7 Replies Latest reply on Jun 1, 2010 8:18 AM by Russ Stebbins

    Reassessing Procurement's Objectives

    Ken Miklos Master

      I'm currently working with Tim Cummins of IACCM on content for an upcoming webinar entitled, "From Spend Management to Value Management" where we'll tackle the fine line that procurement must walk when it comes to outcome-based contracting.  There is no doubt that procurement has delivered tremendous rigor in terms of the sourcing/procurement business processes.  However, when it comes to optimizing business value, is driving for the lowest price always the best avenue to pursue?  In an academic sense, most would say no, but do your organization's practices follow suit?

       

      What is your response to these questions?  Please share your thoughts on this thread.

       

      1) How would you rank the following procurement objectives in contract negotiation - 1. driving price concessions, 2. building relationships and credibility with suppliers, 3. supplier success and solvency

       

      2) Are your organization's actual practices in line with this ranking?  Do the metrics used to measure success support this claim?

       

      3) Overall, our trading partner relationships today are stronger, more collaborative, and mutually-beneficial than they were 24 months ago. (True or False)
        • Re: Reassessing Procurement's Objectives
          Russ Stebbins Master
          Cost reduction is the primary driver.  Since we have a new regulator, Supplier Risk is a top priority but the program hasn't been in place long enough to determine what the programs outcomes will be (if the assessment doesn't change behavior does it add any value?).  Supplier relationships are a distant third, although once a relationship is developed, most of the cost reduction is sole source rather than open market (competitive).
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            • Re: Reassessing Procurement's Objectives
              Ken Miklos Master
              Thanks, for weighing in, Russ.  Good point on the source of the cost reduction.  Another factor that comes into play here, I think, is instances where potential innovation can be had to improve business value.  In those were it can, the relationship becomes that much more important.
                • Re: Reassessing Procurement's Objectives
                  Russ Stebbins Master

                  I find that the innovation occurs with the BU, not sourcing.  Any innovation that requires vendor selection would need a business case before procurement will touch it.  I wonder how much innovation Sourcing brings to the business.  In our company, Procurement tends to think inside the box and innovation means new contract language, not new relationships.

                   

                  I've implemented sourcing processes in several companies and the procurement specialist rarely utilizes the full process and considers alternatives to the task at hand.  I know it can be done, but the interia is hard to overcome.

                    • Re: Reassessing Procurement's Objectives
                      Sharon Horton, PMP Master

                      Russ,

                      Certainly a procurement organization can be strictly reactive and “inside the box”. But I think that’s harder and harder to do these days. My experience is that many procurement professionals, especially the senior ones, understand the need for innovative solutions that can be provided through a solid relationship with their suppliers.  These buyers are setting trends that encourage a sharing environment. You can find the foundation reflected in the innovative terms and conditions, service levels, quality standards, “relationship statements” (i.e. “this is how we choose to work with our suppliers”), all of which drive closer and more cooperative supplier relationships, particularly for those products and services that are strategic to their companies. 

                      This isn’t just guesswork on my part. When I started my contracts career in 1989, every contract I wrote contained language on cooperation and innovation. Maybe we were unique for doing that so early.  However, developing strategies and techniques to encourage innovation was a clearly stated goal in most sourcing events throughout my buying career.  Today, where I work with a multitude of companies, most of these are striving to make procurement a competitive advantage resource in their organizations. Part of this is reflected in simple cost efficiencies, for sure, but the other part of the goal is to build (or, in some cases, repair) cooperative, strategic relationships with their suppliers.  I see procurement professionals attending conferences and on-line lectures where procurement support for innovation is a well-attended topic and there are always many questions about how to accomplish this.  I recently attended a number of conference calls all of which had segments on developing innovative relationships. I also see recent CPO’s Top Ten list, and developing innovative relationships is on every one of those. One of the most frequent topics I get asked to help with is how to embed innovation into sourcing events and supplier performance ratings.

                      Direct innovation, such as a new widget or a new service, is not in the realm of procurement to find or even suggest, to be sure – BUT the relationship created by the procurement organization makes sure that the new widget or service come to you, not your competitor.

                       

                      Sharon

                        • Re: Reassessing Procurement's Objectives
                          Russ Stebbins Master

                          I guess my point is that at Ally, the innovation around vendor relationships is initiated by the BU, not sourcing.  Sourcing remains focused on Contract language and price.  No doubt there are individual exceptions but culturally, that is not what sourcing considers their role.

                           

                          That said, leadership seems to understand that current state has room for improvement.

                          • Re: Reassessing Procurement's Objectives
                            Russ Stebbins Master

                            A couple other thoughts on this.

                             

                            Culture- this is the key to innovation.  If the teams culture encourages collaboration and innovation, there is a multitude of approaches sourcing can take.

                             

                            Resources- Have to have the resources to explore.  Not all approaches will be fruitful, so you have to have the bandwidth to fail.  And the talent has to match the culture or the culture you want.

                              • Re: Reassessing Procurement's Objectives
                                Sharon Horton, PMP Master
                                Russ - I agree with this wholeheartedly!  If you are in the wrong culture, you will not succeed (unless there is an opportunity to change the culture, which is VERY hard, but sometimes possible.)  On the resources front, you're right again, but sometimes the business case can be made that the additional resources required will pay off in the long run.  And then there are different types of innovations, too - there are transformative innovations - taking it (whatever "it" is) to a whole new realm never thought of before.  There is no measure for this because they open up a whole new world.  However, most innovations are incremental, in which case the return on investment will be smaller and more easily accounted for.