Supplier Relationship Management: Do This First

Towards the end of 2015, following a number of conference speeches last year on the subject of SRM, we shot a number of videos that we thought could be easily ‘consumed’ by people interested in the subject. Simply called ‘Supplier Relationship Management: The Video Series’, they were designed to guide people through the crucial very first steps in developing a programme that can truly deliver excellent and sustainable results.

Of course, a few short videos aren’t going to tell the whole story, but my experience tells me that, without the robust strategy framework that I discuss in the videos, I’m convinced programmes are almost certain to fail. My recommendation is two-fold:

  1. If your organisation is about to ‘start’ SRM, then follow the simple framework presented in the videos, and do it first, before you embark on an expensive, although hopeful implementation.
  2. If your organisation already has an SRM programme in place, carry out a healthcheck on it after viewing these videos. The very least you will achieve is an understanding of where your programme is currently, and whether you’re hitting the stated and unstated needs of your internal stakeholders.

I hope you find the videos interesting, and here they are, in one place for the first time.

Good luck, and please get in touch if you’d like anything explained in more detail.

Good wishes,

David

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Successful supplier relationship management needs a ‘sense of purpose’

Getting the fundamentals right is key to SRM success, says supply chain management expert David Atkinson

By Tom HolmesMarine Trader Editor

Most change programmes fail because of a lack of senior management buy-in and a haphazard approach.

That was the opening message from David Atkinson as he began his talk on Supplier Relationship Management (SRM) at IMPA London, during which he offered insight gained from his 20-year procurement career. “One of the problems SRM initiators have is dealing with senior management that are sceptical about the return on investment,” he said. “Often what senior management don’t understand is that SRM is more than just cost reduction. It’s a long game.

“People cherry pick what they think are good ideas for their change programme. The problem is that they are not joined up. People work on that project for a year and find they’re not getting ROI, so they re-launch the project, again going off on a different angle.

“Pulling it all together needs a far more strategic approach, looking at causes and effects. It’s very logical.”

According to David, well-designed SRM programmes are based on proper strategic and systematic thinking too. The key to unlocking real value though comes from knowing why you’re going to do it in the first place.

Long-term value

In three years as procurement director at Rolls-Royce, Atkinson achieved 21% cost savings, improved quality by 400% and improved supplier delivery by a factor of 10. This was all from a stable supply base where, for years, the cost had been escalating, quality performance was poor and delivery performance was poor – it was done with almost no resourcing of the business.

“People cherry pick what they think are good ideas for their change programme. The problem is that they are not joined up”

“We did this through supplier relationship management. We’re talking about managing suppliers for value post-contract. It’s not about sourcing, though long-term it will have an influence. But it’s about post-contract value.” While it isn’t possible for everyone to achieve similar results, Atkinson believes SRM success is achievable for all through logically developed coherent strategies and learning from others.

“Establishing successful cross-functional working on SRM projects is critical,” David adds. “Great SRM is dependent upon crossfunctional working. You need to have the capacity to work collaboratively. Unless you ring-fence resources – that is people – who will drive value improvement activity with your suppliers, you are going to struggle to generate sustainable benefits.

“Fundamentally though, you don’t have a chance of SRM success if you don’t understand what your overarching purpose is.”

Fit for purpose

Knowing why you are launching the programme is critical to establishing your SRM action plan. You may have had quality failures from suppliers, late deliveries, urgent cost reduction requirements or senior management driving innovation. Either way, it is a case of knowing why you’re doing it, who you’re doing it for and what the numbers are going to look like.

“The question you ask is how you define the purpose of SRM and its contribution to the business,” says David. “Once you’ve done that you can start thinking about your stakeholders or customers or even external customers. Then you’ve got to think about the money. What is that value? What must SRM’s financial contribution to stakeholders in the business be?”

The process perspective is next on the agenda – this addresses how you will satisfy the business and satisfy the stakeholders, and identifies the areas in the SRM programme that you will have to excel to satisfy those demands. Once you have done that you need to think about systems, organisations and training. “Throwing money at systems and training isn’t the answer per se, because unless you know what the perspective is you don’t what that system or training is for. If you get systems, organisation and skill development in place, but you don’t have a process, you end up with very clever people all doing different things. “If you have the process in place you have a good chance of delivering the financial numbers, satisfying stakeholders and achieving your overarching purpose.”

Getting perspective

Defining your overarching purpose – what you’re doing SRM for – may not be immediately obvious, nor that easy to define.

According to David, it typically has three key elements that, once established, will give a clearer picture of the specifics of your SRM programme.

“It’s about optimising value for money, not just cost. It’s about quality, delivery, corporate reputation, the eco-agenda – whatever may be important to your business. You have to optimise value for money.

“It’s about the deliberate pursuit. The benefits of SRM do not happen by accident. The organisations that do it well have been doing it well for some years with some great discipline. You have to work with real intention if you are to get the benefits of working with SRM. “It’s about post-contract value too. This doesn’t have to come from all of your supplier relationships though you can fit them all into an SRM programme. The reality is you only have limited resources to work with some of them. You have to decide which are the most important.”

The original article in Marine Trader can be found here.

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SRM Video Series: #5 Skills for the Whole Organisation

Previously in this short series of SRM videos I have discussed the importance of having a clear reason for doing SRM – I called it the over-arching purpose; and then the question of who benefits – what stakeholders are likely to be interested in from SRM. In the third video I discussed the importance of delivering tangible results, followed by video #4 on the core SRM activities.

In this final video of the series I’m going to talk about skills development for SRM, IT and, most importantly, why CPOs should do all they can to ensure SRM is not perceived as a procurement initiative.

Want to be successful in implementing SRM?

Then….Be so good they can’t ignore you

 

The Deloitte Global CPO Survey of 2014 reported that 57% of CPOs felt their teams lacked the skills to deliver their procurement strategy. In this survey, most of the concern appears to be around soft skills, even though most of the training budget is going on technical skills.

Make no mistake, both are important, not just in practical terms, but politically too. If peer stakeholders and senior management don’t trust the procurement team to be competent, then support for programmes such as SRM will be withdrawn, leaving procurement trapped in a spiral of short-term tactical deal-making. Any CPO exhortations to re-focus on total cost of ownership and value for money will fall on deaf ears.

There’s no doubt there remains a talent shortage in the procurement field. Despite twenty years of Masters level education offered by a variety of business schools and CIPS for even longer, the demand for procurement skills shows no sign of receding.

This is why I firmly believe that ‘learning by doing’ is the most pragmatic approach to up-skilling an organisation in its SRM practice, not least because SRM is most definitely a cross-functional endeavour (you’re not going to get design engineers to devote their time to specific training in SRM, for instance).

The idea that key supplier relationships can be managed from the procurement office is wrong technically, and politically. Stakeholders won’t (and don’t) put up with it. Far better for the CPO to harness the skills, experience, insight and interest of stakeholders and involve them in the relationship analysis and strategy development work necessary to assure internal alignment and clarity of direction for strategic supplier relationships.

Working hand-in-glove with stakeholders is the way forward, and many organisations are already there. And when we consider the key value-adding processes that enable the CPO deliver outstanding customer service to stakeholders, and deliver value for money improvements, then we almost come full circle: we can’t do it without those stakeholders. This way credibility and a collective, team competence can be assured and trust between procurement and the business only enhanced.

Returning specifically to SRM, the CPO must understand the learning and skills requirements for the effective operation of those key SRM processes and ensure any shortcomings are resolved.

Develop the optimal organisational design for engaging key suppliers, blending technical procurement skills, leadership and influencing skills, as well as ensuring that clear roles and responsibilities and defined.

Finally, once the key processes have been defined, and optimised, then (and only then) consider what technology can further improve the operation of those processes.

Researchers Gauld and Goldfinch found that 30% of large IT projects fail, and a further 60% require more time, resource and effort to get working properly, so if you’re looking to technology to drive your SRM programme, then think again. IT can help, but don’t be a slave to it; I really believe that it isn’t the difference between success and failure in SRM implementation.

Finally….SRM is not a Procurement initiative

Managing key supplier relationships to protect the value you have contracted for, and to secure continuous improvements thereafter, should not be optional in modern-day business.

We’re on a relentless path towards the ‘virtual’ organisation as the preferred business model in both private and public sectors, as outsourcing continues its unabated growth. Being able to effectively manage external resources will become one of the genuinely core competences in our organisations, and the more it does, the more silly it will be to present SRM as an initiative from the procurement department.

Instead, CPOs should accept their role as one of educator and coach to key stakeholders and their cross-functional SRM teams.

The faster organisations establish SRM as an organisational competence, and develop programmes based on clear cause and effect relationships between action and purpose, then the more likely SRM can become a source of competitive advantage and a proven method of delighting the company’s customers, its clients, and in the public and private sectors.

I hope you have found this series on SRM illuminating and useful. If you would to discuss any of the items discussed, then please get in touch and we can continue the conversation.

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SRM Video Series: #4 The Core Activities

Previously in this short series of SRM videos I have discussed the importance of having a clear reason for doing SRM – I called it the over-arching purpose; and then the question of who benefits – what stakeholders are likely to be interested in from SRM. In the third video I discussed the importance of delivering tangible results.

In this penultimate video, I’m going to cover ‘process’ and why it’s important to….

Know what you need to be good at

Here’s the transcript:

To deliver tangible value for money improvements (including cost savings) desired by the business, and to deliver outstanding customer service to internal stakeholders, then the CPO and colleagues involved in leading SRM must decide which processes and activities the SRM teams must excel at.

These include the heartland procurement processes of category management, negotiation planning, and contract management.

Although these technical procurement processes are not of much interest to stakeholders (at least typically), they are essential in ensuring the business selects the most appropriate suppliers, and securing the best commercial deals available. This will hopefully enable stakeholders to work with supply inputs that allow them to excel at their own business activities.

With SRM, it should be expected that CPOs also develop excellence in:

Supplier relationship strategy development – to be able to work with stakeholder colleagues in analysing each key supplier relationship and determining the most effective courses of action to deliver improvements in value for money.

Segmentation of the supply base – to ensure that SRM effort is focused on the most important relationships, likely to those where the value improvement potential is greatest.

Performance management – to ensure that what was contracted for, gets delivered.

Supplier development practices (including lean and process improvement) designed to identify and then secure additional benefits. There are going to be occasions where these efforts are going to uncover dramatic improvement opportunities.

I would also suggest that CPOs should put in place processes that provide support to internal stakeholders – ‘customer support’ if you like. This is about structured stakeholder engagement, demand management, working with specifiers to remove unnecessary cost at the design stage.

CPOs and their teams need to excel at these because their credibility with stakeholders depends on it, and because they are the explicit connection to the needs (and wants) of stakeholders, and the financial inputs required of procurement.

It is these links that ensure day-to-day procurement and SRM practices explicitly reflect the purpose of the programme, instead of what I’ve witnessed too many times in my work with companies: a grab bag of seemingly good, but disconnected, ideas.

In the final video of this short series on SRM, I’m going to suggest that SRM is not a procurement initiative and that stakeholders also need to develop some important skills to effectively manage key relationships on behalf of their organisation

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SRM Video Series: #3 Defining ‘Value for Money’

Previously in this short series of SRM videos I have discussed the importance of having a clear reason for doing SRM – I called it the over-arching purpose; and then the question of who benefits – what stakeholders are likely to be interested in from SRM.

In this third video I talk about how you…. Show them the ‘money’

Let’s be clear from the start, this is not just about savings targets.

Although challenging it may be – the focus must shift to a more mature discussion about value for money.

You’re going to have to work hard (and most definitely with the CFO) to define meaningful value-for-money measures.

Cost reduction is a given, but what else are you going to measure and manage as part of your SRM effort?

Risk is a major factor for most CPOs these days; covering everything from regulation, supply continuity, and reputation management. What measures are in place, or should be developed for those (and other) risk factors?

And what about suppliers’ contributions to the top line? How will you measure innovation provision, supplier brand value to the business, and marketing contributions from suppliers?

These are just some of the many value levers that can be improved through systematic deployment of SRM and, even though some are easier to measure than others, your measurement system should aim to be motivational; it should enthuse users to want to get better, to improve, not create fear of failure.

Perhaps it would be a good idea to provide recognition and rewarding those involved in SRM work, the effort they put in, and the progress they make (including the suppliers themselves by sharing some of the benefits of improvement).

Sustaining positive momentum and a pipeline of value improvements is key.

Whichever way your measures are developed, ultimately the arbiters of the value delivered are those stakeholders you will (hopefully) have already consulted. I’m not promising it will always be easy developing measures and negotiating who gets credit or that there aren’t organisational politics involved, but claiming savings and other benefits that are not endorsed by the internal stakeholders is a recipe for their disengagement and even conflict.

Once definitions of value have been agreed, then a mechanism for monitoring VFM improvements coming down the pipeline will need to be created, enabling the CPO to determine not only the aggregate benefits of SRM, but which SRM interventions with suppliers are the most effective.

Finally, through the diligent pipeline management of value for money improvement ideas, it will become possible to predict future benefits from SRM and enable the CPO to help shape budgets.

A word of warning: Because knowing what can be achieved from deploying SRM with each selected supplier cannot be precisely estimated up front, then setting top-down targets for SRM is a risky business. Arbitrarily imposing targets on SRM, potentially disconnected from what stakeholders (customers) need, will deflate morale and undermine the chances of success. My experience tells me that VFM improvements are emergent; they are the result of a range of SRM interventions with the supplier and the internal organisation.

Predicting which activities are going to yield the most benefits is an inexact science. That’s not to say, however, that we shouldn’t keep count.

In the next video in this short series, I’ll be discussing what the CPO and the team need to be good at. What are the critical processes that deliver the tangible benefits to the business and its stakeholders? In other words, what is the SRM ‘day job’?

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SRM Video Series: #2 Meeting the Needs of Stakeholders

In the first video of this short series I discussed how important it is for your SRM to have a clear over-arching purpose – the reason why SRM might be (i.e. probably is) important to your organisation.

In this second video of a short series on SRM, I’m going to talk about….

Who benefits?


And here’s the video transcript….

An Achilles Heel for many procurement organisations is their relationship with other business stakeholders: the struggle to become relevant in a business that sees procurement as merely a service function, and not the strategic contributor many professionals believe it is (or at least can be).

For most stakeholders, SRM will be just another Procurement initiative, something that might get in the way of, or slow down, their own day job. In these circumstances, suggesting that you’re implementing SRM because the boss said so, or because a competitor organisation has done so, is not going to generate the enthusiasm and support required to make the programme a success.

CPOs need to answer the ‘what’s in it for me?’ question for every stakeholder constituency in the organisation, because they don’t all want (or would benefit from) the same things from an SRM programme. Let’s think about what is likely to be in the minds of some stakeholder groups….

  • Finance want numbers (savings and, of course, delayed payment terms)
  • Operations want a fast and reliable supplier response, delivered on time
  • Quality Assurance want compliance and maintenance of standards and specifications
  • Design want supplier innovation, ideas and engagement with their new products and services pipeline
  • Marketing want suppliers to provide financial contributions to promotions, and to potentially enhance the end-customer experience of your company….
  • ….And of course senior management want the whole SRM enterprise to provide a favourable return on investment.

CPOs must define the SRM value proposition to each of these constituency groups, ensuring that those value propositions are both constructed jointly with those stakeholders, and endorsed by them.

The key question will always be to what extent does SRM demonstrably contribute to the success of each group of stakeholders (how can it make their work easier and better), and the organisation as a whole?

In the next video I’m going to talk about what we mean by value for money….

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SRM Video Series: #1 What Are You Doing It For?

In my thirty-one years (so far) of working in the procurement field, I’ve seen the profession grow in stature, and as my mentor Professor Andrew Cox has said, witnessed procurement become something of a science. When I started out ‘Purchasing’ was all about being able to negotiate deals with (mostly) subservient suppliers. What soon emerged was strategic sourcing, morphing into the category management process that is ubiquitous today.

Largely due to my experiences in the automotive and aerospace sectors, where supplier development proved to be highly effective in removing waste and extracting more value from suppliers, managing suppliers ‘post-contract’ for value became of particular interest to me. Nowadays of course, supplier development has been subsumed into what we now term Supplier Relationship Management or SRM. I have been fortunate to lead procurement teams in both of those sectors and have been able to implement SRM to an enviably high level, yielding truly game-changing improvements in value for my employers.

More recently, my leadership has been of consulting and training assignments in pharma, finance, logistics, transport, manufacturing, and the public sector, amongst many others. I often lament the abandonment of SRM by organisations following the financial crash, when urgent cost savings become the priority for just about everyone but, fortunately, SRM has made a comeback in the years since.

However, I find organisations are struggling to make SRM succeed; the definition of which should surely include widespread stakeholder acceptance of suppliers as a source of value and innovation, and cross-functional involvement in creating and implementing relationship strategies. Instead I find some practitioners selecting good SRM practices as if from a menu, and finding their programmes aren’t such a success. What appears to be missing is a genuinely integrated approach, based on clear cause and effect, along with a clarity of SRM vision.

I recently decided to record a number of short videos (five in total) that are designed to lead practitioners through a logical process, answering the fundamental questions that are at the heart of any successful SRM programme. The first video is ready to view here (a transcript of the video is provided below).

I will be posting the remaining videos and transcripts in due course, but if you would like to view them all, best view them on our YouTube channel.

I’d be delighted to hear peoples’ responses. Feel free to comment, challenge, or even start an argument!

Video Transcript:

“In the last year we’ve seen the re-emergence of Supplier Relationship Management (SRM) as a topical issue and a genuine priority for CPOs. Sadly, that topicality has mainly been case after case of evidently inadequate SRM from ‘bullying’ customers, particularly (but not exclusively) from the food and beverage sector.

Apparently extending supplier payment terms arbitrarily has returned as the weapon of choice of CFOs similarly bullying CPOs into demanding concessions from suppliers; behaviourabout as far as one can get from acknowledged best practice in relationship management.

At this point, it’s worth reminding people what SRM is really about. In my judgment, SRM is about value for money; how it is created, realized, and distributed fairly between participants in a supply chain. I say fairness, not because I’m about to get all soft and fluffy and talk about ‘partnerships’, but because SRM is a ‘long game’; results take time to achieve and, for the investment required by buyer and supplier, both need the confidence that the relationship is going to last, and that both ‘win’ enough to want to stay in the game. And I will go further: positive results from SRM don’t happen by accident. It requires ambition, determination, commitment and constancy of purpose to firstly, get an SRM programme established at all, which is no mean feat, and then to begin to realise those VFM benefits.

Those bullying tactics of some companies suggest they’ve, at least to some extent, lost sight of what it takes to optimise value from supplier relationships. The crude financial instrument of pushing payments to suppliers out an extra 60 days might please the CFO but, frankly, makes the CPOs look foolish and as far away from real boardroom influence as ever.

The question for those of us who are passionate about SRM, is how do we discourage such dysfunctional corporate behaviour, and avoid wasting the opportunity to shift the focus from tactical ‘savings’, to real cost reduction as part of an overall value-for-money-generating agenda? In short, how do establish an SRM programme that truly works? 

Although we’re able to use our SRM Healthcheck to help clients assess how they’re doing and then develop their next steps to making their programme a success, there are a number of steps that are absolutely crucial to any SRM programme.

The first question to ask yourself is…. 

1.    What are you doing it for?

Why has your organisation embarked on implementing SRM? I like to describe it as the ‘over-arching purpose’. 

Are you doing it because everyone else is? Has someone advised you that it is an essential part of any procurement transformation?

Has the boss told you to get it in place? Do you urgently need extra savings to hit cost reduction targets?

Is supplier performance to contract not good enough and you see SRM as a means of getting to grips with that?

Or is SRM a natural, incremental, development of your organisation’s category-management practice, but this time putting some horsepower into what happens after the supplier contracts have been signed?

I’ve seen all of these (and more) cited as reasons for deciding to implement SRM, and there are circumstances where any of them would be considered as valid. For example, sometimes implementing SRM really is a political, me-too exercise, done to demonstrate that we’re not falling behind others in our sector, although obviously, there are better reasons for doing it!

Regardless, what’s most important is for your SRM programme to have real purpose, a one meaningful to senior management, key stakeholders and peer groups, and those practitioners charged with leading the day-to-day effort.

My recommendation to CPOs is to articulate the purpose of SRM for your organisation in a way that makes sense to everyone, and that is a call to action. A compelling vision and strapline that makes it clear why you’re doing it will come in handy when support wavers and stakeholders complain that progress is not as smooth or as rapid as they expected.

In the next video I am going to talk about ‘who benefits’ from SRM. We don’t undertake SRM just for hell of it; it has to impact in a positive sense the experience of other people in our organisations….”

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Sourcing: The Heart of the Matter

Book Review: Sourcing Portfolio Analysis by Andrew Cox

These days there is no shortage of advice for procurement and supply chain management practitioners, be it from blogs, white papers, surveys, consultancies and, somewhat less often, well-written books that delve deeper into the subject. It seems that we have reached a point where a consensus has formed around the category management process and its key components. Moreover, we are at a stage where early research into the ‘best practices’ of the automotive sector has been copied and massaged into a popular orthodoxy in common use across pretty much all business sectors. Within the category management methodology, the reliance on the analysis tools of Kraljic’s portfolio analysis and Porter’s five forces is now standard practice.

Former Professor and founder of Birmingham University Business School’s MBA in Strategy and Procurement Management, and now Chairman of the International Institute for Advanced Purchasing and Supply (IIAPS), Andrew Cox is a long-time recognised big thinker in procurement circles. He led Birmingham’s pioneering research into the influence of relational power in supply chains, and has published several volumes detailing the inner workings of what makes business relationships succeed (and fail).

In his latest book ‘Sourcing Portfolio Analysis’ Cox sets out to challenge the current procurement orthodoxy and presents a more rigorous and robust approach to managing categories of supply. In doing so he takes on Kraljic and Porter, declaring them unfit as practical tools for sourcing decision-making. Before anyone thinks this represents some kind of heresy, it is worth pointing out that Cox’s is no work of vandalism. Instead he provides a dispassionate and systematic deconstruction of the Kraljic matrix, going as far as asserting that what are taken to be Kraljic’s recommendations are incomplete, plain wrong, or both. He does, however, acknowledge Kraljic’s undoubted contribution to procurement thinking, but suggests Kraljic’s best work is overlooked in favour of the over-simplified four-box matrix practitioners are most familiar with. He does a similar job in exposing the weaknesses in Porter’s analysis.

This will not be easy reading for many practitioners, or consultants who base their advisory practice on Kraljic and Porter. Cox’s language is deliberately precise and can seem dry to the unfamiliar reader; but his analysis is compelling and logically coherent. This book certainly repays concentration, as he successfully lifts a veil from the prevailing orthodoxy amongst procurement and supply chain management professionals. By focusing on ‘criticality’ and ‘power’, organisations can more effectively prioritise their categories of supply, and in doing so, secure the leverage necessary to motivate suppliers to respond to a much wider range of tactical levers than Kraljic ever suggested.

Cox is proposing nothing less than a paradigm shift and his case is as near as dammit to being watertight. His message is that there is a better, more rigorous and effective way of undertaking the procurement task, and this is how to do it.

He goes on to make a strong argument for considering procurement as a science, and in an age when we’re told that success in procurement is about soft skills to engage internal stakeholders, Big Data, alliance-partnering, even (God forbid) Procurement-as-a-Service, it is refreshing to find a book so successfully focusing on the fundamentals.

These ideas are the very heart of technical procurement skills, and any serious practitioner (or expert) should surely make themselves familiar with Cox’s arguments and approach. To those raised on Kraljic and Porter, expect to have your practices and current thinking genuinely challenged.

Cox is a little undercooked when it comes to providing a step-by-step prescription to practitioners keen to implement his thinking, leaving his ‘how-to’ guidance until the last chapter. He has promised to rectify this in the follow-up volume to this one, due before the end of 2015. That promises to be the procurement oracle for those determined to see the world as it is, and not necessarily as they would like it to be.

David Atkinson

 

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Part 2: Procurement: the real challenges to effective working with internal stakeholders (and how to overcome them)

In his previous blog on the challenges of securing stakeholder involvement and buy-in for procurement strategies initiatives, Professor Andrew Cox expands on how these could be overcome, citing IIAPS client cases.

Tactical Solutions to the Lack of Cross-Functional Involvement & Buy-in

Building on our previous analysis of the 12 Major Causes of Sub-Optimality, in a recent blog we outlined why a lack of effective Cross-Functional Involvement & Buy-In is one of the major reasons why effective organisation-wide category management and strategic sourcing cannot be implemented.

It is clear, therefore, that understanding how to achieve senior management buy-in, so that effective cross-functional early engagement occurs, is a prerequisite of successful category management and strategic sourcing.

Achieving buy-in means: having senior managers fully understand the improved value that an effective category management and strategic sourcing approach can bring to the business.

If this is achieved it is normally the case that senior managers will then authorise early involvement, and provide the scarce senior technical staff time and resources to work with Procurement functional staff.  Achieving this is not, however, a simple task. One might argue that it is the single most difficult change management task for a CPO to achieve—and one which in our experience few are fully qualified to undertake or deliver effectively.

Despite this we have worked successfully with CPOs and senior category managers to overcome the lack of buy-in and early involvement problem.  By focusing once again on 3 of the 4 indicative case studies discussed in our previous blog we will explain some of the techniques (summarised as key learning) that can be used to resolve this dilemma.

Overcoming Obstacles to Early Cross-Functional Involvement & Lack of Buy-In

It is obvious that life would be simple if a CPO had nothing more to do than to explain what category management is, so that senior managers and their technical middle management colleagues could change their current behaviour and adopt a more effective cross-functional approach to strategic sourcing.

Unfortunately, in our experience, life is not so simple and there is considerable evidence of a lack of cross-functional involvement and buy-in to what the Procurement/Purchasing/SCM function is trying to do, and across all of the organisations we have worked with.

This is because attempts at persuasion by Procurement staff are often ineffective at bringing about the necessary change management required.  The primary reason for this failure to win buy-in is because the business often sees category management as nothing more than an attempt by the Procurement function to impose a new approach on the organisation, in order that it can achieve its own cost reduction targets.

This failure is normally self-inflicted by the Procurement function because of an attachment to a Tactical (Price/Cost Down) rather than Strategic (Value Driven) approach to category management, which alienates everyone outside the Procurement Function before any of the potential benefits can be identified.

Despite this we have found that, even if the Procurement Function is wedded only to a Tactical approach, it is still possible to win a measure of buy-in and early cross-functional involvement, so that significant price/cost down improvements can be achieved.

We explain our key learning about the change management techniques that may assist this type of Tactical (Price/Cost Down) success by reference to three of the cases discussed previously.

Shoot One to Encourage the Others to Open the Door

In this case, the refusal by the Head of a major Business Unit in a multi-Business Unit company to participate in the embryonic category management strategy being developed by the newly created CPO was overcome by an effective use of internal power & leverage analysis and management.

Essentially all senior stakeholders were identified, analysed and then a power and leverage transformation strategy was developed focused on building buy-in amongst like-minded senior ‘allies’ in the company, so that the power of recalcitrant BU Heads was isolated.

The upshot of this strategy was a decision between us and the COO that (given the strategic importance of cost reduction at that time to the company) the first recalcitrant BU Head who failed to agree to a consolidated category management approach would be their removal from their job. The thinking was based on the French General Staff’s strategy in the First World War, namely: “We shoot cowards for treason; to encourage the other troops to obey orders!”

The result of this strategy, which cost one senior BU Head his job, was a 40%+ reduction in the costs of ownership over a three-month period through the adoption of a company-wide consolidation approach to category management.

Kill the Snake with Sunlight

In our second case several Heads of the Business Units stymied the category management transformation initiative by agreeing to provide support in formal meetings, but then refusing to cooperate in practice.

This meant that the category management approach could not be developed uniformly across the business. Furthermore, the relative importance of cost reduction was not as transparent to the COO of this company, and there was no support for the same First World War strategy as discussed above.

Given this, having segmented the BUs using standard internal power & leverage analysis to identify ‘allies’ and ‘opponents’, we linked ‘allies’ with the relative business criticality of the categories of spend that they managed. This allowed us to identify the ‘allies’ managing the categories that provided us with the greatest scope to demonstrate the potential for significant cost reduction for the business as a whole.

By working closely with ‘allies’ who were willing to provide the necessary time and resources we were able to make cost savings of between 30% – 80%. As a result senior managers at the C-Level in the company began to take notice. Gradually enlightenment dawns, and especially if there is a serious cost challenge in the business. In these circumstances, over time waves of categories normally start to be offered for treatment independently by BUs as senior managers recognise the benefits of buy-in and early involvement.

Break the Log–Jam

In our third case, despite some success with some category strategies in a company, and apparent buy-in from senior managers, middle managers on the technical side became the effective barriers to effective implementation. Some of these managers, when forced to attend meetings, simply refused to provide the data to allow early engagement so that demand and supply optimisation options/alternatives could not be fully understood.

This often arises because middle managers have already decided what they think is the best option (whatever the cost), and they do not want to see alternatives put on the table for consideration.

Although persuasion about the benefits of potential alternatives is always the preferred starting point, sometimes this strategy is simply not feasible, and especially when middle managers jealously guard their status and position against Procurement staff.

If persuasion does not work then the only other recourse is to ‘break the log jam’ by resorting to an internal conflict over roles and responsibilities.  This has two potential targets:

First, an attempt to replace the recalcitrant technical staff in the existing process to find more congenial technical partners.

Second, the mandating of early disclosure of all relevant data as part of a new cross-functional process.

Obviously any such strategy is replete with potential danger, and success will much depend on the current and future balance of power between senior ‘allies’ and ‘opponents’.

In this particular case, the failure to persuade middle managers of the benefits of sharing led to serious internal conflict, with appeals by the CPO and Line Managers to C-Level supporters. The upshot eventually was success for the lower specification / lower risk / lower cost faction led by the Procurement function.

This outcome only occurred because of the support for the alternative strategy proposed by the MD of the company, who over-ruled his technical middle managers after we had worked with other, and more supportive, technical staff to provide the alternative options that persuaded him of the inferiority of the current sourcing strategy. Once again, building an alliance internally of like-minded individuals technically and commercially was key to success.

Key Learning from the Three Cases

The three cases above show that achieving buy-in and early involvement did not occur just because it is a ‘good’ idea; or that people will easily accept change by persuasion alone.

On the contrary, category management must be seen as a potential ‘wrecking ball’ that is directed at the current internal power structures in an organisation. Given this, there are likely to be ‘winners’ and ‘losers’ from any such new category management strategies in the future.

Given this, category management and strategic sourcing implementations based on Tactical (Price/Cost Down) thinking are inherently unstable. This is because they impose Procurement Functional targets on to the rest of the business, at the same time as also threatening existing internal power structures.

To be successful, it is self-evident that the Procurement Function must be blessed with significant senior management buy-in before the event, and/or a sophisticated understanding of how to build alliances in situations of internal conflict after implementation commences.

We summarise below some of our key learning about how to develop effective category management and strategic sourcing strategies in situations of Tactical (Price/Cost Down) implementations, with inevitable internal conflict:

  • Category management implementations are always a ‘wrecking ball’ directed at the current internal power structures of an organisation.
  • Internal conflict is inevitable requiring a sophisticated understanding of how to devise and deliver complex change management initiatives.
  • If drastic action is required, then you must have the necessary internal analytical power & leverage tools to identify allies and opponents effectively.
  • You must also have the ability to develop successful internal alliances with those whose own goals and KPIs are not yours.
  • You must also have the ability to develop practical strategies to deliver valued outcomes.
  • If you have senior management support, you must not be frightened to use it (and sometimes brutally) if you must.
  • If you lack senior internal support for such radical strategies you must replace these with persuasion.
  • To persuade others demonstration categories must be identified that link potential corporate impact with existing senior management support to enlighten recalcitrant senior managers, who currently do not wish to participate, about the benefits of involvement.
  • Do not select categories that will not support the demonstration programme with stellar results—you only get one stab at this strategy and if you cannot deliver the business will not give you a second chance.
  • When faced with middle managers who have closed minds build internal alliances with other technical staff, and ‘break the log jam’ by demonstrating to senior managers the technical and commercial strengths of alternatives.

While this list summarises some of our key learning about how to successfully implement Tactical (Price/Cost Down) approaches to category management there is another way, but it is not one much understood by Procurement professionals in our experience.

This approach engages with cross-functional partners, so that they buy-in to category management and strategic sourcing through persuasion and synergy, while avoiding rancour and internal conflict as much as possible.

To achieve this, you must possess a methodology to understand Value For Money Trade-Offs (i.e. the relative criticality of cost reduction in relation to other sources of corporate value improvement), as well as competence in Value Flow Management.

This explains how we transformed the three cases briefly outlined here to deliver considerable value for money improvements for the organisations concerned.

By Andrew Cox

Andrew has undertaken over 25 years research into best practice in purchasing and supply, and was the Founding Professor of the CBSP, University of Birmingham Business School, where he established the world’s first MBA in Strategy & Procurement Management. In 1998 he was awarded the Swinbank Medal for Outstanding Services to UK Purchasing & Supply by CIPS. He is also a founding Director of IIAPS, where he is currently Vice President. Andrew has been a strategic adviser and consultant to a large number of blue chip companies and to major public sector organisations in Europe, Asia and North America, primarily in the area of external resource management and the business process alignment of business strategy with purchasing and supply chain management.
Posted in And another thing…, Business Transformation, Procurement, SRM, Strategy Development, Supplier Management, Trusted Advisor | Tagged , , , , , , , , | Leave a comment

Procurement: the real challenges to effective working with internal stakeholders

Four Pillars’ work in the procurement sphere often involves working with cross-functional teams in developing category and supplier management strategies. We would go as far to say that effective procurement is most-definitely a cross-functional endeavour, particularly so when strategic categories of supply and key supplier relationships are being considered.

Generic strategies to appease stakeholders in the form of being more ‘customer-responsive’ are only partially effective as they don’t recognise the variety and source of objections and inertia from internal colleagues. In this blog (and the one that follows) we are delighted that Professor Andrew Cox of IIAPS (The International Institute for Advanced Purchasing & Supply) has agreed to share his insights into the challenge of engaging and involving stakeholders and securing buy-in. Although Andrew doesn’t make specific reference to SRM (Supplier Relationship Management), focusing on the wider procurement agenda, his article is equally applicable to those leaders seeking to roll-out an SRM programme.

Over to Andrew….

The Problem Of Cross-Functional Involvement & Buy-In

In a recent IIAPS blog, 12 Causes of Sub-Optimal Category Management & Strategic Sourcing, we outlined some of the key factors (identified during our benchmarking and consulting exercises) that explain why organisations often do not perform as satisfactorily as they might.

In this first of two inter-linked blogs we focus on what we believe to be the issue that has the most significant impact on all of the 12 causes of sub-optimality. This is the problem of a lack of cross-functional involvement and buy-in to what the Procurement/Purchasing/SCM function is trying to do, and especially when it tries to develop an effective organisation-wide approach to category management and strategic sourcing.

In this blog we explain, by use of a number of indicative case studies, why achieving effective cross-functional involvement and buy-in can be so difficult. This blog is followed by another that outlines the IIAPS approach to resolving this dilemma.

Evidence of a Lack of Cross-Functional Involvement & Buy-In

In our experience there is considerable evidence of a lack of cross-functional involvement and buy-in to what the Procurement/Purchasing/SCM function is trying to do, and across all of the organisations we have worked with.

The following four typical case examples of this endemic problem help set the scene:

The ’Close the Door On Your Way Out’ Case

In this case the Head of a major Business unit in a multi-Business Unit company told the newly created CPO seeking to operate a category management strategy that as far as he was concerned the function only added time and cost to his production operations, and to quote the individual concerned:

“The best way for you to help me is to close the door on your way out!”

Given the power of this BU Head in this company it is hardly surprising that the CPO was unable to implement a best practice Category Management & Strategic Sourcing approach.

The ‘Snake in the Grass’ Case

In this case the Head of Operations organises a meeting for the CPO and his Category Management & Strategic Sourcing Transformation Team, and with all of the Heads of the Business Units. Everyone agrees that category management is a fantastic idea to help reduce costs, and everyone agrees to support the initiative.

On attempting to organise workshops to discuss how costs can be reduced through better cross-functional engagement the Transformation Team discovers that most (if not all) of the Business Unit Leaders are unwilling to provide the resourcing for their staff to take an effective part in the discussions. The following exchanges are normal:

“You can have a junior member of staff for half an hour on the phone to discuss any demand or design and specification issues.”

It is not easy to develop an effective Category Management & Strategic Sourcing process when Business Units leaders are not prepared in practice to provide the resourcing necessary, whatever they may say in meetings with senior managers.

The ‘You Are Just the Hired Help’ Case

In this case a Business Unit agrees to develop category strategies with the Function and agrees to send some of its middle mangers to cross-functional workshops to help identify cost saving opportunities.

During the discussion on one strategy the Procurement team ask the BU team for early sight of their demand planning and forecasting data to enable to them to understand the demand and supply optimisation opportunities that might be feasible in the future. The BU team flatly refuse to provide the data on the grounds that it is confidential, secret and only for the eyes of those who develop business strategies. When challenged they state badly:

“Look, you guys are much lower in the pecking order. You are here to help us buy what we want, against our specs and as cheaply as possible. Nothing more!”

It is quite difficult to develop an effective Category Management & Strategic Sourcing process when middle managers are not prepared to provide the necessary information to allow one to challenge current design and specification or demand management practices.

The ‘Post-Contractual Myopia’ Case

In this case a company agreed that all Business Units would participate in a cross-functional team to develop a category strategy with the Procurement team to identify cost savings opportunities. In the process a new sourcing strategy was jointly developed.

In the past the engineers in all of the Business Units had a preference for one supplier. The new, jointly agreed, strategy provided framework agreements, both for the incumbent single source supplier and also for two major competitors. This was based on the understanding that the other two suppliers would help to drive lower costs, because their pricing was lower than the incumbents. There was an additional potential cost-reducing bonus agreed as well, because further volume discounts were negotiated if any of the two new suppliers achieved more than one-third of the volume each year.

While not involved in its development we happened to review this strategy with the company two years after it was initially devised, and to our surprise we discovered that the initial single source supplier was still receiving 100% of the work, with no discernible cost savings of any kind. When confronted about the lack of work being awarded to the two lower cost suppliers the engineers in the Business Units basically told us:

“We award work to the best supplier not to who the Procurement function would like us to, so that they can make their cost reduction targets. We have far more important issues to worry about than their targets and bonuses!”

Obviously, it is not easy to develop an effective Category Management & Strategic Sourcing process when the Procurement function is unable to understand the relative importance of their own targets and goals when set against those of their cross-functional colleagues in the business.

So What Key Conclusions Can We Draw From These Cases?

The reason for providing these short case studies is because they exemplify many of the common issues that organisations have to face when they try to implement category management, and especially when they attempt to develop a cross-functional approach to sourcing strategies.
Each of the four cases also helps to identify the following 5 key conclusions we have drawn about the effective implementation of category management and strategic sourcing:

  1. It is more often internal, rather than external, factors that thwart effective implementation.
  2. Effective analysis and corrective management of current and future internal stakeholder power and leverage positions is critical to success.
  3. Mandated cross-functional early involvement (and with appropriate staff time and resourcing) is an essential requirement.
  4. Understanding the relative criticality of cost reduction in relation to other sources of corporate value improvement is a prerequisite of being able to communicate and engage with cross-functional partners, so that they buy-in to category management and strategic sourcing.
  5. If you do not possess a methodology for understanding Value For Money, or for how to undertake Value Flow Management, it is not possible to implement category management and strategic sourcing successfully.

The reasons for arriving at these 5 general conclusions are outlined in much more detail in our next blog (Tactical Solutions to the Lack of Cross-Functional Involvement & Buy-In). This explains how we transformed the four cases outlined here to deliver considerable value for money improvement for the organisations concerned.

By Andrew Cox

Andrew has undertaken over 25 years research into best practice in purchasing and supply, and was the Founding Professor of the CBSP, University of Birmingham Business School, where he established the world’s first MBA in Strategy & Procurement Management. In 1998 he was awarded the Swinbank Medal for Outstanding Services to UK Purchasing & Supply by CIPS. He is also a founding Director of IIAPS, where he is currently Vice President. Andrew has been a strategic adviser and consultant to a large number of blue chip companies and to major public sector organisations in Europe, Asia and North America, primarily in the area of external resource management and the business process alignment of business strategy with purchasing and supply chain management.

 

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