"This little piggy....."

We all remember the little ditty about the piggy going to market while they others either stayed home, had none and of course the one that whined all the way home!

The moral of this story it seems is the piggy that went to market was in fact that one that was most successful, as opposed to those that sat by the sidelines and expected things to be brought to them.

Similarly, in procurement, if you don't go out to the market you will never achieve the appropriate level of success in your organization. You will continue to be seen as an obstacle; a tactician; non-value add...the list goes on. The mistake most procurement organizations make is having the false belief that because we built it "they will come."

So where is your market and how do you go to it?

Obviously, the market is all the potential internal organizations within your corporation. You need to work these groups similarly as all the sales people whom you deal with daily from outside the organization.

You need to define your value proposition -- ask the question as to why it is of benefit to these areas to work with you -- what can it get for them? Most procurement organizations make the mistake of saying -- well we can get it cheaper -- only to find out that an internal client will say, "well actually I got it cheaper than your deal." Of course that is because they are focusing on price, not on the total deliverable cost! Identify your knowledge of the marketplace, the subject matter experts on your team, and the fact that you are about more than just price!

If it is a group or individual that is used to doing things on their own, ask to be part of their team -- don't force your way in. Indicate your team's willingness to be a participant -- the best way to demonstrate value is not by telling them about it, it is by showing it. Numerous times I have done this where the value was clearly demonstrated and then created client satsifaction, thus client loyalty.

Create Client Executive, Business Development type roles in your procurement organization. Similarly to the sales organizations, you cannot mine for more business if you don't have individuals focused on your clients. The individuals in these roles, live and breath with the internal clients, participate in their staff meetings, strategy sessions and sell the benefits of working with the procurement team. When you are seen as an extension of their organization and not a "separate" department, you will see how much activity begins to flow your way.

Just as with the suppliers with which you deal, you feel more comfortable in working with an organization if there is a level of trust regarding delivery, issue resolution etc. These client executive roles will build up that trust and the postive bottom-line impact that occurs from the utilization of these roles, will more than pay for their salaries.

So stop "wee, wee, weeing" all the way home. It is the pig that goes to market that brings home the bacon!

"I don't get no respect"

Rodney Dangerfield could have had Procurement as a career! The number of times I've heard the sighs at senior levels in Procurement and Supply Chain wondering why they "don't get no respect" is significant.

So why is it, no matter where you go and what you do, the organization as a whole does not "seem" to respect the Procurement team?

Firstly, procurement grew up in organizations as the paper-pushing (PO) group...more closely aligned with Finance, than the business as a whole. This Purchase Order tactical process is still what will be mentioned by most if you ask them what Procurement (or Purchasing) do...
"Oh, they are the ones who cut the Purchase Orders and help us buy stuff."

Secondarily, there are many procurement organizations that are perceived to be an obstacle to getting business done! "If I get Procurement involved, they'll just slow down the process, it's like running an obstacle course!" In some cases this may be true (there are many horror stories out there), yet in most it is not. Unfortunately, procurement hasn't made the time to develop the relationships in the organization and explained their value add -- they just expect others to know and understand!

Thirdly, Procurement teams are much too humble. Constantly phenomenal business approaches, technological advances, reduction of total costs, alliances, strategic partnerships, etc. etc. etc. that enable gains in the financials through driving additional revenue and reducing costs occur....but alas...no one knows, because no one is telling them.

Finally, Procurement organizations have a certain arrogance which leads them to believe that because they are an internal service, that of course everyone will use them "because its mandated". It is amazing the creativity that people in organizations can find around processes and departments that they don't understand and don't recognize the value.

So what can be done?

The pity-party is what needs to stop first. If you are not respected, then you have not promoted yourself and your team effectively, and as such, have not earned the respect.

To start down the road of recovery it is necessary to view Procurement from a Sales, Marketing and Business Development point of view.

Ask the questions: Who is my market? What is my market expecting from my services vs. what I'm delivering? How can I close the perception gap? How can I package my services to appeal to my clients? Are there key individuals whom I should target, who can become champions of Procurement within the organization (or as I like to call them FOPs -- Friends of Procurement/Purchasing)? What organizational construct should I have that ensures ease of access and understanding of the services which I provide and allows for business development among the stakeholders? How should I be communicating to the organization and provide it with the insight that the team is about more than POs and obstacle creation?

In the next number of entries I will expand on the areas above and provide insight to Procurement organizations as to how they can obtain client satisfaction; create customer loyalty and have continual repeat business from all the internal stakeholders.

To Reach the Kingdom of Outsourcing you need to overcome a Moat of Myths

As consumers we are continuously engaged in outsourcing. We hire painters, plumbers, gardeners and mechanics. Some naysayers may retort by stating that they, in fact, perform many, if not all of these activities themselves. Yet they are in the minority and furthermore, have you ever looked at a professionally painted home or landscaped lawn and compared it to the "do-it-yourself" variety?

Surely most would agree that the quality and timeliness associated with the professionally performed work far exceeds that of the other.

So why is it when it comes to reviewing our business processes that organizations often balk at the thought of outsourcing? Fear mostly. The thought of losing control and the belief that many of the myths surrounding outsourcing are factual have kept many from even considering outsourcing.

The reality is that organizations that embrace outsourcing and leverage their resources to focus on their core business will in effect continue or be the market leaders of tomorrow.

So before you consider running for the hills at the mention of outsourcing, let's separate the moat of myths from the solid ground of facts.

Myth: Outsourcing a function means that the company does not consider it critical to its success.

Fact : Businesses often outsource functions that they define as critical to their success. According to the Outsourcing Institute over 30% of companies today are engaged in some form of outsourcing.

Consider how many corporations have outsourced their information technology, or the major automobile firms who outsource much of their manufacturing. Aren't car engine components critical to an automobile company's product performance and thus reputation? Isn't date and information flow critical to the success of all corporations?

Critical and core functions are not mutually inclusive. In fact, it is the visionary corporation that understands it may not have the expertise, resources or the strategic focus on a critical function and that having these services provided by a world-class outsourcer can significantly enhance them and thus their competitiveness.

Myth: Outsourcing can cost more when considering factors beyond headcount reduction.

Fact: If headcount reduction is the PRIMARY focus of an outsourcing activity then it is doomed to failure. When determining the relevancy of proceeding with outsourcing of a function a total cost evaluation must be considered.

When outsourcing a function significant opportunities for cost savings exist including:

• With experience and knowledge of best practices, the outsourcer can review the complete business cycle and deliver on-going best-in-class value;
• Benefits derived from leveraging facilities, equipment, personnel, technology, etc.;
• Enhanced knowledge and control afforded over process/methodologies used with metricing and monitoring SLA's and KPI's;
• Avoiding the need for capital investments for new technology, equipment etc., while having access to the latest tools. Obviously some aspect of this would be in the pricing of the outsourced contract, however, instead of a capital expense and all that this entails, the outsourced contract payments are an operating expense, thus potentially providing some relief to the balance sheet.

The fact is that outsourcing can result in a company quickly reaping the benefits through expertise, enhanced control, leverage, without any capital expenses and with reduced operational costs!


Myth: An Outsourcer will not be motivated by the same business drivers, as an internal group, to ensure customer focus and maintain flexibility in a changing market.

Fact: Whether you purchase a product, service or outsourcing, it is crucial that the customer set the ground rules and negotiates service level agreements, wherein expectations and targets are set and regular business review meetings are conducted to ensure that the supplier is "measuring up". Internal politics or other issues that an internal group is often faced with, or the potential budgetary constraints that often hamper progress or restrain flexibility do not restrict the outsourcer.

The supplier of outsourced services is there to support the client and to assist the client in meeting their goals and objectives. There is usually much greater conflict between internal resources than there is between a client and a supplier whose long-term relationship and payment depends on the customer's satisfaction.

Myths are created as a result of fear and trying to develop one's own interpretation of the situation given that fear. There is no need to dread outsourcing!

The outsourcing moat of myths is an illusion conjured up by some who just like things the way they are.

So are you going to stop corporately milking the cow and growing the wheat? Isn't it easier just going to the grocery store?

Volume! Volume! My kingdom for more volume!

How often have purchasers heard this refrain? There is a huge misconception among non-procurement professionals that the greater the volume (quantity or dollar) the better the discounts. And to a certain extent this will work -- for a while.

But how much volume is too much? Do those in the upper echelons of your organization constantly talk consolidation? What happens if you try to explain to them that any additional volume at this juncture is like adding a snowball to an avalanche...it's not going to make any difference!

If you are a successful procurement professional then you know the marketplace, understand the current conditions that enable you to negotiate a beneficial deal for your organization. If you go into a negotiation with a supplier unprepared and just expect to barter them down -- then be assured they are aware of this tactic and will have come in at much too high a price and will pretend to bleed at every step you take them down. When a supplier walks out of a negotiation and praises your negotiation skills and how they are feeling the pain -- BEWARE -- the false flattery probably means that they were more prepared than you and are just pandering to your ego, while they walk away with an inflated profit margin.

Another misconception is volume commitments will result in better deals. As before, it depends and the down-sides of this scenario far outweigh any benefit.

The very thought of committing agreed upon volumes is enough to make the hair stand up on the back of my neck! Not that in theory it isn't a bad idea, but we live in a real world where the practice is what counts. There is no spell or incantation that can't effectively make a volume commitment into good business sense.

Why? Well firstly, volume commitment is based on an accurate sales forecast. When was the last time you saw one of these? Now, I'm not necessarily blaming the sales team (oh maybe a little bit), but the volatility of the marketplace and the whims of the consumer (whether business or individual) are often times hard to predict. If you over commit, the result can be enough product in your warehouse to supply you until the new millennium. Significantly under commit and 1) you may have trouble with supply; but more importantly 2) you probably didn't get the best possible deal. Also don't forget that in the new Sarbanes Oxley world, a volume commitment is to be disclosed as a liability on the balance sheet, and must be tracked closely. This adds another layer of complexity onto an already complicated situation.

So is consolidation of volume bad? Of course not, consolidation of spend and increased volume do make a difference.The benefits, however, are not infinite -- there is a saturation point wherein if you got more -- it would be the supplier paying you to take the product or service! At this juncture you may begin discussions in another direction, more alliance and partnership oriented where each of you can bring some intellectual capital to the table to enable mutual growth in revenues.

Consolidation and limiting the number of suppliers can also have its limitations when considering flexibility. If there is a product constraint or your current provider happens to be acquired or goes bankrupt, what would you do? The answer -- you would pay a higher premium with another supplier because of the rapidity with which you would need to get supply.

In conclusion -- size matters, but only to a point!

Double, double toil and trouble;
Fire burn, and caldron bubble. -Macbeth -- the Three Witches

And so begins this blog. On a regular basis I will be posting the necessary incantantions, ingredients, and spells that one can wield to be successful in your Procurement and Supply Chain.

Well, isn't that how the area is often looked upon? It seems to have this magical aura according to the rest of the organization, as if we are a secret society that only after an initiation ritual do you gain membership. Or the opposite is true -- others believe that they can conjure up the best deal because they don't believe in the extensive knowledge that is required to be successful in this area.

So are those in Procurement and Supply Chain wizards or pretenders?

In my view the level of training, knowledge and understanding to be a success in achieving value for your organization through Procurement and Supply Chain is often underestimated. Of course we don't need eye of newt and incense to effect a significant bottom-line impact to the corporation (of course it would help). What is required is extensive insight into the machinations of the business, cooperation with all entitities to a common goal and a high level of professionalism, training, education and experience do go a long way toward success.

There are millions of dollars floating around corporations today. And it is the Sourcerers and their Apprentices who will enable you to find them.

Or perhaps you want to become a Sourcerer yourself?

Well, keep reading this blog and over time you will gleen some insight into the magic of the Sourcerer.