement needs to take time to plan, review and refocus on a regular basis. Application forces us to break old habits and move into an initial space of the discomfort of the unknown.
Where do you start your procurement transformation journey?
At the start, naturally – as with any journey.
Now that is not a cheeky response.
Like any journey you need to know:
- what you want to do,
- why you want to do it and
- where you want to go.
Once you know this, you can pull out your map and plan the focus for your journey. Decide who you will take on the journey.
Then do you book the trip. And only then do you pack your bags and go to the airport.
In procurement, we can often be so programmed by our processes that we do not focus on alignment to purpose and vision. We often make the “airport” the first stop and then wonder why we get nowhere because we have no idea where we are heading.
Some simple steps for the procurement transformation journey:
Step 1: Vision and Purpose
Determine your purpose and your vision. Know who you are, what you do and why you do it.
This is not as easy as it sounds – it will take at least 21 days of daily focus to clearly articulate your purpose and vision. But it does not mean that you do nothing until you are able to clearly articulate your procurement teams purpose and vision.
Step 2: Health Check
Do a health check on where you are at currently to benchmark the teams current performance.
Look at performance, look at where time is spent and where it is not spent.
Step 3: Find the Gap
Determine the gap between where you are and where you want to be.
Step 4: Focus
Plan big and plan small. Think long term, medium term and short term.
Focus keeps you on track.
Step 5: Application
Application focuses the steps of your journey. This is packing your bag and making the journey – one step at a time.
Step 6: Review and refresh
Regular review assists to make sure that your procurement team is still on track, have taken the right plane. It also helps to review and implement any valuable lessons learned.
Bad habits and procurement transformation
Procurement transformation and bad habits are definitely not best friends.
Bad habits, easy ways out, short cuts, “we have always done it this way” and comfort.
Those are all things that will distract procurement along the way and take the focus off the true north of the procurement transformation.
Some tips on how to deal with these distractions:
- Remove noise and distraction – remove the things that take up time, do not deliver outcomes that will assist in moving forward in your transformation;
- Review processes and practices and remove waste – people hide behind process and principle. Procurement is no different. Create systems as you go but remove anything that is not necessary or needed.
- Allow creativity and constructive playtime. Constructive creativity will create opportunities for innovation and innovative sourcing; working together in a creative space will assist with cultural transformation and team cohesion on purpose, vision and focus.
- Stop and refocus/reground on a regular basis. Taking time out to regroup and refocus will make the procurement team far more productive.
- Allow time for growth, development and networking – how else will procurement know what is happening outside their normal world?
- It is ok to make a mistake – transformation does not mean that nothing will go wrong or that we will make all perfect decisions. It is through mistakes that we learn after all. With proper risk an change management in place, transformation will be structured and managed. Also remember – some of the biggest “mistakes” have created the best innovations.
- Recognise the importance of mentoring and coaching – business cannot expect procurement to work wonders whilst not providing them with the opportunity to be mentored or coached.
- Raise the bar for the stragglers – make them work smarter and harder; don’t let anyone be a bottom dweller. Any procurement team is just as good as its worst performer. Through focusing on improving the outcomes and productivity of the worst performers, you will strengthen the capability of the team in leaps and bounds.
Finally, you are not alone
Procurement transformation requires leadership, courage and an acknowledgement that one does not have all the answers. However although you may not have all the answers, it does require a commitment to look for answers and to be open to finding those in different ways and places.
As James Cook said:
“Do just once what others say you can’t do, and you will never pay attention to their limitations again.”
We have worked in procurement on both sides of the fence and know what it takes to make procurement work. we think it is exciting times ahead and wish you and your procurement team all the best with your procurement transformation journey. Please feel free to share your true north and aha moments. After all, we learn through sharing and learning from our own lessons and the lessons learned by other before.
Contact Ichiban today to work with your procurement leaders, current and upcoming, to transform your procurement team to raise the bar. We work with your teams to do a health check and benchmark current performance, mentor procurement leaders and coach procurement teams.
For more information on our procurement leadership packages, click here.
Have a great day!
More about Celia Jordaan
Celia Jordaan has 21 years international and corporate experience and has worked in the areas of procurement, tenders, supply chain, contract management, law and risk. She works with procurement leaders, procurement teams and business to develop and implement strategies to boost business performance, make tendering easy and improve bottom line performance.