Procurement Transformation… are you serious?

Posted 22/09/2016

“These are my principles. And if you don’t like them… well, I have others.”

~ Groucho Marx

Procurement Transformation can be one of the most beneficial things an organisation will ever do. Savings that deliver straight to the bottom line, greater alignment with overall strategy, improved service internally and externally, the list goes on.

Trouble is, you've got a business* to run, and targets to hit. I’ve seen a number of organisations setting out with grand plans, that have had to be watered down or shelved due to a focus on short-medium term gains. Maybe the financial climate changed making cost-out more urgent, maybe the organisation just wasn't ready for the kind of programme that true transformation entails. The principles of the programme change, targets get missed.

Clearly there is a very strong link between transformation and benefits delivery, otherwise there would be no point. But a 'show me the money' approach can affect or even derail true transformation at strategy and category level: 

  • Strategy level – Transformation needs investment in operating model design, recruiting/training the organisation that's needed to deliver it, process change, toolkit development, change management, communications, etc. etc. If this investment isn’t there, change won’t be embedded and even those precious quick wins can dissipate very quickly.

  • Category level – There are a huge number of ways of generating cash savings and other benefits in any given area of spend (see FP's Value Levers here). Lack of capability and capacity often limits organisations to the tactical ones that are aimed solely at getting a better price from suppliers, where the gains are less attractive.

So the question right up front is… are we serious? Do we really want to develop a leading Procurement function and all that comes with it, or do we actually just want the cash?

A simple test: At the outset of your planned transformation programme, which of the following would the CEO/CFO choose:

A)     an offline negotiation with current suppliers, delivering 3-5% cost reduction within a month
B)     a full market tender exercise that gives 10% savings, taking four months
C)     a full strategic category review, reducing Total Cost of Ownership through variant reduction, substitution etc. that gives a
         25%+ benefit but takes a year

A or B? Neither are transformational for anything but the most rudimentary of Procurement functions, and may not be aligned with that world class approach you said you were trying to achieve.

“But surely we can do A then C…” I hear you say, “… to prime the pump for transformation with some quick wins up front”. Absolutely right, but here’s the thing. Is that reflected in your benefits targets over the months and years of the programme? Are the timings of the bigger, second wave of benefits realistic? Do they reflect the impact the quick wins may have on the strategic work, e.g. where getting savings from suppliers can only be achieved by giving them a commitment for a certain period of time? This is often not the case in version 1 of many of the transformation plans I've seen.

So when my clients say they want to transform, my guidance is for them to be clear on the importance and urgency of savings. If an invest-to-save case with, say, a two-year payback is acceptable then true transformation planning can begin. If not then it's a legitimate strategy to run an initial cost reduction programme first, or instead.

Just make sure those budgets reflect that.

by Paul Haycock.

* for "business" read also Association / Trust / Local Authority / Charity...

Tagged by topic: Procurement Transformation

  by Paul Haycock

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