Procurement’s 7 Deadly Sins. Part V: Effectiveness Tools Handicap

I often get asked about the tools and investments I have used to transform the different procurement organizations I’ve led.  As I pondered, listened, and counseled with industry peers regarding this topic, I discovered the 5th Deadly Sin of Procurement.  I have come to call it the “Effectiveness Tools Handicap.”

We often don’t see the ROI we expect on our technology investments.  Worse, the shift from Industry 3.0 tools, like spreadsheets and emails, to an Industry 4.0 world replete with Artificial Intelligence (AI), Machine Learning (ML), Robotic Process Automation (RPA) and Decision Analytics tools (to name a few) seems to intimidate us, or at least disintermediate our current processes, so much that we are likely only using a miniscule fraction of the capabilities available to us and for which we are paying.

The reason why is simple: we are not good at managing and measuring the effectiveness of our Source-2-Contract (S2C) process.  Which is critical when it come to identifying savings for it is during this upstream contracting process, in contrast to the downstream purchase process, that we have the most opportunity to negotiate value.  Moreover, we have had few, if any, tools to measure and manage our effectiveness and even less budget to spend on S2C process management.

Measuring Procurement Effectiveness

Have you ever wondered if your enterprise procurement team was getting the best deal it could on the opportunities presented by the business? 

When I refer to effectiveness, I mean beyond the efficiencies sought in transaction processing, it’s got to be about business impact.  Impact as defined by your business can be best described as your desired Business Outcomes: Innovation, Digital Disruption Enablement, Savings, Diversity, Sustainability, etc.  I addressed part of this gap in my last blog on Stakeholder Centricity. While stakeholder’s needs are a primary business impact, meeting their goals does not inherently mean you’ve gotten the best deal nor achieved all the expected business outcomes.  Much like you they are measured on specific goals and the overall business impact typically extends beyond any singular function’s focus, thus a deal goodness must measure all of the relevant desired business outcomes.

For example, you may be helping marketing source TV ads and their priority is creativity and conversion rate.  You also must be cognizant of pricing and market competitive terms that they may or may not care about.  You bring that knowledge into a negotiation to effectively support business objectives while ensuring that the deal is competitive given market conditions and capture the maximum value.

We add value when we deliver on both the metrics that matter to the business and ensure that the final deal maximizes value for spend.  In other words, we can’t just ignore cost controls and savings. In that context, do you have enough visibility on how the deals are getting done to ensure if know your Procurement Team is getting a good deal or not?  My answer to that question is an emphatic “NO.” 

I’ve struggled mightily with this holy grail of conundrums – balancing the “best deal” construct with business and operational constraints – throughout my tenure in procurement.  I have savings targets that the budget owner may, or may not, care about.  They have needs that I have to care about to be successful.

After gaining the privilege of leading, and the opportunity to call some of the shots, at several Fortune 500 companies these musings expanded to my team and then ultimately our entire profession.  What if my team could get to the perfect set of conditions for the best deal outcomes?  What circumstances would need to exist? Are there tools to help create such opportunities?  And if so, how much more impactful would my team be?  What if procurement could be focused on savings without being a gatekeeper that encouraged business partners to skirt policy and avoid working with us or entering a competitive process?

Challenging the notion that we were limited by existing processes and policies drove some profound insights and actions (which have formed the basis for my Procurement’s Deadly Sins theory) but it was when I looked at the tools we were using and asked if they were the right ones (and being used the right way) that I realized we had a major blind spot.  We have some great tools available, but because we don’t invest in technology, training and talent sufficiently to support the upstream Source-2-Contract (S2C) aspect of our responsibilities. as a function we have an effectiveness tools gap.  We don’t know how well our teams are using technology investments which frankly handicaps our teams, our performance and our value proposition. Simply put we have an “Effectiveness Tools Handicap.”

In fact, we don’t really measure or report on the effectiveness of our sourcing activities beyond savings.  By comparison, we measure cycle time on purchase orders from requisition through supplier acceptance and even payment.  We measure total transactions, total spend, whether we are buying on-contract and many other metrics to make sure we spend money in the right ways.  However, when it comes to the S2C realm, we don’t always even know how many deals are active, nor have an easy and clear means for the business to request support, much less metrics for on-time performance, or measuring progress against targets at a negotiation level. This limited historical data is only slightly better than the dearth of future looking metrics.  We can forget about a pipeline or visibility into how much support the business needs.  This is BUSTED.

This is what I call the Effectiveness Tools Handicap – we can’t get better if we can’t see what we are working on and how we are performing at a comprehensive yet sufficiently granular level.

Value Levers CPOs Must Action to Mitigate the Effectiveness Tools Handicap

To Drive Value in Enterprise Procurement, CPOs must action these three value-levers:

1. Increase the number of sourcing events (throughput) at both the team and individual level.

   One part of this is using big data analytics on bids, will get more done, more impactfully and more quickly.  Specifically look for sourcing tools that offer advanced optimization but still offer flexible enough cost models to be anything from finished price to a complex cost model.

   Also make sure you have the right people working on the right jobs

   Sneak Preview: In a future post, I will discuss how Ken Black, Russ Swansen, and Matthew Hamilton collapsed analytics from two and a half months to two and a half days with terrific business results.

2. Having figured out how to compete more spend you can action more of your tail spend.  Traditionally thinking is that this 15-20% of spend (and ~80% of the suppliers).  Moreover, common sense says that it is unrealistic to manage given resource constraints and principles of diminishing returns.   

   I have been known to say that what people think of when we say tail spend is a mouse tail, when we should be thinking about it like a Tyrannosaurus Rex tail.   There is a tremendous about of value to unlock in that tail spend.

   According to Andrew Bartolini at Ardent Partners, there is roughly a 12% savings opportunity on those tail spend items. Most of us can benefit from an incremental 12% savings. So why are we ignoring tail spend?

3. Lastly, it is critical to better manage your S2C performance.  You should focus on the effectiveness of every sourcing opportunity and stop leakage that you don’t even see.   The fix is Effectiveness Tools such as Pierpont Holding’s solution Enterprise Procurement Performance, EP2.

I have personally used these three steps to transform my procurement teams multiple Fortune 500 companies, elevate our function and increase business value.  I am happy to help you if you too believe that there is a better way.

Where can you get help?

These issues are correctable with the right application of tools, processes, and team capability building.  At issue is that too many of us simply don’t know how.  Bill Gates’ wisdom can be helpful here:  determine “who has done it well and what can we learn from that.”  I believe that among my 30,000 social media followers, the answers are out there.

We now need to get those solutions to the people that are still struggling with problems that someone knows how to solve.  These Seven Deadly Sins are fixable, we simply need to get the solutions to the folks that are suffering in silence.  When we are done, and when the solutions are deployed, the business world that drives I aspire to be a catalyst for that functional change in industry.

If you think your team is limited by Blindness, 3-5% Savings Fallacy, Three Bids in a Buy Abuse Lack of Stakeholder Centricity, then here is what I recommend you do:

1. FOLLOW ME on twitter @waltcharlesIII and FOLLOW ME on Instagram @officialwaltcharles

2. ADVOCATE THESE NEW APPROACHES at your BUSINESS – email me at waltcharlesiii@gmail.com to get help

3. Continue to READ and SHARE my blog article with anyone in your network that is struggling with any of the “SEVEN DEADLY SINS” mentioned – I still have three to go.

4. JOIN my FREE blog at www.waltcharles.com by entering your email address at the “Stay IN The LOOP”

5. TEXT “TOOLS” to 786-566-1766 if your Company has over $1B in Sales and you need help.

Incase you missed it, catch up on the other Deadly Sins:

Part 1: Blindness

Part 2: 3-5% Savings Fallacy

Part 3: Three Bids in a Buy Abuse

Part 4: Lack of Stakeholder Centricity

Procurement’s 7 Deadly Sins. Part IV: Lack of Stakeholder Centricity

Happy New Year!

For this segment, I want to talk about relationships - not supplier relationship, but business partner relationships.  While we spend most of our time managing external partners, we can easily overlook that our mandate is intrinsically Stakeholder Centric.  But what, you may be asking, is Stakeholder Centricity?

Most simply it means understanding and prioritizing your business partner, aka your internal stakeholders’ objectives and goals.  I believe that there is an opportunity to materially improve how procurement professionals manage these relationships and interact with the most important stakeholder in the business… the one who controls the budget and makes the decisions. 

For your consideration, in Deloitte’s Global Chief Procurement Survey of CPOs in 2018 they reported three top strategic priorities for procurement:

• 78% are focused on Cost Reduction

• 58% are involved with about New Product and Market Development

• 54% are worried about Managing Risk

And yet, only 1 in 4 of us felt they are “excellent business partners contributing significantly to strategic value.”  Said differently, 75% of us have the opportunity for engage business partners in a different and more strategic way.  So, the question is: how can we become more strategic? My answer is Stakeholder Centricity.

How does Stakeholder Centricity make us we more strategic today?

Procurement’s greatest opportunity to impact the business is through the business budget owners.  Our job is to help them get the most bang for their buck.  They are our customers, "help them” is the operative phrase.  Yet very few of us even keep customer service metrics! Why is that? 

Consider this simple question. What percentage of the time did your global procurement team deliver the needed contract in the time that the business said it needed it?  Was it 99%, 52% or do you not even track this KPI, much less know the answer?  How tragic is that!  Even more tragic is that for many of us we do not understand, or at least measure, the metrics that matter to our business.

Spoiler Alert!  Procurement is a Service!!!  The metrics by which you measure your performance should matter to your customers.  And while savings is a big one, it is not the only one.  When I first started measuring on-time performance for sourcing activities it entirely changed the way my business partners engaged with my team because suddenly they saw me as seeking to fulfill their priorities over mine.

Consider this example: If the car service that took me to the airport this morning for a flight didn’t know whether they’d be able to get me there in time for my flight this morning, the viability of their service would most assuredly be in question. If upon missing my flight as a result of their routing they provided me savings metrics on tolls I would not trust them to provide any future services since they did not understand my priorities.  I believe that for Procurement to evolve, we’ve got to embrace the fact and the truth, that at our core we are a service, and we have to deliver on what matters to our customers.   

I also know that some of you are saying that “on-time sourcing” metrics is unfair.  It’s unfair because sometimes our customers call us today with a procurement opportunity that was needed to be contracted yesterday.  And, in fact, this “Blindness” is the first Procurement Deadly Sin I blogged about a few months ago (click here to read now).    

That epiphany, like so many, came from a conversation with a Procurement friend named Ron Wright, who leads the procurement team at KAR Global.  In a call I had with him, he told me about feedback from a Finance leader at his company that helped him realize the link between late procurement engagement and his stakeholder’s satisfaction with his team’s performance.  It turns out, last minute requests frequently resulted in frustrated business partners. 

Tragically, Ron is not unique in having this problem.  I believe the opportunity is in knowing what to do about it these two related sins.  We can fix them both by measuring our performance and providing visibility to our business partners.  We can motivate them to help us mitigate blindness which in turn lets us more satisfactorily meet business partner needs and expectations. In other words, measuring our performance makes us inherently more Stakeholder Centric. 

I started reflecting on how my experience and handling of these exact issues as well as engaging with other to get their insights and solutions.  One source that focused on Stakeholder Engagement, from a company called Procuredesk, includes an eight-part list.

1)      Start with building relationships; savings come later

2)      Be an Enabler vs. Policy Enforcer

3)      Understand Business First

4)      Add value to the conversation

5)      Understand personalities

6)      Empathy – Put yourself in their shoes

7)      Align procurement goals with your stakeholder department

8)      Listen first, prescribe later

While I'm absolutely aligned with what they said and see these as valuable steps towards Stakeholder Centricity, it is something more.  I posit that we must move beyond engagement, which is procurement serving, to centricity which is stakeholder serving. I would boil it down to how robust are your procurement processes and how accountable is your organization’s leadership (second spoiler alert these are recurring themes in all the Deadly Sins). 

In focusing on Stakeholder Centricity, I have developed a mantra of three questions to ask our key stakeholders on every procurement opportunity: 

1)       What are your pain points?

2)       What are your aspirations and dreams for how to buy this product or service better? 

3)       And how do we find the right population suppliers to deliver game-changing outcomes in those two (aspirations & dreams) dimensions?

Taking the time to have this conversation is invaluable in improving your service delivery metrics and even more importantly transforming your role from tactical gatekeep to strategic business partner.

Additionally, Procurement succeeds like any other business: by having satisfied customers. Keep mind that customer service assumes that the conditions of an unspoken contract have been honored.  This one is huge for me and often missed by procurement teams.   How many of us seek feedback from our stakeholders?  The unspoken aspect is that to provide a service to the business, we must know what you want; when you want it; with enough granularity to have multiple suppliers to compete for it; and with enough lead time to put it through a robust competitive process.  If any one of the above-listed things is absent, a sub-optimal outcome is the likely result.  Again tragically, many of us don’t have these data but my three questions, when answered completely, should help us with many of them and a new SaaS tool called EP-Squared can help you manage a more Stakeholder Centric process.

Finally, and extremely important, align procurement goals with your stakeholder department.  If budget and savings is the priority, as it was in 2018, that should be your focus.  If supply continuity and risk mitigation is the business’ primary concern, as has become prevalent in the COVID era, then that should be your priority as well.  In both cases you are working with suppliers on your business stakeholders’ behalf and your outcomes should be as close to their objectives as possible.  This is how procurement becomes Stakeholder Centric.

Where can you get help?

These issues are correctable with the right application of tools, processes, and team capability building.  At issue is that too many of us simply don’t know how.  Bill Gates’ wisdom can be helpful here:  determine “who has done it well and what can we learn from that.”  I believe that among my 30,000 social media followers, the answers are out there. 

We now need to get those solutions to the people that are still struggling with problems that someone knows how to solve.  These Seven Deadly Sins are fixable, we simply need to get the solutions to the folks that are suffering in silence.  When we are done, and when the solutions are deployed, the business world that drives I aspire to be a catalyst for that functional change in industry.   

If you think your team is limited by Blindness, 3-5% Savings Fallacy, Three Bids in a Buy Abuse Lack of Stakeholder Centricity, then here is what I recommend you do:

1.       FOLLOW ME on twitter @waltcharlesIII and FOLLOW ME on Instagram @officialwaltcharles

2.       ADVOCATE THESE NEW APPROACHES at your BUSINESS – email me at waltcharlesiii@gmail.com to get help

3.       Continue to READ and SHARE my blog article with anyone in your network that is struggling with any of the “SEVEN DEADLY SINS” mentioned – I still have three to go.

4.       JOIN my FREE blog at www.waltcharles.com by entering your email address at the “Stay IN The LOOP”

5.       TEXT “TOOLS” to 786-566-1766 if your Company has over $1B in Sales and you need help.

Incase you missed it, catch up on the other Deadly Sins:

Part 1: Blindness

Part 2: 3-5% Savings Fallacy

Part 3: Three Bids in a Buy Abuse