How to Transform Procurement in Five Steps

How to Transform Procurement in Five Steps – Step Five: Internal Stakeholder Engagement

How to Transform Procurement in Five Steps – Step Four: Knowledge Management

How to Transform Procurement in Five Steps – Step Three: Technology

How to Transform Procurement in Five Steps – Step Two: Processes

How to Transform Procurement in Five Steps – Step One: People

How to Transform Procurement in Five Steps – an Introduction

 

As a researcher, one of the challenges to studying a phenomenon (also known as a dependent variable) is to forego assigning causation to a single independent variable without considering other potential variables and how they may be contributing to the event. After all, events do not happen in a vacuum, and independent variables are not mutually exclusive. Independent Variables 1, 2, and 3 may be acting in concert to produce Dependent Variable 1. And the degree to which each is causal can also be difficult to discern. Statistical analyses, like regression analysis, can isolate each variable’s causation to a high level of confidence and shed much light on these kinds of relationships. That’s all well and good in data-driven analysis, but qualitative studies can be less definitive. And what does this have to do with procurement, anyway? Good question.

Like the aforementioned example, procurement transformation cannot and should not be attributed to any one particular variable. Procurement people, processes, technologies, stakeholder relationships, andknowledge management each need to be regarded as causal – and instrumental, really – in driving forward procurement transformation within an enterprise. Each of these variables is significant in their own right, and their importance should not be understated. That is why procurement transformation needs to be broad-based – it needs to account for each of these aspects in order for a lasting and successful transformation to take root within an organization.

For starters, a procurement organization that is viewed as a group of glorified order-takers cannot be expected to implement standardized, interrelated, and automated processes using the latest and greatest technology solutions. And they probably cannot be expected to confidently and persuasively engage either internal or external stakeholders, win their trust and buy-in, and manage multiple streams of data and information that pour into the modern organization. These are all desired end states in themselves, but a procurement staff that is not set up for success will likely tumble in a mad dash towards procurement transformation. However, that same organization, infused with fresh talent and adequate training, and empowered by their Chief Procurement Officers (CPOs) or other senior business leaders to elevate their standing within the enterprise, will fair better in the short and long term.

Procurement transformation also needs to be implemented with the end goal in mind – that is, when CPOs embark upon a transformation project, they do so with a desired outcome rather than an endless and pointless excursion into failed process improvements and technology adoption. All too often, processes are re-engineered but do not reflect the realities “on the ground,” such that when they are implemented, end users find them unwieldy and unworkable. In turn, they simplify the processes to the point where they are over-simplified and fail. The problem is amplified when end users attempt to mate process improvements and standardization with technology solutions. If processes are not aligned with the technologies, or the technologies inadequately implement the processes, breakdowns can occur and end users will abandon the new processes and technologies in favor of old ones, bringing procurement transformation to a deafening halt.

With these pitfalls in mind, this new series will examine each facet of procurement transformation in greater detail, and shed further light on what CPOs and their procurement teams need to do to successfully implement a holistic procurement transformation project. Part I of this series will focus on the staff or talent aspects needed to get this project off on the right foot. Stay tuned!

Procurement transformation has become a familiar topic here on CPO Rising, particularly over the past couple of years when it has become increasingly clear that what got procurement departments where they are may not get them where they need to go. Ardent Partners believes that Chief Procurement Officers (CPOs) and other procurement leaders need to foster innovation at multiple levels in order to elevate the procurement organization and the enterprise as a whole to the next level of performance. Put another way, procurement transformation cannot and should not be attributed to any one particular factor;people, processes, technologies, stakeholder relationships, and knowledge management each need to be regarded as causal – and instrumental, really – in driving forward procurement transformation within an enterprise.

Each of these variables is significant in their own right, and their importance should not be understated. That is why procurement transformation needs to be broad-based – it needs to account for each of these aspects in order for a lasting and successful transformation to take root within an organization. Thus, this new series will examine each facet of procurement transformation in greater detail, and shed further light on what CPOs and their teams need to do to successfully implement a holistic procurement transformation project. Today’s installment will focus on the staff or talent aspects needed to get this project off on the right foot.

How to Transform Procurement in Five Steps – Step One: People

For (too) many years, procurement organizations as a whole and procurement staff in particular were relegated to back offices, regarded as mere order takers for the rest of the enterprise, and forced to be reactive. Stakeholders from across the enterprise would call in and request goods or services to fulfill a given business need, whether it was a direct need such as a component for a product, or an indirect need such as office supplies or business travel. Rarely was there a discussion of whether they were sourcing from competitive or strategic suppliers, and if they could do better. Procurement staff were often seen not as valuable partners and value drivers, but as reactive instruments, and as a result, they often did not make much of an impact. However, the dynamics and expectations are starting to change, necessitating changes at the staff and talent level.

Transforming procurement staff from reactive order takers to proactive value drivers can often be the most challenging part of a total procurement transformation project because CPOs and business leaders have to change the culture and caliber of their staff in order to make progress. In order to do that, they have to conduct a capabilities assessment:

  • Do they have the right mix of people and talent in place to transform?
  • Are they top-heavy with experience and people skills, but lacking in innovation and technical skills?
  • Do they need to hire more out-of-the-box thinkers and or tech-savvy Millennials?
  • Can they provide training necessary to bridge skills gaps?
  • Could Baby Boomers and Millennials train each other?

CPOs then have to conduct a scope of operations assessment – what are the parts of the enterprise where they currently manage spend, where else are they being pulled into, and where would they like to converge next? CPOs then have to bring their capabilities and scope of operations into their plan to ensure that the mix of skills and talent that they have or plan to have will adequately support the procurement department’s and enterprise’s needs, particularly if they plan to converge or influence across the enterprise.

Conclusion

Moving from a reactive and sedentary procurement culture to one that is proactive and fluid can allow procurement teams of all shapes and sizes to realize their full potential and drive more value to the enterprise. But CPOs and procurement teams have to walk before they can run; they need to take stock of their current staff and skills, if and how they will support their plans for the future, and how they plan to get there from here.

Procurement transformation has become a familiar topic here on CPO Rising, particularly over the past couple of years when it has become increasingly clear that what got procurement departments where they are may not get them where they need to go. Ardent Partners believes that Chief Procurement Officers (CPOs) and other procurement leaders need to foster innovation at multiple levels in order to elevate the procurement organization and the enterprise as a whole to the next level of performance. Put another way, procurement transformation cannot and should not be attributed to any one particular factor; people, processes, technologies, stakeholder relationships, and knowledge management each need to be regarded as causal – and instrumental, really – in driving forward procurement transformation within an enterprise.

Each of these variables is significant in their own right, and their importance should not be understated. That is why procurement transformation needs to be broad-based – it needs to account for each of these aspects in order for a lasting and successful transformation to take root within an organization. Thus, this new series will examine each facet of procurement transformation in greater detail, and shed further light on what CPOs and their teams need to do to successfully implement a holistic procurement transformation project. Today’s installment will focus on establishing and streamlining processes to keep this project on track.

How to Transform Procurement in Five Steps – Step Two: Processes

For CPOs and procurement organizations that recognize the need to transform, processes can be tactical roadmaps to strategic success. But sometimes, when teams start out, they realize that they either have too little or too many processes (or too complicated processes) to efficiently and effectively get them where they need to go. As a result, a successful procurement transformation project needs to simplify, standardize, and ideally automate processes for maximum effectiveness and efficiency. Let’s take it from the top.

Business process engineering or reengineering can often become a self-defeating exercise in process overkill, particularly in large organizations where bureaucracy and complex interdependence make for kludgy processes that people quickly disregard in favor of legacy processes and practices. Something that has 97 steps will be practically impossible to follow for a person that was used to doing it in 3 steps, even if it was insufficient. This may be a bit of an exaggeration, but the point is that in order to “do” process improvement well, organizations need to keep it simple enough so that they will be followed while preserving the integrity of the process so that it remains viable.

From there, the process needs to be standardized across the procurement department, codified for reference, instilled with practitioners, and explained to constituent stakeholders across the enterprise (e.g., product development, manufacturing, legal, HR, Finance/AP) so that all parties understand the “rules of engagement.” Staff often have to negotiate tricky situations in which they are asked to cut corners, do someone a favor, or make an exception on behalf of someone outside of the department or someone that is not familiar with its processes. Of course, procurement organizations need to be agile and nimble enough to move quickly or know when to make exceptions. But exceptions should not become the rules. Having a process on the books also makes it less likely that new comers will feel the need to “reinvent the wheel”, and instead, rely on proven best practices to get the job done.

Lastly, procurement organizations should seriously consider automating their processes for maximum effectiveness and efficiency. Manual, paper-based processes are out, while automated, digital processes are in; and one cannot discuss process automation without also discussing technology solutions. They are force multipliers for understaffed and overwhelmed procurement teams that are consistently being asked to perform more or better with the same resources. Automated technology solutions are repeatable and scalable, and they can allow practitioners to move from tactical, low-value but high-touch activities to strategic, high-value planning and problem solving. Understandably, not every procurement organization will have the budget for process automation, but their value proposition is considerable.

Conclusion

Processes should provide the guidance for the successful implementation of procurement activities and projects; they should not deter staff from following best practices in favor of “reinventing the wheel” or doing their buddy in accounting “a solid.” They need to be sensible, simple enough to follow, nimble enough to be agile, and where possible, automated to provide maximum scale, repetition, and efficiency

Editor’s Note: Procurement transformation will be a big topic at Ardent Partners’ inaugural CPO Rising executive symposium next year. Join us in Boston on March 29-30 for what is shaping up to be the procurement event of the year. Register here!

Procurement transformation has become a familiar topic here on CPO Rising, particularly over the past couple of years when it has become increasingly clear that what got procurement departments where they are may not get them where they need to go. Ardent Partners believes that Chief Procurement Officers (CPOs) and other procurement leaders need to foster innovation at multiple levels in order to elevate the procurement organization and the enterprise as a whole to the next level of performance. Put another way, procurement transformation cannot and should not be attributed to any one particular factor; people, processes, technologies, stakeholder relationships, and knowledge management each need to be regarded as causal – and instrumental, really – in driving forward procurement transformation within an enterprise.

Each of these variables is significant in their own right, and their importance should not be understated. That is why procurement transformation needs to be broad-based – it needs to account for each of these aspects in order for a lasting and successful transformation to take root within an organization. Thus, this new series will examine each facet of procurement transformation in greater detail, and shed further light on what CPOs and their teams need to do to successfully implement a holistic procurement transformation project. Today’s installment will focus on the technological aspects that can propel a transformation project forward.

How to Transform Procurement in Five Steps – Step Three: Technology

Once a CPO and their procurement team determine that they need to automate in order to ascend to the next level of performance, there are a host of factors to consider before moving forward. These include their short and long-term goals for automation and adoption, their requirements (must-haves versus nice-to-haves), the solution market, their budgets, and finding the best fit between their budget and requirements. From there, CPOs need to make a business case for technology adoption, and consider how they are going to get this organization to the next level – if their current staff and talent levels support technology adoption or if they will need to hire and train more, and if they have processes that can map to the technology, or if they need to reengineer processes to align with new technologies.

Going back to the example in the last article, process simplification and user friendliness are vital to drive high user adoption, which in turn is vital to enterprise performance. Organizations that adopt complex, kludgy processes as a way to interface with technology inadvertently complicate matters and frustrate users that just want to do things “the old way,” thereby neglecting the benefits of automation. Conversely, organizations that over-simplify processes may make it easier for users, but they risk neglecting key parts of the sourcing and procurement value chain (e.g., standardizing and automating spend analysis without connecting it to sourcing and supplier management). Luckily, processes can be revisited and steps can be added back in to make them more robust and capture more value. Ultimately, what organizations are are trying to do with their systems is to get wide-spread adoption. If they do not, they will not have significant returns. Simply, if procurement staffers do not use the technology, they will never become experts in the solution and they will never see the desired results.

Conclusion

Organizations need to consider the technological aspects of procurement transformation holistically, as there are many factors that will interact to produce the end state. CPOs and procurement teams need to be honest with themselves if they have the right people and processes in place, the budgetary allocations, the short- and long-term goals in mind, and have their fingers on the pulse of the solution market to select the technology solution that is right for them. If do they not, they may be wasting their time, effort, and money on expensive systems that will be disregarded in favor of the old manual methods.

Procurement transformation has become a familiar topic here on CPO Rising, particularly over the past couple of years when it has become increasingly clear that what got procurement departments where they are may not get them where they need to go. Ardent Partners believes that Chief Procurement Officers (CPOs) and other procurement leaders need to foster innovation at multiple levels in order to elevate the procurement organization and the enterprise as a whole to the next level of performance. Put another way, procurement transformation cannot and should not be attributed to any one particular factor; people, processes, technologies, knowledge management, and stakeholder relationships, each need to be regarded as causal – and instrumental, really – in driving forward procurement transformation within an enterprise.

Each of these variables is significant in their own right, and their importance should not be understated. That is why procurement transformation needs to be broad-based – it needs to account for each of these aspects in order for a lasting and successful transformation to take root within an organization. Thus, this series will examine each facet of procurement transformation in greater detail, and shed further light on what CPOs and their teams need to do to successfully implement a holistic procurement transformation project. Today’s installment will focus on knowledge management best practices to ensure that all relevant stakeholders can access the information they need, when and where they need it.

How to Transform Procurement in Five Steps – Step Four: Knowledge Management

Enterprise information management is critical for enterprises operating in a hyper kinetic world where change is constant. With new or newly-trained staff, innovative processes, and automated technology solutions permeating procurement organizations, CPOs and their teams need to document and centralize their intellectual capital to ensure that current and future users can access the information that they need, when and where they need it. This is especially true for large, multi-national corporations that are center-led — but not necessarily centralized. Otherwise, CPOs risk inconsistent process and technology adoption, as well as inconsistent policy compliance, which can all severely undermine procurement transformation.

With many Baby Boomers retiring in the next few years, enterprises are at risk of letting their “tribal knowledge” walk out the door with them. Thus, it is essential that organizations capture the decades of knowledge and best practices that legacy procurement professionals have developed so that they can be available to current and future generations. Mentor-protege relationships are great ways to teach best practices and transfer this knowledge to future generations. However, a more democratic way to do this is to document knowledge and best practices and store them centrally within an enterprise so that they can reach more people and they can stay within the organization when staff inevitably depart.

Supplier information management is just as important as enterprise information management, particularly if an enterprise has hundreds or thousands of relationships with suppliers, past or present. It then becomes critical to ensure that the enterprise can capture, cleanse, fuse, and maintain supplier information across multiple accounts such that the correct contract, payment method, and contact information are all used as intended. This is especially important as buyer and supplier representatives come and go and the information needs to not only live on but evolve with the times.

To manage enterprise and supplier information, wikis, Sharepoint, document management solutions, and cloud storage services all allow procurement departments to store policy, process, supplier, and training information online and thus make it widely and immediately available. The onus is still on the user to seek and access the information they are looking for. But unlike information that is jotted down on a legal pad and or tucked away in a filing cabinet (if at all), useful enterprise and supplier information will be readily available when and where they need it. And it will be available long after the Baby Boomers have retired and the Millennials have taken their place.

Final Thoughts

With so many changes occurring at once within the enterprise, it is becoming increasingly important to ensure that all relevant stakeholders have democratized access to valuable information residing deep within their enterprise. Like oil in the ground, enterprise and supplier information does not have any value unless it can be found, extracted, refined, and delivered. Luckily, there are a number of internet-enabled, mobile-ready, and user-friendly tools that can ensure that the global workforce can tap these resources whenever and wherever they need them.

Editor’s Note: Procurement transformation will be a big topic at Ardent Partners’ CPO Rising 2016executive symposium this spring. Join us in Boston on March 29-30 for what is shaping up to be the procurement event of the year. Register here!

Procurement transformation has become a familiar topic here on CPO Rising, particularly over the past couple of years when it has become increasingly clear that what got procurement departments where they are may not get them where they need to go. Ardent Partners believes that Chief Procurement Officers (CPOs) and other procurement leaders need to foster innovation at multiple levels in order to elevate the procurement organization and the enterprise as a whole to the next level of performance. Put another way, procurement transformation cannot and should not be attributed to any one particular factor; people, processes, technologies, knowledge management, and stakeholder relationships, each need to be regarded as causal – and instrumental, really – in driving forward procurement transformation within an enterprise.

Each of these variables is significant in their own right, and their importance should not be understated. That is why procurement transformation needs to be broad-based – it needs to account for each of these aspects in order for a lasting and successful transformation to take root within an organization. Thus, this series examines each facet of procurement transformation in greater detail, and sheds further light on what CPOs and their teams need to do to successfully implement a holistic procurement transformation project. Today’s installment will focus on stakeholder engagement best practices to ensure that CPOs and their teams engage the right stakeholders at the right time so that all relevant stakeholders are on board with procurement transformation.

How to Transform Procurement in Five Steps  Step Five: Internal Stakeholder Engagement

For the modern CPO and procurement team, the term, “stakeholder engagement” can and should be applied to two different constituent groups: internal stakeholders, like AP/Finance, HR, Legal, Manufacturing, and Product Development; and external stakeholders, namely an organization’s suppliers. Engaging with internal and external stakeholders early and often throughout the sourcing process is ever more critical given that procurement’s role continues to converge across the enterprise into traditionally siloed groups, linking enterprise and procurement success; and that the role of suppliers in delivering value and mitigating risk continues to increase. As such, this article will explore stakeholder engagement in two parts – internal and external stakeholder engagement

As CPOs and procurement leaders become increasingly involved across the enterprise, the first few things that they need to do are to introduce their vision of procurement, the impact that they intend to make, and to win early buy-in from their counterparts. Because procurement has traditionally been siloed, even marginalized, within many enterprises, it is essential that CPOs hit the proverbial reset button and lay out their vision for a world-class procurement organization. They need to set or reset the narrative with their counterparts and recruit them as fellow change agents within the context of their broader transformation strategy. Of course, the longer that a procurement or purchasing department has been marginalized or regarded as mere order-takers, the longer and harder the CPO is going to have to sell their counterparts on their vision of procurement in order to win their buy-in.

Here, buy-in is much more than just a vague sense of support for the work that a CPO and their team are doing. It is the intent to work with each other on a host of shared interests and goals, not the least of which is the success of the enterprise. With “skin in the game,” internal stakeholders like CFOs, HR directors, head counsel, and other business leaders will mutually understand that the success (or failure) of the CPO and their team is dependent on communication, collaboration, and alignment, and vice versa. If all stakeholders believe in the plan to transform and they invest their own time and resources in contributing to its success, then the plan is much more likely to succeed than if they had nothing invested.

CPOs need to drive a culture of regular communication and mutual collaboration across the organization. This includes attending regular meetings with other departments, joining kickoff calls to cement procurement within the foundation of the project, and embedding with other departments in order to build cross-functional teams and extend procurement’s reach and value. CPOs also need to align themselves with these departments in terms of processes, technologies, goals, measuring performance, and especially on how to define success.

  • Process alignment helps to ensure that procurement and their constituent stakeholders have compatible workflows that support each other’s role and do not undermine it. The earlier that procurement becomes involved in a sourcing event or transformation project, the earlier it can align itself with others on the process and the more cohesive that process will be (whereas latecomers may not “gel” as easily as those that were involved from the get go).
  • Technology alignment makes procurement transformation easier than if all or even some of the constituents were on disparate systems. If technology adoption is part of the transformation plan, then it is vital to understand how or whether it will be compatible with other business units, particularly those “downstream” in AP/Finance, or “upstream” in Legal. Technology alignment can be tricky, particularly within organizations that experience technology adoption in waves or in piecemeal. But if CPOs and their teams are able to align technology systems upfront, say, with an enterprise source-to-pay suite, then it is much more preferable than going it alone.
  • Aligning goals, performance measurements, and definitions of success is perhaps most important in the grand scheme of things. In order for procurement transformation to succeed, procurement has to be supported across the enterprise, particularly as its influence and reach expand in parallel. Things like placing more spend under management, working with more low-cost or strategic suppliers, driving greater contract compliance, managing risk, and other procurement virtues need to be taken as shared, enterprise-wide goals and ways that the enterprise measures performance, not just procurement. At the end of the day, all of these goals and measures (and more) contribute towards not just the success of the procurement department, but the enterprise as whole, and that needs to be recognized from the start.

Final Thoughts

There are many moving parts within the organization, and as CPOs and their teams touch more and more of these parts, it becomes increasingly important for them to communicate procurement’s value procurement and the vision for its future within the organization. The time is now for CPOs and their staff to assume lead roles within their organizations and propel procurement and the enterprise forward. But to do so, they will need to walk across the hallway, collaborate and communicate with others like they are in this together, and then align themselves to one another to prove that they are in this together.

 

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