In previous posts,
in order to become more relevant and successful, we saw that we should aim for
a more Scientific Procurement function. The first step is to analyze the macrophoto: industry environment, business impacts, risks and opportunities, and
corresponding company strategic imperatives. With this clear picture, we can
then, as the second step, define the right Procurement outputs for our firm.
To be honest, how
good and courageous are we in Procurement at defining, communicating, and delivering
our Value proposition?
A self-assessment
could start with a quick look at our Procurement mission statement. Do we have a well-established, known and
communicated Procurement mission? Is it motivational and accurate enough? Is it
directly linked with Business issues and priorities? Is it driving our daily
activities?
I have quite often read
mission statements referring to ‘best-in-class’ Procurement by ‘delivering
value’ or ‘business solutions’ through improved ‘business partnering’ and other
worthy general objectives. This is a great aspiration. Nevertheless, we can
easily ask ourselves:
- does the
procurement team clearly get the right direction and priorities?
- do our
stakeholders and vendors understand what it means? I guess they don’t.
- does it make
sense for Procurement to focus on becoming “World-class”?
Big and very
diverse corporations may not have the choice and need to be generic. In any case, we should do our best to avoid
too general procurement mission statements.
We definitely need
to be more precise by accurately describing the Procurement unique value proposition.
How should we do it?
In the past years,
in different companies and jobs, I applied the RAQCSI that proved to be a good
tool.
R: regulatory, reglementary, being
responsible for corporate and social points of view, legal, cyber security
A: assurance of supply and risk
mgmt.
Q: quality
C: TCO, cash flow, financing
mechanisms, spend mgmt.
S: additional services like
efficiency of the invoicing process, reporting, vendor’s KAM performance
I: innovation, time & speed
to market, Procurement early involvement
Could you recommend
any other acronym?
In each
organization, at Procurement department level and at category level, we will
have different priorities among those 6 chapters that will also change over the
time depending on the business imperatives, the structure of the company and
the maturity of the Procurement organization. Those priorities will be the
foundations of the Procurement team objectives.
Several big
companies like Bayer, Mars, Valeo openly publish their Procurement focus and
value contribution in a clear and understandable way for their business,
vendors and procurement teams. In addition, those ambitious mission statements
seem to be aligned with the company strategy and their respective functional
maturity level.
I am often cautious
when I see pillars like Innovation, TCO, Risk mgmt. or CSR mentioned by an
historically administrative purchasing function and/or on the contrary by a
‘young’ procurement organization. Do they have the right level of supply market
knowledge? Did they get credibility in front of the vendors to lead productive
relationships? Do they have the right level of business understanding and
partnering?
As a necessary and
basic step, Heads of Procurement and Category Managers should spend enough time
in precisely defining their unique value proposition. Is it properly reflected
in their mission statement, vision and/or objectives?
Only then, the
Procurement key leaders should think about the appropriate future for
Procurement, and their long term journey. Based on existing trends, we could envision
a beyond traditional procurement approach with 4 potential different future
models:
Global
business services:
this cross-domain unit is composed of several support functions (Procurement,
Travel mgmt., Congress & events mgmt., Fleet mgmt., Real estate and
facility mgmt. and why not any other support function like IT, HR operations,
Accountancy, Legal, etc…). The main goal of this unit is to provide a wide
range of high quality services to the business units aiming at standardization,
simplification, efficiencies, compliance and lower costs. This model is
especially relevant in sectors with a low-to-medium total 3rd party spend
(representing between 10 - 50% of sales), with a rather higher percentage of
indirect + capex spend vs direct purchasing (with rather short/limited supply
chains). It could be appropriate for companies with different business units
and a worldwide complex (often redundant) organizational set up. E.g. Big
Pharma.
Spend
efficiency:
the function focuses on getting the best outputs while optimizing the spend
base, different cost centers or company budget. Key elements are: constant
usage of sourcing process, some category mgmt. approach for key categories,
strong focus on demand mgmt. and forecasting, productivity mgmt., (internal)
process optimization, accurate budgeting & spend approval process. This
model could be relevant in sectors with a rather low total 3rd party spend
(representing between 10 - 30% of sales), with a high percentage of indirect and
Capex spend (limited direct purchasing, and/or limited/short supply chains).
E.g. Banking.
Total
cost-base mgmt.:
this organization works not only on optimizing the TCO of the key goods and
services procured from outside the company but also on the Total Cost of
Production & Distribution of final products and services. Key elements are:
category mgmt., demand mgmt., (internal and external) lean six sigma, value
analysis & engineering, risk mgmt., insourcing/outsourcing-offshoring
complex strategies. This model is relevant in sectors with a medium total 3rd
party spend (representing between 40 - 60% of sales), with a high percentage of
capex spend and technical (direct or indirect) proc. categories. E.g.
Utilities.
Value
chain integration:
the focus is on innovation, speed and time to market, production process
excellence, supply chain optimization, productivity mgmt. requiring a deep
integration of many key vendors. In such environment, Procurement often applies
SRM or Joint Account Mgmt. programs, co-design, design-to-cost, relationship
and investment based business models with the key suppliers. This model is
relevant in sectors with a high total third party spend (>60% of sales),
with a high percentage of direct purchasing, technical (direct or indirect) categories,
and/or complex supply chains. E.g. Automotive.
There is still a
lot to think about those 4 possible models. Once again, it seems that business
context and priorities, corresponding Procurement value contribution and
functional maturity level are the key criteria to select the appropriate
model.
If we want our function
to become more valuable for our company and more recognized, we should more
precisely and courageously define our unique Value proposition and, at the same
time, look for the long term destination of the function.
Does this make
sense? In your company, what are the 3 most important pillars of the RAQCSI?
Are the Procurement team objectives aligned? What might be the most meaningful
future model for your Procurement organization? Why?
