Archive for the ‘Organization’ Category

« Older Entries
Newer Entries »

To kill a maverick bird

February 24, 2009

A German purchasing newsletter (einkaufs-manager –  in German) recently had a few hot tips for preventing maverick buying in the company. Could be so simple – just propagate a new policy: No order leaves the company without sign-off from the purchasing department.

While this certainly is a very hands-on approach which in itself does stop maverick buying dead in its tracks, one question remains: Does a purchaser really need to see and sign off every order? We are talking about signing off orders on everything here – everything from material to furniture to pens to post-it notes. One could imagine a professional purchaser can use his or her time in more valuable and strategic ways for the company than by signing off an order for another pack of pens or paperclips.

Instead standardized products and even non-standardized services and products can and should be called-off by the requisitioner in a spend-centric purchasing system. Either from purchaser-approved (and negotiated) catalogues or via vendor forms from purchaser-approved vendors. The purchaser can use the saved time to do actual strategic work such as vendor development and frame contract negotiations. The operative work should be limited to handling the raw purchase requisitions (which are usually without vendor assignment).

The newsletter had another tip, which was a variant of what has become known as the “No PO – No Pay” doctrine: Simply tell all your vendors that any invoice based on an order which has not been signed off by a purchaser (see above) will be rejected. The tip closes with the rather up-beat remark that the vendor then can go and altercate with the requisitioner about the issue. While this, again, certainly kills maverick buying to a certain degree it may have some unwanted side-effects such as driving your vendors mad at you (as they usually have delivered already). It may even be a new vendor which had no knowledge about this policy in the first place. In addition the company loses valuable time since the requisitioner needs to send the ordered items back, haggle with the vendor and generally clean up the mess. It’s also open to debate if the purchaser actually wants the vendors to talk directly to individual requisitioners in the company. And last but not least it’s probably not what a good vendor-buyer relationship needs in times like these.

Instead the rule should be altered slightly so that every invoice needs to be based upon an order from the aforementioned spend-centric purchasing system (the PO would be easily identifiable by an order number). Since all the catalogues and vendors in the system are pre-approved by the purchaser and even the purchaser requisitions result in an order from the system the maverick buying is practically eliminated without the rather harsh side-effects mentioned above.

Posted in Change Management, eprocurement, Organization, Procurement | 3 Comments »

If outsourcing doesn’t work, can one sell the procurement function?

February 23, 2009

This weekend, while flipping through the pages of the Sunday paper (and lazily watching the Swedish winter athletes excel at various world championships), I ran across a most curious advertisement; at the bottom of the front page of the business section there was an ad that read: Sell your IT department.

Not outsourcing the IT department, sell it. Now, I have little knowledge about the price of an IT department, and even less knowledge if there are any potential sellers out there. The one thing I know is that there is – in fact – a potential buyer of IT departments.

This led me to thinking if there is actually a market of selling other departments as well. Outsourcing has been flourishing in various sectors for decades; IT being one of the most prominent examples. While outsourcing of procurement has yet to catch on, the ad about selling your IT department posed two questions:

  1. Can one sell the purchasing department?
  2. And if so, what would it be worth?

Just for the record, I’m not a even strong advocate for purchasing outsourcing due to the strategic importance of direct material purchasing and the often very complicated matter of indirect materials and services, but that shouldn’t stop someone from actually considering what may – at first – seem like an undoable thing.

Consider for instance the following scenario; Manufacturing Company A has a low indirect/direct materials ratio, so low that they’ve made the strategic decision not to bother with their indirect spend at all. Now, most purchasing theorists may argue that even the smallest amount of spend makes a difference; and in theory they’re right; but considering the amount of effort required and the minimal benefits someone with their feet firmly planted in the mud will probably come to the decision that it’s to little bang for the buck.

That’s definitely not the case for Service Company B; they have nearly no direct material costs at all – their cost structure is based on personnel and indirect materials. Now ponder the scenario where they want to boost volumes. Most companies look themselves in the mirror and try to do the best with what they’ve got; minimize maverick spend, increase e-procurement coverage, train staff, increase contract coverage etc.

Would they get a better deal if they actually bought the potential IM&S spend volume from Manufacturing Company A? My gut reaction is that it probably wouldn’t work, but that does not say it’s undoable. So the real just might be; who will be the first to take the plunge into the unknown?

Posted in Business, Organization, Outsourcing | 1 Comment »

The necessity of purchasing evangilism

February 16, 2009

I often refrain from commenting on the activities of procurement/sourcing vendors; but I have to give a big shout out to the recent activities at Coupa. Last week, Coupa appointed Rob Bernshteyn as CEO, succeeding Coupa founder Dave Stephens in the role.

This might seem like nothing more than a company reorganizing themselves to suit the needs of their market; but the thing I love about this story is where Dave Stephens is going. To quote the press release:

Stephens will remain with the company as Coupa’s Chief Evangelist with responsibility for customer advocacy and business development initiatives.

Now, if there is one thing that procurement/sourcing/purchasing need, it’s not another CPO or another CEO or any other three letter acronym. In my mind, purchasing needs more evangelists. People willing to go out there and speak their minds, getting the profession out into the open, preaching the gospel if you will. Otherwise, what are the alternatives – as David Rae quite bluntly points out on the Procurement Leaders blog:

“…until we recommend pursuing a career in procurement to our kids, the profession will always be one, two, maybe three steps behind the likes of law, accountancy and finance. Not to mention marketing and sales”.

To be honest, I have no idea where Dave Stephens actually is going, but the semantics of his new title (and hopefully the activities of his new role) gives me great hope for the future of purchasing.

Posted in Business, Organization, Procurement, Sourcing, Vendor | 1 Comment »

The CPO dilemma – How to get more done with less

February 10, 2009

In a recent white paper, Accenture cites a survey of the world’s CPOs noting that 75 percent of those surveyed reported that the downturn has “significantly affected” their purchasing operations. More that 50 percent claim their procurement budgets had been cut, many reported that they were experiencing cut of more than 15 percent. At the same time, savings targets have increased, and nearly 20 percent report that they now need to deliver savings of 15 percent or more.

This is very much in-line with our experiences. Purchasing functions are under pressure to do more with less.

A few days ago, I touched upon this subject in a post called “Talent and competence retainment in a downsizing economy” and I’d like to expand a bit on this subject.

In times of turmoil and significant downsizing, CPOs and purchasing directors need to be very clear in they ways they lead the changes whilst manage expectations and motivation. Successful leadership can be attributed to the following three areas:

  • Visibility – Lacking information, rumours will flourish like air filling vacuum. CPOs need to keep staff informed of changes (internally and externally).
  • Engagement – Involvement in the change process is two fold. Not only does the staff see the engagement of the management first hand, they also partake in the decisions and are able to vent concerns, offer improvements and channel their energies away from distractions.
  • Value-driven – True understanding of what the real value for the company is, is vital for keeping motivation. Unfortunately, in bad times, long term goals are often obscured by the panic to save the moment, yet much research suggests that staff with an inner drive and a deeper understanding of the business model often outperforms staff whom focus on delivering the set targets.

Successful leadership is often attributed to being able to see and channel the talent of each and every individual. Everyone has the power to excel if their talent and potential can be brought into the lime light in a given situation. Being visible and transparent with relevant information, engaging staff in the process and projecting the long term goals and strategy of the business provides a foundation for bringing out this potential. Something that is vital to tap into in order to succeed with doing more with less.

Posted in Change Management, Governance, Organization | Leave a Comment »

Understanding demand is a real protectionist killer

February 6, 2009

As economic nationalism starts to gain hold of international trade many are calling to our leaders in an attempt to try to keep trade free (and fair). Unfortunately, many of the voices championing global trade are as single-tracked and close minded as their protectionist counterparts.

The strange thing is that both parties are just as far from the mark; because a one sided free-trade economy is often just as bad as a one sided protectionist economy. One side is blinded by the shiny cost per part savings, the other is blinded by local/regional opinion.

So what’s the solution?

Well, instead of joining the shouting game, purchasers can start to pave the way by focusing on the full cost of their contracts; awarding contracts to suppliers that offer best total value as opposed to lowest cost per part. It’s in line with the evolution of purchasing as a profession; and it’s in line with what corporate management is expecting from purchasing today. It’s about understanding the demand; and then going out to a global market (and let’s remember that local suppliers are just as vital a part of the global market as any other business) and getting a contract that satisfies that demand.

Given the amount of functionality available in e-sourcing software today; awarding the contract to a supplier based on more than just cost per part is the simplest part of the job. The real trick is to fully understand the real demand. Unfortunatly, this is where many purchasing organizations fail, by focusing too hard on external issues, they forget (or lack resources to manage) their internal responsibilities.

Posted in Business, Change Management, Global trade, Organization | Leave a Comment »

Talent and competence retainment in a downsizing economy

February 4, 2009

According to the latest ADP report; employment in the United States has fallen by more than 2 million in the past five months; including a decrease of 522 000 in January alone. Although many of these cuts are found in traditional blue collar sectors, purchasing – just like many other business support functions – have also felt the crush of downsizing.

This triggers one very important question: how does one retain talent – and competence – in a downsizing economy. The challenges are many and include both the retention of corporate knowledge as well as the social structures that support innovation and development.

More often than not downsizing often includes voluntary attrition programs, and although this is often seen as a good way of managing downsizing, it often leads to major loss of competence, since these programs often propose early retirement meaning that companies lose those most experienced who carry much of a companies institutional memory.

Downsizing can also severely damage social networks as individuals – as opposed to processes – often serve as key connectors between business units and departments. In organizations such as purchasing, which is frequently center-led and rely on local market needs/possibilities to be factored into strategies, this can be of significant importance.

A third aspect of downsizing is the increased focus on getting the job done; meaning that much slack time, that was used to improve skills and sharing experiences is lost. Struggling with day-to-day business leaves little time for mentoring or knowledge sharing among co-workers.

So how does one cope with these challenges? One can start by focusing of these two issues:

  • Knowledge needs to become structured and codified in order to become accessible for all.
  • Management needs to understand the critical social networks in order to retain the key individuals that act as “information super-highways” in an organization. It is also important to have support tools and structures in place that facilitate social networks.

In the near future, we will focus on other issues related to talent and competence retainment as well as leadership and communication issues that proactively address the concerns of organizational transformation and development .

Posted in Organization | 1 Comment »

Splitting Responsibilies in a Center-led Purchasing Organization

February 2, 2009

In the Aberdeen Group report “CPO Rising: The CPO’s Agenda for 2008,” of the 350 respondents, 48 percent of the best-in-class operations had adopted the center-led approach. The corresponding result for the laggards was 28 percent. Today, I think few, if any, would argue the merits of a center-led purchasing function.

In a turbulent climate, the center-led organization is better suited to take advantage of local markets as well as streamlining and leveraging company size and processes. It provides a flexible platform that retains control and enables the implementation of modern processes and support tools.

The center-led organization is a hybrid that borrows from both the centralized and decentralized models. In the process of transforming the purchasing organization to fit this model, it is critical to define and outline the roles and responsibilities for all major interfaces and stakeholders. But in order to succeed, it is vital that the division of responsibilities is clear and concise. In the book Purchasing Transformation Björn Stenecker argues that the best way of doing this is to divide purchasing activities into three segments.

The first set includes activities that are the responsibility of the center-led organization. The second set pertains to customized decisions involving both centralized and local purchasing, and the third set is the responsibility of the local purchasing organization (such as a division or a business unit).

In the book, Björn breaks down the responsibilities of the organization in the following way:

Typical center-led purchasing areas of responsibility

  • Create and be responsible for the sourcing strategy
  • Ensure that the company leverages its buying power by aggregating the purchasing volume
  • Define general terms and conditions
  • Negotiate and sign agreements
  • Monitor contract compliance
  • Allocate decisions

Areas requiring customized decisions of responsibility

  • Supplier selections
  • Supplier assessment
  • Supplier approval
  • Audits
  • Quality audits
  • Supplier development
  • Securing capacity
  • Last time buy process
  • Logistics and supply chain setup
  • Engineer change order process

Typical local purchasing areas of responsibility

  • Measure and report contract compliance
  • Define functional and technical specifications
  • Handle claims
  • Call off
  • Issue purchase order
  • Ensure that a goods receipt is created and filed
  • Ensure the efficiency of the invoicing process

Posted in Organization, Supply Chain Management | Leave a Comment »

How the Irish dioxin scandal exposes some of the difficulties of public procurement

December 18, 2008

In Sweden, traditional Christmas ham is one of the main dishes on the Swedish Christmas table; approximately 7 000 tons of Christmas ham is sold in Sweden each Christmas. Yet recently, the Irish dioxin scandal – which resulted in nearly 100 000 Irish pigs to be culled due to farmers using cheap animal feed – almost upset this tradition.

In Sweden, the dioxin scare was very real and very close to home since food produced with the polluted meat was sold to municipal operations such as schools and elderly care.

Seen from a procurement angle this significantly exposes one of the key challenges for public procurement: what is really the total cost?

Municipal governments in Sweden span over a large range of public offices, where procurement is one, another is health. In this case, the procurement functions had sourced food for municipal operations from large well known firms, yet their eyes were probably firmly locked on the cost per meal. On the other side of the hall (in our factual municipality building) sits the health inspectors, they spend some of their time banning practices which they see as unhealthy, unethical and plain wrong. Sweden has rather strict laws when it comes to keeping animals – whether this is good or bad is another question, for now this is the playing field – resulting in banning standard practices of foreign farmers for the sake of animal safety.

Simply put; procurement has bought goods – perfectly legal – from sources (further down the supply chain) which the health inspectors would have closed down. And these are people that probably know each other quite well; and they are both just trying to do their jobs best they can.

When we say that public procurement is lagging behind procurement practices in general, we often fail to see the vast differences in responsibility between the public and private sector.

Posted in Business, Organization, Procurement, Public procurement, Supply Chain Management | Leave a Comment »

Boosting your purchasing organization in times of turmoil

December 16, 2008

According to a recent survey performed by Svensk Näringsliv (in Swedish) 75 percent of the respondents (2195 companies in total) were expecting to face problems with competence retainment due to the layoffs caused by the current financial situation. Partly, this is due to the employment regulations in Sweden which force companies to layoff workers based on length of employment.

So how can competence be retained, or reinforced in a period of severe staff layoffs.

In IBX book Purchasing Transformation, Björn Stenecker drew up a model for mapping necessary skill sets with the skills of the current staff to visualize where there are gaps and who could fill which role in a transforming purchasing organization. Björn’s model included twenty or so skills spread across a set of four major competence areas; education, general competence, specific competence and personal skills.

While finding the perfect replacement for a lost employee might be futile; I’d like to propose another perspective to this model. While model visualizes gaps and development potential, one can also use it to expose the most significant skill and then try to replace this single vital skill instead of the full skill set. In other words, it allows you to become the Billy Beane of purchasing.

For those of you who don’t have a clue of who Billy Beane is; Billy Beane almost single handedly reshaped baseball as we know it – and is chronicled in the book Moneyball: The Art of Winning an Unfair Game by Michael M. Lewis, published in 2003. Moneyball is a book that focuses on how Billy Beane took a modernized, analytical approach to assembling a competitive baseball team despite a disadvantaged revenue situation and its well worth your while; even if you don’t even have the slightest interest in baseball.

Posted in Change Management, Organization | Leave a Comment »

Getting more value out of your e-sourcing investments

December 12, 2008

During the past year, shoes have been a topic that has been on the agenda both here at Purchasing Transformation and on Spend Matters. While both of these posts have dealt with the TCO and lack of (personal) sourcing, today media in Sweden has reported another aspect of the TCO of shoes (in Swedish) that can be used as an analogy on the business climate of today.

While shoe sales in Sweden are down (about 3 percent according to Handelns utredningsintitut), business for cobblers (who repair shoes) are up by nearly 20 percent according to some cobblers that Dagens Nyheter has spoken to. Instead of buying new shoes, it seems that people on the street are doing their utmost to get greater mileage out of their current footwear.

This trend can be analyzed from two angles; first, as one business (new shoes) falter another will step into it’s place (cobblery); and second, getting more from what you already have might be a better strategy than trying to replace or re-launch failing initiatives.

We discussed the first angle a few days ago so let’s take a closer look at the second angle. Getting more mileage from your investment.

Revitalizing your e-sourcing initiative

Many e-sourcing initiatives (well most initiatives to be frank) tend to slump after a few good years, and there are numerous reasons for this. To get a stumbling initiative back on track, one can take this four-fold approach:

  • Benchmark and best practice
  • Training
  • Revitalization
  • Target projects

While the first two are rather self-explanatory and used by many high performing organizations on a regular basis, the latter two are more interesting and are the real organization boosters.

Revitalization can be a way to challenge current methods and models by analyzing new business dynamics to establish a redefined e-sourcing roadmap. In many cases this re-charges the batteries of staff that find it harder and harder to deliver savings that are experienced to be as high and mighty as the initial results (which were often based on new approaches which increased competition tremendously thus generating savings previously unheard of – pre-e-sourcing). The re-defined e-sourcing roadmap feeds into targeted e-sourcing projects which are used to accelerate and invigorate the entire e-sourcing initiative.

Posted in Change Management, Organization, Sourcing | Leave a Comment »

« Older Entries
Newer Entries »
Follow

Get every new post delivered to your Inbox.