P@38 – 10 recommendations to become a great strategic buyer

Recently a colleague asked me what I would suggest to a tactical buyer who would like to become more strategic. It’s not an easy question. I finally answered with 10 recommendations.

Before jumping to the 10-point checklist, it makes sense to align on what great tactical buyers do. Those strong individuals:

- Perfectly understand, manage and optimize the famous Req-To-Pay process

- Look for clear specifications and in parallel also work on defining the real business needs

- Analyze the supplier market and know in detail the capabilities of the current preferred vendors

- Manage complex RFQs

- Regularly use e-auctions

- Negotiate good commercial conditions, basic legal aspects and more complex Service Level Agreements

- Deal with supply and quality improvement action plans

- Have some experience in managing productivity initiatives jointly with their stakeholders.

In front of such strong tactical buyers, here would be my 10 recommendations:

1.- Be Self-aware

- Regularly update their personal SWOT so that they can explain who they are in 5 minutes in a very convincing way. They can also work on their personal brand.

- Able to explain to anyone in 2 minutes their Procurement role, mission and key contribution

- Remarkably present the unique value proposition of Procurement to their stakeholders

2.- Audit the function

- Perfectly understand the different maturity levels of Procurement
- Manage all Procurement levers (Supply, Process, Demand and Value mgmt.)

- Make the difference between transactional, tactical and strategic Procurement activities

- By interviewing their stakeholders, they know their past accomplishments and what their future successes look like.

3.- Build relationships and network

- Have an up-to-date stakeholder map and action plan

- Show strong business acumen

- Ask and listen. They control their “little voice”. They make regular ‘Voice of the Customer’ surveys.

- They are credible and generate positive impact. They know their job. They do prepare all their internal or external meetings.

- Build productive and trustful relationships inside and outside the company. They are assertive. They influence, they challenge others. They are committed to make things happening.

- Become a trusted advisor for their stakeholders

4.- Align Procurement strategy

- Know the company/stakeholder strategic imperatives, priorities, challenges and issues.

- Think like a CFO

- Think like the business in term of value creation – SPIRit (Supply, Productivity, Innovation, Responsibility)

- Know the strategy of their vendors

- They are brilliant at aligning the Procurement/category strategy to company/stakeholder priorities and defining the corresponding action plan

5.- Manage a team

- Build a High Performance Team environment

- Create a sexy and meaningful vision for/with the team

- Reward positive/open attitude of mind and pro-activity

- Share mistakes and lessons learned

- Set ambitious objectives and go for bold ideas

- Constantly celebrate successes

6.- Priorize

- Analyse the spend on a regular basis and share results with their stakeholders

- Analyse category or supplier portfolio matrix

- Work on a list of potential initiatives (jointly with the business)

- Rigorously apply strategic sourcing and category management processes

7.- Mead

- Involve Finance to create strong baselines to calculate savings, productivity or even better value contribution

- Mead the impact in the P&L and communicate any kind of value beyond savings

- Progress from a simple monthly report to a robust Procurement dashboard including more and more Business KPIs

8.- Self-manage

- Manage their time: eliminate, optimize, automate, delegate

- Only do one thing at a time

- Understand and get comfortable with constant change

- Manage their boss

- Pilot their personal development and growth

9.- Advise

- Look for a mentor and learn from him/her

- Look for a mentee and learn from him/her

- Participate to benchmark exercises inside and outside the company

10.- Enjoy

- Before all, they enjoy what they do

- Learn and grow in the face of adversity

Differences between tactical and strategic buyers are clear:

-The first ones master all Procurement technical or “hard” skills whereas, the second ones grow their “soft” skills.

-Tactical buyers are Procurement people who happen to be in Business whereas Strategic buyers are Business people who happen to be in Procurement.

Could you share any other great piece of advice?

P@37 – How did you get married with your strategic partners?

Key Account Management (for vendors with their customers) or Supplier Relationship Management (for buyers with their suppliers) are both sides of the same coin and two well-known topics. It seems obvious that long term and collaborative relationships drive more value for both parties. Unfortunately, most companies still need to improve the way they drive their strategic partnerships.

When thinking about business relationship management, I often have those 3 movie scenes coming immediately to my mind:
- The typical scene of an express marriage at Las Vegas, where, rather spontaneously, we see a couple rushing into a chapel and getting married in just 5 minutes. In many cases, it is quite extravagant. And I am not sure how long have many of those relationships lasted.
- The mythical movie ‘Runaway Bride’ with Julia Roberts and Richard Gere.
- And finally, all those movies in which after a good bunch of adventures a couple at last got married in front of both families and friends “for better and for worse”.

Business world is not so different from those movies as we all have heard or experienced examples of successful or failed relationships with good or more than surprising stories on how the relationship was built and then managed.

When considering a long term relationship, how serious and consistent both vendor and buyer teams are about:
- Managing the previous steps of analysis and strategy alignment?
- Defining and signing the right relationship terms and conditions?  
- Following and improving performance of daily operations? being transformational in term of outputs?

If we want successful long term business relationships, we need to answer 6 strategic questions:

1.- Do we know why we need a long term relationship? Are the business reasons for such alliance clearly defined? Are scope, goals, benefits, and risks of such strategic partnership clearly identified? On the buyer side, did we undertake or do we need a previous make-or-buy analysis?

2.- Do we have the right partner? To be sure that we are choosing the most capable vendor (buyer side) or performant customer (KAM side) now and for the future, do we have enough information about: 1.- the other party; 2.- the supply market (buyer side) or the customer landscape (KAM side); 3.- all existing alternative solutions or technologies? Are we sure that strategy and culture of both companies are aligned? From both sides, do we have the management teams seating down and talking about strategy?

3.- Will we be able to manage such relationship with the partner?Is a long term relationship the most appropriate option? As buyers will revise their ‘portfolio’ (or Kraljik) matrix and vendors their ‘preferencing’ matrix, are the results of both matrix compatible? Do internal teams of both parties understand the need and the consequences of managing a long term relationship? Are both parties willing and ready for such strategic and open collaboration? Have both teams been trained on long term relationship tools and tactics?

4.- Did we formalize the right business relationship model and contract?Is a service level agreement linked to performance and results an appropriate option or shouldn’t it be better to sign an outcome based contract? Do the parties agree to really share benefits and risks, meaning really splitting the pie in 2 without looking for a biggest portion?

5.- Do we have the right governance in place? Nowadays, in most business relationships, scope of work, expected outcomes, ways of working and commercial conditions are constantly changing. Do partners have the appropriate governance mechanisms in place to be able to negotiate and agree on all those changes? Do parties trust each other enough to be able to reach an agreement by negotiating in a transparent and collaborative way?

6.- Are we going for bold initiatives?Do the parties share the same vision about the relationship and the future in order to be able to go for bold projects and transformational solutions? Are both teams empowered to make the right and tough decisions that will lead to great innovations and benefits for both companies? Are negotiating teams reasonable enough to not tense too much the rope during those good faith negotiations?

Now please consider your more strategic and long term business relationships and answer those 6 questions. If you get a high proportion of positive answers, congratulations! You are or will be successful. If you obtain a majority of negative answers, I wish you the best after your quick marriage in Las Vegas!

As Key Account Managers (vendor side) or Category Managers (buyer side), how can we do better at managing key business relationships?


For more information on Supplier Management, please go to P@36 – Should we start to take care of our suppliers? Aren't they valuable external resources?

P@36 – Should we start to take care of our suppliers? Aren't they valuable external resources?

Supplier relationships are a trending topic. Let’s take the recent example of Volkswagen who was forced to suspend part of the production in several plants after two suppliers took the unprecedented step of refusing to deliver.Is it really an extreme and isolated case? Unfortunately, I am not sure.

Do we really get the maximum value of our wide supplier panel (now also called supplier network for very good reasons)? Once again, I am not sure.

On a daily basis, could we say that supplier relationships, supplier performance and our own company performance are linked? The answer is simple: Yes, they are fully interrelated.

How do we properly manage the relationships with our suppliers?

To get the full benefits from our wide supply base, we need to find the right balance among 4 possible types of “relationships”.

Fireman: our time is quite limited to be able deal with all company’s vendors; in many cases, we just don’t manage them. We call the supplier when there is a problem to fix or when there is something new to ask for or when we want to (re)negotiate prices. Relationship is based on the task to be performed and the price to be paid. A main goal is to have an efficient and automated purchasing/supply process. Limited value is created. For very basic, simple and cheap goods and services (as per the “non-critical” or “routine” quadrant of the Kraljik portfolio matrix), this is a rather appropriate approach.

Follow-up: with our “key” suppliers (often selected based on the annual spend), we sign a Service Level Agreement including operational KPIs. On a quarterly basis, we meet with the vendor to review what went right and more specifically what went wrong. We ask for corrective actions, and from time to time we negotiate penalties. We also ask for the next productivity actions. It is rather a one-direction and medium term relationship based on control. In the best case, the agreed service level is delivered at the best cost. When, as a customer, we face a highly competitive supplier market for standard goods or services (somehow equivalent to the “leverage” quadrant of the Kraljik matrix), this method is suitable.

Supplier Relationship Management (SRM): with our few “strategic” vendors (according to the Kraljik Portfolio matrix), we decide to enter into a long term transparent and collaborative approach. We try to share both risks and benefits (incl. bonus-malus scheme). This is the famous “WIN-WIN” mindset where we aim to really know each other in order to share the pie and work together on continuous improvement and innovation. It is about relational and operational performance management. By focusing on results and outputs, real SRM programs deliver good optimizations of the Total Cost of Ownership and also lead to great innovations.

SRM continues to be a hot topic in Procurement. This is normal as reality shows that a few companies truly deploy robust SRM programs; the vast majority of organizations only control their vendors through SLAs and productivity management. We have a lot to do to improve this 3^rd level of relationship.

Suppliers are becoming more and more integrated; they are highly responsible for the success of their customers. And nowadays, due to the level of complexity, change, globalization and competitiveness in so many sectors, when working with a vendor, we definitely need to be able to constantly adjust the scope of work, the expected outcomes, the ways of working and the commercial conditions. SRM programs do not fully answer such challenge. This is why we see that a 4^th level of relationship is emerging.

Joint Account Management Program (JAMP): with an extremely limited number of “partners” (our top critical vendors categorized according to value, risks and spend; the segmentation criteria of the Kraljik matrix here do not apply anymore), we create a deep and long term relationship based on the “WE” mindset. Jointly the parties build trust, sign a shared vision, and set up strong governance in order to adapt all business variations and changes, expand the pie, achieve great improvements, implement innovations and breakthroughs. Through a robust 3 Dimension (relational, operational and transformational) Performance management and shared investments, those very selective programs aim for co-created sustainable value.

We cannot expect a limited team of buyers to lead and manage hundreds of supplier relationships according to those 4 models. This is just not realistic and it does not make sense.

Procurement departments should have the responsibility to:

- Lead jointly with the business the supplier tiering process (segmentation of the supply base and selection of the corresponding type of relationship)
- Co-lead with the business the partners’ relationships
- Train, support, advise the internal customers regarding efficient SRM programs with the strategic vendors
- Work on supplier panel reduction, product/service portfolio rationalization and process automation for all other vendors.


Today it is obvious that companies are committed to manage their employees to get the most of them; do they do the same with their external resources? How the Procurement function can help?


For more information on strategic relationships, please read P@37 – How did you get married with your strategic partners?

P@35 – Do you have the right SPIRit with your vendors to SEEk sustainable performance? (Part II)

In a previous post, we saw that companies should SEEk (Social, Environmental and Economic) Sustainable Performance by getting the GRIP on it (Growth, Responsibility, Innovation, Productivity). This will only be possible if vendors are fully part of this complex journey.

How could a more scientific Procurement function help? Does your company have the right SPIRit with its vendors?


Supply:

- Globalization and/or internationalization will remain for a long while. And what is good for business generates a lot of complexity and risks for many areas of the organization included for Procurement associates who should pro-actively help the top management in such strategic context (even without immediate savings) by quickly and efficiently adapting and opening the supplier panel. In any new country or region, while the organization is still often under construction, success is even more linked to the performance of those new vendors. Creating open and collaborative relationships with the key new suppliers is critical to success.

- Relocalization / reshoring for economic reasons or pure commercial strategy will persist. Once again, when adjusting the supplier panel, Procurement professionals can decide to be a) pro-active or b) re-active; they can choose to be a) strategic or b) just a support function .

- Resilience of the supply chain (the ability of the supply chain to overcome and/or continue to operate when a significant impact happens) can create a competitive advantage in many sectors. We all have in mind so many examples of serious disruptions linked to one missing purchased product/component, or due to a failure of an external service provision. Improved resilience is linked to deeper industry collaboration, strong quality mgmt., better traceability and robust mitigation of supply chain risks (especially mono sources of supply).

- Transportation, warehousing and distribution (W&D) business is going through a massive transformation.  With the boom of online sales, more attention should be put on the industry of small parcels, and ultra-personalized deliveries. Will Amazon ever use drones? They apparently took it very seriously. If it is not the case for W&D, at least, drones have already become a great source of productivity for many service provisions. Drones can really help to reduce the TCO and will be a game changer in several sectors. We should ask EasyJet that has already tested security checks of the planes with drones.


Productivity:

Vendors can dramatically impact on productivity, margin and cash flow. Beyond ensuring sustainable competitive prices and cost optimizations, Procurement has a key role to play in sourcing and integrating the most capable suppliers within the organization in order to improve the Total Cost of Ownership. Procurement should be involved in all outsourcing business cases. Buyers should improve their Lean Six Sigma skills to focus on process/continuous improvement with the vendors and internal customers.


Innovation:

Procurement has a big responsibility in capturing and integrating the external innovations coming from a wide supply network.

For this reason, Supply Relationship Management programs have a bright future; it implies a big change of mindset in the vast majority of organizations. I am happy to see several gurus revising the SRM approach and referring to Collaborative Business Mgmt., Trading Relationship Mgmt., Vested way, Return On Relationships etc... Setting up the proper relationships with our suppliers is a key success factor for innovation. Aeronautics, automotive sectors know a lot about it. In order to create a new and disruptive service, Amazon and P&G had to set up a complex commercial relationship. We can’t no longer see a clear distinction between vendor and customer as it has evolved to a business alliance.

Breaking the traditional procurement mindset and processes, Crowdsourcing will give a big help.  Many companies are in the process of testing the approach. P&G, Mars have been far beyond in developing their own web page dedicated to external innovation.

Circular economy should emerge soon with massive impacts on our distribution channels, production processes, supply chains and supplier panels.

Will Analytics soon become reality? While big data is strongly growing in marketing and sales, there is still a good step to take in Procurement. On a single click, will we get soon complete analysis of past data and future trends? We could immediately analyze our company spend, a supplier, a supply market, a specific value chain, any raw material and costs. We could have predictive risk analysis, or CSR dashboards related to a specific supply chain, etc...

Responsibility:
In many cases, our company is highly linked to vendors that have a huge responsibility and impact in term of conflicting materials and minerals. Sadly, too many people still die because of their work. Procurement really needs to check how vendors perform in term of working conditions, labor rights, Diversity & Inclusion, environment, corporate governance, corruption. In many firms, as a first step, CSR is linked to risk mgmt. and reputation.  It is much better when CSR is part of the company strategy in order to bring value to final customers.

In order to SEEk sustainable performance and have the GRIP on it, does your company have the right SPIRit when managing and collaborating with its vendors? What are the key priorities of your Procurement function to better support business and company performance?

P@34 – Do your company SEEk sustainable performance and have the GRIP on it? (Part I)

To refer to John Elkington and in order to grow and subsist in the long run, companies should continue to strongly develop their “triple bottom line”: Social, Environmental and Economic. It just makes sense. An economically strong company is not sure to survive if its financial results are achieved unethically. Employees, final customers and an increasing number of sustainable funds are becoming more sensitive to corporations’ values, behaviours and business practices. More governments are setting up the right framework and many NGOs are creating a healthy level of visibility and pressure. Does your company really SEEk Sustainable Performance?

Sustainable Performance is quite simple to define, but so hard to achieve. It means getting the GRIP on company performance.

Growth: in a context of globalization and fierce competition nearly in all sectors now, there is no other choice than maintaining or growing sales. Marketing (emotional, digital, mobile, massively individualized marketing, big data, customer experience and distribution channels), sales effectiveness and internationalization are key success factors.

Responsibility from social, environmental and corporate points of view will no longer be a commercial or strategic advantage; it will become a basic and Go-No Go criteria for the Customers to choose from whom to buy. Nestle, P&G, C&A, H&M, DSM, BASF have already acknowledged  and intergrated this trend into their strategy.

Innovation is a key driver to profitability and sales growth. Referring to Larry Keeley, Helen Walters, Ryan Pikkel and Brian Quinn, Innovation is everywhere in the company as it can be related to configuration (of the business system / model, the structure, the network and all enterprise working processes), offering (of the core products and/or services) and customer experience (service, channels, brand, Customer engagement). You can perfectly mix incremental, breakthrough and transformational innovations.

Productivity: most companies work hard to improve 1.- productivity/efficiency (the same outputs and customer value with less inputs – Lean philosophy) and 2.- effectiveness (observed or actual output compared to optimal or standard output – Total Quality Mgmt., Six Sigma approach) by revising and optimizing as much as possible their products / services (offered to customers or purchased from vendors) and their processes in all areas of the organization. Supply chains are constantly scrutinized and improved. In/Out-sourcing and Re/Off-shoring strategies are also revised. There is an immediate impact on the ability of the company to generate money to fund innovation and growth.


Sustainable performance is not an easy journey for many organizations as hard choices must be constantly made to adapt permanent changes and strategic issues coming from all fronts. It is all the more difficult as an increasing number of critical activities of the companies are performed outside through a wide network of external resources. Do your vendors contribute to sustainable performance and company goals?

P@33 – Why externalization of Procurement resources has just become the norm

Procurement function is going through a necessary and intense process of transformation meaning that we should move towards a more Scientific Procurement function. In previous posts and in order to realize such upgrade, we defined several steps: analyzing the macro photo, defining the right Procurement outputs and improving ourProcurement Processes, Systems and tools. Even with these strong foundations, materialization and success will come thanks to great Procurement people and a good use of often too limited resources.

Procurement teams have a lot of tactical work to perform, many daily issues to solve, and several key risks to mitigate in order to ensure that business runs smoothly. It is not an easy task. In addition, they manage more and more strategic initiatives and vendor relationships to increase value delivery to the business beyond pure Quality/Costs/Delivery results.

At the same time, all studies show that there is a limited increase (when not a reduction) of Procurement budgets and resources. In many cases, we will have less internal resources, knowing that a talent war is coming out. This is a tough challenge for many Procurement leaders.

We previously saw that optimizing processes and systems is part of the solution. Outsourcing is another good option. Externalization of our operations is just becoming the norm.

We can benefit from 4 types of outsourced activities:

• Consulting: we contract highly prepared consultants for any diagnostic activities, any transformation initiatives, for complex and/or strategic Procurement co-leaded projects.
• Staffing: is a good solution to quickly get skilled buyers who will generally work according to our own processes and systems. In this service, you can find both modalities: implant or outplant. This is useful:
• for tactical and daily procurement activities, or
• when the procurement teams are punctually overloaded, or
• when we start to operate in a new country and have to go fast, or
• when we have no specific knowledge on a category and we need to optimize the buying process. 
• BPO: is highly recommended for recurrent, back office, administrative, compliance, reporting tasks as well as for any other transactional activities. It is also an effective approach to deliver Procurement ‘help-desk’ services in the case of big multinational organizations.
• Specific Services: cover different service provisions in the field of analytics and market research, supplier audits, pricing & contract compliance, e-auction support, etc…

Advantages of Procurement Outsourcing are quite clear on the Power Point:

• Higher flexibility vs workload
• Immediate access to expertise, best practices and benchmarks
• Variable costs for our procurement operations and own functional budget

In real life, contract setting, implementation phase, supplier mgmt., daily performance mgmt. are not easy. There is much to learn for us, the buyers, as vendors are much more experienced than we are.

Based on my own experience, here are some recommendations:

• Service specifications and IT needs: an outsourcing project won’t be able to solve existing specification problems or non-optimal internal processes. The best path is first to try to internally fix the key problems before moving to an outsourcing solution. Another key point is to clarify the IT needs. How will external staff connect to our own systems? How will we integrate supplier systems into our IT environment? Vendors who already know those potential difficulties often choose not to mention them upfront; they rather prefer to solve those issues once they occur during the implementation phase (by asking for more time / resources / money).
• Big benefits on the Power Point but not so many in real life: during selling process, vendors always refer to a long list of great advantages; service provision is often quite different. Outsourcing vendors could do a better job at being more realistic on the real performance and claim for long term constructive and collaborative relationships that will allow continuous improvement. Customers should be much more cautious when listening to the vendors.  It is key to align on expectations from both sides. After a few months of implementation, it is not uncommon to see discrepancies and discussions between the client and the supplier due to a lack of alignment on expected vs achieved results. Once again, vendors are aware of it well before.
• Collaborative mindset: Outsourcing requires the entire buyer’s organization to consider the vendor as a real partner, an extension of the company. It means developing strong SRM or any other improved collaborative approach.
• Examples of contracts, reporting, KPIs: during tendering process, buyers should ask the vendors for real examples of contracts, reporting and KPIs. Without this pro-active step, contractual negotiations can become much more complex. Checking in advance the reporting capabilities of the vendor and thinking about meaningful KPIs will surely avoid us long and painful discussions. Once awarded, experienced suppliers have no problem to fight for any contractual clause; they are trained to explain why the reporting mechanisms are not yet in place after 6 months; they are brilliant at suggesting KPIs that are more favorable to them, or even worse, proposing KPIs that do not reflect the reality of the provided services (in such case, the vendor can report all agreed KPIs as being fully achieved, meanwhile, on site, there are permanent and significant quality issues).
• Define minimum profile/experience of the employees and staff rotation. This is self-explanatory.
• It is also fundamental to clarify upfront the integration and communication mechanisms between external staff and company employees. In many firms, internal rules regarding external staff mgmt. have become stricter due to legal and social risks.
• Fix with the vendors how they will formalize and update the SOPs (Standard Operating Procedures) and how they will ensure proper knowledge mgmt. and transfer from one exiting employee to a new employee.
• Finally, think in detail about reversibility criteria and action plan in order to put all that in a contractual clause.

In a company, I progressively ramped up the 4 types of services. Implementation phase and daily mgmt. were not always easy; we even had to change one supplier for not being able to get the right relationship and the right performance measurement / achievement. In several occasions we hired consultants and specific services to go faster: we had mixed results.

The biggest benefit was the split of tasks and roles.  With transactional resources based in Eastern Europe, tactical buyers located in an implant in our offices, my team of buyers became mostly dedicated to strategic Procurement activities. This split became also quickly clear for our internal customers.

Externalization of part of our Procurement operations is a clear direction if we want our teams to focus on the strategic activities and value creation. So are we aware about the local supplier market and the different options? Which option would be more meaningful for our function and company? Are we ready to present a strong business case for approval to CFO and CEO?