Executive coach

Q&A: Dick Russill

Need advice? Send your questions to coach@cpoagenda.com

Spring 2008

A: Quick answer: “Your ability to make virtually at-a-glance assessments about procurement’s status in the target company and your expertise in quickly extracting unrealised value from current supply arrangements.” You advise that you will be making these assessments before it has been decided to bid for the target company. This means that you have less information than will become available later during due diligence.

Your target company is usually a “group” containing businesses that operate independently, albeit in similar activities. Judge which of the following (generalised) labels best describes procurement’s status.

• Silo service applies when procurement actions are driven by the planning system. Attempts are made to optimise the size and timing of purchase orders but managers only really show interest when performance indicators reveal overdue order placement, late deliveries and high inventories.

• Corporate clout applies when procurement’s profit contribution is recognised and CPO-led purchasing power is increased by managing “categories”; aggregating demands; standardising, and doing bigger deals with fewer suppliers. Usually, some procurement activity is centralised to achieve this, and a policy and procedures framework is established to bring standards and consistency into both central and delegated procurement.

• Intelligent organism applies when procurement is at the heart of the business and managed in an even-handed way alongside internal operations and sales. One consistently successful company says that it makes its business from selling and its profit from procurement. This implies that suppliers are bullied into submission but this is not so; they are regarded as sources of value and competitive advantage, and supply market cycles and cost drivers are understood.

A compelling procurement transformation opportunity will not by itself justify a takeover, but your assessment of potential benefits will make a tangible contribution to the overall case. Stepping up from “silo service” to “corporate clout” will yield early and significant cost savings, largely by optimising what is already happening. Making the step up to “intelligent organism” releases at least similar cost savings with the bonus of larger benefits deriving from transformed organisational effectiveness, competitive advantage from superior supply chains, and enhanced order-winning capability.

If a company is already judged overall to be an “intelligent organism” that does not mean nothing more can be done with it. Many takeovers aim to improve the effectiveness of a current business model; intelligent organisms have the potential to make the quantum leap to a new one.  

Q: Supply risk management is a current hot topic in my company and my boss has asked me to prepare a procurement viewpoint on the subject. What should this include?

A: You have probably heard the maxim that “brakes were invented to enable cars to go faster”. In all likelihood it was the other way round but the concept holds good: a company with comprehensive risk management strategies can operate at a higher pace than one where going slowly is the prudent way.

Arguably, the most important aspect of risk management is risk identification. Look for risks in four areas:

• Procurement process covers how your colleagues work together, or not, in all activities that have an affect on suppliers.

• Management control refers to the use of authority in the company, the framework whereby it is delegated and the principles expected to be employed. In effect, this is the DNA of the procurement process.

• External dependencies focus on supply companies; their values, responsibility, viability and performance; and the strength of the supply chains linking them to you.

• Market conditions and behaviours covers the state of supply markets (eg, are they competitive or not), supply availability, price trends, technical developments and the regulatory context.

Start by establishing the current status in each of the above areas. Then identify possible disruptions to this status quo. Rather than ask “What could go wrong?” set yourself the more interesting question “How many ways can we think of that will upset things?” Creativity theory says that this will produce more answers.

Now ask, “Would it hurt if any one of these things happened?” If ‘yes’, then “Does it matter?” If ‘yes’, then “How likely is it to happen?” If there are still grounds for concern, decide how to stop it happening or how best to deal with it if it does.

Dr Richard Russill (www.russill.com) is a business adviser and writer, specialising in supply, cost and relationship management