Category Management enabled procurement transformation: designed and implemented for Pharmaceutical Sector

Case study

Category Management enabled procurement transformation for Pharmaceutical Sector

By Future Purchasing |

Sector

PHARMACEUTICALS
& HEALTHCARE

Areas of Expertise

CATEGORY MANAGEMENT
SUPPLIER MANAGEMENT
NEGOTIATION

Service

CONSULTING
TRAINING
COACHING

Business situation

Facing challenges such as a dwindling product pipeline and escalating costs, a leading global pharmaceutical company with a focus on neuroscience brain disorders recognised the need for a radical transformation in its procurement operations. The absence of a uniform sourcing process and the limited involvement and control of the procurement team across various spend areas had relegated them to mere “order raisers” or contract administrators, rather than strategic partners in the organisation.

In response, the company appointed a visionary new Chief Procurement Officer (CPO) tasked with a clear mission to elevate Procurement from a transactional function to a strategic pillar within the company. This ambitious transformation was to be fuelled by the initiation of a ‘quick-wins’ savings program, aiming not only to generate immediate financial benefits but also to lay the groundwork for long-term operational excellence..

Solution implemented

In collaboration with the newly appointed CPO, Future Purchasing embarked on crafting a comprehensive procurement strategy aimed at revolutionising the company’s approach to procurement. The strategy set ambitious objectives, including expanding the scope of spend to be covered by category strategies, achieving annual savings targets of over 10%, and significantly enhancing the skill set of the procurement team to meet these challenges head-on. To kickstart this transformation, a detailed 100-day plan was developed that redefined procurement’s role within the organisation as a strategic and value-driven function.

1. Quick wins savings programme

A quick-wins savings programme was set up to generate funds to invest in the procurement transformation journey. A joint Future Purchasing/customer team was set up to identify a pipeline of potential cost opportunities with a 12% cost down target to be completed in 8 weeks. The scope was limited to targeted supplier negotiations and there were four steps:

2. New category management process & toolkit designed.

Programme design

Programme plan created with agreed deliverables around the new category management process. Procurement Leadership Team (PLT) diagnostic questionnaire issued to establish current views on how best to implement category management. Results shared with the PLT to facilitate successful implementation.

Process design

A client design team was set up with Future Purchasing to co-develop a new “fit-for-purpose” category management process focused on value levers, strategy creation and a sensible modulation of activity as a “one size fit all” approach would not work. Focus was on selecting which tools and templates to use for different size and complexity of project. Final approved process & toolkit were made available to the category teams.

3. Category management training and coaching.

Education & training

Future Purchasing designed a customised workshop training plan with a balance between soft and hard skills training. The category management training workshops were interactively run for approximately 40 people with an outstanding feedback rating of 97%.

Coaching support

Coaching support: Category management coaching was provided for individual sub-category projects where each session was 1.5 hours every 2 weeks. CM coaching clinics were also set up for small groups of 3-4 focusing on specific tools e.g. business requirements, negotiation, creativity & options generation. This created a learning environment for category managers to discuss and share their experiences and improve their understanding of how to make the process work better.

Category Management training and coaching process

Category Management enabled procurement transformation: designed and implemented for Pharmaceutical Sector

Transformation Outcomes

The transformative category management program spearheaded by the new CPO and Future Purchasing culminated in delivering remarkable savings of 11% reduction over a 12-month period. This initiative not only introduced category management as a fundamental practice within the business but also profoundly embedded it into the organisational ethos. As a direct result, the procurement team underwent significant upskilling in category management, which in turn fostered enhanced relationships with stakeholders across the business. Procurement transformed itself from a functional necessity to a strategic partner, now perceived as a positive force for change and innovation within the company.

Significant category savings projects included:

savings on telecoms category via a competitive tendering process.

savings in lab consumables by 50% reduction in suppliers with a much-improved level of service provided to the end users.

savings by consolidating lab service contracts through three main suppliers instead of 120 suppliers previously.

cost savings by changing the Canteen provider together with improved service guarantees.

cost saving in recruitment services with improved frame agreements with preferred suppliers.

Related Expertise

Supplier management

Our supplier management approach combines excellent tools and techniques across the full range of activity, from segmentation, through performance measurement and improvement and through to relationship strategy development.

Category management

Excellence in Category Management gives multipliers of value delivery compared to less effective programs. Our approach, delivers a high performing team and process which provides sustainable value over years rather than months.

negotiating for procurement

Our approach to procurement negotiation helps teams to improve performance, track their progress, measure success and secure rapid payback to programme costs. It is based on four principles…

Future Purchasing

If you want to get more value out of your procurement spend, or you just want to know more about us, request a callback above or send us an email and we will come straight back to you.

future purchasing podcast microphone laptop 2

Podcast

The Future Of Category Management | Jon Hughes

In episode 5 of our 5-part podcast series on category management in procurement, Jon Hughes and Mark Webb talk about the business case and business value deliverable that comes from working with third party suppliers and the value that still remains to be unlocked.

By Mark Webb |

Jon Hughes

Jon Hughes

Profile
35 years international business experience specialising in procurement change management.
Previous employment:
General Motors, British Steel, NWRMC, Co-Founder & Chairman of ADR Purchasing Consultants, Innovation Director for QP Group.
Education:
BA (Hons) and MA in Organisational Psychology, Cambridge University.
CIPS Fellow and holder of their Swinbank Award for Procurement Innovation.
Former Visiting Fellow at Birmingham University and the Vlerick Leuven Business School.
Role in FP: Chairman

Mark Webb, Managing Director, talks to Jon Hughes

In episode 5 of our 5-part podcast series on category management in procurement, Jon Hughes and Mark Webb talk about the business case and business value deliverable that comes from working with third party suppliers and the value that still remains to be unlocked.

Transcript

00:00:00:00 – 00:00:22:05
Jon Hughes
Why not go down the sell routes? But why not be really radical and ask those people what they want? What do you want from suppliers? What do you want from procurement? I think it was just almost revolutionary stuff where you’re saying, look, until you’ve heard any senior manager communicate to you what really matters, don’t assume that you know.

00:00:22:06 – 00:00:40:14
Jon Hughes
Yeah. Unless you’ve heard them say it, so that you can then link on to it and aligned with it, don’t ever make that assumption. It was just amazing and I think the experiential piece to get procurement people, again, it’s not just creating a source plan. You can have the best analytical source plan in the world but can you present it? Can you sell it? Can you get people excited by it? Can you get people to be, you know, really, have a wow factor with it?

And again, I think when you look at the evolution of some of the best procurement functions across the planet, some of those people become very, very good indeed, almost brand ambassadors for procurement aren’t they.

They often become quite sophisticated, I’m mean the nature of the presentations, the way in which they’ve devised the procurement processes, the names that they’ve given them, the way that they’ve drawn on other concepts and ideas in the organization. It’s actually moved procurement from the transactional back office thing into something that, you know, people go, Wow, I didn’t know that was procurement. That is really exciting. It’s almost got a sexy quality to it.

That’s taken a long time because that is mindset, it’s psychology, it’s interpersonal skills, It’s behaviour, it’s presentations, it’s communication. It sounds easy, but as you and I know it’s a hell of a difficult thing to move an organization, to move a lot of people in the organization, so they’ve got those skill sets that, you know, just basically hit the button in the right way.

And it swings 180 degrees, doesn’t it, from hard analytical tools, absolutely vital into soft cluster of things which to do with engagement, massive change. And, you know, I’m sure I could still run experiential workshops where 59 minutes to go they’d still be panicking.

00:02:01:24 – 00:02:03:09
Mark Webb
I’m absolutely sure you could. Before we wrap up.
Just just thinking about the future, any any sort of thoughts about where this type of approach maybe in ten or 15 years time from now?

00:02:13:24 – 00:02:41:02
Jon Hughes
I think there’s probably three areas aren’t there, I think the massive strides being made in data, in data capture, data analysis, artificial intelligence, algorithmic work. You know, I think procurement by it’s very nature, particularly in complex, multi-locational organizations, there’s a massive amount of data there. And I don’t think the power of a data analytics has been harnessed in any shape or form.

We’ve really got to look at what’s now happening as we’re moving from an era of globalization potentially, unfortunately, into, I would say, de-globalization. But we’re taking a backward step. So understanding market trends, understanding, you know, fundamentals and supply and demand, working out where shortages are, working out all the various pressure points in pricing and supply. I think data analysis analytics to be absolutely massive.

I think a second one is clearly the whole technology space, particularly I think in terms of communication and the building of communities through technology. Again, I can only go back to 1985. We had a fax machine and that was just seen as revolutionary, we were dealing with clients in in Australia. You come in the morning, there’ll be a mile of fax paper. You know, your first job in the morning was cutting the fax paper up to find out what to come in overnight.

So I think technology as an absolute prime enabler remain an absolute massive one. And that I still think the third one remains the whole area of supplier management in its various forms. And I don’t mean tactical supplier management. I think what we used to call transformational breakthrough thinking with suppliers, I still genuinely believe that there are many, many, many barriers for organizations working properly with a supply base. I think supplier management is still one of the huge sources of value that hasn’t yet been properly tapped.

00:04:04:00 – 00:04:26:25
Mark Webb
Know, definitely. And that cross crossover between the suppliers and the particular categories. And seeing that way, those two things can work together. I think most organizations still struggle with that and they’ve got one group of people still working from a supply management perspective, not as closely bolted in as they could be to the category perspective and value dropping between those two groups. Really. So yeah, it’s still a massive opportunity area for sure.

00:04:30:21 – 00:04:54:05
Jon Hughes
Well, I think that’s right. It doesn’t really matter what the sector is. I mean, if we’re working in the pharmaceutical sector, we’ve seen the amazing innovations in the last 18 months with COVID vaccines and the colossal work done by third party suppliers, particularly in the university academic sector.

So we know that the supply of absolute breakthrough innovation in, let’s say, pharmaceuticals, third party supply, absolutely colossal. I think in FMC, the whole innovation piece, getting that innovation, being first to market with it, being the preferred customer for major suppliers. Again, there’s still a huge amount of work to be done there.

If you look at the public sector, we’ve got this whole piece now to do with in the UK, build back better and localization and powerhouses around the UK, the social value and social benefits of procurement. You know, that’s in the public sector, I don’t think it matters what sector you look at, it could be high margin, low margin, it could be high tech, low tech. There is a profound business case and business value deliverable that comes from working with third party suppliers in the right way. And I think for anyone who’s working in procurement category management, it’s understanding and unlocking that puzzle, that challenge.

I was doing it for 35 years. Unfortunately Mark you’re starting to move into the same type of decade, but I mean that will go on for the next ten, 10, 20, 30, 40, 50 years. I still think that there are very deep pools of value still waiting to be unlocked. I think it’s one of the reasons why management consultancies in procurement can remain very successful. There’s still a lot of value out.

00:06:04:06 – 00:06:10:21
Mark Webb
Let’s hope so, John. It’s been fantastic. Thank you very much for giving us your time and insights it has been really, really useful, thank you. 00:06:10:21 – 00:06:11:15
Jon Hughes
Pleasure.

Category Management Survey

Influence the Future, take part in our 2023 Global Category Management Leadership Survey and make a difference

About Mark Webb

Managing Director

22 years procurement experience in line management
and consulting roles.
Previous employment: Price Waterhouse, Mobil Oil and QP Group
Education: BSc in Management Science and MSc in Business by Research, Aston University
CIPS: member

future purchasing podcast microphone laptop 2

Podcast

The Challenges In Making Category Management Stick | Jon Hughes

In episode 4 of our 5-part podcast series on category management in procurement, Jon Hughes and Mark Webb talk about how some organisations have struggled to make category management stick

By Mark Webb |

Jon Hughes

Jon Hughes

Profile
35 years international business experience specialising in procurement change management.
Previous employment:
General Motors, British Steel, NWRMC, Co-Founder & Chairman of ADR Purchasing Consultants, Innovation Director for QP Group.
Education:
BA (Hons) and MA in Organisational Psychology, Cambridge University.
CIPS Fellow and holder of their Swinbank Award for Procurement Innovation.
Former Visiting Fellow at Birmingham University and the Vlerick Leuven Business School.
Role in FP: Chairman

Mark Webb, Managing Director, talks to Jon Hughes

In episode 4 of our 5-part podcast series on category management in procurement, Jon Hughes and Mark Webb talk about how some organisations have struggled to make category management stick

Transcript

00:00:00:06 – 00:00:28:03
Jon Hughes
In the early days, supplier management was completely non-existent, to be quite honest. I used to say it was like the Himalayan yeti, much talked about but never seen.

You’d see a bit of contract management, fairly rudimentary. So, wave after wave of change, was needed. Which I think is why many of the best people I’ve met in procurement, they know that their career over, say, 20 years has been through those changes.

They’ve been through those waves, and they can look back and they can see quite clearly the various staging points, moving from one phase to the next.

00:00:28:03 – 00:00:36:18
Mark Webb
Just thinking about the implementations you saw of this. I mean, obviously we’ve encountered clients that have attempted to do it four or five times and to make it stick.

Why do you think that might be? It’s reflecting back on, an organization, you know, says that doing it, have tried to implement it, but then, maybe a new CPO comes along and it’s wave after wave of attempting to take something which is perhaps more strategic sourcing or sourcing orientated into something which is more, which is genuinely more strategic, looking at the categories of expenditure where it’s appropriate. Why do you think that some have struggled to make it stick?

00:01:13:17 – 00:01:34:07
Jon Hughes
Very complex question. I mean, at one level you have to say, although it’s a hard thing to say, that quite a lot of CPOs were not up to it. There’s a shortage of talent as there is in so many disciplines. Certainly going back to eighties, nineties and the early twenties, the available pool of people who genuinely understood this, who got it, was pretty low. They got bits of it, but they definitely didn’t get all of it. So that’s point number one.

I think, again, in the early days, quite a few of the people were much stronger in procurement skills than they were in business skills and engagement and communication skills. So they were not particularly good internal ambassadors, they were not particularly good public relations experts on how to present the change journey.

So I think, you know, in the procurement community itself, there was definitely a competence issue: competence and capability. And I think that’s changed profoundly over the last 20 years. I think it’s improved a lot. There’s a lot more people who’ve come up as category managers who then become category directors, who then become became procurement directors and become CPOs.
It took a long time to build the talent pool up.

You know, I think there’s a lot of things going on now worldwide. So the things you’re doing in the whole area of virtual learning, I mean, it’s an ongoing piece. But again, you go back to the early days, you know, you ran negotiating skills course, you ran a PPCA course and that was that was it. Competence had a tick in the box. We were many miles off.

I think a second piece is clearly the whole engagement piece with stakeholders. You have got to work on a cross-functional basis. You’ve got to genuinely cross the divide because of the functions. It can’t be a battleground and unfortunately you had poor people on both sides. They just couldn’t embrace it.

You would get a lot of resistance, you know, procurement people working in a different way with manufacturing, different way with R&D, different way with marketing and so on. So I think the cross-functional piece had a lot of casualties there. Often procurement were blamed for the wrong reasons.

I think the third one then would certainly be within the general management, executive management community. You know, you’ve got to have a cadre of people who are genuinely supportive of it, but if you can’t get that, then there’s a risk that you get into what I call the sort of initiative syndrome, you know we’ll have a procurement initiative, it’ll last two years and that’s it.

Then we’ll move on to another initiative. Yes, but it’s not really embedded. It’s seen as an initiative, and I have to say quite a few CPOs, their careers were built around those initiatives. You know, they would launch an initiative for three years, then move to another organization, do another one, move to another one. So it would go on. That is not change management is it? That’s not really embedding all the things that you need.

So that getting back into the competence piece. I think if we look at the functional competencies, they’re relatively straightforward, but you’ve got those incredibly important change management competencies. You’ve got to build the change management skills of your function if you’re really going to take it forward. I mean, that’s that is basically a permanent challenge, isn’t it?

00:04:09:09 – 00:04:36:14
Mark Webb
Yeah, I think your point about securing the objectives of the business stakeholders at a senior level, when you’re talking earlier on about the KPIs as well, I think that’s, that’s the missing trigger to accelerate things that we’ve seen is, it is a functional initiative and it is an initiative. And yes, it will drive certain value, but it won’t stick around for long because the business stakeholders aren’t closely enough integrated into the thinking in this most senior level.

And I think that’s the thing that we’ve noticed over the years, is the more that we can make that connection, the more likely it is that It becomes, as you’ve said before, business initiative, not a procurement functional initiative.

00:04:47:20 – 00:05:12:07
Jon Hughes
Oh, I completely, completely agree, Mark. But I mean, it’s my university background in social psychology. So I was very interested in assessment centres and development centres and experiential learning, very early on, you know, back in the seventies.

It was always interesting to get a group of procurement people together and run experiential workshops, not lecturing, get them in and say, I was going to start workshops, you know, I’d walk in with some envelopes, put people into groups of four. I’d give them an envelope, and I’d say in an hour’s time, the chief executive of this organization is going to walk through that door and you’re going to make a presentation as to why they should take procurement seriously.

And people would panic. And I’d look at my watch and say, 59 minutes left, you better get going. And I would have a role play, someone who’d role play the chief executive.

I’m not kidding. In those early days, people would fall apart. I mean, they just couldn’t do it. And I said, okay, well, let’s go back to basic concepts. I used to explain the failings of “tell and sell”. you’d get procurement people turn up in a meeting and they would tell senior management why procurement was so important for them. They would tell them why they were going to deliver so many things that were of such value to those people.

And I’d say, well, that’s great if you got it absolutely right. But what if you’re telling them something they’re not interested in?

Category Management Survey

Influence the Future, take part in our 2023 Global Category Management Leadership Survey and make a difference


Further listening

Podcast episode one: Re-Thinking Procurement in 2023

Podcast episode two: Re-Organising Procurement using category management

Podcast episode three: Embedding Category Management and the Future


About Mark Webb

Managing Director

22 years procurement experience in line management
and consulting roles.
Previous employment: Price Waterhouse, Mobil Oil and QP Group
Education: BSc in Management Science and MSc in Business by Research, Aston University
CIPS: member

future purchasing podcast microphone laptop 2

Podcast

Embedding Category Management And The Future | Jon Hughes

In episode 3 of our 5-part podcast series on category management in procurement, Jon Hughes and Mark Webb talk about the value streams available by engaging with suppliers

By Mark Webb |

jon

Jon Hughes

Profile
35 years international business experience specialising in procurement change management.
Previous employment:
General Motors, British Steel, NWRMC, Co-Founder & Chairman of ADR Purchasing Consultants, Innovation Director for QP Group.
Education:
BA (Hons) and MA in Organisational Psychology, Cambridge University.
CIPS Fellow and holder of their Swinbank Award for Procurement Innovation.
Former Visiting Fellow at Birmingham University and the Vlerick Leuven Business School.
Role in FP: Chairman

Mark Webb, Managing Director, talks to Jon Hughes

In episode 3 of our 5-part podcast series on category management in procurement, Jon Hughes and Mark Webb talk about the value streams available by engaging with suppliers

Transcript

00:00:00:01 – 00:00:29:29
Mark Webb
Did you get any clients? Because it just reminded me of a current situation where setting up the governance involved something across the top, really working with the procurement leader. Where, you’ve got business leaders involved in some sort of governance structure that’s overseeing the implementation of this. So there’s basically organizational skill in the game from the start as opposed to leaving it, you know, for the CPO to work with their boss directly, but having something broader, which is that sort of collective governance across the program?

00:00:30:00 – 00:00:52:06
Jon Hughes
Well, I think it is, and without any doubt at all, we’re into KPIs, all the various performance indicators and most importantly the linking with executive remuneration. I think one of the huge step changes is when any part of the organization is measured on what it’s achieving in terms of critical objectives, one of which is procurement and which goes through into executive compensation.

00:00:52:07 – 00:01:22:18
Jon Hughes
Going back to right at the start of the whole piece with Reckitt and Colman the chief executive at the time, John West. He’d been a military policeman out in Asia dealing with extremely violent situations in the sixties and he was a tough guy. Seriously tough guy.

I remember we did a presentation at his Chief Executive Officer conference and he stood up and he just said to the community, “This chief executive’s conference is going to make the decision as to whether or not we do a global procurement initiative.” And he made that statement and all the managers around the room listened to it. And he then said, “At the end of this discussion, those of you who don’t want to support this procurement initiative, I’d like you to stand up.” Not many people stood up, Mark. Now, that is actually the antithesis of executive engagement. But what he then said was, “Okay, every person in this room is now backing this initiative.”

“I’m going to ask our central audit team to track this with every business worldwide. I want to know what the delivery is from every single business. The audit team will be doing this. I’m not going to ask procurement to do it. I’ll ask the audit team to devise a way of building this in as a performance metric for the business in every operation worldwide.” Now, that is tough management.

00:02:09:07 – 00:02:31:19
Jon Hughes
I’m not saying I won’t put it out because that’s what you’ve got to do necessarily. It was hardwired into performance measurement; there would be performance tracking; there would be challenge. Those people who were delivering a lot would get additional compensation. Those people who were the laggards, they would not just be allowed to ignore it and avoid doing it.

Again, another chief executive I worked with in the early days of Diageo was a great believer. He said to me: “What you have to do as a chief executive is have a light grip on the throat of all your senior management.” And his view was that we don’t have any grip on any throats in procurement, so we don’t know whether we’re doing it or not doing it.

00:02:50:12 – 00:03:11:25
Jon Hughes
We don’t know whether it’s being supported or whether it’s being resisted. So it’s back to a point you made earlier. We have the soft side, but we’ve also got the hard side. And we’ve got to link the two together. We’re saying if it’s worth doing, we’ve got to do it well and then we’ve got to recognize that there will be some people who won’t do it well, also be some people who will be complete enthusiasts for this, and we want this.

00:03:11:25 – 00:03:16:12
Jon Hughes
People who are succeeding. We want that made visible and we want people to give them the credit for it.

00:03:16:12 – 00:03:27:18
Mark Webb
Absolutely. And just going back to a comment you made earlier, how long would you see in your experience, those early days, how long did it take to embed as a sort of institutional way of working?

00:03:27:19 – 00:03:46:21
Jon Hughes
I think if we go back to the initial assignments that we did, I can’t think of any assignment with less than three years. So, we worked for an extensive period of time. And interestingly, I remember putting in some of the initial proposals on the length of time, how long we thought it would take to get it to the stage where it would be self-sustaining.

00:03:46:21 – 00:04:11:27
Jon Hughes
We had a concern that the clients wouldn’t pay for it. You know, if we went there and said, “Look, we need a three year assignment. It’s going to cost this amount of money.” They would say, you know, “You’re kidding. I mean, what is procurement? It’s only negotiation. I mean, why would it take three years to get to that stage?” And again, I remember one client, we did this presentation and we were nervous about it because there was this three year time horizon and the person said the only reason why I’m going to back you is that you are telling me it is going to take three years.

00:04:11:27 – 00:04:29:11
Jon Hughes
If you’d come in here and said you can get this done in six months, I’d have thrown you out. He said anything that’s really important and it’s really worth doing, it is going to take time. Now putting some sort of flesh on the bones of that, if you go to any organization and you say, okay, how many people are there who are working in procurement that will give you a figure.

00:04:29:11 – 00:04:50:07
Jon Hughes
You then say, okay, so how many people not working at a procurement function are dealing with suppliers? That will give you another figure. You know how many people are there who are not directly interfacing with suppliers but are in some way connected to supply operations, gives you another figure. It doesn’t take long before you come up with hundreds, if not thousands of people.

00:04:50:18 – 00:05:11:07
Jon Hughes
Now, you know, a lot of what we talked about so far, of course, is focused on manufacturing, but if we move into the public sector, whether it’s the health service or government, local government, the numbers there are extraordinary, aren’t they? I remember you and I did a presentation a few years ago in number ten to a strategy adviser to the Prime Minister on the National Health Service.
00:05:11:07 – 00:05:45:13

Jon Hughes
And I think the third-party expenditure was something in the region of about 90 billion. And the numbers of people involved in procurement in the NHS, you know, is like tens of thousands of people.

Similarly in national government, all the changes have taken place over the years trying to deal with category management in government. So the whole change management piece is clearly tied in with the total cohort of people who are influencing and managing procurement and suppliers, and then through them the number of senior managers who are really the gatekeepers for the whole exercise.

00:05:45:13 – 00:06:14:11
Jon Hughes
Anyone who doesn’t get their mind around that in a fairly systematic way will fail. And again, in all the work we’ve done on stakeholder management and constituency mapping over the years, that’s really what gives you the major challenge, isn’t it? You’ve got to get to that critical mass of people and move them from being, maybe, openly hostile, through being quite cynical, being negative, being neutral, to being open, to being convinced, to being positive, to being enthusiastic.

00:06:14:11 – 00:06:23:23
Jon Hughes
When you start any initiative, the distribution is down one scale and you’ve got to move that distribution to the other scale. That remains a big challenge.

00:06:23:23 – 00:06:42:28
Mark Webb
That’s the multiyear piece and trying to take the team and replace people who don’t really fit into that sort of cultural approach, which is much more collaborative with stakeholders and seeing their role as much more empowered. Again, in the early days, did you see a lot of people that felt that sort of empowerment to drive change or would they say, actually, you know, I get given the specification and my job is to negotiate and to place the contract. Was that sort of view prevalent at the time?

00:06:51:08 – 00:07:12:15
Jon Hughes
There were two views. I think one view was a lot of procurement people just saw themselves in a transactional role. My job is order placing, matching of P.O.s against invoices, paying on time. That’s it. And didn’t really want to go much beyond that. They saw procurement in very sort of transactional terms. I think there was a second group who saw themselves as serving the factory, in some way.

00:07:12:17 – 00:07:37:15
Jon Hughes
So the whole specification piece, you know, nailing down suppliers, dealing with poor supply, quality management issues, all the rest of it. I think you had a third but much, much smaller group, who I think were taking a sort of total value management perspective saying, look, you know, we’ve got all sorts of business requirements here, with all sorts of business needs and we’re being one eyed, we’re only really focusing on one or two things. What we need to do is to have a much broader palette of factors and dimensions that we’re concentrating on and then unlocking that value.

Now, again, the distribution in procurements, in those early days, there were not that many people arguing that we should be taking that much broader perspective on value delivery.

00:07:55:24 – 00:08:19:15
Mark Webb
That whole business requirements piece, is still surprising in many organizations, that it’s not at the heart of what they’re doing and being able to demonstrate to stakeholders that it’s more than just costs that we’re actually interested in. We are interested in assurance of supply and we are interested in innovation. Was that a tool that you introduced during the early days or did that tool come later on?

00:08:19:20 – 00:08:42:27
Jon Hughes
It came later on in the early days. That would have been just a step too far. Again, I think in the early days we have to recognize that the majority of people tended to define procurement in terms of financial deliverables, particularly cost containment and cost reduction. And back to prioritization, we had to deliver significant financial benefits that went through the audit process and was signed off and were deemed to be genuine cost savings.

Yeah, if we’d gone beyond that too soon, that would have just completely eroded what we tried to achieve. However, once we’ve been through that first wave and we demonstrated that there were very significant financial deliverables, the second wave then opened up, and the third wave opened up, and the fourth wave opened up.

Now, again a nice example of that, I did a piece of work for Carlsberg, the brewers and the chief executive had come in from a major packaging organization and he’d actually been a supplier to Carlsberg. So he was a sort of poacher turned gamekeeper and he would say, well, we don’t really do anything with suppliers. We do the sourcing, we get our head around you know, bottles and packaging but we’re not doing anything proactive with our suppliers. We don’t have any supplier management.

So I said well why don’t we organize a supplier conference? We got 50 of Carlsberg’s suppliers into their beautiful headquarters in Copenhagen and said what we’ll do is we’ll do a classic brainstorming event and then we’ll have a dinner in the evening.

And they actually made a dinner based around beautiful Carlsberg beer. They made some special beer for the event. So the key thing was we did a whole series of workshops and rather than procurement, telling the suppliers, we got the suppliers to tell procurement and the business. We did a whole series of brainstorming events on value that could be captured that was not in any shape or form flowing into Carlsberg from the suppliers.

We did a series of events. We captured it, we systematized it, did all the affinity analysis, and we ended up with over 75 value streams that were there, that were not in any shape or form built into the procurement culture. Now, I’ve always been a huge proponent that suppliers are the best free management consultancy resource you don’t harness. So that was good.

But I did another one, this was actually triggered by a piece of work with it with a marketing community. And I said, Well, would you mind if I went round with a video camera to a couple of major advertising agencies and asked them to tell me how they saw your organization. They said oh feel free.

Off we went and I went and interviewed people at Ogilvy and Mather, people like that, about the way in which the marketing community were working with them and they said, Well, it’s ridiculous. It’s absolutely ridiculous. They tell us what they want. They don’t ask us what we could provide, very basic stuff.

But then they said they also they tend to come along to us with amazing specifications of what must be created. And we deliver against those specifications. And then when we come to do the sort of media presentations to them, some of them will then stand up and say, Oh, I don’t like this, I don’t like X, I don’t like Y.

So Ogilvy and Mather ended up producing five or six different media options that were created for the client because they knew they’d reject most of them. So basically, the bill was sixfold higher than it should be because there was no proper dialogue at the very early stage as to how this whole media advertising exercise ought to evolve. Why? Because the client and O&M didn’t sit down and co-develop or co-evolve the campaign.

Typical examples here, I think of the supply base just looking in and saying, okay, we’ll work in any way that you like, in any way that you tell us, but it could be that you’re leaving a profound amount of value on the table.

00:11:57:22 – 00:12:21:02
Jon Hughes
In the final example, go back to the automotive assemblers up in Nissan. When Nissan first came into the UK and introduced the revolutionary concepts of single sourcing, I had contact with someone who worked at a very senior level at Nissan. They went out and talked to suppliers and asked them what target margins they wanted to achieve. And the suppliers were completely unused to anybody asking about that and they said, well I don’t know, 15%? okay, agreed. Agreed? 15% margins!

Yeah, the question now is how are we going to deliver that target margin for you, because we also have a target margin. So to move from bottom up to top down to say, right, target margin for our business is X, therefore target cost has got to be Y, then you’re coming down with a completely different mindset, that was just revolutionary. So back into these waves. You start off at maybe the more tactical end of the cost management scale before moving up into the more strategic end of the scale.

Category Management Survey

Influence the Future, take part in our 2023 Global Category Management Leadership Survey and make a difference


Further listening

Podcast episode one: Rethinking Procurement in 2023

Podcast episode two: Re-Organising Procurement using category management


About Mark Webb

Managing Director

22 years procurement experience in line management
and consulting roles.
Previous employment: Price Waterhouse, Mobil Oil and QP Group
Education: BSc in Management Science and MSc in Business by Research, Aston University
CIPS: member

Supplier Relationship Management

Blog

Supplier performance – Supplier gone rogue

By Mark Hubbard |

At what point does the performance of a supplier suggest we need to take definitive action with our SRM?

From our experience, we see a whole range of responses to inadequate supplier performance from different organisations, ranging from full intervention to full inaction, even when there appear to be compelling reasons for mobilising a well-designed intervention.

Interestingly, the approach seems to depend on how advanced supplier development activity is in a particular business, and some sectors are more advanced than others. The automotive industry has led the field in this area and spends more time on supplier development than many others, being entirely happy to work on detailed interventions whenever necessary (although still preferring suppliers to get there by themselves).

What gets measured gets done in Procurement
The Automotive Industry leads with advanced supplier development activity

In these more developed areas, the trigger can be small changes in measured performance in key areas of SRM, delivery performance issues breaching certain thresholds, quality issues breaching defined targets. In other sectors, we have seen non-delivery over many months, not triggering any detailed actions at all.

So, the initial question is, what level of supplier performance should trigger a more detailed intervention? Perhaps the way to look at this is more about considering the level of resource available to develop corrective actions and make sure that help is targeted into the most required element of supplier performance. There are never enough resources to do everything, so making sure that assessing where interventions should be directed becomes important.

This suggests an underlying systems-based approach will be needed, tracking the key performance indicators across a series of critical suppliers. In turn, this indicates that a good understanding of KPI’s is necessary to allow the systems to track the right parameters.

This is now sounding like an investment in many different areas. So, what is the benefit of this activity?

Demonstrating the benefits from intervention is often hard, as measuring the full benefit is not only focused on the areas affected.

It is rare for a complete picture of the consequential effects of late delivery to be developed, as it is both complex and varies from case to case. For example, spending time with a supplier working on delivery issues can be considered a pure cost, merely delivering the thing that should have turned up anyway. However, non-delivery or late delivery costs are often masked – slowdowns in programs, knock-on effects elsewhere, time spent chasing and expediting, increased load when products do turn up, increased ‘safety stock levels and their associated costs and more.

So taking a holistic view of the benefits of investment in supplier performance improvement makes sense. That said, we see in many industries where the actual performance of suppliers is a matter of speculation, not fact.

So, what should we do? It is worth looking across supplier performance regularly and targeting interventions in agreed areas, particularly if the implied costs of poor performance look significant. Setting up a regular review panel, targeting resources, and testing for improvements is an excellent way to start.

More advanced users of the approach use smaller indicators of poor performance and aim to prevent the issues from becoming severe (rather than waiting for a catastrophic failure to trigger an action).

We can help you with this and other aspects of Supplier Relationship Management. Moving in that direction is a journey that should be planned for and managed. We’re often working in that interface between category management and SRM.

About Mark Hubbard

Director

30+ years experience in procurement and supplier management, in line and consulting roles
Previous employment: Positive Purchasing Ltd, SITA,
QP Group, BMW, SWWS, Rover
Education: BSc in Engineering Metallurgy, MBA University of Plymouth
CIPS: Current Member

Supply Chain Risk - black swan image

Blog

Supply chain risk, by-products and black swans

By Mark Hubbard |

The last week has seen a chain of events that demonstrate the unexpected peril again within the supply chains that surround us. It is helpful to pull this out and look at how we might think about supply chain risk differently.

During the last week, a link in the electricity supply cable from the continent to the UK suffered damage in a fire, removing 40% of the UK’s capacity to import electricity. This meant that the gap in supply had to be filled by gas and coal-powered power stations firing up. In turn, this caused a surge in the short term price of gas, as the UK’s somewhat free market in power went to work. As a result, one of the UK’s major producers of fertiliser decided to close down their operations, as gas is a major cost input to their process.

As these facilities produce much of the industrial CO2 in the UK, used in a huge range of other processes, there is now a CO2 shortage (ironically, as COP26 approaches). Food trays used in meat and fresh produce distribution (those little plastic trays your chicken/beef/apples sit in when you buy them from the supermarket) are likely to go into shortage as they depend on the CO2 supplies. So, fire in Kent = restriction in food supplies.

This type of chain reaction in supply chains is more common than we might suppose, although more likely to happen in a microeconomic way than a full economy effect. A previous example includes the 2008 slowdown in car production, which reduced car bumpers (fenders). One of the by-products of bumpers is the solvent used in gas chromatography, which is a fundamental part of the testing regimes in both the food and pharmaceutical industries. So, the slowdown in vehicle production leads to a shortage of the correct grade solvent, reducing testing capacity and causing headaches in heavily regulated industries.

So, the big question in our category strategies is, do I have by-products of unrelated processes in my supply chain? If I do, have I got a way of scanning the security of that supply chain to understand risks, which may go outside the normal reviews that I undertake?

The issue, of course, is that there is so much interconnectedness in supply areas that it is hard to distinguish those that are manageable risks compared to those that are not. In the case of the fire in Kent, the linked set of events has been described in elements of the press as a ‘black swan’ event – one which is an unexpected event of large magnitude which has large consequences. The interesting aspect here is that the events are often rationalised afterwards. The core author commenting on black swan events ( Nassim Nicholas Taleb https://en.wikipedia.org/wiki/Black_swan_theory ) notes that the rationalisation often leads to a belief that the event could have been predicted, although that is a false assumption.

This seems to suggest that there is a rational limit to the analysis which could or should be undertaken when looking beyond our immediate supply chains, and there is always the potential for risks, however unlikely, actually occurring.

However, it is still worth looking at supply chains to see what the impact of by-products might be – there may be something manageable and looking for ways to reduce risk in these times seems a worthwhile activity to manage our stress.

Further reading

Blog post: Improving supply chain resilience by rebalancing business requirements

Blog post: Strengthening your supply chain resilience

About Mark Hubbard

Director

30+ years experience in procurement and supplier management, in line and consulting roles
Previous employment: Positive Purchasing Ltd, SITA,
QP Group, BMW, SWWS, Rover
Education: BSc in Engineering Metallurgy, MBA University of Plymouth
CIPS: Current Member

Procurement Measurement Image

Blog

In procurement what gets measured gets done

By Simon Brown |

“What gets measured gets done, what gets measured and fed back gets done well, what gets rewarded gets repeated.”

The source for this quotation is open to debate, but the principle is that people will do things that they are measured on and will work even harder to deliver on them if they are rewarded accordingly. To make this happen, you need to understand your organisation’s goals and then build your own team’s KPI measures to deliver against them. Once you have created your high-level KPIs, then these can be underpinned by more specific performance-based metrics.

When considering this from a Procurement perspective, there are a few fundamental considerations that should inform how you go about developing a suitable selection of Procurement KPI metrics. These include:

1. Organisations with joint procurement objectives and accountability typically have much better cross-functional working, deliver better financial results and are more satisfied with their metrics.

2. Procurement needs to position its metrics to appeal to the business unit or customer and explain how they are helping them, e.g., reducing our supply market risk by finding new suppliers etc.

3. Procurement metrics should also be created in a cross-functional way based on objectives and key requirements of the relevant stakeholder group within the business. They should reflect the needs of their stakeholders, e.g. cost reduction, increased sales, products delivered faster to market, speed to get a new business acquisition up and running etc.

Typical Procurement metrics

There are various high-level procurement KPIs that organisations typically use to measure procurement performance, such as:

• % price or cost savings
• % of spend competitively bid each year
• number of eAuctions run per annum
• number of eAuctions run per annum
• % of spend covered by POs etc
• average cycle time of requisition to order
• % on-time deliveries
• % of spend with ‘sustainable’ suppliers

Risk metrics

Risk is arguably one of the most critical aspects that Procurement teams have to manage, and yet it is one of the more complex things to measure. This is because you often cannot measure it until a breach or disaster occurs. Even here, there are still some risk metrics that are worthy of consideration, such as:

• % of spend with alternative sources of supply
• % of suppliers with a good financial audit

Category management metrics

When measuring the contribution of Procurement beyond savings, we need to establish the key metrics for our strategic procurement activity, such as category management. There are many different metrics, and below is a summary of the key ones:

Spend

• spend per category manager
• % spend covered by approved category strategy
• % spend re-sourced to new suppliers

Savings

• cost reduction per category spend per category manager
• total Procurement ROI – total benefits delivered / cost of Procurement Dept
• cashflow contribution – reduced inventory or improved payment terms

Suppliers

• spend with single-source suppliers
• no. of suppliers per category
• no of new suppliers per category per annum

Strategies

• no. of category strategies completed in 12 months
• no of value levers identified per strategy – before & after
• no. of strategies that have joint accountability for delivery

The above list of metrics are examples, and there are many more that can be considered. The main point is that once you identify your critical KPIs and start to measure them, they are visible to the team, which should drive the right behaviours and focus of attention.

How to assure savings delivery

In the present economic climate, organisations focus on their ability to drive savings from their spend and supply base. Hence building and implementing a full pipeline of category projects is essential to ensuring a solid financial delivery.

How do we best ensure that this pipeline of projects delivers against their objectives in a timely fashion? Here are the most important factors:

1. Wave Planning: Set up a spreadsheet covering all category projects you are working on with the key information such as annual spend, savings targets, sponsor, category lead, time to complete etc. This approach helps to measure and communicate progress made in each project.

2. Governance: Set up a formalised governance process to review the category projects against key milestones and decision gates. This process should include senior business stakeholders, sponsors and Procurement to ensure a cross-functional approach is adopted.

3. Reporting:  Agree on a consistent approach to reporting the progress of the projects – this must include an agreed way of measuring savings or value add that the Finance team validates. 

4. A baseline for each project should be agreed from which savings can be calculated and reported. Savings must be agreed and signed off by the project sponsor and finance and reflected in business budgets.

5. Project Reviews: The review meetings provide an opportunity for each category project team to present its progress to date against the agreed milestones. The steering team provides constructive feedback, challenges the teams, and offers advice and information to enable the team to move forward positively to the next stage of the project. They should also have the authority to close down projects that are not delivering against the objectives.

6. Project Closure: The team should Review projects at their conclusion by having a short project review & closure meeting to reflect on the learnings from the project and celebrate success.

In summary, identifying and measuring the most suitable KPIs for your Procurement operation is a critical aspect of driving a change in approach and behaviour and getting things done. Make them logical, transparently linked to your organisation’s success, simple to measure and easy to understand, and you won’t go far wrong.

Further reading

Blog post: Benchmarking your category management performance

About Simon Brown

Director

30 years procurement experience in line management and
consulting roles.
Previous employment: British Aerospace, British Airways, QP Group
Education: MBA, London Business School. BA (Hons) Business Studies.
CIPS: member

What gets measured gets done in Procurement

Blog

Procurement Supplier Management

By Mark Hubbard |

Procurement Supplier Management has been a challenging area to deal with for a whole series of reasons – it is worth having a close look at some of the issues and opportunities surrounding the subject area.

Which sectors focus on Procurement Supplier Management?

As a starting point, it is worth reflecting that, in general, procurement supplier management SRM, gets far less attention within organisations than it deserves. This isn’t true everywhere; some sectors put considerable effort into supplier management and lean heavily on their suppliers to maximise the value they can achieve from their whole supply chain. The leaders in this space are, arguably, the automotive sector. They have been working this way for tens of years; this entire approach is likely to be second nature to those businesses.

Addressing procurement supplier management is thought of as only something for the automotive sector because there is something about the automotive supply chain that makes it possible. Having worked in that space, I would suggest that this is not a correct assumption. The carmakers put a vast amount of effort into this space and get the returns from it that make it worthwhile. Most other sectors have no real visibility of the depth of effort made to get to that advantage, so they often choose to do little or nothing.

The Supplier Meeting.

A second point here is recognising that many of the standard approaches to supplier management seem to have ‘the supplier meeting’ as the peak of the possible activity between two organisations. As ever, excellent communications help, but a quarterly meeting is unlikely to be the huge delivery mechanism for the value that some appear to believe it is.

Instead, and as with category management, a structured approach that identifies the best way for two organisations to create value together is where we should focus our attention. It needs creativity and thought at the front end and ruthless management of delivery projects at the back end to make sure that the desired value is both evident and realised.

How do we get to some of this magical value? We need to recognise that not all suppliers are equal and we have a finite amount of resource available.

Focus on which suppliers to engage with.

We need to focus on which suppliers we need to engage with and keep this under regular review. Having a mechanism that allows you to review the key suppliers to spend resource on is critical to the whole process. Without it, time can be spent on futile programs that deliver nothing.

We also need to know why we want to engage with suppliers by focusing on our own organisation’s strategic intent and ensuring that we are working most closely with the suppliers who deliver in alignment with that direction. Remember, this may not be the one we spend the most money with

There’s another essential element here; the supplier must be willing to join in with the supplier relationship management activity. If they are not interested or perceive that there is no benefit for them, they are less likely to be willing. As such, we may need to do some up-front work to establish both what we need to get out of the approach and spend time understanding what they get out of it.

What does good performance look like in Procurement Supplier Management?

Another element that often proves troublesome is knowledge; what does good performance look like for SRM, and can we measure that effectively? Programs often fall apart because there is no way to look at performance in any meaningful way, in any areas that matter.

However, we need to consider the available upside if we manage to get through all of the perceived barriers. Working effectively with suppliers can deliver whole percentage points of improvement in various areas, and the best programs offer far more.

Better flexibility, resource management, access to innovation, supply chain robustness, ideas, support, training, quality of service and more are examples found in the past. When done well, deliver value in the range of multiples of the program needed to access the value.

Unfortunately, the hard evidence that defines these outcomes is often difficult to come by. We see enough to suggest that well-managed programs deliver excellent results, and poorly designed and implemented programs do not.

Many businesses spend around half their sales dollars with suppliers. Managing the value created from that supply chain for maximum potential seems to be a good way of creating more success for our businesses.

Getting great at Supplier Management is a worthwhile investment.

About Mark Hubbard

Director

30+ years experience in procurement and supplier management, in line and consulting roles
Previous employment: Positive Purchasing Ltd, SITA,
QP Group, BMW, SWWS, Rover
Education: BSc in Engineering Metallurgy, MBA University of Plymouth
CIPS: Current Member

Challenges in Procurement Negotiation

Blog

The EU Vaccine deal and the challenge of negotiation

By Mark Hubbard |

There has been a volume of news this week surrounding the challenges of negotiation with regards to the supply of Covid vaccines into Europe by one of the major producers, and the volumes going to specific countries.

This, of course, is not an overnight development, and the background story is complex and involves a range of players and countries. Some of the debate gets down to the content of the contracts entered into by various parties, but there is also a strong link to the business requirements which were in place for different government groupings when they initiated negotiations. 

The widely reported issue is that the agreements reached by the EU were later than the agreements reached with other countries, particularly the US and UK. Although this describes the net result, it is worth understanding what drove the later agreements. In essence, the EU had to balance both a more complex bureaucratic process, involving 27 countries sign off in the first instance and business requirements closely based on ‘business as usual’.

Stakeholder management remains central to all successful procurement activity. In this case, keeping a wide range of governments on board and individually signing agreements to progress negotiations was critical and, ultimately, destructive. The pace imposed by the approach limited the EU’s ability to make progress. Consequently, a rarely used emergency approach was invoked, which allowed the EU to create an agreement itself, and for countries to access the purchases made. This accelerated the process and delivered a deal, although later than those with more straightforward approaches.

This change to “business as usual” seems less evident in the application of other business requirements. It appears that the US has a waiver in place for liability in the event of issues with a rapidly produced vaccine. The EU wanted to maintain the tight liability clauses, which again presented a challenge in the negotiation. (The UK position is unknown, although one might guess that the liability clause wasn’t present).

In another area, the UK regulatory sign off skipped a key step: the assembly of all the documentation required into a finished format. All the information was available, but in ‘kit’ form rather than in one piece. This saved a considerable amount of time. Lastly, it seems likely that, although the EU may have agreed a lower purchase price than others, that may come at the cost of slower delivery. Given the societal impacts of slow vaccine roll-out, a vaccine’s purchase price is likely to be negligible compared to the cost of delay.

In essence, wanting to maintain business as usual requirements may have slowed down the EU’s ability to reach a final contract form.

Of less certainty at the moment is what is in the actual agreements. Some reporting suggests them to be more heads of agreement that fully formed contracts, which may be right for expediency but may well become an area of contention at a later date.

What can we learn from this and the challenges of negotiation? It reinforces the need for flexible approaches to keep stakeholders on board. It suggests that we should challenge business as usual when circumstances dictate. We should also get ready for a host of “after the fact” analyses of the issues involved, and a fascinating insight into cross-governmental purchasing issues.

For a lot more detailed analysis, please look at the excellent article on the Politico website.  https://www.politico.eu/article/four-eu-states-form-alliance-to-negotiate-on-coronavirus-vaccines/ 

Read more about our approach to Negotiation here.

About Mark Hubbard

Director

30+ years experience in procurement and supplier management, in line and consulting roles
Previous employment: Positive Purchasing Ltd, SITA,
QP Group, BMW, SWWS, Rover
Education: BSc in Engineering Metallurgy, MBA University of Plymouth
CIPS: Current Member

Stakeholder Engagement and Blooming Tulips Image

Blog

Stakeholder engagement and the five steps to better communication

By Kathrine Western |

Procurement’s ability to contribute to business success is hugely dependent on the quality of our relationships with internal stakeholders.

Whilst we cannot directly control how others perceive us, we can strive to improve the quality of our communication so we can work together better.  Ultimately, of course, the challenge is finding the time to do this while dealing with the pressing demands of the day job. It’s never easy but it’s undoubtedly worth it in the long run. With this in mind, here are five steps to improving communication with internal stakeholders by incorporating relatively simple but extremely effective ways of working:

  1. Take a step back and think about your key internal stakeholders. Who are they, from recent projects and potential future ones? How well do you work together, from your perspective and from theirs? How could that be improved? Who could act as your ambassadors? Who may be undermining you? How can you address this?
  2. Establish which are your priority relationships with you internal stakeholders, recognising that with limited time available you won’t be able to focus on everyone to the same degree.
  3. Brainstorm ways in which you could build understanding and trust. Depending on how well you currently work together, some ideas might be:
    • Identify what you would like to know from each key internal stakeholder and actively seek their opinions and points of view – this could be formally (e.g. meetings face to face or by phone) or informally (e.g. in the canteen or by the coffee machine).
    • Ask for feedback on recent projects – find out how suppliers have really been performing, for good and for bad. How can you help?
    • Make a point of following up on feedback – to address issues raised.
    • Conduct short reviews at the end of future projects to see how fully objectives were achieved, how well you worked as a team and what you could do differently to improve in future.
    • Publish stories on the intranet, written jointly with stakeholders, highlighting teamwork, things that worked well, pitfalls to avoid and the achievement of business goals.
    • Ask for slots to make informative and relevant presentations at departmental meetings. Share success stories and mutual challenges faced; seek and respond to ideas and opinions aired.
    • Don’t make it all about work – sharing a joke or talking about common interests shows you value your relationships beyond achieving work-related goals.
    • Make a plan to implement your campaign. This may be as simple as aiming for three positive interactions a week, starting small and building to some of your more challenging goals, or it may be a more detailed and ambitious plan depending on circumstances.
  4. Put a marker in your diary to review and adjust your plan every couple of weeks.
  5. Celebrate your successes and let them build your collective confidence to face tougher challenges and aim for higher goals.

This may seem a lot to do, but looked at another way, it is really about recognising the importance of adopting a customer-focused mindset and consistently applying some practices which bring this to life on a daily basis. 

By proactively investing time to improve communication with our internal stakeholders, we show them that we genuinely want to understand and respond to their priorities. (Of course, that’s not to say we won’t at times challenge them, or seek to reframe perspectives, so we can explore alternative options!)  It is by working in this cross-functional and assertive way throughout the process that we can ensure appropriate business outcomes are sought and then delivered. Once we are trusted enough to be invited to the table early, we have the opportunity to ensure the selection, and effective management, of commercially compatible suppliers, thereby accelerating the achievement of a wide range of organisational goals. 

If you have a success story to share where you’ve turned a relationship around through better communication, it would be great to hear what you think made the difference in your case. Let us know in the comments below.

Sometimes, what the supplier is interested in is of little interest to us; the relationship may be very distant, the marketplace acts as a trading system, or we have so much power that we choose to ignore the supplier’s interests.

However, and even in the last case, it remains important to understand what the other side of this commercial relationship is interested in, as this may hold the key both to a successful negotiation, but also to a well-founded long term relationship.

Supplier Interests

Examples of businesses ignoring suppliers interests are many. The most basic example is the institutional flaunting of payment terms, sometimes for justified reasons, but more often because of systems in place which have become successful slowing down cashflow to suppliers.

On the buying side (not just the purchasing organization, but the various parts of the organization which are involved in a purchase, including the specifiers, accounts payable, purchasing, legal, the recipient of the product or service) we need to recognise that the ability to provide money to our suppliers in a timely way for delivered products and services is a fundamental part of the relationship in place. The supplier has an interest in that working well as if it does not there is a need to finance the missing cash until it turns up.

Beyond that most fundamental part of a commercial transaction, built into the formation of a contract, there are other interests which are useful to understand. Sales cycles and bonuses are worth recognising, as they can drive urgency towards a particular sale, which may not exist on our side. Equally, there may be particular benefits and emphasis on some areas of a product or service which, if added in, give substantial benefit to the sales team.

Other areas of interest can be identified from press reporting or company reports. A focus into a new marketplace, either by product type or by geography, can be an area of interest which, if we can help satisfy it, will provide a greater need for co-operation with our interests. Similarly, if there is a supplier interest in having a client for a new product or service offering, that can also provide us with benefit.

The issue, then, is how we identify the areas of interest which the supplier has prior to a negotiation. There are a relatively small number of areas to explore, in the areas of basic supplier research, and also the more obvious approach of asking them what they are interested in.

Supplier research is a short process where we identify the key areas of information that we need. We often see procurement teams approaching this without a clear idea of why it is important. Once again, the need to develop insights from the information gathered is the primary purpose, and in this case, the insights we are aiming to develop are an understanding of the possible interests which a supplier has, taken from a broader analysis of their business and our current knowledge of their approaches.

Getting an understanding of what their interests are through discussion can be faster. The sales team, key account managers or friendly executives should be able to express more clearly the sorts of areas they are actually interested in meeting. As with our own businesses, there may be different views available from different individuals and as such we need to be diligent in tracking this down and building a broader picture of those interests.

Once we have a view of this, we are able to test for alignment with our own interests. Where there are common factors, it can make for open discussions. However, there are often areas in which the interests are misaligned, but one party can help the other at little cost or effort to itself. Seeking these areas can provide a dramatic offer of value to one side at little cost to the other, which is a powerful negotiation tactic in itself.

There is a tactical challenge in this whole approach; we need to get used to the idea of seeking and exploring the interests of the other side, as a way of benefitting ourselves. This can seem counter-intuitive, but in reality, it is not. We know from our personal relationships that being interested in only our areas and not interested in the other side is a way of having a poor evening out. Embracing other interests is a powerful way to engage in a negotiation.

Talk to us about Better Communication with Stakeholders, and Supplier Management

About Kathrine Western

28 years procurement experience in line management
and consulting roles.
Previous employment: Nissan and Reckitt Benckiser
Education: BA French and German, Durham University
INSEAD Young Manager’s Programme, Fontainebleau
APICS Operations Management
Organisational Collaboration, OU Business School
French, Spanish & German