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Back to the Future : for Procurement….

Back to the Future : for Procurement….

Those of you of a certain age, will remember the film “Back to the Future” and you maybe, like me shocked to realise that 2015 was the year that the guys in the film travelled forward to.

Where did the last 30 years go?

So, as we are now ‘officially’ in the year F1 – ‘future plus 1’, I thought it would be interesting to take a step back and look at the future for procurement.

Input ‘future of procurement’ into Google and you’re presented with 125 million results, so there are a lot of perspectives out there already!

Do a similar search on Twitter and again, there’s lots of ‘noise’.

The key theme of all of this ‘noise’ is that procurement technology is the way forward.

Before we delve into the future, lets take a leaf out of the film and step back to really consider “what is the core purpose of procurement?”

In my opinion, the objective of Procurement is to “Deliver Value to the Bottom Line.”

[bctt tweet=”the objective of #Procurement is to “Deliver Value to the Bottom Line.””]

I spent a lot of time coming up with these 6 words and spoke to a lot of people. I wanted a simple definition, one that clearly identifies what procurement is there to do, but also one that highlights the potential scale of the role.

As such, the future for Procurement is to get back to focusing on “Delivering Value to the Bottom Line”

So, let’s break these 6 words down into their component parts….

Firstly, what do I mean by ‘Value?’

Undoubtedly, value is delivered when we negotiate a discount in unit prices. But there are many other ways to deliver value. Value can be created in effectively three areas;

  1. we can reduce costs,
  2. we can increase revenues,
  3. we can improve efficiencies.

Each of these will deliver value to the company.

I believe that Procurement can and should play an integral role in delivering value in all three areas.

By developing a collaborative approach with our supply chain partners, you will open up opportunities to develop joint marketing campaigns that can help drive revenues. Alternatively, through joint planning activities, your supply case will be able to offer up innovation that can deliver operational efficiencies.

These simple examples have provided significant added value to those organisations that have grasped this philosophy and they can for you too.

Secondly, why do I emphasise the word ‘Deliver?’

Well in my opinion, all too often, procurement activities are deemed to be ‘completed’ when the contract is signed and we all move onto the next ‘project’. What I’ve found is that too little time is spent on ensuring that the value is actually delivered.

All too often, value is diluted because of a lack of emphasis on delivering the necessary change across the organisation. Even a simple procurement activity will result in some form of change requirements. By ignoring the need to proactively manage this change, you run the risk of a significant amount of value not being delivered as expected.

Finally, why the ‘Bottom Line’?

Well, isn’t this the ultimate measurement in an organisation. If you are undertaking activities that are aimed at reducing costs, increasing revenues or indeed improving efficiencies, these will translate into bottom line improvements, won’t they?

But how often do you physically track the value right back to the bottom line? In my experience, this doesn’t happen that often. Why? ‘Because it’s hard’ is often an excuse that I’m given. ‘There are too many variables’ is another!

The challenge here is that if you don’t establish a tracking process, how do you know whether the value is being created and how can you monitor progress to ensure that you can take the necessary actions when things don’t go to plan? – which they undoubtedly won’t

You ability to track the value right back to the bottom line will differentiate you in the future.

Within my book, The C.O.S.T. Optimization Formula, I have identified four core elements that enable Procurement to deliver value to the bottom line. Of the four, two of the elements focus on creating value whilst the remaining two ensure that that value is delivered to the bottom line.

As I said earlier, there’s a lot of ‘noise’ out there concerning the future of procurement, but I’d argue that most of these are tactical applications. They will undoubtedly play a part in the future but I’d strongly suggest that the future for procurement is to get back to first principles and ‘Deliver Value to the Bottom Line’

What do you think?

Why Procurement technology is not, in itself, the answer!

Why Procurement technology is not, in itself, the answer!

In recent months, the amount of articles and blog posts written about the positive impact on procurement technology has grown exponentially.

If you believe the hype, then procurement technology is the answer to all of your problems!

Got a bad back – go invest in the latest procurement technology and you’ll be jumping around in no time!

Ok, I may be getting a little too flippant with the bad back analogy but you hopefully get what I’m talking about.

So the big question is: Is Procurement Technology the Answer?

And I’m here to tell you right now that, in itself, the overwhelming answer is NO!

[bctt tweet=”Why #Procurement technology is not, in itself, the answer!”]

Don’t get me wrong, technology can play a significant part in your future success but it is an enabler, not the answer!

I’m sure that you read stories about technology projects failing, or costing much more than the original estimate. Most public sector technology projects tend to end up like this and if you’re not careful, this will be the outcome of your investment in procurement technology.

Why do I say this?

Well, for the last 25 years, I’ve been working on technology enabled change projects and that experience has highlighted the significant challenges, often ignored or underplayed, that have a massive impact on the success (or otherwise) of the project.

I’m often heard saying – the easiest thing in the world is to put the ‘icon on the screen’ – it’s significantly more difficult to get someone to ‘click on it’”

[bctt tweet=”“the easiest thing in the world is to put the ‘icon on the screen’ – it’s significantly more difficult to get someone to ‘click on it’”]

And in a nutshell, there is the major issue.

To get ‘someone to click on it’ you need to have managed the change effectively and taken the people with you.

Moreover, you need to have streamlined the operational processes and removed the inerrant inefficiencies before you automate them.

Not to mention the need to take your supply chain partners on the journey and work with them collaboratively to ensure that the technology can interface effectively with theirs.

These tend to be undervalued as the momentum for technology integration takes pace and often investments are approved based upon fanciful return on investment estimates.

That’s why 75% of all projects fail to deliver the expected return!

So, before you dive head long into the ‘technology must be the answer’ hype, step back and develop a real plan of action that will;

  1. Review and streamline the existing (manual/ automated) processes operating within your business already
  2. Consider the impact on your supply chain partners and engage with them in the design and development stage
  3. Integrate a formal change management approach and engage with all stakeholders early in the process and frequently thereafter to ensure that you can effectively embed the technology
  4. Identify how you intend to monitor the project and the delivery of benefits after the technology has been delivered.

By doing this, you will not only get the ‘icon on the screen’, you’ll get your people to ‘click on it’ and most importantly, you’ll ‘deliver the benefits’ that procurement technology promises.

In my book – the C.O.S.T. Optimization Formula, I cover off these four elements in much more detail. You can download a Free copy now by clicking on the link below;

http://tonylockwood.com/lp-costbook-gift/

What’s the Board’s view of Procurement?

What’s the Board’s view of Procurement?

Following on from my earlier post, “Isn’t it time Procurement got a seat at the Top Table”, I came across the following video, whereby Lawrence Churchill CBE, gives his view on the core question – What’s the Board’s view of Procurement?

Lawrence, has a wealth of Board experience with major public bodies and private companies alike and his thoughts are very insightful.

Take a watch now (it’s less than 5 minutes long) and let me know what you think…

I share the view expressed by Lawrence and expand on this within my Book – The C.O.S.T Optimization Formula. Click on the link below to get your copy now – it Free for the time being!

COFBlogPopup (1)

Isn’t it time Procurement got a seat at the top table?

Isn’t it time Procurement got a seat at the top table?

This is a question that is often asked by procurement leaders and is usually followed by a statement such as “how can I influence spend when I’m not involved in the strategic decisions?”

WARNING – this post will probably upset some people operating within the procurement world. My view will infuriate some and others will argue vigourously that I “simply don’t know what I’m talking about”. But this is my view and is based upon my experience over the last 15 years.

So, let’s get a few things clear right now.

I don’t think that the majority of procurement leaders deserve a place at the top table!

In my experience, most think tactically and would not be able to add much value at a strategic level.

All too often the primary focus is too narrow and they get caught up in (excuse the vulgarity) ‘willy waving’ antics trying to prove how good they are in, say negotiating.

I told you that you probably wouldn’t like this post!

[bctt tweet=”Too many #procurement professionals see their role as ‘reducing costs’ rather than ‘improving value’”]

Too many procurement professionals see their role as ‘reducing costs’ rather than ‘improving value’. This is the one thing that will prevent procurement from being offered that seat and a say in the strategic direction of their company.

So what do I mean by ‘improving value’?

Well, the focus has to be on delivering value to the bottom line and there are really only three ways to do this;

1. Bringing in additional sales revenues
2. Reducing costs
3. Improving efficiencies so in effect getting more for less

Which areas can you, as a procurement professional have an influence on?

In many cases, the response I get to this question is ‘2’ – “my role is to help the organization reduce their cost base”

Until procurement see themselves as being integral in all three, that seat at the top table will always be a distant vision.

I’d prefer to look at the original question in a slightly different way – ‘what will it take for Procurement to be seen as an essential member of the top team?’

As ever, the answer is in understanding the key objectives of the senior team and then positioning the output from the procurement function to support these objectives.

Given that the success of any business is dependent upon the success of their supply chain partners, the procurement function, as one of the key linkages in these relationships, can and should be able to have significant influence on this success.

However, the ‘old world’ view of suppliers is just that – ‘you are a supplier and you should be grateful that we are prepared to work with you.’

How can this be right?

How can we expect to get the best for the business by managing suppliers at arms length?

So, improving your supply chain management approach will help position you as a key value creator!

So, is that it? That’s all I need to do to get a seat at the top table?

If only it was that easy!

What are the other core objectives of the senior team and how can procurement be seen to add value to each area?

Bottom line profit is always a critical focus for the top team – they need to meet the expectations of their shareholders and often their personal remuneration is based upon this bottom line performance.

So, what can you do to help improve profits?

I highlighted earlier that there are really only three ways to increase profits;

1. increase revenues
2. decrease costs
3. improve efficiencies

[bctt tweet=”How can procurement help to increase revenues?”]

How can procurement help to increase revenues?

This is the domain of sales and marketing, I hear you shout!

When you start having a different type of conversation with your suppliers though, one focused on delivering value rather than just the price, then often, opportunities present themselves for revenue enhancing activities.

These range from specialist training for your front line team to joint marketing campaigns and many other options. Often, this type of ‘value-add’ activity will deliver significant more value to the bottom line than a simple price reduction would ever do.

Let’s take it that you know how to reduce costs (although I’ll come back to this later), let’s look at what procurement can do to increase efficiencies.

Process inefficiencies are one of the greatest opportunities to deliver significant value to a company’s bottom line – period!

I’m always amazed at how many times, I find the procurement function negotiating hard for an extra couple of percent off the unit price whilst completely ignoring the cost baked into the inefficient process that is in place to order, process and pay for the goods in question.

Just recently, I was working with a client that procured circa 50,000 individual items with an average value of £50. They had spent the last twelve months working with all of the 800+ suppliers to reduce this £50 average value by 5%. It was only when I reviewed their operational processes that they became aware that the processing cost amount to circa £30 per transaction. With a small investment and a little time, we were able to reduce this to just £15, delivering 600% greater value to the company’s bottom line that a simple price reduction would ever deliver!

Another area where Procurement can play an integral role in improving efficiencies is in cash management. An improvement in cash efficiency will reduce cashflow requirements and deliver a significant improvement to both the bottom line and balance sheet performance of the company.

By widening the focus, taking off the blinkers, Procurement can play an active part in delivering value across all three areas. By doing so, the function and the players within it will become more influential in the company and it won’t be too long before a seat at the top table becomes available.

One way to speed this up though, is to ensure that your efforts actually deliver to the bottom line!

75% of all procurement activities fail to realise the full anticipated value to the bottom line!

Benefits get diluted through maverick spend, inefficiencies, a lack of governance around change control etc.

Your ability to track benefits and be able to demonstrate those benefits hitting the bottom line will differentiate you in the eyes of the CFO and other members of the Exec team.

The glue that ties all this together and provide you with a platform on which to grab the chance to join the top table is undoubtedly, your ability to manage the change that will ultimately result from the activities that you are undertaking.

Change management is hard!

If you can demonstrate an ability to proactively manage change, you will become a much more valuable member of the Exec team.

If you’d like to learn more about my views on this and how Procurement leaders can become an integral member of the top team, sign up for my 3 video training programme on the C.O.S.T. Optimization Formula or download a copy of my book – The C.O.S.T. Optimization Formula.

The 3 Ways People React to Change and Why Procurement Leaders Need to Take Note!

The 3 Ways People React to Change and Why Procurement Leaders Need to Take Note!

I remember vividly the time when a leading Utility firm in the UK asked me to review a major delivery contract that they just negotiated with a series of contractors. Their expectation was that this new contract format would deliver significant cost savings. In fact, costs were going through the roof and the Major Contracts Director was in danger of being exited from the company!

After an initial investigation, it became clear that although the contract was ‘sound’ the approach taken to embedding the new ways of working left a lot to be desired. I remember having a meeting with the Contract Managers and asking them, “What do you think about the new contract?”

What do I think? I think it’s terrible, completely not required. There was nothing wrong with the way that we have been managing maintenance for the last 15 years. The Contractors, however, love it – it’s so much more weighted in their favour! 

Even as adults, most of us don’t choose change. We get comfortable with our routines, our lives, our friends, our cocktail of choice, even our routes to work, and any detour can be a source of frustration, fear and stress—we prefer the security of what we know. But change is unavoidable, and how we react to it determines the outcome, good or bad.

[bctt tweet=”Change is unavoidable, and how we react to it determines the outcome, good or bad.”]

There are usually three ways that people react to change:

• Be non-active.

These are the type of people who keep their head down, carry on doing what they’ve always done, assuming that this ‘latest initiative’ will eventually go away and be replaced with the next big thing! Unfortunately, they are often right. Basically, they resist the change and choose to remain in denial. If I don’t address the issue, it’s not really there. It won’t happen to me, so I’m just going to continue to go about my business. Or they cop an attitude and say, It’s not fair. Why me? Either way, they don’t move forward and stay stuck.

• Be reactive.

I’ve seen examples of department heads, upon hearing that the Chief Executive is pushing for a 20% reduction in budgets frantically start calling all their core suppliers and demand that they reduce their prices and pressures them to make a fast decision. These types of department heads don’t have all the necessary facts but make a decision anyway to eliminate their immediate stress and worry. It’s a knee-jerk reaction. The challenge with this approach is that they can cause massive pressure within the supply chain that can ultimately (and often does) come back and bite them in due course.

• Be proactive and positive.

Earlier this year, I was working with a company that was growing rapidly. As such, their needs were changing on a monthly basis and historically they had adopted a ‘we’re bigger now, so give us a bigger discount’ approach to supplier engagement!  They had achieved savings but the basic ‘lets squeeze the lemon’ approach had its limitations.

To ensure that the supply chain was fit for purpose, we invited all of the core suppliers in for a discussion, explained to them the future direction of the business, asked them for ideas and recommendations, and did research on the Internet around innovative approaches.  They prepared a budget and shared this with the core supply base. They outlined and shared a joint vision of what success would look like. They put their focus on what they could do, focused on the positive outcomes and took action.

Obviously, the ideal way to deal with change is to be is proactive because you feel more in control. And the more we feel we have control over the situation, the less stress and frustration we feel. It doesn’t matter what the subject is —when we take charge of change, the journey feels more comfortable and ends up more rewarding.

Easy to say, but how do you choose to be proactive when it’s so easy to freak out or hide under the covers?

• Acknowledge that change is part of life. Nothing would exist without change. It’s inevitable.

• Accept your emotions. Tell the truth on yourself to allow all your feelings. Cry the crocodile tears and release the energy as it comes up. Be patient, as it takes time to sort through all your emotions and adjust to change. Too often we skip over this step, shove our emotions down and that ends up slowing us down.

• Reframe the situation to see the positive. After I explained to the Contract Managers the rationale for the change in Contract and how we can embrace it to create a true Win Win across the full maintenance regime, they started to understand more about the possibilities ahead. They could work in partnership with the contractors, they could be more proactive in the financial management and ultimately have a more fulfilling career.

• Action is required because decisions, not conditions, determine your path. By deciding to move forward and trust the process, we put our focus on what is available.

Change Management is a key ingredient in my C.O.S.T. Optimisation Formula. Download my book for free here. One of the modules that I cover is the Change Accelerator, an illustration of which is given below;

 

 

Your ability to effectively manage the change across your organisation will determine the level of the benefits that you realise from your procurement activities. I’ve seen examples where forecast savings were completely wiped out by not managing the change effectively. Equally, with the case of the Utility company mentioned above, by actively managing the change process and embedding new ways of working, we delivered over £30m of savings over the next 12 months.

Key Steps to Enhanced Supply Chain Collaboration

Key Steps to Enhanced Supply Chain Collaboration

I read with interest the Blog Post on 21st Century Procurement entitled – Collaboration and the Making of the Social Supply Chain, elements of which I have included within this post.

Agnes Rubaj, the author highlights that;

“collaboration in a supply chain organisation is essential to pretty much every role, from the customer service rep, to the demand planner, to the supply chain executive. And those are just the roles within the company. Supply chain organizations operate within global networks of external trading partners that require regular back and forth communication.

[bctt tweet=”Collaboration in a supply chain organisation is essential to pretty much every role…”]

Social media aids collaboration within a business environment because it can help build trust and closely connect people from different roles, backgrounds, and locations across the globe. Many companies, in the supply chain space or not, are turning to enterprise social networking tools to influence collaboration and open communication throughout their departments. However, research shows that these tools are not getting as much traction as predicted and employees go back to relying on outdated collaboration methods, such as email, review meetings, and phone calls.”

She goes on to suggest that there are some requirements that a supply chain planning system of record must possess in order to facilitate proper integration of social networking functions, including:

  1. An end-to-end integrated system that includes everyone you collaborate with, including customers and external suppliers = Everyone working in one place
  2. Cross-functional visibility into up-to-date data = Everyone working from the same data
  3. Ability to create copies of said data (what-if scenarios) to model various supply chain business problems = Analysis is purpose-driven based on specific events/goals
  4. Ability to share the what-if scenarios with anyone in the system = Collaboration happens in context and with a specific objective
  5. A way to connect people in the system to the processes and materials for which they are responsible, so that identifying who to work with can be done quickly and mid-task = The right people are brought together

Although I accept the need for tools to facilitate effective collaboration, there are often other significant questions that organisations need answers to before they can really consider implementing a collaborative supply chain arrangement. These include;

  • What is supply chain collaboration?
  • Where does your firm stand in terms of supply chain collaboration with key trading partners?
  • What level of collaboration do you wish to achieve?
  • How would the increased collaboration influence the performance of your supply chain?
  • What, by the way, can be regarded as successful collaboration?
  • How can your firm get there?

Supply Chain Collaboration is one of the core pillars of my C.O.S.T. Optimisation Formula and I cover these questions in more detail within my book (download a free copy here).

So how do you Define collaboration?

All supply chain and procurement relationships can be considered as falling within a continuum, with traditional, arms-length relationships at one end, and collaboration at the other end, with cooperation 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/among supply chain participants, short of joint venture or vertical integration. Getting down to basics, collaboration can be defined as “the co-ordinated application of a group’s knowledge to deliver a goal.”

In other words, a coordinated effort to pool knowledge of supply chain partners towards a common goal.

Many levels of collaboration are possible in a supply chain relationship in order to achieve a common goal.

Dan Gilmore of Supply Chain Digest offers a framework for supply chain collaboration that covers four levels:

Fig7

  1. The first level is achieved with 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 do not actively engage with their trading partners.
  2. At level two, there can be transaction integration with the automation of basic business processes and transactions, using various means such as EDI, the Internet or proprietary connections. This, in itself is a form of collaboration as it involves investment. Making use of your supplier partners online ordering portal for instance and linking this into your finance systems is an obvious example here.
  3. Information sharing moves collaborators to level three in terms of collaboration. At this stage, trading partners share information using the same platforms as in level II to help them make better decisions. Examples of information shared include those on production, components, forecasts, inventory levels, Point-of-sale data and more.
  4. The highest level of collaboration achievable requires business process integration between trading partners. This is the level at which trading partners engage in true joint planning, implement process redesign across trading partner interactions and really begin to share risks and rewards from collaborative efforts.

Depending on their inclination and the levels of commitment from supply chain collaborators, organisations can decide on the levels of corporate “intimacy” they want to achieve through collaboration.

What’s your experience of Collaboration?  What’s worked well? What should others be wary of? Please share your thoughts.

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4 Steps To Maximise the Value Delivered From Your Procurement Activities

4 Steps To Maximise the Value Delivered From Your Procurement Activities

Have you ever struggled to realise cost savings to your bottom line?

Would you like to deploy a proven 4 step process that will ensure that your initiatives translate into pounds, shillings and pence in your P&L?

If you can answer ‘Yes’ to these two questions, I’ve got great news for you – you’re in the right place.

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 deals possible and yet still have a significant gap in achieving your savings targets. Alternatively, you think you’ve hit your targets but you’re still under pressure from your boss because of the ‘noise’ that’s coming out of the business that the new suppliers are not fit for purpose.

These are stories that I’ve seen 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 a deal with a supply chain partner, we want to ensure that that deal is great for all concerned – that each party is tied together in a common bond – to realise value on all sides – the true Win Win scenario.

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

Why is it that even when these initiatives succeed, in many cases, significant extra benefits are ‘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 researching, adopting, testing and evaluating many of the so called ‘golden ticket’ approaches to achieve increased efficiencies and ultimately cost reductions.

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

My background is 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 have been part of delivering massive change and amazing growth in a short period of time.

I’ve also been involved in organisations that have relatively simple improvement opportunities but have failed to achieve them because they haven’t applied the four essential elements to realising bottom line benefits.

I have created the C.O.S.T. Optimisation FormulaTM to emphasise the interdependences of each of the four parts;

formula

So, why do I state that this is a ‘formula’?   ‘C’ x ‘O’ x ‘S’ x ‘T’ = ‘O’ (Optimisation)

[bctt tweet=”‘C’ x ‘O’ x ‘S’ x ‘T’ = ‘O’ (Optimisation)”]

Well, in simple terms, Optimisation is determined by the cumulative effect of the benefits achieved from; creating optimal internal processes multiplied by aligning your supply chain, multiplied by your ability to drive the change in behaviours across your business, multiplied by the success you have in tracking benefits to the bottom line.

The effect can be and is often significant – let me explain with a simple exercise;

Let’s say that Optimal = 3, Average = 2, Sub-optimal = 1, what would be the result if we achieved the average performance across all four factors?

Remember the formula – C x O x S x T = (O) Optimisation

Average performance – 2 x 2 x 2 x 2 = 16

What if we optimised each factor, what would be the impact then? Well, let’s take a look;

Optimal performance – 3 x 3 x 3 x 3 = 81

Equally, either ignore of under estimate just one area and the difference is staggering;

Example 1 – 1 x 2 x 3 x 2 = 12

Example 2 – 3 x 3 x 3 x 0 = 0

I’m sure that you get the point by now. The difference between average and optimal isn’t a factor of 1, it’s 500% different. Now are you starting to see how a really great deal can fail to deliver the anticipated benefits?

I’ve written a book, The C.O.S.T. Optimisation Formula, that delves into each of these areas in more detail illustrates each point with specific examples. I’ve also created a Masterclass where I explain more about the formula and the C.O.S.T. Optimiser Programme that I have developed to help you implement structured approaches to ensure that you have each of these four elements fully covered within your organisation.

 

How To Set Yourself Up For Procurement SUCCESS in 2016

How To Set Yourself Up For Procurement SUCCESS in 2016

Are YOU subconsciously diluting the value that you deliver in your Company?

The overwhelming reality is that you’re probably doing just that right now!  It’s a fact that most procurement activity never maximises the value delivered to the bottom line.

Do you agree?  Why do you think that’s the case?

Well it’s not because you’re procurement activities are flawed.

Neither is it, that your negotiation skills are not that good!

In many cases, the deals that you have negotiated are all set to deliver significant bottom line value!

[bctt tweet=” Bottom Line Value Is Determined By ………….!”]

In companies, procurement success is much more determined by YOUR ability to manage four key elements than anything else.

Your ability to manage the desired change. Your drive to optimize your operational processes. Your management of your core supply chain relationships and Your capability to accurately track benefits – these are the ultimate deciding factors.

So I’ll ask the question again:

Are YOU subconsciously diluting the value that you deliver to your company?

Do you get frustrated that the business works against the contracts that you’ve negotiated?

Are you finding that you’re being challenged by your CFO that stated savings are not being realized?

Are your supplier relationships suffering because you’re constantly being challenged to get lower and lower pricing?

Don’t worry, you’re not alone!

It is a fact that most procurement managers are operating in a state of frustration that is compounded by the fact that most don’t believe that they have the where with all to do anything about it – it all feels ‘out of their control!’

Have you ever thought this? Are you thinking like that right now?!

How Can You Ensure That You Deliver Maximum Value in 2016

As we head into the final third of this year, you’re probably starting to think about 2016 and what you need to improve in the next 12 months.

These five stages should help you get the most from their planning process this year. Moreover by integrating the four core elements mentioned about (we discuss these further below), you will be able to maximise the value that you deliver in 2016;

  1. Identify lessons from the past 12 months: Start by documenting lessons you’ve learned over the past year and the key objectives that you’d like to continue concentrating on through the next 12 months. You’ll need the previous year’s strategy and plan, functional dashboards, and corporate-level information on business needs to help you do this. Review the results to date, talking through key successes and failures, along with their root causes. One common mistake made by procurement teams is to simply continue with a modified version of the previous year’s plan. Instead, make sure you’re putting business results (saving money or making money) first, which may mean taking a different path than the one originally intended.
  1. Think about internal and external risks and opportunities: Look at the biggest challenges and the biggest opportunities for both the company and your procurement function. For this step, bring external and internal data to the table, including details of industry trends, news stories, or opinions from external consultants, as well as the corporate strategy, mission, and vision.  Activities to carry out during this phase include evaluating industry trends, scenario planning, and recording business partners’ strategic priorities. This last task can help you avoid the pitfall of concentrating only on traditional procurement tasks (like negotiating and securing supply agreements) at the expense of the other ways Procurement can help (like innovating with suppliers or exploring collaborative cost-cutting ideas).  Upon completing this stage, you should have a preliminary list of strategic priorities and alternatives, as well as a set of assumptions on Procurement’s strengths and weaknesses and external trends, such as supplier safety or quality issues in the news.
  1. Establish priorities: Next, use your initial list of strategic priorities from the previous stage to choose a core set of strategic initiatives and alternatives, using details from last year’s projects, your internal and external analysis, and your business partners’ strategic plans.  Work with internal partners and teams to develop targets and goals based on your strategic priorities, evaluating the risks and opportunities of initiatives you’re considering.  After this stage, you should have a prioritised list of strategic initiatives for the coming year, along with a business case supporting them.
  1. Communicate to business partners: Your next task is to build buy-in for your strategic plan and identify opportunities to work together with business partners to achieve it.  You’ll need to develop messages that link Procurement’s strategic priorities with the goals of internal customers, and then communicate these priorities to them. Always demonstrate how your strategic priorities will benefit the enterprise as a whole.
  1. Set your budget and structure: The final step is to set up a budget, organisational structure, and execution plan to turn strategy into action.  Once the organisational structure is in place, allocate resources across activities. Then, communicate priorities to your teams. The final output should be a trackable budget, team assignments, and clear objectives for your staff. Make sure to build flexibility into your plans so you can adjust should needs change.

[bctt tweet=”Procurement Success Means Different Things To Different People”]

Although, I’ve titled this post “How to set yourself up for Procurement Success”, I fully accept that success means different things to different people. My definition of success may well be completely opposite to yours.

BUT, that’s absolutely fine.

The important thing is, that however you define success, you have a clarity around what you need to do to achieve it

How Do You Prevent The Dilution Of Value?

I’m sure that you’ve been in situations when the value that you delivered to the company was diluted due to operations not adopting the new contract or suppliers, or your suppliers not being able to provide the promised innovation due to a failure of your internal processes.

The list is endless – I’m sure that you’ll have a lot of ‘war stories’ yourself.

However, it’s one thing to identify the cause, it’s something completely different to actually do something about it.

The fact that you’re still here reading this post means that you’re ready to find a solution. But, I’m sure you’re starting to think about what I’m trying to sell you and worry about the amount of time that all of this will take to put right – time that you just haven’t got, right!

I know exactly how you feel.

Many of my clients have felt exactly the same.

But what they have found is that my approach enables them to deliver significantly more value to their organization than they have typically been able to do previously.

That’s why I’ve created an Advanced Training for you and I want you to have it for Free.

You can get the full scoop here, but here’s a “big picture” look at what’s covered:

  • We start by exploring the four core areas for Procurement Success!
  • Next, we explore your each area in more detail and discuss proven ways to adapt these core philosophies into your Company!
  • Next, you get to try an insight into the core tools and techniques required to maximise the value that you deliver.
  • Finally, you will organise yourself for success by creating a detailed action plan that will ensure that you’ll maximise the returns achieved in 2016

The training itself is delivered via three videos that I’ll send to you over the next three days. Each is around 20/30 minutes long and focused on guiding you to implement the approach into your company right now.

Here’s How To Get This, FREE.

First, go here and request it.

Just enter your name and tell me where to send everything and it’s yours.

Like I said, there’s no cost.

So if you’d like to ensure that you can guarantee your future Procurement Success and Maximise the Value that You Deliver to your Company, get this free training now.

See you at the training

Tony

How important is it that you understand how likely you are to deliver your 2016 savings/ efficiency targets?

How important is it that you understand how likely you are to deliver your 2016 savings/ efficiency targets?

As we approach December, in my experience, thoughts turn to three things;

  1. The Christmas Party
  2. The Christmas Party
  3. The targets for the new year

OK, I admit that You may not be thinking about next years targets just yet, but I bet your boss is!

How have you done this year?

How does the actual value delivered to the bottom line compare with the projected value included in last year’s business plan?

Over the years, and through more than 100 client engagements, I see, time and time again, the value actually delivered from individual projects – and I mean actually impacting the bottom line – is significantly diluted from the projections initially signed off in the business plan.

The result is that throughout the year, you’re likely to be ‘chasing numbers’ and looking for more opportunities to cover the ‘potential’ shortfall.

Does this sound familiar?

The reasons for this dilution in value are varied and indeed in many cases, you may not be able to accurately assess the cause.

A recent client engagement highlights the point perfectly. They had moved vendors to achieve a 15% reduction in unit costs and, quite rightly the CFO expected this to translate directly to improving the profit margins. However, 6 months in and costs had actually increased in a large part of their network!

How could this be the case?

When we completed the assessment, it became clear that they had failed to effectively manage all four parts of the COST Optimisation Formula;

  1. the need for effective management of Change
  2. the need to Optimise Internal Processes
  3. the need to work collaboratively with their Supply Chain Partners
  4. the need to closely Track Benefit Realisation

So, as we approach the festive season, wouldn’t you be able to relax and enjoy the Christmas Party even more, if you had an accurate estimate of the value that you are likely to deliver from your 2016 projects.

OK, I admit that this may be stretching things too far – the 2016 projects may not be too high on your agenda when you’re at the party, but wouldn’t it be good to get an early estimate of your likely shortfalls so that you can;

  1. take action now to minimise them
  2. proactively plan additional projects to help you fill the gap
  3. do both and be a star in 2016!

Well, now you can!

I’ve created a simple (but very accurate) Assessment Tool, which you can use today to help you more clearly understand how likely you are to deliver your 2016 targets.

Go check it out and ‘enjoy’ the party season to the full!

Don’t even think about commencing a new procurement exercise without reading this article!

Don’t even think about commencing a new procurement exercise without reading this article!

So you’re about to kick off a new procurement exercise. 

What are you trying to achieve?

The answers that I tend to get after asking this question are varied but can be summarised in 3 words “To Improve Performance”.

This may be achieved through reduction of unit costs by x%, negotiation of additional discounts based on achieving volume of £y, or more often through improved specification of requirements.

So what would you say if I told you that you are more than 75% likely to fail to deliver on this objective?

Would you still go ahead?

At this stage, many respond “no, obviously not!”

However, today, there will be a significant number of projects kicked off where the project leaders will be blissfully unaware of this scary statistic.

So, what can you do to ensure that you don’t become just another statistic?

What do you think is the main cause, that results in such a high percentage of project failure?

After studying this very issue across hundreds of companies, the #1 reason identified is a failure to effectively manage the necessary change to behaviours, processes and skills required to ensure that the benefits can be realised.

[bctt tweet=”The #1 reason behind project failure is a lack of effective change management”]

Why do you think that Change Management is so important?

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

Within Procurement, you’ll hear the term “maverick spend”.

What do you think is the main cause of ‘maverick spend’?

Put simply, ‘maverick spend’ is the result of an individual or groups of people not following due process and utilising alternative sources. Typically, this is a result of those individuals not ‘buying in’ to the change in suppliers/ process/ products etc.

Their lack of compliance reduces the potential benefits achieved.

An example of this was seen recently within a client organisation that I’ve been working with that had changed suppliers after negotiating better rates. The catalogue of products provided both ‘branded’ and own brand products and the focus of the savings was to drive the uptake of the own brand lower cost options.

However, a significant number of their people simply carried on buying the ‘branded’ option and the potential cost savings were significantly diluted.

Why did this happen?

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

As such, as long as the business areas managed their costs within their budgets, no pressure was applied. As a result, there was no local pressure to migrate to ‘own brand’ products!

There’s an old management theory that I passionately believe still holds true – “People do what gets measured”

[bctt tweet=”People do what gets measured!”]

As such, you need to ensure that any change that you are looking to make within your company is properly reflected within your core performance management 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 an organisation. To deliver the benefits, many associated changes may need to be defined and implemented to solve a specific business problem or deliver specific benefits.

 fig3

 Figure 1 – Potential Catalysts for Change

Even the introduction of a new supplier may involve the definition of new processes, changes in skills and changes in behaviours to deliver the benefits that the business needs.

As I mentioned earlier, 75% of all projects fail to deliver their stated benefits!

There are many reasons for this shameful statistic but common ones include;

Lack of Business fit

  • No-one wanted to use it
  • It didn’t work the way we needed it too
  • No one could make their mind up what they wanted.
  • What we got was not what we asked for.

Governance

  • It cost much more than planned and was very late.
  • It got out of control and we stopped it.
  • The scope implemented was much less than the scope we set out with

So how do you get control around change management?

How do you minimise the risks associated with this critical area?

My 6 stage C.H.A.N.G.E. Accelerator TM provides you with a proven framework;

 fig4Figure 2 – The C.H.A.N.G.E. Accelerator

Let’s take a look at each of these areas and highlight some ways that you can minimize the impact of change across your Organization.

1. Control & Governance

One of the more common reasons for organisations failing to deliver change is a lack of governance across the change process. I’m sure that you’ve come across the old saying “a failure to plan is a plan of failure”

[bctt tweet=”A failure to plan is a Plan of Failure!”]

So why is it so unusual for a change process to be effectively planned?

There are two essential elements to ensuring control and governance around your change initiatives. Firstly, you must ensure that you have clear leadership – strong and visible sponsorship from one of the top executive team, creating a compelling vision for the future.

This will establish the purpose and direction whilst the second essential – programme management – will ensure its delivery.

You need to create a focused strategy for change, prioritised on economic benefits for the business.

[bctt tweet=”Create a focused strategy for change, prioritised on economic benefits for the business “]

Base the strategy on objective analysis rather than on the sum of current management opinion.

Employ strong project management and work to a recognised project lifecycle, installing project teams with the right balance of change experience and business knowledge.

Create a structured approach to change programmes and insist the structure is followed. I’d encourage you to consider incentives for key personnel based upon completion to time, within cost, and to agreed (benefit-based) deliverables.

Finally, proactively manage interfaces within your company and work across functional boundaries to ensure that risks are fully understood and actively managed.

One of the most successful change programmes that I have been involved in resulted in the complete transformation of a high street Bank, moving it from laggard to industry leader in the space of 5 years.

How was this achieved?

The Chief Executive at the time lay down an absolutely clear vision and mandate to the business and his senior leadership team – “to deliver a billion by the millennium”.

Everybody in the Bank was clear of what we were trying to do and how we would all benefit from the transformation.

Moreover, every Thursday morning at 10am, we all knew where the Senior Management Team were because part of the Governance Structure was a formal Change Management Group (CMG) and each week, the CMG sat and reviewed progress, took decisions on key components of the change and communicated to the rest of the business.

Having presented to the CMG on numerous projects, I knew that I’d get one of three decisions;

Approved – now go and deliver it.

Rejected – move onto the next project

Deferred – you need to provide specific extra information for us to make a decision

This approach was so empowering and ultimately over delivered on the benefit case, delivered the change quicker than expected and mobilised a highly productive team that had absolute clarity in what they were doing.

2. Honesty in Communications

Let’s make one thing clear – nobody likes change!

The initial reaction is to feel threatened by change – what will the impact be on me? How will I be affected? Will I lose my job?

The impact of this is that most people initially 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?

In most cases, it’s because they don’t know what the impact of change will be. How are they going to get to know? 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 will be and how they will be affected. More importantly, 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 scare mongering that will inevitably go on.

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

[bctt tweet=”A Lesson in Change – be honest in your communication, be open and be proactive”]

Success is based largely on trust – do your team trust 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 tend to feel that you are holding something back and trust is broken. Once broken, it is extremely difficult to get back.

3. Alignment to Business Needs

When change is aligned to a clear business need, the change is much easier to embed. Alternatively, when the perception is that this is not the case, then reaction and disruption will more than likely occur.

When developing the initial specification, be clear to actively engage with the ultimate users across the business. Let them feel an integral part in the design and final selection – they will have much more ownership of the change that you are looking to deliver and be much more supportive if they have been actively involved from an early stage.

This is equally as relevant to the wider Supply Chain partner team. A support services client worked extensively with a wide variety of independent service providers, as well as a direct labour force.

Much of their work was conducted on behalf of public sector organisations and over the last few years, the pressure to deliver more for less has been intense. After reviewing performance metrics across both the direct labour force and the external delivery partners, we identified significant variances across productivity and realised that by moving everyone to the ‘average’ would deliver a significant financial benefit.

At this point, we could have simply looked at the best performing teams, found out what they were doing and then ‘told’ the rest to copy. However, I always found that ‘tell’ mode doesn’t work.

Instead, we pulled together a small working group made up of both direct and indirect team members and set them a task to assess the differences between good, average and poor performers. We positioned this with the external parties as a way to help them to become more efficient and thus more profitable – again creating a Win Win scenario.

Over a period of 6 weeks, the working group not only reviewed performance, but pulled together a best practice guide and developed a training and communication plan.

[bctt tweet=”Over a period of 6 weeks, the working group not only reviewed performance, but pulled together a best practice guide and developed a training and communication plan.”]

They ‘owned’ the delivery, they felt that they had designed the output and over the next 6 months, performance across all aspects of client delivery improved at a faster rate than ever before.

4. Nurture & Engage

All too often, change is ‘communicated’ and then a tick is placed in the ‘delivered’ box. Have you seen this within your company?

I certainly have – there have been so many instances where a new supplier arrangement has been negotiated and implemented. This process may have taken a significant amount of time to complete, yet the launch and ongoing engagement across the business is often neglected, resulting in an inconsistent level of adoption across the business.

One such example occurred recently in a client – a significant amount of effort had been expended to review and ultimately select a new provider of basic products – you know the type – high volume, low price items.

The cost to change, in terms of business interruption and risk associated with the change wasn’t insignificant and the company laboured to make the final decision to change. But ultimately, they agreed to change vendor.

A significant amount of planning had been undertaken within the head office environment and a reasonable amount of communication issued to update the business of the change of vendor.

However, all of this was one-way communication – tell mode and not surprisingly, many people simply didn’t listen and take notice.

Upon the date of change, all hell broke loose across the business and ‘suddenly’ as far as the operational team was concerned, their existing supplier(s) had been ‘switched off’ and they had no confidence in the vendor selected.

What they were really saying was that they didn’t want to change, but what came out was their frustration!

Establish a well structured, focused communication strategy with appropriate interventions at all stages of the project lifecycle and constantly review communications for effectiveness.

[bctt tweet=”Change Lesson – Establish a well structured, focused communication strategy with appropriate interventions at all stages of the project lifecycle and constantly review communications for effectiveness.”]

Create ownership within the business for the change and ensure that there is sufficient business input at all stages, enabling the business to participate actively in the design of the change.

Don’t forget to proactively manage your key Stakeholders by knowing who’s affected and how it will affect them. Involve every layer – create a network of committed champions, as well as local transition teams, to extend the change team’s work and set expectations appropriately.

5. Goals & Objective

At all times, you need to be outcome focused – you need to know what is required – by whom/ by when etc. and you need to focus on demonstrating benefits.

Do you know what success for the change would look like?

Is this vision shared?

Do the whole team understand this clear definition of success?

You will find that those individuals that are not supportive of the change will try to find evidence to suggest that you are failing to deliver the agreed benefits. As such, it is essential that you develop a clear benefits realization plan, one that can track those benefits right back to the bottom line.

The banking example that I mentioned earlier – that had a clear goal didn’t it – to generate a billion by the millennium!

How easy is it to evaluate progress and ultimately success of this goal?

Yes, I agree that it isn’t always that easy, but don’t ignore this step. Always crystalize in your mind exactly how you will demonstrate success and put in place clear milestones to monitor progress.

[rad_rapidology_inline optin_id=optin_1]

6. Embed the Change

You may have done all of the above, but until you can honestly say that any change is fully embedded within the company, it is highly unlikely that you will be able to demonstrate delivery of full value.

The degree to which you embed the change will determine the ultimate value that you deliver to the business, so how do you go about it?

First and foremost, lets define what we mean by embedding change.

Embedding change requires people to consistently and permanently adopt new practices, behaviours, skills or capability. Remember embedding takes time and you must be prepared for an on-going cycle of development.

[bctt tweet=”Change Lesson – Embedding change requires people to consistently and permanently adopt new practices, behaviours, skills or capability”]

Prepare people for the change and support them through the change by making training appropriate and timely.

One essential, often forgotten is to realign employees’ KRAs and KPIs measures to desired new performance standards.

Change management isn’t easy and is often overlooked. However, get it wrong and your savings or amount of value created 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 around £300m of annual contracts – these contracts were awarded to just 6/7 large-scale sub contractors.

Over the previous 12 months, the Contracts Director, let’s call him Andy had brought in one of the Big 4 consultancies to help him to redesign the Engineering Period Contracts (EPC) – this resulted in the framework being changed to a ‘Gain share’ arrangement, whereby individual jobs were given a specific price and if the contractor was able to deliver the jobs at a cheaper rate, they would retain 50% of the savings.

At the other end of the spectrum, should the contractor costs be greater than 102% of the agreed price, they would have to shoulder the extra cost themselves.

The expectation was that, given the upside, the contractors would be ‘incentivized’ to deliver the work in the most cost effective way and overall costs would decline.

Makes sense doesn’t it.

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 that the ‘agreed price’.

So why do you think I got the call from Andy asking me to go and help him to understand why his costs had risen?

Well, when I concluded my review of what was happening on the ground, it became clear that the necessary change management hadn’t been completed.

The Contract Managers were ‘operational’ in mindset rather than commercial and the Contractors had quickly realized that as long as they delivered to around 98/102% of the agreed cost, everything would get signed off and the occasional job over budget would be discussed at length and in the majority of cases, an agreed overspend would also be signed off.

Within 2 months and after a lot of sweat and focused effort, I, along with a small number of colleagues coached and mentored the Contract Management team and over the next twelve months delivered over £30m of savings.

Within the C.O.S.T. Optimizer Programme TM, we dig much deeper into the C.H.A.N.G.E. AcceleratorTM and provide you with proven models, tools and techniques to enable you to make sense of and deliver organizational change.

For those organizations that require more detailed support, we offer an Academy where for 6 months we work closely with internal teams to help them understand, apply and benefit from the C.O.S.T. Optimization Formula. The Academy includes a really valuable Mastermind Group where non completing organizations work together to learn and develop the processes together. Find out more here

 

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