Q: I am the new CPO in a large professional services firm and wish to strengthen its procurement policies. However, the company culture is ‘consensual’ and people dislike being ‘told’ what to do. How should I proceed?
A: There’s a fine line between consensus and anarchy! Your company is not alone in having prima donnas. These people are good at their job but feel above the need for management controls and the normal, healthy disciplines that characterise a high-class company.
All companies work within constraints. Some are externally imposed by law, while others are internal (eg, financial protocols, corporate social responsibility). The latter are “management givens”. I have never met a company without them, so the notion that people must operate within terms of reference should not be a surprise – even to prima donnas. Your ambitions for your company’s procurement process and belief that this should be principled mean that mandatory “procurement givens” must be advocated energetically from the top, just as the other policy givens are.
Differentiate between principles and policies. Procurement leaders have strongly held beliefs, or principles, about what behaviours constitute best practice. For example, consider “dealing with supplier visitors”. The principle is to ensure that the company does not suffer commercial exposure from colleagues unwittingly giving sensitive information to a supplier or, worse, entering into unofficial contractual commitments. A policy statement embracing this principle would read: ”All personnel may freely meet with supplier visitors but, being aware that suppliers will try to extract or plant information, must not release data that would damage purchasing power. Personnel not possessing commitment authority must neither commit the company nor give the impression that a contract has been, or will be, awarded.”
Best-practice procurement DNA comprises some 25 policies. These apply to all people who have any contact with supply-side activity, not only the buyers, and they are also the focus for audit. In a recent benchmarking activity, I was intrigued to find that procurement’s impact in companies with 20-plus procurement policies was four times higher compared to those that had the bare minimum.
The apparent dilemma was that “more bureaucracy” seemed to equate to more success. But the explanation was that the low scorers had policies only for buyers, whereas the best-in-class policies embraced other functions outside procurement.
Expect to meet resistance from budget holders who fear a diminution of their authority. Emphasise that this is not so: their authority to requisition remains intact but it complements the different authority (to commit) vested in buyers. Understand their objectives and show how buying in to your policies can enhance their personal success as well as that of the business.
Q: Career development has taken me out of procurement for a while, but now I’m back and the function seems no further on. What’s the problem?
A: In the outside world there is good news and bad. Procurement has risen on the CEO’s agenda and there are more CPOs. Procurement is influencing non-traditional areas of spend. Suppliers are increasingly seen as sources of innovation rather than purveyors of things we tell them to supply.
But there is also bad news. Too often, procurement serves as a support activity and practitioners are not good at promoting its contribution internally. There is a whiff of functional protectionism. Theoreticians’ tools and insights seldom reflect the belief that procurement is a fundamental business process. And all of this will continue for as long cost savings are cited as the main proof of “value added”.
Every company in business is “in procurement”. The question then is “how do we do it as well as possible?” and not “are the cost savings justifying the effort?” One CEO challenges his board by asking “are we doing procurement intelligently?” and then “how important is it to us to get it right?” Rather than “adding value” it is better to consider how procurement is “valuable” to a firm. This opens up more possibilities for impact because the procurement lever can be applied to many challenges facing the company over and above managing its supply costs.
You may also feel that things haven’t changed inside your company. Often, good procurement-related changes are made but only last while their advocate stays in the job. Things backslide when they move on. What’s needed is to embed the new practices into the biorhythms of the business so that they become the norm. This “personality-proofs” them and allows them to be reinforced by internal audit.
Dr Richard Russill (www.russill.com) is a business adviser and writer, specialising in supply, cost and relationship management
