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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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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?

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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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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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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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