Purchasing Transformation

A month ago Fortum – one of the leading power companies in the Nordic region launched their first recharging stations for plug in vehicles in Stockholm. To date four stations are active and the company plans for 100 to be installed by the end of 2009.

I pass one of these stations as I bike to work every day. It’s strategically located across the street from the city hall – something that seems to be the thing to do when setting up a new infrastructure, Coulomb Technologies just did the exact same thing when they unveiled their first charging station in San Jose a few weeks ago  and it’s going to be a thrill to see how this initiative will fare in the future.

From a supply chain perspective the interesting thing about this initiative is that Fortum (in the Stockholm region) is set on building a power infrastructure for a currently non-existent market (currently there are about 300 plug in vehicles registered in Sweden), banking on the automotive industry to start delivering plug-in cars for a mass market. According to reports from the Detroit Automotive show this will be a reality in a few years as almost all auto-manufacturers have at least one plug-in model set for release. In a classic egg or hen scenario it seems that the power grid will be in place before too many cars will be lining up for power.

The cool thing about many of the suppliers of plug-in stations is that they are almost to an end using existing parts – the Fortum recharging station is basically a modified engine pre-heating supply, something that’s been commercially available in the Nordic region for decades – to deliver a new service. The Coulomb solution used in San Jose utilizes existing light poles for its power supply.

The promise of a new generation of cars is already forming a new industry segment and from the look of it, none of the traditional fuel providers seem to be taking charge (no pun intended).

Little over a year ago I came across a blog-post titles ”Why Procurement is Meant to be Hated”; the posts author argued that it was the purchasing function’s mission to have people stop buying things.

The reality is that the purpose of procurement, a centralized service in the business, is to monitor and control all purchasing decisions, from a new pen through to a new building. The system should be painful to both suppliers and users, ensuring that both sides try and avoid interaction unless completely required. In this way procurement helps to focus spending on what is really required and removes spending on items that are just “wanted” because its not worth the effort.

What the author (albeit with his tongue firmly planted in his cheek) chooses to ignore is the fact that e-procurement is everything but a poorly functioning company branded web-shop. On the contrary; an e-procurement solution should enable the buyer (the employee) the opportunity to easily compare and purchase goods and services with an open mind.

Sad to say; many e-procurement solutions are still only poorly functioning webshops – and the end-users (and purchasing functions) treat them as such. End-users; trained to lovemark brands and vendors; rather browse vendor catalogs than search for needed goods regardless of supplier.

So stop pitching e-procurement as a place to “shop” for goods and services; start to sell it as a product comparison web site. E-procurement is not an Amazon, it’s a Pricerunner. And if you’re shopping for an e-procurement solution; make sure that the solution includes a search engine that enables users to find necessary goods and services instead of popular suppliers or vendors.

When financial markets are in a crisis and the rest of the economy is starting to slow down, it is good time to get prepared for the purchasing opportunities ahead. The largest prospects for better deals lies within industries that are more cyclical than others i.e. their revenues and profits have larger swings others. The things that consumers and industries cut down on first are the things that either are related to expansion of the business or that can just wait. Examples of such purchasing categories are:

• Construction
• Heavy equipment
• Raw materials
• Other process industry goods
• Marketing
• Temporary labour
• Other professional services
• Travel

So if you are not bound into long term agreements in these categories, it could be worthwhile to have a closer look on them over the next 6 months.

Linus Malmberg in the sourcing blog for Computer Sweden (in Swedish) is writing about Service Oriented Business Architecture and letting “somebody else do the job for you”. He argues that if your company’s processes/services are not world class, then you should considering stop doing them yourself and buy them as a service from somebody else. Malmberg also writes, if your processes/services really are world class you can even sell them and make some money out of it, with an example on how Amazon.com is selling back-up as a service.

This translated into how to operate purchasing within your organization; I recommend you to start evaluating your performance per process/service and decide if you really are at a world class performance level. Look into sourcing, procurement, pay, follow-up, and support. For these areas, evaluate processes, systems, services and competence. If you realize that you are not world class within one or several area, you should start thinking about having someone else do the job for you.

I believe in three equal important areas when investing money in a purchasing transformation:
1. Hire the best people – Hire the people with the best education, ambition, mind-set and drive. These people will be able to take on the important leadership role and create an impact in the organization. The McKinsey Quarterly also covered this in the 2007 article “The talent factor in purchasing”.
2. Do it thoroughly – Set the vision, strategy and transformation plan for organization, processes, and systems. Execute according to plans. Do not underestimate the need for Change Management. Set KPIs for the transformation itself as well as for the expected results. Follow-up and report on progress and deviations. Do not give up, there will be ups and downs, people will come and go, but in the long run the improvements will come.
3. Use the right partners – As important in all purchasing, choose the right vendor. This includes choosing the right consultants, system vendors, and training partners. The right partners can boost the initiative and secure full effect of the areas above. 

Now to the simple logic on how to spend the money assigned for the transformation. If the areas above are equally important, a rule of thumb would be to spend the money equally on the three different areas. Of course, it is not the money being spent that make the success but without enough focus on one of the areas above, I doubt that the transformation will be a success.

Come May and a networking purchaser can spend weeks on end at various conferences across Europe. Kicking off with the German eProcure & supply 2008 in Nürnberg (May 7-8 @ the Nürnberg Messe), hitting Berlin with Sapphire 2008 (May 19-21 @ the Messe Berlin), and ending up in London for the Procurement Leaders Forum (May 22 @ Lords Cricket Club).

Jason Busch of Spend Matters offered some tips on how to survive and make the most of participating at conferences and highlighted Melissa Beuc’s Conference Season Tips at E-Sourcing Forum. On top of the list of to-do’s from both is networking.

In the participant survey after the last IBX Purchasing Executive Summit, we asked the delegates what the most important aspect of the conference was and the great majority responded with one word: Networking (one delegate even went as far as answering the question with “Networking, networking, networking”) so from my horizon, Jason and Melissa are right on target.

But networking is highly reliant on platforms and opportunities; delegates must be able to network; although supply chain’s are networks by default, many purchasers play their cards tightly to their chests and at least in the European purchasing sphere direct and open-hearted exchange of best practice and ideas are often preceded by hard fought battles for trust.

To me this is an area where the conference hosts can greatly enhance their offer; to provide platforms for exchange, and to ensure a trusted environment where guards can be brought down. For networking is one aspect that cannot be underestimated as a source of knowledge and progress as the world around us spins faster and faster.

In the next few days; we will bring you some highlights and analysis from the eProcure & supply 2008; and if you’re on site – don’t hesitate to network.