Second Generation Procurement Transformation

Procurement | September 12, 2016 |

Taking procurement to the next level, part 2

There are a number of reasons why a Procurement Transformation, as opposed to a process of continuous improvement, is necessary for an organization to add the types of value contribution and reach the levels of performance discussed in this blog series. (Part 1 – First Generation Procurement Transformation)

Structural – Many companies already have had the experience of investing significant amounts of effort and resources in different types of ERP programs, financial risk assessments, supplier code of conduct programs, etc. However, these tend to function, like bolt-ons to the main job of strategic sourcing. The metrics used tend to measure activity not impact (how many supplier performance evaluations were carried out, how many suppliers have signed up to the code of conduct?). This type of work is either given to a specialist team, which focuses just on that activity, or added to the workload of sourcing managers. However, as long as it remains ancillary to the sourcing process rather than an integral part of it, behaviors and outcomes will be suboptimal. Let us illustrate this with an example: Is it better to launch an initiative with an existing supplier focused on enhanced innovation, or is it better to fully identify what you want from a supplier up front and then select that supplier based on those criteria?

New competencies – As anyone who has been through a first wave of Procurement Transformation knows, change is uncomfortable. Even though these Transformations have strong selling points to those impacted, such as buyers becoming strategically focused rather than operationally or tactically focused, experience shows that getting large groups of people to change the way they have done their job for a long period of time is neither quick nor simple, nor without some bumps along the road.
Once you start trying to build a Procurement organization with specialist skills in risk management, supply chain, R&D, product life cycle management, contract management, and so on, it rapidly becomes apparent that the challenge is even greater. Indeed, a thorough Procurement Transformation will involve a carefully considered Make vs. Buy process: Which skills need to be developed internally and which can more effectively be bought? Similarly, which processes need to be retained and which ones can more efficiently be outsourced?

Speed – It should be apparent that we are not talking about small incremental changes here. Once your business case has been built and the incremental value is clear, the imperative to start delivering on the promise should be strong. A Procurement Transformation focuses attention and resources on the overall goal and will deliver the future state model in a fraction of the time. Indeed, it is questionable whether many of the changes described here can be delivered at all without this level of focus.

This is why a Second Generation Procurement Transformation takes a holistic approach to all of the dimensions at play, and is superior to an approach based on continuous improvement.

So how does your organization embark on a Second Generation Procurement Transformation? This will be the topic of part 3, so stay tuned!

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