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You’re Just 4 Steps Away From Exceeding Your Procurement Goals…

You’re Just 4 Steps Away From Exceeding Your Procurement Goals…

TL-small-circHi, Tony Lockwood here and I’m delighted that you’ve taken up my invitation to explore how I can help you to deliver additional value across your organization from the activities that you are presently undertaking.

What I want to do in this post, is to give you an insight into my thinking and start to investigate how applicable this is to your business and specific needs.

I take it by the fact that you have joined me today that you are interested in driving greater value to your bottom line.

I take it that you’ve probably had experience of previous initiatives, procurement focused and others, not delivering the expected bottom line results.

Maybe you’ve run major procurement activities and negotiated great deals only for these to be diluted over time.

Or perhaps you feel that you’ve achieved the best possible deals and yet still have a significant gap in achieving your savings targets.

Alternatively, you’re confident that you’ve hit your savings targets but you’re still coming under pressure from your boss due to the ‘noise’ that’s coming out of the business that the new suppliers are not fit for purpose.

These are stories that I’ve heard time and time again and yet it can be so different.

We all want to feel that our efforts are not in vain. We all want to feel that we are contributing to the success of the business. When we finalise that deal with a supply chain partner, we want to feel that the deal is great for all concerned, that each party is tied together in a common bond. To realize value on all sides – the true Win Win scenario.

So why is it that so many cost management initiatives fail to realize the expected bottom line impact?

Why is it, that even when these initiatives succeed, in many cases significant extra value is left on the table by being focused too heavily on just one dimension.

Questions such as these have been the catalyst for the work that I have undertaken over the last 15 years, where I have been testing, evaluating and adapting many of the so called golden ticket approaches to achieve increased efficiencies and ultimately cost reductions.

I’ve worked across multiple sectors and engaged by many FTSE 100 corporates and mid market companies across the UK and overseas.

My background is in financial services and more specifically change management. I’ve always been fascinated by the impact that people have on the outcome of any activity and especially how performance is constrained by the success or otherwise of engaging people within a change process.

I’ve worked in companies that have had great leadership and a fully engaged workforce and I’ve been part of delivering massive change and amazing growth in short period of time.

Similarly, I’ve also been involved in organisations that have had relatively simple improvement opportunities but have failed to achieve them because they have failed to apply the four essential elements to realizing bottom line benefits.

This post has been put together to provide you with an insight into my thinking and the outcomes of my extensive research.

I have created the COST Optimisation Formula to emphasise the interdependencies of each of the four parts;

– Change Management
– Operational Efficiencies
– Supply Chain Management
– Tracking of benefits

Those four elements, together, working collectively deliver optimization.

So why do I state this as a formula?

C x O x S x T = Optimisation

Well in simple terms, optimization is achieved as a result of the compound effect of the benefits achieved from creating optimal internal processes multiplied by your ability to align your supply chain partners within a collaborative culture, multiplied by your ability to drive the necessary change in behaviours across the organization and finally multiplied by the success you have at tracking these benefits to the bottom line.

Let’s start to delve a little deeper into each of these four areas and explain a little more about my thinking on the processes, formulaes and systems that I’ve developed that will help you to build the required skills, knowledge and tools to apply the approach across your company so that you can optimize the value you deliver.

Throughout, I’ll intersperse real life examples. Examples of clients that I’ve worked with that have been able to realize significant extra value by changing one element or multiple elements of this key formula and I’ll demonstrate the impact that this has had on their capability to deliver sustainable bottom line benefits within their organisation.

I’ve found that it is these examples that really illuminate the point as you are often able to associate much more with the situation discussed than with the actual model or concepts.

As we have just covered, the COST Optimisation Formula consist of four skills that you need to adopt and develop if you want to optimize your performance and the performance of your company.

However, it is one thing knowing about them. It is something else to deploy them across your organization. Well, don’t worry because I’ve created the COST Optimiser Programme to help you. The six elements of the programme provide you with the essential framework on which to build your COST Optimisation structure.

As you can see, the programme starts with the four core skills and then provide six additional modules, each containing further frameworks that provide you with guidance on what to do and a further layer providing instructions on how to do it.

Let’s kick off and look at the first core area…   Change Management

Why do you think that I start with change management?

Well, it’s because I believe that without really understanding how you are going to manage the change across the business, you are heading downhill rapidly and any benefits that you feel you can deliver will be significantly diluted if you don’t effectively manage the change across the business.

An example of this was seen recently in a client that had changed suppliers for their core products after negotiating better rates. The catalogue of approved products providing for both own brand and branded products with the drive to achieve greater savings by adopting increased use of the ‘own brand’ lower priced options.

However, a significant number of their people continued to buy the branded option and potential cost savings significantly diluted.

Why did this happen? As always, there are a number of factors but one of the main reasons was that the rationale for the move to own brand products hadn’t been ‘sold’ into the business. Furthermore, individual budgets hadn’t been changed to reflect the potential savings and local management were more focused on budget compliance than anything else.

As such, as long as local management managed their overall costs within their agreed budget, no pressure was applied, and as such there was little pressure to move to own brand products.

There is an old management theory that I passionately believe still holds true – “people do what gets measured”

As such, you need to ensure that any change you are looking to make within your company is properly reflected within the core management performance structures.

This is a relatively simple example and in most cases the change requirements are more complex. Rarely does a solution only involve one area of a business. To deliver the ultimate benefit, many associated changes may need to be defined and implemented to solve a specific business problem or issue. Even the introduction of a new supplier, may involve a change in processes and a change in skills and behaviours to deliver the benefits that the company needs.

Over 75% of all projects fail to deliver their stated benefits.

[bctt tweet=”Over 75% of all projects fail to deliver their stated benefits.” username=”tonylockwood”]

There are many reasons for this shameful statistic but common ones include “a lack of business fit” of “a lack of Governance”.

So how do you get control around change management?

How do you minimize the risk associated with this critical area?

Well that’s where my CHANGE Accelerator comes in – it provides you with a proven framework to deliver change across your company.

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Let’s take a look at some of the 6 elements of the Accelerator now and see how you can start to deploy the approach so that you can minimize the impact of change across your organization.

One of the core areas of the CHANGE Accelerator is Honesty In Communications

Let’s make one thing clear – nobody like change. The initial reaction is to feel threatened by change.

What will be the impact on me?

How will I be affected?

Will I lose my job?

The impact of this is that initially, people tend to shy away from accepting change. So how do you mitigate against this?

Well before I answer that, let me ask you a question. Why do you think that people react in this way – why do they feel threatened?

Well in most cases, it is because they don’t know what the impact of the change will be on them. So how are they going to gain this understanding?

Well that’s easy to answer isn’t it?

From YOU!

Be open and honest and communicate frequently with your full team – let them know what’s happening, let them know the reasons for the change and where possible provide early reassurance for them.

When this isn’t possible, be open and honest and explain what the potential impact of the change could be and how they will be affected. More importantly, explain how you intend to manage the change and keep them updated on progress. Often leaders refuse to do this – thinking that the team will become demotivated.

Yes – there may well be an impact but it is one that you can actively manage, which is not something that you can do when the demotivation occurs as a result of a lack of communication and the scare mongering that will inevitably go on.

So be honest in your communication, be open and be proactive.

Success is based largely on trust – do your team trust you in what you are saying? By being open with them and communicating with them frequently, you will maintain and indeed build this trust.

When you don’t communicate, people think that you are holding something back and trust is broken. Once broken it is extremely difficult to get back.

The final area that I want to cover off today within the CHANGE Accelerator is the focus that we need to have on embedding the change. You may have done all of the other elements of the CHANGE Accelerator but until you can honestly say that any change is fully embedding across your organization, it is highly unlikely that you will be able to demonstrate delivery of full value.

So how do you go about it?

Well, first and foremost, let’s define what I mean by ‘embedding change’. Embedding change requires people to consistently and permanently adopt new practices, behaviours, skills and capabilities.

Remember, embedding change takes time and you must be prepared for an ongoing cycle of development

Prepare people for the change and support them through the change by making training appropriate and timely. One essential and often forgotten way to embed the change, is to realign employees KRAs and KPI measures to the desired new performance measures.

Change Management isn’t easy and as a result is often overlooked. However, get it wrong and your savings or value delivered will be significantly reduced.

Let me illustrate this still further with a real life example. A few years ago, I was working with a client that managed one of the major utilities in the UK. Whilst completing a different programme, I got to know the major contracts director really well. He ran a team that managed in the region of £300m of annual contracts. These contracts were awarded to just 6 or 7 major sub-contractors.

Over the previous 12 months, the contracts director had brought in one of the Big 4 consultancies to help him redesign the Contracting Mechanism. This resulted in the framework being changed to a ‘gain-share’ type of arrangement, whereby individual jobs were allocated a specific price and if the contractor was able to deliver each job more cost effectively, they would retain 50% of the savings.

At the other end of the spectrum, should the overall cost be in excess of 102% of the agreed price, the sub-contractor had to shoulder these extra costs themselves.

The expectation was that, given the upside, the sub-contractor would be heavily incentivized to maximize their revenues by delivering ever greater efficiencies and as a result overall costs would decline.

Make sense doesn’t it?

Well, the company is protected by the maximum exposure, whilst the contractor is able to maximize their profits by delivering individual jobs at a cheaper rate than the agreed job price.

So why do you think I got a call asking me to help understand why costs were increasing?

Well, when I concluded my review of what was happening on the ground, it became clear that the necessary change management hadn’t been fully embedded across the organization. The contract managers were operational in mindset rather than commercial and the contractors had quickly realized that as long as they delivered to around 98% of the agreed price, everything would get signed off and the occasional job over budget would be discussed at length and in most cases an agreed overspend would also be signed off!

Within two months and after a lot of sweat and effort, I along with a number of colleagues, coached and mentored the commercial managers and over the next 12 months, delivered over £30m of savings.

Within the COST Optimiser programme, I go much deeper into the CHANGE Accelerator so that you have the tools and techniques required to maximize your return on any initiative being undertaken.

The second core area of the Formula that I’d like to look at now is how you can optimize your internal processes and the importance of doing so to ensure that you deliver maximum benefits from your procurement activities.

When looking for efficiencies and cost savings, the first place most companies tend to look is to their suppliers, working on the assumption that if we can negotiate better prices, then our costs will fall.

Although I agree that this is certainly one lever that should be assessed, I passionately believe in the old saying – Get your own house in order first!

By reviewing your internal processes first, you are able to identify even more opportunities to generate not only cost savings but efficiency gains from your negotiations with your supply chain partners.

For instance, one client that I’ve been working with had negotiated a fantastic deal with one of their main suppliers – the deal was scheduled to deliver a 16.7% annual saving across circa 30% of their overall spend. The products covered were mainly low value, high volume materials.

Their average stock holding of these products amounted to around £25m. By helping the client to introduce more structure around their stock management processes, implementing automatic stock reordering and adopting a simple stock monitoring process, we were able to reduce stock by 20% within 3 months.

This delivered an immediate £5m cash benefit to the company, significantly enhanced their efficiencies around stock management and strengthened the relationship with their chosen supply chain partner.

This simple example emphasizes the significant additional benefits that can be achieved by pulling together the various strands of the COST Optimisation Formula. In fact, we delivered 250% of the original savings target.

The Value Chain Tri-zone has been developed to help you review all areas of your business to ensure that you can optimize all internal practices and processes.

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Opportunities such as this, exist across the whole value chain in the organization.

When undertaking an organizational wide review, I tend to break down the organization and the opportunities that exist into three core areas. Firstly, we look at Asset Management opportunities – these tend to focus on the financial aspects of an organization and are geared towards efficiencies in capital employed.

The second area that I look at is Enterprise wide opportunities – these are typically cross functional and strategic by nature.

Finally, I look at the function specific opportunities – these tend to be more tactical and transactional in nature focusing primarily on individual functions.

So let’s look at a couple of examples to highlight the attractiveness of reviewing the entire value chain.

Let’s have a look at Asset Management first. As I stated earlier – these tend to focus on the delivery of improved capital employed across the business or a reduction in working capital requirements. The earlier example of implementing more structure around stock management delivered over £5m of cash benefit to the business – the CFO was very pleased, I can assure you of that!

In any organization, irrespective of size or value, cash is king!

[bctt tweet=”In any organization, irrespective of size or value, cash is king!” username=”tonylockwood”]

Business failures are rarely a result of a negative P&L, that’s why organisations such as Amazon can continue to trade after years of losses and indeed continue to grow. However, run out of cash and there is only ever one answer! – Business closure!

As such, your ability to deliver cashflow benefits to your company will be extremely well received by your CFO. Irrespective of whether that delivers a flattening of cash requirements throughout the year by improved payment terms for instance or by moving to say consignment stock, where you only pay for goods upon usage, the impact on cashflow and hence sustainability of any organisation is rapid.

There are many ways that you can deliver such benefit. One of my favourites actually delivers significant value to your suppliers at the same time. Let me explain with a case study.

A client that I have worked with over many years, placed over £200m of work with sub-contractors each year, with payment scheduled at 15 days month end. As such, some contractors could go 45 days before work completed would be paid for.

The result was that sub-contractor costs were inflated to accommodate the cost of funding. I helped the client to implement a Payables solution that provided the sub-contractor with access to funds within 15 days of the job being completed. At the same time, I negotiated on behalf of the client, payment terms of 21 days with the Payables provider.

The result – the sub-contractors were happy that they had guaranteed funds within 15 days, the client was happy as they were able to negotiate a small discount on costs as a result of this. Furthermore, the client’s cashflow was expanded by an average of 18 days, releasing £10m worth of immediate cashflow benefit.

What I want to do now is to take a look at a functional example, because taking the opportunity to review real life case studies is always a great way to see how things can be applied better into your organization.

The one area that I always review within a client is to take an indepth look at the Procure to Pay process.

How efficient is your P2P process?

How many people are involved? What risks are built into your existing process?

Did you know that independent research as concluded that the average cost of processing an order, managing the resultant invoice and making the final payment is £25. At this point, most organisations quickly attempt to calculate their costs by multiplying the number of transactions by £25 and then dismiss it because this large number is significantly greater than the combined salary costs of their accounts payable team.

However, this is misguided, as the true costs of the end to end P2P process involves many more people than just your AP team. One client recently reacted in a similar way. They were processing around 50k transactions in just one area of their business. They argued that the £25 was significantly inflated as they had just implemented some automation in the invoice processing element and the total cost of the AP was significantly lower than the £1.25m estimated cost.

However, when we investigated and mapped out the end to end process, the number of manual touch-points throughout the process was significant. There was duplication of effort, manual input of data across 350+ individual outlets and individual handling of the 50k invoices at store level resulting in Board acceptance that the £25 per transaction estimate was probably light.

By implementing some simple technology at the front end, along with changing the payment structure at the back end, we were able to reduce the transaction cost to just £10. This saved the client, £750k per annum.

Yes – I hear you say, but these savings aren’t real – it would be impossible to evidence these directly to the P&L.

Yep – Ok I agree. However, we were able to reallocate resources, we were able to free up headcount and translate this into value creating activities and as such, the Board were completely happy to validate the savings delivered.

Another example was an engineering client I worked with a few years back who calculated that their transaction costs was estimated to be in excess of £150 per transaction. When we looked at the average value of each transaction – which was just over £32k, there wasn’t much concern. However, after further analysis we discovered that over 30% of their transactions were valued at less than £100, they realized the errors of their ways.

Imagine buying something for £100 and it ultimately costing you £250!

So this is a critical area for all organisations to get their mind around and within the COST Optimiser programme, we cover off a number of ways that you can automate the P2P process.

So let’s move onto Supply Chain Management.

How close are you to your supply chain?

How do you treat your supply chain – as suppliers or as partners?

I often find that those companies that I engage with have 1000’s of suppliers and although it is common that over 90% of the overall spend is managed through a much smaller number of suppliers, even with these the approach is often Client:Supplier.

How can this be right when the success of your company is often dependent upon the success of your suppliers and their abilities to meet your needs. As such, how can it be optimal to keep suppliers at arms length.

Staying competitive is a major challenge for most businesses. In a competitive world, organisations have only 2 choices to take – you can choose to lose or you can choose to win by changing. Change, however is not easy, and the bigger the business, the more difficult it becomes.

Companies have to consistently seek and explore sources of competitive advantage. Supply Chain collaboration is considered a frontier for finding competitive advantage. Although it might be considered a new buzz word in supply chain management, conjuring up images of double digit returns and immediate potential savings and boosting competitive advantage, I’ve found few companies that have fully explored the possibilities of such collaborative approaches.

Considering the potential returns that can be generated from the effort, no business can afford to ignore this opportunity.

How about your business?

Have you explored the potential of improved collaboration with your supply chain partners? If not, why not?

All supply chain and procurement relationships can be considered falling within a continuum, with traditional arms length relationships at one end, and collaboration at the other end, with ccoperation and coordination in the middle.

At the most basic level, supply chain collaboration can be defined as the continuous process of sharing, partnering, connecting and aligning to improve supply chain performance for win win benefits.

It represents the highest level of commitment between and amongst supply chain participants, short of joint venture or vertical integration. Getting down to basics, collaboration can be defined as the coordinated application of a group’s knowledge to deliver a certain goal.

In other words, a coordinated effort to pool knowledge between supply chain partners towards a common output. Many levels of collaboration are possible within a supply chain relationship in order to achieve a common goal.

The first level is achieved through consistent communications – it is necessary for trading partners to talk in meaningful ways about opportunities for joint improvement. Although this is the first level, I often find that clients don’t actively engage with their trading partners.

At level two, there can be transactional integration with the automation of basic processes and transactions. This in itself is a form of collaboration as it involves an element of investment. Making use of your partner’s online ordering system and linking this directly to your finance system is an obvious example here.

Information sharing moves partners to level 3 in terms of collaboration. At this stage, trading partners use the same information and data available from level 2 to help them make better decisions. Examples of information sharing includes those on production, components, forecast, inventory levels, point of sale data and more.

The highest level of collaboration requires a business process integration between trading partners. This is the level that trading partners engage in true joint business planning, implement process improvements across trading partner interactions and really begin to share risks and rewards from collaborative efforts.

Depending upon their inclination and the level of commitment from each of the supply chain collaborators, organisations can decide upon the level of corporate intimacy this wish to achieve through collaboration.

You may wish to collaborate to the point of consistent communication but to draw the line before transaction integration. Others may go beyond that towards information sharing but draw the line at business process integration.

Lets look at a couple of examples

A support services client that worked for a major UK utility had historically worked at arms length – the utility company providing individual jobs on a daily basis. The pressure to deliver efficiencies across the utility sector forced a rethink and they invited their suppliers to put forward ideas. My client very quickly realized that efficiencies would be created by providing work in blocks, initially weekly, then monthly and ultimately on an annual basis. The scheduling of the work could then be handled more effectively, minimising supervision and ultimately taking more cost out of the process.

As the relationship of trust grew, the support services client became much more strategically aligned to the utility company and provided input into maintenance & renewal planning, budget submissions and end to end supply chain management.

Ultimately, this approach delivered around 23% of annual cost savings.

As I mentioned earlier, the value delivered from collaboration depends upon the partners in the collaboration and their openness and ability to change.

What I find is that most organisations tend to be comfortable up to a point in levels 1 & 2, but this tends to be more driven by the need to automate elements of say the P2P process, rather than supporting the core objective of developing collaborative solutions.

This is self defeating in that in many cases, your partners will understand elements of your business far more than you ever will do. For instance, I often find that when I need to get a defined list of items purchased, especially with multi site operators, the easiest and most effective way to do so is to approach the partner organization. Their Management Information tends to be significant more granular that we can typically find in the buyer organization.

As such, they tend to have a greater understanding of the potential opportunities that exist than you can ever find from internal sources alone.

So, what’s your experience in this area?

Do you engage with your partners and encourage them to identify improvement opportunities or indeed to actively introduce new innovative solutions that can help you deliver greater value?

Treating your partners as suppliers and keeping them at arms length significantly hinders your potential and dilutes the long term value that you will be able to deliver

When companies take a longer term perspective, collaboration efforts become a virtual circle. A greater understanding of each party’s capabilities, knowledge and cost base will often reveal new potential sources of value, whilst the experience of working closely together, means that later initiatives will take a shorter time to come together and be easier to execute than earlier ones.

So that’s the first three elements covered.

Let’s finish off by looking at the fourth element of the COST Optimisation formula – Tracking Benefits.

Are you ever frustrated with the final value delivered from your procurement campaigns? Right now there are procurement leaders and finance officers pulling their hair out because the promised savings just haven’t translated to the bottom line and a budget shortfall has resulted.

I’m always amazed at how many companies don’t formally track the benefits of each initiatives direct to the bottom line. They just assume that because a deal has been struck, then we can take that benefit as a given!

How wrong is this assumption!

Just because you have negotiated a unit price reduction doesn’t mean that savings will translate to the bottom line. What if the business decides to go with a more expensive part or component or due to the lack of availability they go to another supplier.

All of these will chip away at the benefits ultimately delivered. More frequently, you’ll find that certain individuals will actively work against the agreed product or preferred supplier. Have you ever encountered anything like this?

I’m sure you have but often these issues are not uncovered until it is too late resulting in the loss of massive value. By tracking the value creator and monitoring the benefit realization, you can quickly identify issues and take corrective action.

Did you know that when a plane leaves an airport for a specific destination, it flies off course for the majority of the flight and it is only the corrective actions taken by the pilot (or auto pilot these days) that ensures that it arrives and lands at the correct airport.

You need to be the pilot of your value creators monitoring them to ensure that the benefit lands onto your bottom line.

As part of the COST Optimiser Programme, I have developed a module called the 7 Value CREATORS and it is essential that you have a structured approach to managing each one of them.

Each project that you undertake, will probably focus on delivering value from just one of these value creators. However, to ensure that you maximize the benefit, you should consider the strategy of how you will monitor the transition from estimated benefits to confirmed benefits to realized benefits.

The 7 value creators include:

Cost mitigation – this is often overlooked but can deliver significant value. A recent example highlights the point perfectly. A client, a large engineering firm occasionally needed to meet very stringent turnaround times to meet their client’s operational requirements. To ensure that they could deliver against these service levels, they had put in place a supply chain contracted to a 4 hour delivery process.

When challenged on how often this 4 hour delivery was actually required, it turned out that this was in less than 20% of occasions, so in effect, they were paying premium pricing for a 4 hour turnaround service that wasn’t required in 4 out of every 5 projects!

By helping them restructure their supply chain processes, we were able to reduce overall costs by around £4m per annum. All we did was to establish a standard 24 hour turnaround service with an option for a 4 hour delivery at a premium price-point. We didn’t reduce volumes, we didn’t negotiate a unit price reduction, we simply ensured that the service met the needs of the business

Do you see the difference and more importantly can you think of opportunities in your company to apply this Cost Mitigation approach?

The next Value Creator that I want to discuss is Revenue Creation!

Interestingly, often when I raise this with clients, their immediate response is that “revenue isn’t a focus for procurement”. And yes, I agree to an extent that revenue tends to be more the domain of sales and marketing but I would strongly argue that Procurement can play an important role in driving revenues and the impact of the supply chain on revenue creation should not be under-estimated.

What would be the impact on your revenue if one of your core suppliers failed to deliver on time? You may have driven cost down and congratulated yourself on a job well done but as a result, it placed enormous pressure on the supplier and service delivery was impacted.

The impact on revenues can very quickly outweigh any benefit that the cost reduction could ever deliver!

Furthermore, I often find that we can drive greater value from our supply chain partners by inviting them to help grow our revenues in joint marketing campaigns and specialist training etc. You must see your role as creating value and one certain way of demonstrating that value is by undertaking an activity that results in an uplift of revenue.

Another area is Terms of Payment. Remember in an earlier video, I introduced you to the Value Chain Tri Zone, one of the three core areas was Asset management and I highlighted that the focus should be on the efficiencies across capital employed. The payment terms that we agree with our suppliers is one of the key levers that we can use to improve this efficiency.

By extending payment terms, we increase the efficiency of our cashflow. By increasing this efficiency, it allows the company to reinvest this cash into other areas, to create additional value opportunities.

That’s the plan. However there are many other ways of achieving this than just extending payment terms from say 30 to 60 days. There are now new innovative payment providers that can help you to speed up the payment to your suppliers whilst extending your cashflow requirements. A real win win, especially when you consider that this gives you the opportunity to negotiate a discount for early payment with your supply base!

The final area I’m going to consider today is ownership cost. Proactive maintenance agreements are a great example of effective cost management. By ensuring that maintenance regimes are maintained and properly monitored you can reduce the risk of failure significantly.

Failure costs not only include the cost of repair but should also include the loss in production. All too often I see organisations that are under pressure to reduce costs, extend their maintenance regimes. This is often a false economy as the risk of breakdown is increased. The cost of repairs tend to be higher when you need immediate action and failures always tend to happen at times when you can least afford it, isn’t that the case!

One area that I see many companies fail to realize maximum benefit relates to warranties. Do you keep an accurate record of the warranties that you have on your equipment. I suspect that if you’re really honest, the answer would be NO.

By recording the whole life cost, the purchase price, maintenance costs, warranty costs, insurance costs and costs of repair, you will get a far more accurate base on which to review various options.

For example, a client was looking to replace their fleet of vans and had been offered an amazing deal with a local dealer, who was desperate to break into the company.

On the face of it, the deal looked good. They were acquiring 50 new vehicles and the average saving against their existing range was in the region of 8% or £120k per annum. It was only when we looked at the whole cost of ownership that we realized that over the 5 year period of ownership, on a true like for like comparison, the new vehicles would have cost a total of a quarter of a million pounds more!

The difference was due to more frequent maintenance requirement, less fuel efficiency, higher insurance costs and the need to hold parts for multiple manufacturers.

Sometimes the best price does not provide the best value.

SO there you have it – The COST Optimisation Formula and a sneaky look at the COST Optimiser programme.

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To help you to embed the COST Optimization Formula into your company, I’ve developed the Bootcamp.

The C.O.S.T. Optimiser Bootcamp is for procurement agents who recognise that today the route to delivering sustainable value is the ability to embrace and apply all four elements of the C.O.S.T. Optimisation Formula

So, What can you expect from the Bootcamp.

Put simply, the Bootcamp will take you step by step through the process of developing the skills, and knowledge required to become a world class performer and help you to apply these to deliver both short term impact and long term sustainable value to your company.

The Bootcamp consists of a number of interactive sessions, supported online with 24/7 access to the tools and training materials.

Specifically, as an Bootcamp member, you will be supported by;

1. To ensure that you have a great understanding of the approach and modules, you are invited to join seven in-depth training webinars delivered weekly. As a Bootcamp member, you’ll be guided through an in-depth look at each element of the C.O.S.T. Optimiser Programme and become fully adept at implementing the four phases of the C.O.S.T. Optimisation Formula.

2. The C.O.S.T. Optimiser Programme consist of 6 core modules, each jammed packed with proven tools, templates and processes. Everything you need to embrace C.O.S.T. Optimisation. Not only will you get instant access to these tools, you’ll get in-depth training in how to apply them within your Company.

3. Finally, you’re never far away from the answer to your challenges. Throughout your Bootcamp membership, you will have access to our Online Support Portal, where both I and other Bootcamp members are available to answer your questions and provide additional insight.

4. As a bonus, you’ll also be enrolled into my Monthly Q&A webinars, where I review all of the issues raised and provide greater clarity on the relevant points from the formula.

The value delivered from the Bootcamp can be substantial and historically, membership has been priced at £997 (plus VAT) or £97 Per month (plus VAT).

However, as we approach the year end, I’m keen to help as many people as possible to move into 2017 with the tools and understanding required to make 2017 your best year yet. As such, for 200 lucky people, I’ve reduced the cost of Bootcamp membership to just £347 (plus VAT).

This special offer is available on a first come, first served basis and is strictly restricted to just 200 people.

So if you’re interested to see how you can make 2017 you stand-out year, sign up today and we can get started,

Click on the link below for immediate access to the toolkits and training.

I’m looking forward to working with you.

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6 real benefits of using Interim Managers and 4 things to watch out for…

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Is an Interim Manager the answer to your Problems?

Do you struggle to cope with the ever increasing demands on your time and the capabilities within your team?

Does business as usual activities stop you from making step changes in your business performance?

These are just a few reasons why companies make use of interim managers. There are many more…

However, you need to understand the pros and cons of hiring an interim manager in order to ensure a successful engagement—one that can ultimately lead to cost reductions and streamlined business processes.

Many businesses, both small and large, are now embracing specialist expertise for specific internal projects and restructuring initiatives.

If you are considering appointing an interim manager, consider these pros and cons:

Advantages of appointing an Interim Manager

  1. Cost savings: Interim managers are highly skilled and can often fill multiple roles, saving the costs of appointing for individual roles.
  2. Available at short notice: Skills gaps can be filled quickly, ensuring minimal disruption to business performance.
  3. Streamline processes: As an experienced fresh pair of eyes, interim managers are able to identify opportunities within the business to improve processes and efficiencies.
  4. Try before you buy: If you are unsure about the business need for a particular role, or the suitability of a candidate, recruiting into an interim role allows you to test your assumption.
  5. Effective outcome delivery: It’s often easier to get required results, as interim managers aren’t drawn into organisational politics and bureaucracy.
  6. Experienced executives: Interim managers are able to ‘hit the ground running’ with minimal induction and little to no training costs.

 

Tips to avoid the pitfalls when appointing an Interim Manager

While appointing an interim manager may seem like an attractive solution, if it’s not done correctly, it can hinder rather than strengthen a business.

[bctt tweet=”While appointing an interim manager may seem like an attractive solution, if it’s not done correctly, it can hinder rather than strengthen a business.” username=”tonylockwood”]

Here are some tips to help you avoid the pitfalls when filling interim roles:

  1. Define your strategic goal. What are you hoping to achieve as a business and from this appointment or project initiative? This will help you stay focused during the hiring process on selecting the right candidate to fill your needs.
  2. Establish clear and transparent reporting lines to ensure a seamless integration into the business from a cultural and performance perspective.
  3. Define clear goals, both short and long term, so you can measure the performance and success of the project.
  4. Seek expert assistance to source and select high calibre interim executives if you don’t have the resources or time to source the right people.

In our experience, more and more companies are appointing interim managers (or specialist contractors) to strengthen an existing executive team, lead a specific project, manage a crisis, address a short-term need for a specialist skill set, or transform their business.

We have launched Tony Lockwood Interims to help provide you with trusted pair of hands to ensure that your experience with interim managers is successful and delivers significant benefits to you and your organisation.

Schedule a call with us to discuss how Interims may be able to help you deliver your objectives.

The role of the CFO in Strategic Procurement

The role of the CFO in Strategic Procurement

The Chief Financial Officer has a significant role to part in the development and implementation of a strategic procurement philosophy.

The functions that the procurement function performs – supplier management, sourcing and contract management – are often referred to as strategic procurement. However, by working in partnership with the procurement function, the CFO can better understand and leverage strategic procurement in conjunction with other spend control initiatives, to deliver positive impact on the bottom line.

The CFO role is thus;

1. work hand in hand with the senior procurement people

2. use their sphere of influence to gain organisational support for strategic procurement

3. help with the refinement and implementation of procurement policies to drive savings

4. help guide the application of enabling technology

More and more CFO are taking an active interest and it’s not uncommon for the procurement function to report directly to the CFO.

One of the key elements of success is the ability of the procurement team to drive value right to the bottom line. However, the dilution effect from close of negotiation to implementation can impact on the relationship. As such, forward thinking procurement teams are focusing on the four areas that restrict this dilution.

I’ve pulled together a short video series outlining this four steps in more detail – click on the link below to gain access.

3 video based training on

5 areas to trim the fat in 2016

5 areas to trim the fat in 2016

As we are about to enter the final quarter of 2016, thoughts are probably turning to how you are going to achieve your numbers for the year. There is undoubtedly uncertainty in the markets at the moment and the economists seem to be divided as to what the year ahead will look like.

However, your success in 2016 will be more determined by your actions than any external factors. If you look back over previous recessions/ downturns, there are always those organisations that come out of them stronger and more profitable. Equally, there are individuals that thrive when the going get tough and those that just give in!

So, the question is – “which are you going to be in 2016 and how can you gear up for 2017?”

To start as you mean to go on, this time of the year is always good to reflect and trim any fat that exists within your business. Take a look at the following five suggestions and see how these can apply to your procurement organisation. Please feel free to add other ideas within the comments.

1. What activities are you undertaking that is adding no value to your end customer? Once you have identified these, review how you could undertake them differently, more efficiently, or more radically, determine whether you have to do them at all or can you outsource them to a third party who can provide greater leverage?

2. What is your core competence and what non core activities are you doing that can be outsourced? Again, by creating focus across the procurement function or ideally across the organisation, identify those activities that you must do to support your core competence. At the same time, this will help you identify those activities that are non core. Look creatively at how you can more effectively deliver these non-core activities.

3. Ask yourself the theoretical question – “if I had to deliver the same results with 80% of the resources that I presently have, how would I do it?” – putting this question another way, all organisations have people within the organisation that deliver little or no value. Make it your business to strip the lowest 20% from your organisation each and every year. You’ll be amazed at the impact that this simple challenge creates.

4. In any process, there will be many hand-offs between people within your organisation. Take each in turn and challenge yourself to reduce these hand-offs by 50% – by empowering individuals within your organisation to take action at the front end, you’ll radically reduce the workflow across any process and the efficiency gains will be significant

5. How is your procurement function performing? Research indicates that 75% of procurement initiatives fail to deliver the anticipated value. Why is this?  How do your term perform? Value is often diluted once the procurement ‘activity’ is deemed to have been completed. However, by applying a simple four step process, you can plug this leakage and deliver massive value.

Take the opportunity to watch my latest 3 part Free Training to understand more about these four steps.

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Is Procurement as we know it, DEAD?

Is Procurement as we know it, DEAD?

Can Procurement continue to operate as it has for many years?

Can Procurement professionals continue to simply manage categories and focus all their attention on getting better deals from their supply chain?

I believe that the answer to these two questions is the same – absolutely not!

As the global economy sways in the wind almost daily at the moment, Procurement professionals have the opportunity to jump up, grab hold of the opportunity and drive change in the way that organisations think about and manage the supply chain.

Collaboration is the future and Procurement can and indeed should look to drive a collaborative spirit into the heart of every organisation (both private and public). Having worked with many organisations, I’m still surprised that;

  • organisations still operate in silos – this is at the root of some of the issues in the UK public sector where departments do not collaborate at all
  • category management is at the very core of procurement functions but this tends to focus on driving better deals with suppliers rather than looking at improving the end to end planning process

In future, we need to ensure that a collaborative spirit is applied across the whole organisation.

Collaboration is required throughout the supply chain process, from planning to ultimate delivery. It’s only when we get all of the key people (both internal and external) around the table to discuss openly the challenges faced by the organisation will sustainable solutions be found. Operating is a position of openness and true partnership is the way to go. Embrace every part of the supply chain to take maximum advantage of their expertise and knowledge.

Procurement functions are in an ideal position to take advantage of this opportunity – to become the conductor, the facilitator, the devils advocate.

Yes Procurement has a future, but not as we know it presently!

Collaboration is just one of the areas that I focus upon in the latest FREE three part video series, where I take a look at the four core elements required to deliver ever greater value from your existing (and future) procurement activities.

Click on the image below, sign up and watch the first video immediately….

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A Collaborative Approach to Supply Chain Management Can Enhance Competitive Advantage

A Collaborative Approach to Supply Chain Management Can Enhance Competitive Advantage

A key to competitive advantage

Procurement process re-engineering brings better results and more savings for companies that seek to extend it to the entire procurement value chain rather than to their in-house procurement function. That essentially entails putting the whole procurement process under scrutiny, and moving from a large number of suppliers towards developing a partnership approach with a selected group of trusted suppliers.

Better and closer supplier relationships can help companies reduce costs, cut down waste and discover hidden efficiencies in their procurement value chain. A collaborative approach enhances supplier loyalty and helps build long term win-win solutions. Higher levels of trust and loyalty can be used to build integrated procurement platforms with collaborative information sharing, a sure source for competitive advantage.

Collaboration has a synergistic effect on all partners along the value chain. The idea is to integrate core competencies of your business with those of key suppliers possessing complementary competencies with the goal of creating a business model that results in a more competitive value chain. In other words, a collaborative approach essentially means forging a common path integrating your supply chain management system with that of the supplier’s operations, outbound logistics, marketing and sales, services and their customer expectations management system.

Closer supplier relationships lead to better responsiveness and agility from your supplier-partners. Your company will also benefit from supplier transparency and improved accountability. Better reliability results from a collaborative approach because the suppliers can count on better prospects for themselves when your business prospers. This level of commitment is difficult to achieve when suppliers see themselves as just one among many, leading to their looking out for themselves and looking at the relationship transaction by transaction. In contrast, a collaborative approach encourages a strategic perspective in the chosen supplier-partners.

What it takes

In his book, What the CEO Wants You to Know, the renowned author and management consultant, Ram Charan, describes a company that has its act together, in this way:

“A synchronized organization is like a champion rowing team–people working together with a certain rhythm that allows the group to do things the individuals cannot do. Synchronization expands the capacity of the whole group.”

If you extend this analogy to collaborative partnerships, it becomes clear just what it takes to derive the potential synergies from collaborating with firms in your procurement value chain. A synchronized collaborative partnership would have people in both organizations working together to a certain rhythm that allows the partnership to achieve things each firm cannot achieve on its own.

Getting a collaborative effort synchronized to the stage of a champion rowing team takes effort and commitment. It will not be easy; nor will it be smooth sailing all the way. But, it is an immensely challenging undertaking that when achieved make it definitely worth the effort.

For collaborative arrangements to succeed, both the buyer and the supplier needs to strongly believe that there is a better way of doing things, that more can be achieved than at present, leading to mutual benefits.

Collaboration will work better when both parties seek to drive out waste and enhance efficiencies in the supply chain, bringing with them a willingness to work towards common goals for improving the present system. Commitment from the highest levels of leadership in both firms is imperative for such an approach to take root and deliver results.

Better communications at all levels-rather than the supplier sales people with buyer’s purchasing people-can be a foundation for building integrated systems, from planning and forecasting to better lead times and higher levels of overall responsiveness.

A closer relationship fosters a culture of sharing key information up and down the supply chain, enabling proactive and speedy decision making as well as in troubleshooting. The Deepwater Horizon-BP fiasco in the Gulf may not have occurred had there been better and closer relationships and a collaborative attitude.

The end result

It is necessary to remember that the end result of any re-engineering effort should be to achieve better and more efficient processes. A procurement process re-engineering effort that involves collaboration with a selected group of trusted suppliers should provide you with better results in one or more of the following core value metrics:

  • Quality
  • Service
  • Cost
  • Cycle time

Collaborative planning would also inevitably improve performance and costs for both parties and reduce transaction costs in the long run. While the collaborative efforts may necessitate bearing additional costs to get a common information platform in place to facilitate real-time sharing of operational information, these costs would be more than compensated for with the synergies that can be gained from closer collaboration in procurement.

The ultimate benefit however, is the ability to enhance your edge over competing value chains. This is what enables you to pass on better value to your customers or clients.

For success, collaborative partnerships with suppliers require:

  • A strong belief by both parties that there is a better way
  • Both parties to seek drive out waste and enhance efficiencies
  • Common goals for improving the present system.
  • Commitment from the highest levels of leadership in both
  • Better communications at all levels
  • A culture of sharing key information

Let me know what you think and your experience in this area….

Unlock Significant Extra Value From Your Existing & Future Procurement Activities…..

Have You Ever Struggled To Realise Those “Hard To Negotiate” Cost Savings To Your Bottom Line? Isn’t It Time You Applied A PROVEN Formula?

Find out how in my latest Free 3 Part Video Series. GET STARTED NOW!

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Price is what you pay. Value is what you get!

Price is what you pay. Value is what you get!

The above quote comes from Warren Buffet, talking about sales and marketing.

However, I feel that the quote is equally as relevant for Supply Chain and Procurement professionals, especially in today’s climate, where there is constant pressure on reducing costs and ultimately squeezing the Supply Chain.

Is this really a longer term option? I don’t believe so!

The key is to focus on value – what value is Supplier X bringing to your business? How can Supplier Y bring more value. Once we switch our mind-set to value creation, a world of possibilities open up.

[bctt tweet=”Once we switch our mind-set to value creation, a world of possibilities open up” username=”@tonylockwood”]

One way that you can create value within Supply Chain and Procurement is to look for innovations that reduce consumption, another way is to deliver to point of use, another to deliver a streamlined procure to pay process.

There are so many options that will deliver far more value and ultimately benefit to your organisation if you just move away from simply looking a price as the deciding factor.

What do you think?

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What can Procurement learn from Leicester’s success?

What can Procurement learn from Leicester’s success?

A year ago, Leicester City, a football team from a provincial UK city, was one game away from relegation from the English Premiership, which would have cost them an estimated £100m in lost revenues.

During the summer break, they sacked their manager and to the outside world, the club seemed to be in turmoil. They appointed Claudio Ranieri, an experienced manager, yes, but one that again, didn’t seem to fit with the club’s perceived need – survival!

Fast forward 12 months and a couple of nights ago, Leicester City was crowned English Premiership Champions, losing just three games from the 36 played so far.

What a turnaround! What a story!

This is a story that has travelled around the globe and not just in football circles.

As someone who likes to understand success and what makes people or teams successful, I’ve taken a close look at the turnaround and started to pull together a number of themes that I believe can be applied to the world of procurement.

Let me explain…

Under performance to over performance

Every organization will have areas of under performance. In the procurement world, you’ll have contracts that are under performing, you’ll have suppliers that are not meeting the agreed standards, you’ll have team members that are just not delivering.

So what can you do to turn these around?

Looking at the success of Leicester, I believe that there have been four core elements to their success

[bctt tweet=”The 4 things the success of Leicester City, #LCFC #Procurement can learn from ” username=”tonylockwood”];

A shared vision that developed over time – early on in the season, Ranieri focused on finishing the games without letting the opponents score a goal. In some respect, this was a small incremental step forward – if the opponents didn’t score, Leicester would either draw or win. However, the critical element here is that the team started to see success against this simple measure and as we all know, success breeds success.

At this stage, Ranieri started to talk about a new vision – to reach 40 points – the accepted level where relegation would be avoided. Moreover, he established a pressure point – to reach this figure as quickly as possible. Given what had happened the previous season, this again was a major milestone for the players and built their belief in what was possible.

Once achieved, he started to talk about European qualification (typically a top 6 finish), the Champions League (top 4 finish), before, once all of these milestones had been achieved, identifying the Premiership Title as their one remaining target.

The lesson here is that all too often, we have a tendency to try to move from one extreme to another – from under performance to top performance in one step. This happens all too often in contract renegotiations, supplier performance reviews and team performance reviews.

By establishing a series of incremental steps that can be achieved quickly, momentum will build. Moreover, the process of achieving these smaller milestones will improve collaboration and trust between parties – a foundation on which to deliver ever greater success in the future.

A clear strategy for delivering the required results – there are many ways to play football, tactics are discussed and argued about during and after every match. However, there is really only one way to win a football game – to score more goals than your opponent.

As such, Ranieri devised a very simple winning strategy – to make it very difficult for the opponents to score a goal whilst attacking quickly and with vigour immediately they won the ball back. This approach meant that for most games, the opponent’s possession stats were far superior to Leicester’s.

However, this played into Ranieri’s strategy in that they would leave gaps as they tried to push forward to score and these gaps could be exploited by his Leicester players who had speed of mind and the necessary skill to take advantage.

So, the question is, do you have a clear strategy – ideally a simple one – that will deliver the desired results consistently and sustainably?

To do this, you need to follow Ranieri’s example – look at the team, understand their strengths, understand their weaknesses, identify areas for improvement and take action and then play out the defined strategy.

Don’t change it – if you passionately believe that the strategy is right, don’t ditch it immediately something goes wrong, monitor performance, make adjustments where necessary and play to your strengths.

Your strengths will include the strengths of your supply chain partners – do you fully understand their strengths and weaknesses? Do you actively collaborate with them and develop joint improvement plans?

Do you jointly ‘own’ the strategy?

The team is greater than the individual parts – Did Leicester City have any superstars in the team at the start of the season? Absolutely not!

Do they have any stars in their team as we approach the end of the season – yes but I’d wager that these individuals understand completely that their individual accolades would never have been achieved without the foundation established by the team and the team ethic?

Each member of the team knows and understands their role within the team. Moreover, they seem perfectly happy to play their role to the best of their abilities. The team works together, hunting in packs to win the ball back and breaking forward quickly and with devastating effect.

What about your team? Does your team understand the role that they play in the process of delivering, whatever your organisation produces? When I say team here, I’m talking about the entire team – both internal and external.

Do you think that the Leicester success is just down to the 11 players on the pitch? No, of course not, there are many more people involved in the process – the coaching staff, the administration staff, the catering staff, external partners – the list goes one.

It is the same in your organisation but all too often, I see organisations working in silos and keeping their external partners at arms length, where information is deemed to equate to power. How can this be right?

An absolute focus on the desired result – admittedly this is easier in a sporting context than in many industries, but having a clear key performance indicator and monitoring that consistently is a fundamental success factor.

Leicester City and Ranieri had a very visible KPI – the league table. He knew from game to game, how successful they were becoming. However, do you think that this was the only KPI used? I doubt it.

Ranieri and his team would undoubtedly have developed a dashboard of performance indicators – from completed passes, to distance travelled in each game by individual team members, to in-depth medical assessments of each player.

These performance measures would be much more insightful to Ranieri than the harsh reality of the league table, providing him with the knowledge of when a player would need a rest, or highlighting where additional coaching was required on a particular element of their performance.

So, how do you measure performance? Your answer to this question will probably be focused on the end result – savings delivered or ideally value created.

However, the real point to the question is to ask what indicators are you using to track progress and how are you using these to tweak things to ensure that the desired end result is ultimately delivered?

The Leicester City story will be talked about for years to come. How could a provincial team, almost relegated 12 months ago, take on and win ‘big’ against the more established clubs, who have significantly higher budgets and ‘better’ players.

I’m sure that there are many more elements to this success story than the four I’ve mentioned above but I believe that these are the four most powerful and more importantly, these four are completely transferable into your procurement organisation.

To succeed in the future, Procurement needs to change. Success will be determined more by these ‘softer’ issues than anything else in my opinion and I will go into this in more detail in my latest webinar – Isn’t it time to change the perception of procurementclick here to reserve your seat.

So, I can’t finish this off without sending a massive congratulations to Claudio Ranieri and Leicester City and I look forward to hearing many more success storied from you in the months to come.

Procurement is Dead! Long Live Procurement

Procurement is Dead! Long Live Procurement

The traditional approach to Procurement is, in my opinion, dead!

The tactically led approach that is focused solely on cost reduction should be packaged up and filed in the folder – “Do Not Use”

So, is this the end of the Procurement function?

Absolutely not!

In fact, this realisation could and should be the catalyst for procurement professionals to become a much more integral part of the Executive team.

The Procurement professional in the future should be completely focused on delivering value to the bottom line – this is what all organisations, irrespective of size, require to grow and continue to flourish.

[bctt tweet=”The #Procurement professional in the future should be completely focused on delivering value to the bottom line”]

A focus purely on cost reduction is too limiting and will and does lead to short term tactical activities aimed at reducing costs – typically by squeezing suppliers, whereas a more rounded review of the business requirements could and often does lead to significantly greater value being identified.

Moreover, in my experience, this additional value is actually delivered to the bottom line, whilst in many occasions a simple focus on cost reduction fail to deliver such benefits.

So, what does this mean for the Procurement industry?

What does it mean for us Procurement professionals?

To thrive in the future and to position procurement and yourself at the centre of the organisation, as an integral element of the success of the business, new skills and a new approach will be required.

Your success will be determined by your ability to think and operate more strategically, to consider the longer term objectives of the business and to think outside of the box in terms of identifying and ultimately delivering longer term value.

You will need to consider the three core elements of business success – People, Process and Technology.

You will have to work in partnership and collaborate with your suppliers, encouraging innovation to deliver ongoing financial and operational benefits to the business.

You will need to consider the end to end client/ customer journey, and understand your role in ensuring that this is optimised.

You will need to embrace technology and automate processes where value is available whilst ensuring that this very technology doesn’t inhibit innovation.

Are you ready for such a change?

If you’re answer is No, then I’m afraid to say, your days are numbered.

With the increasing adoption of clever analytics, the value delivered is becoming and will continue to become much more visible. Continuing to do what you’ve always done, where ‘success’ has been declared based upon a strong negotiation or reduction in unit prices, will increasingly be seen as dysfunctional, given the lack of value that is often translated to the bottom line from such approaches.

Success in the future will be determined exclusively by the Value that You Deliver to the Bottom Line.

My Book – The C.O.S.T. Optimization Formula provides you with a step by step approach to implementing the necessary change in approach and for a limited period, you can download a free copy by clicking here

Ramesh Krish, CPO of the Presbyterian Healthcare Services describes the book;

It lays out a complex process in a simplified manner. It captures the evolving and challenging landscape procurement leaders have to address on Day 1 and your book lays out a nice roadmap.

Download your copy today and let me have your thoughts.

 

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15 Steps to Peak Procurement Performance

15 Steps to Peak Procurement Performance

I’m a big believer in looking for success in one field and seeing how you can adapt the same principles into other fields.

I’m also an avid cyclist and have been fascinated by the approach Sir Dave Brailsford has taken with both the British Cycling Team and the SKY team, in transforming them into world-beaters.

The success has been amazing and I’ve recently come across a review completed by Cranfield that highlighted the 15 Steps to Peak Performance – it makes great reading.

So, given all of this, what can Procurement take from this experience and how can we apply it to achieve similar success?

[bctt tweet=”15 Steps to Peak Procurement Performance”]

The 15 steps are;

  1. Ensure Clarity – Do you have absolute clarity in what you’re trying to achieve from your procurement activities? Do you have outcomes that all of your stakeholders buy into? Are you absolutely clear about who is responsible for what?  Clarity provides you with a frame of reference that you can measure progress against. All too often, I find that procurement activities are kicked off with too little effort in understanding what is trying to be achieved.
  1. Create a ‘Podium Programme’ – Do you have a big enough Goal or Objective? Thinking big tends to make you look for innovation rather than relying on doing what you’ve always done that little bit better. What do I mean? Well, when was the last time you sat back and developed a clear Vision for your function, one that really got your whole team excited and one that your Executive team could not only support but fully endorse. Brailsford did this by aiming for medals – nothing less! What are you aiming for?
  1. Plan Backwards – By having clarity about what you want to achieve, you can then start to think about and consider the steps to get you there. Traditionally, the approach is to start by considering what your next step will be, but this can be too restrictive and a more insightful way to do this is to plan backwards.  So, if you are say, looking to deliver a 25% costs savings in your core product list, consider all possibilities for achieving this. Explore each possibility and ask yourself a simple question – “if this was to be achieved, what would be the previous step that needed to have been successfully completed?” At this point, ask yourself the same question. And again. And again, until you get back to where you are right now.  You now have a detailed action plan that will get you to where you want to be.
  1. Focus on Process – Get clear about what is required to be completed to achieve your objective and establish a clear and efficient process to get to that point.  This also introduces another major bug-bear for me – we tend to concentrate on price renegotiation and completely ignore the additional benefits that are available by streamlining the procurement process. Ask yourself how many steps are involved in raising a requisition and getting the product delivered? Is this number reasonable?
  1. Get back to Basics – What is the basic principle for Procurement? In my view, this is a simple question to answer – to Deliver Value to the Bottom Line. As such, everything that you do needs to be focused completely on this basic principle.
  1. Practice Winning – When we have a big target to hit, there is a tendency to apply a scatter gun approach to delivery, working on the assumption that by doing lots of activity, the results will come through. This seldom results in the goal being delivered and in the rare cases that it does, the team are absolutely shattered from the amount of chasing around that they’ve had to do. – It is not sustainable.  By being focused on the bigger ticket items and ensuring that you deliver them, the results will come and you will get recognised by the Executive of someone who ‘Delivers’
  1. Aggregate marginal gains – This is one of my favourites and again, we have the opportunity to apply the principle across Procurement and Supply Chain. What can you do to make small incremental improvements in every aspect of the end to end process?  If you make a 1% improvement in each of the 10 process steps, the end result is not a 1% gain, it is significantly more.  What can you do to establish this ‘continual improvement’ approach?
  1. Maximise the latest technologies – Care is needed here I think. There are a lot of technology solutions out there that can offer Procurement benefits. However, you need to be selective and focus on the ones that will deliver value to the bottom line. All too often, I see organisations go ‘big bang’ on a new technology solution only for it to fail due to a lack of effective change management and the potential benefits wiped out completely.
  1. Conduct the orchestra – Surround yourself with a great team, a team who share your vision and accept the core objectives of the team. This team will be made up of people reporting directly to you as well as your key stakeholders, both internal and external.  Once you have your team in place, orchestrate their activities and focus – be clear about what is expected and communicate progress frequently.
  1. Support the support – the old saying – “the sum of the parts is always greater than the parts themselves” is apt here. It will always be more fruitful for you to work in partnership with your supply chain partners – collaborate with them rather than holding them at arms length.  Support the end to end supply chain to deliver the maximum benefits available.
  1. Charter a team – How are you going to treat your enlarged team – internal and external. The way that you treat them will have a massive impact on their performance and the ultimate value delivered. Respect and honesty are values that can should be adopted and embraced by the whole team.
  1. Build a strong CORECommitment + Ownership + Responsibility = Excellence – this was Brailsford’s model to explain how success would be achieved and I think that this is equally applicable to the world of procurement. If the whole ‘team’ have the necessary drive to achieve the core objective (Commitment), each team members will take Ownership of their role in the end to end process and Responsibility for their performance.  The result will be Excellence and this will be translated into bottom line value.
  1. Control the chimp – This focuses on the psychological aspect of our performance. Can we control things when things start to go wrong? Can we maintain focus on the outcome when a team member lets you down? Your reaction, driven by your emotional and irrational part of your brain, has the real potential to inhibit your performance and the value ultimately delivered.
  1. Manage the ‘triangle of change’ – Successful delivery of the bottom line value will ultimately depend upon your ability to manage people through change. It may be a simple change in supplier, a change in procedure or implementation of new technology. Whatever it is, your success is determined by other people doing things differently.  To achieve change people must be (i) committed to deliver the change (ii) accept that they can change and (iii) see the benefit that the change will deliver to them. These three elements are critical to avoid significant dilution of the benefits delivered.
  1. Stick to your principles – being consistent and focused on your core objectives, irrespective of outside influences will ensure that you deliver maximum value. It is very easy to get deflected by new projects, or the latest gimmick. Stick to your principles and focus on the desired outcome and you will deliver significant extra value to the bottom line.

So, there you have it, the 15 stage approach that transformed UK cycling to become world-beaters, applied to the Procurement world. What do you think? How can you adopt this 15 principles into your daily activities?