Despite being an established Procurement Outsourcing provider one of the things that surprises us most is the number of businesses we speak to who ask
“…can you tell us how to go about establishing a professional procurement operation in house?”
When any business takes the decision to form a procurement function there are a number of imperatives which need to be addressed:
•How well do you understand your spend with your suppliers?
•What controls and procedures will you need to deploy to ensure best value is being achieved with your suppliers?
•How do you carry out well-defined due diligence in the selection and appointment of new suppliers?
If you are unable to answer these questions to the satisfaction of the CFO (‘the money’) and the CEO (‘the mouth’) you are not going to get to first base! Although every business enterprise is different, there are 10 steps which can help set you on your way:
Establish a source of ‘clean’ and reliable spend data
Today ‘knowledge content’ is king; but to develop that content you need clean, reliable and useable data. To understand your spend you require details of your invoices to establish a baseline. If you are going to conduct a category analysis, you will need this baseline data to enable you to segment your spend by size and understand scale and scope of the potential opportunity to your business. Understanding your spend with your suppliers is paramount if you wish to focus your energy in terms of developing the ubiquitous cost-saving initiatives, supplier development programmes and the value analysis that will be expected of you.
Connect with your suppliers
As a professional in contemporary procurement you have to connect your suppliers on more than just a transactional basis. You need to learn as much as you can about them, their organisations and their strategic goals. This is time well spent as it can help uncover all sorts of things which will be useful as your relationship develops. For example it is good to know what your suppliers think regarding the ethos of your organisation; what is useful to them in the relationship and what isn’t; and where there might be opportunities for improving value to your organisation whether through cost, quality or service. Developing strong reciprocal relationships can often put procurement in the position of gate-opener for your sales team or other potential collaborations between your business and theirs.
Align, execute and deliver to the business
In establishing an effective procurement team you have to realise a trio of objectives simultaneously:
•Aligning your procurement strategy with changing business contexts
•Execute your strategy well, to ensure your supply chains are sustainable, flexible and responsive through your networks, collaboration and focus.
•Deliver procurement’s value proposition seamlessly, without operational interruptions or performance slips.
It will be a strategic balancing act and one that requires strong leadership crossing all lines of business and reporting to the board.
Understand the numbers
For credibility within the business and amongst the senior stakeholders you must have a commercial focus. To ensure maximum impact in your negotiations, it’s vital to know the numbers. The procurement team must be fluent in commercial operations and financial constructs such as capitalisation, gearing ratios, revenue recognition and some elements of taxation and its implications. It goes without saying that procurement professionals will be numerate; but critical is the understanding of the commercial consequences of the deals they make and which will be in the best interest of the organisation.
Can you communicate the benefits
Cost-saving targets will always form part of the procurement function’s success metrics. Consequently you need to find a way to communicate the benefits of this aspect of procurements role which can be easily understood by the business – in particular the finance team – but also for common consumption. As benefits are delivered, savings are taken out of cost centre budgets on an ongoing basis to ensure they crystallise. Remember to track cost avoidance as they demonstrate an aspect of procurement’s value to the business which is not commonly known or understood.
Deploy effective policy
Procurement must deploy an unequivocal policy regarding any and all sourcing activity. Think about how you want to run tenders, manage suppliers and manage supplier risk. Don’t let your policy document sit on a dusty shelf (or on your shared systems) to be referred to once in a blue moon. It should be widely available, have C-Suite support and be something that procurement understands and can clearly articulate across the business. Effective policy avoids doubt and ensures procurement is undertaken in a way that best supports your organisation’s business objectives.
Seek advice and buy it in, if needed
Take every opportunity to use and build your network. Let people know what you are doing and why. Seek advice and learn from others – be inclusive, transparent and approachable. If you don’t have any networks why not connect with people via LinkedIn. You could also approach professional bodies such as CIPS and become active in a branch network or through its Congress. Finally find the time to attend conferences and other procurement events. As mentioned in No 1 above fill gaps in market knowledge or data, invest in reports, Whitepapers or via advisory services.
Recruit and develop viable and malleable talent
Building capability and addressing gaps in knowledge requires the recruitment and development of harmonised talent. Take care in understanding how to address knowledge and skills gaps. As well as having an integral suite of annual performance objectives also ensure that time is spent away from the day-job to participate in training programmes. Aim too for diversity of experience in your procurement team as different people see issues in many different ways; this offers creative solutions as difference is embraced.
Create a knowledge store
Overtime, you develop learning and experience. It is smart to find a place for your ever-growing knowledge assets be they tools, shared experience or even a community of practice. There are two types of knowledge: tacit and explicit. Find times and places to share both. Timesavers such as standard RFx templates, non-disclosure agreements, project plans and vendor activity trackers add a professionalism and common standard for delivery of procurements.
Concentrate on the most strategically important knowledge which comes typically from doing something for the first time. Issues such as commercial negotiations where things happen in real time need to be shared face to face after the event and will we add the greatest value. Whilst there are hundreds of templates and examples accessible on various web sites, you need to enable sharing of experience amongst your team in an environment where people feel comfortable to share.
Always capture learning
Like a chef in a kitchen never let things which can be used go to waste. You want all the flavour. So capture learning and knowledge developed within your procurement team via internal or external activities. The objective of capturing learning and using it to continuously improve is imperative. Whether it is from supplier feeding back, internal comments regarding your on procedures, or project teams regarding negotiations, always capture, discuss and evaluate what you are given.
Finally it is fair to say that nothing worth having comes easy,establishing and deploying a procurement function from scratch is daunting, exciting, challenging and fun all at the same time. Remember, there is no best practice, no rule book it will depend on what your aspirations are but we offer our suggestions to help you get your creative juices flowing – so go for it!
Written by Optimum Procurement