By Richard Sterling, Partner at AltoPartners Australia
Procurement has not had a positive image with C-suites for many years. Seen as being divorced from corporate strategy procurement is accused of failing to create value.
Enter the procurement Torchbearers - professionals who are giving procurement a thorough make-over.
A report released in June 2017 by the business performance consultancy Aymig titled Procurement 2020 *, reveals the startling figure that 83% of respondents do not believe that their procurement function is strategically-focused. This is backed up by the fact that fewer than one-in-five executives felt their organisation had driven significant value from procurement in recent years.
The survey, which was conducted across C-suite executives of 200 global corporations, provides a picture of the magnitude of the disconnect between the objectives of procurement departments and their respective company’s wider businesses.
Here Is The Problem
As I speak with senior procurement executives, the common theme in their log of achievements is how they were able to provide year-on-year savings by delivering better, faster and cheaper, by pushing all the risk to suppliers and by expeditiously applying penalties.
What is absent from the majority of these conversations is a log of achievements around relationships with suppliers. Undoubtedly the value creation element of procurement.
Achievements such as post contract award revenue enhancements, the identification of partnering opportunities or joint ventured innovations or product and service improvements or perhaps demonstrating how quantified value has been created for both the customer and the supplier, just to list a few.
The Procurement 2020 report highlights that 58% of Chief Procurement Officers (CPOs) believe that delivering savings is a key concern for their teams over the next two-to-three years, but only 28% of CEOs share this view. It is the blind pursuit of savings that ultimately undermines value.
The benefits of positive long term relationships in domains such as economics, engineering, marketing and sales is well understood but it has been resisted by procurement. The emergence of strategic sourcing proclaimed the era of arm’s-length transactions and the abandonment of relationships. The true cost of which became more apparent as the revolving door of suppliers encouraged opportunism and brought about a breakdown of ethics, standards and governance.
The Procurement 2020 report shows that 90% of CPOs believe that procurement is capable of value creation with the application of better tools and systems. This seems to be missing the mark with only 42% of CEOs agreeing.
the best IT tool is only as good as its handler
Certainly better IT systems can improve the processes undertaken by procurement and can improve data analytics and can provide tighter integration with supply chains, but ultimately a tool is as good as its handler and the strategy that they need to deploy.
The Road Less Travelled
Although so far this is a picture of procurement failing to create and indeed undermining value creation, there is hope.
CPOs and other senior procurement professionals need to be proactively building bridges to the C-suite to truly understand the overall organisation’s objectives and then spend effort to translate these to procurement strategy and execution. These bridges will also need to be built to other department heads especially to those charged with delivering the product or service to the customer.
The ultimate positioning of procurement within an organisation will be that of a trusted partner and leader in the creation of value.
Positive and effective supplier relations need to be firmly put back on the agenda so that with time the supply chain can be a part of the value creation solution, which as Tim Cummins, CEO of the International Contract and Commercial Management Association expresses, “… it is about exploring optimised mutual benefit rather than sub-optimal individual gain.”
There are progressive procurement professionals out there. They are the Torchbearers and they are giving procurement a thorough make-over into a value creating function.
One such corroboration of this is the rapid adoption by some of the ISO 20400 Procurement for Sustainability ** guidance released in April 2017. Although the guidance addresses sustainability - an imperative objective for many global leading corporations - it makes it clear that the entire supply chain is the answer to procurement creating value in line with sustainability.
Among its various guiding clauses are those that address suppliers and include:
- Guaranteeing fair financial treatment of suppliers (including payment)
- Promoting sustainable and balanced supplier relationships (including contract)
- Treating suppliers and subcontractors equally (fair and open competition)
- Developing business relationships and promoting mediation
What is interesting about ISO 20400 is that it underlines that procurement must become strategically aligned with corporate objectives and the many stakeholders associated with their delivery.
The science of procurement unquestionably remains important but what the Torchbearers appreciate is the need to change the way procurement interacts with the C-suite, other executives and the supply chain.
So what are the attributes of a Torchbearer? What are they doing to become creators of value?
In short, Torchbearers are able to demonstrate leadership and value creation. They are able to present their achievements well beyond savings made; they give credit to the team effort; and they can illustrate examples of innovation at their team level and throughout the supply chain.
There are seven Torchbearer attributes that standout. I have used a general heading for each attribute as a way of standardising the various articulations these attributes have from one professional to the other. They are not presented in any order of priority.
1. Strategic Conversations
The Torchbearer enters into discussions with the C-suite about the overall strategy, the bigger picture - today and tomorrow.
we are in this together
To achieve this, the “I am the expert” hat is taken off and left at the door and the “we are in this together” hat is put on. Engaging with the C-suite in this way provides the Torchbearer with the best opportunity to understand how value needs to be created and indeed, what is meant by the term ‘value’ in the context of the specific organisation.
The intent of outsight is to work out future directions, priorities and the stakeholders that will be required to support initiatives. It requires that the procurement professional develop networks, at times deep in the business and at other times, outside the business, beyond their immediate profession, beyond the industry in which the business exists, beyond the markets in which the business trades.
The ability to leverage outsight provides Torchbearers with a better sense of the many factors and levers that will impact the doing of business and the supply chains that support the business.
3. Talent Management
As technology takes its ever increasing place within the procurement function the team required grows smaller but also needs to become much smarter. Torchbearers see this as an opportunity to hire the best talent and make this as their core objective. The emphasis is on hiring people who are business solution leaders - focused, enabled and motivated. It will be these people who will nurture the most effective supplier relationships, use technology effectively and strive to achieve the common objectives.
embrace diversity… hire well … train and empower
The Torchbearers build strong teams around the principles of diversity because they know from outsight and/or experience that diversity produces a fertile environment for innovation.
They support their teams with clear career development and training structures underpinned with well-defined and articulated values. Torchbearers understand that these are critical ingredients to the glue that binds teams located regionally, internationally… virtually.
4. Supplier Relationship Management (SRM)
Good contracts define and set expectations and therefore represent the framework for the relationship. The Torchbearers set the tone for a positive, collaborative performance and governance right from the outset by incorporating these principles at the earliest stages of the procurement process.
Torchbearers see SRM as one of their core competencies which grows in worth as supply chains become increasingly global and technologically driven. Well-structured SRM programs drive both value and build reputations. Torchbearers ensure that their teams are trained and become skilful in the best SRM practice.
Leading Torchbearers envision a future in which suppliers are embedded in their organisation and become the originators of innovation.
Collaboration is seen as the first and crucial step to a future in which major suppliers are embedded within the organisation.
A belief in the benefits of collaboration underpins the Torchbearers drive in this regard however, it is tempered by either outsight and/or experience that collaboration is not always the most effective way of achieving an outcome. There will be times the Torchbearer will have to just get on with it.
The Torchbearers, in their endeavours to tightly align procurement with their organisation’s objectives, bring to the table other business functions to assist with the development of procurement strategy and at times, its deployment.
Torchbearers will be the first to admit that collaboration is not easy and it has risks associated with it but by extending the collaborative approach to major suppliers it becomes one of the keys to unlocking incremental and measurable value.
The ability to respond to changing circumstances, customer demands, global trends, and competitive pressures successfully, ethically and without damaging supplier relationships is essential. Torchbearers have a personal capacity for agility and work hard at having it mirrored throughout the procurement function and throughout the supply chain.
agility requires the trust of the suppliers
Torchbearers recognise that their agility rests, in substantial part, with the supply chain’s willingness to support procurement. For that to happen they understand that procurement has to exercise fairness, have a shared risk approach, clearly defined expectations and ultimately trust.
7. Bridge Building & Communications
Torchbearers actively build bridges to the C-suite and to other department heads. Breaking down the perception of being business inhibitors and establishing the new view that procurement is a business enabler takes time and perseverance.
procurement needs more than data centric information flows
But building bridges to ‘show and tell’ the achievements of procurement needs to be balanced with consultation. Reaching out and seeking information and advice. To be truly effective in creating value, Torchbearers must have deeper conversations that lead to insights which in turn have the potential to facilitate improvements, great or small.
Two Steps Forward
Torchbearers and other procurement professionals cannot do it alone. Organisations need to take two additional steps so as to truly empower the procurement function.
Step One: The International Contract and Commercial Management Association and the UK headquartered State of Flux are leading the charge across global organisations but their advocacy for procurement’s Torchbearers needs to be echoed by the C-suite as well as throughout the executive ranks.
It is all well and good for the C-suite to say that procurement is not delivering value or is not aligned with the bigger strategic objectives, but many in the C-suite do not define - let alone understand - the function beyond the worn out position of making savings.
A step forward would be in the C-suite’s effort to re-define procurement in such a way that it becomes an integrated element of the overall strategy rather than a standalone unit constantly knocking at the door in the hope of being let in.
Step Two: Torchbearers need a helping hand from their peers in Commercial Management, Business Development, Marketing, Strategy and Sustainability.
More importantly, they need a helping hand from the C-suite itself through the application of high-impact mentoring programs that help Torchbearers develop more of the skills they need to have mature conversations about strategy.
Richard Sterling is AltoPartners’ global practice leader for Contract and Commercial Management. He can be contacted via: email@example.com or on +61 2 8007 5812, (Sydney, Australia).
AltoPartners is the global provider of Executive Search and Leadership Advisory services to the members of The International Association of Contract and Commercial Management (IACCM). www.altopartners.com
*Partnering with Raconteur, Ayming canvassed the opinions of 200 key C-suite executives (evenly split between CEOs, CFOs, COOs and CPOs) from businesses around the world, and across an even distribution of company sizes, ranging from an annual turnover of £250 million to in excess of £5 billion. Sectors surveyed included financial services, healthcare, manufacturing, retail, technology and transport & logistics.
**Jean Louis Haie, a director of Action Sustainability is one of the international architects of ISO 20400 . The guidance was developed with contributions from private, public sector, not for profits, procurement, supplier and academics from 52 countries.