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Selling Procurement to the organisation - Part 2
Whether you have been instructed to transform procurement, or want to be a superstar transforming your organisation’s inbound supply chain, you will need support and commitment from key supply chain partners. You need to identify these people and SELL procurement to them!
These people are unlikely to be in the procurement department, so you have to start thinking about the other functions that make up a supply chain. Who are they, what do they do and how do each function impact the others?
Usually when we talk about transforming procurement, we talk about the “how we buy”. To really make procurement strategic, we also need to consider and influence the “why we buy”. We don’t want to just buy the wrong things faster and cheaper!
In order to start influencing the “why we buy”, we have to understanding our supply chain universe, the players, their goals and targets. This is the first step toward getting the support and commitment you need.
Strange as it may seem, the entire organisation is NOT waiting for procurement to assume it’s rightful place as a strategic team member. Most people are quite happy for you to buy the stuff they want, when they want, from whom they want, at whatever price.
So to start transforming the procurement function, we need to identify the people in the organisation who will support us, the people who will oppose us, and those who do not care either way. We will develop strategies to address all these groups.
We have to be able to answer the question: “ Why should they care”?
To start, let’s look at what is a Supply Chain?
A Supply Chain can be defined as the combination of infrastructure, tools and processes that enables an organisation to have the right amount of quality inventory at the right time and the right place within reasonable cost to satisfy its customers' needs.
We usually draw a supply chain as a collection of business functions. Customers connected to suppliers through buy, make, move, store and sell functions. These are usually supported by planning, design and support functions.
This looks good on a PowerPoint slide, but does not really help us understand what is happening in our specific supply chain universe.
We need to think in terms of actual suppliers, commodities, factories, storage facilities, trains and trucks and customers.
We also need to think in terms of people. We need to think about what they do, why they do it, how they impact procurement and how procurement impacts them.
Issues like: where is inventory kept and who manages this inventory. Who generate demand signals that initiate replenishment runs? How do they create demand forcast? How accurate are these forecasts? etc.
Looking at a supply chain as a dynamic collection of people, infrastructure and processes, a given supply chain will change depending on how you choose to look at it.
As an example, assume one factory, making one product for one client.
From this we immediately have two “main” supply chains. We have the direct supply chain, that is, all the actions, commodities, labour and capital that go into the product. And we have the indirect supply chain, that is, all the actions, commodities, labour and capital that go into supporting the infrastructure to design, make, move, store sell and service the product.
Now we introduce a few suppliers, say five suppliers in our direct supply chain and ten suppliers in our indirect supply chain. We may also have the same commodity; from the same supplier in both direct and indirect supply chains.
Looking at this scenario from the customer’s point of view, we have one supply chain.
Looking from the factory’s point of view, we have two supply chains and looking at it from a procurement view we have sixteen supply chains.
You may also choose to define the extended supply chains, that is, from your supplier’s suppliers to your customer’s customers.
Think about your organisation. How many customers do you have? How many products or product groups? How many production and storage facilities? How many suppliers?
If your organisation is part of a conglomerate, how many business units does the holding company operate, all with multiple supply chains?
Mapping the organisation’s supply chain universe will take some thought and time.
It is however a valuable exercise to form a high level overview of the organisation and understand where you and your buying organisation fit in this universe.
You want to start thinking strategically about why things get purchased in this universe!
You need to start thinking about:
· What you are doing?
· Why are you doing it like this?
· How else can this be done?
· What is the potential value of change?
· What is the potential cost involved?
· Who is going to care about this potential value?
· Who is going to invest to deliver the value?
Looking at a mapped supply chain universe from a procurement perspective, you may ask questions like:
· Does my buying organisation buy for the entire organisation?
· If not, who buys for the other business units?
· If we don’t control all the spend, who does?
· Do we use the same processes and systems?
· If not, why?
· Which is better?
· Should we standardise?
· Do we share the same suppliers?
· Who has the best contracts in place?
· Can we aggregate demand?
· Can we standardise suppliers and contracts?
· Can we form a partnership between buyers to strengthen our business case for transformation?
· Do you have a mechanism to share and exchange views with them? (Why not invite them to join Procurementtips?)
Looking down the supply chain, you may ask questions like:
· Where does my demand signals come from?
· How accurate are they?
· What is the effect of any inaccuracy on our organisation, our clients and our suppliers?
· Many others.
Looking up the supply chain:
· Where do the commodities we buy, go?
· Are we buying for stock, when we can be buying for Just in Time (JIT)?
· Does two or more buying organisations buy for the same internal client?
· Many others.
At this stage, you may feel that this is potentially a lot of work for unknown return - perhaps it is better to squeeze some suppliers for more discount!
In reply I offer this case study.
We worked with a European manufacturing conglomerate to provide a spend visibility portal for the group. As a starting point we mapped their supply chains using the SCOR model (www.supply-chain.org). The main motive was to have a centralised, structured model of their universe to make sure we included everyone.
It ended up being a model spanning eleven countries and more that three hundred companies, but that is another story.
What we found, apart from the obvious duplications of function, processes and systems, was that one business unit was buying components that another business unit made, from a direct competitor to the tune of six million euros per year.
This discovery was made in the first week of the project, and basically paid for the project.
This saving was a nice bonus, but the real value of the exercise is ongoing. What this portal does is go beyond identifying what one buying organisation pay for a commodity compared to another.
It allows the supply chains to be benchmarked against each other, best practises to be identified and rolled out across the entire group, key stakeholders to be identified instantaneously and divisions to collaborate across countries and companies.
A procurement director in one of the smaller business units created the vision for this project!
Some final thoughts before we start modelling our supply chains.
Be clear about your goal! The purpose of the exercise is to obtain a mandate for change. At this stage we do not know what potential opportunities we will find.
Be realistic about the scope of your proposed investigation. It is possible to get so involved with analysing potential issues that you never propose a solution.
Be realistic about your sphere of influence. Focus on identifying opportunities that you can realistically deliver in reasonable timeframes.
Now that we are thinking about how procurement exist in our supply chain universe, how we effect others and how they effect us, we should also be asking how we quantify this!
It is one thing to say this or that process is causing inefficiency and therefor creating a cost, and another to quantify this cost.
Next week I will look at using supply chain metrics to quantify inefficiencies and including this in our business case.
David van der Walt
Last edited by David : 10-13-2006 at 10:58 AM.
Re: Selling Procurement to the organisation - Part 2
Phew David, quite a mouthful, but a great post. Very informative.
Just edit the link to Supply-chain.org as it includes the bracket at the end.
Re: Selling Procurement to the organisation - Part 2
[quote=Lehlohonolo;247]Hi David, a very interesting article. It's full of detail that is required to motivate ones stakeholders into buying in on the transformation of procurement department. And to position procurement into a strategic position were it can partner with key role players.QUOTE]
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