3 Reasons Why Procurement Transformations FAIL
Over these past 28 years of my career in Procurement (yes I started when I was 12), I’ve had the privilege and pain of seeing, not just procurement, but many different types of Transformation initiatives succeed and, unfortunately, fail. I will focus on Procurement for this article as it is the topic that I am most familiar and it seems even more relevant today as I build ProcurePro Consulting (www.procurepro.ca).
There are many reasons why Procurement Transformations fail, however, the below 3 keep coming up time and time again. It often feels like ground hog day to me (the movie not the actual day in February).
1. Failure To Hire the Right Leader For the Job
Too often companies will underestimate the leadership and experience needed to lead and manage a successful Procurement Transformation. They will hire an inexperienced and inexpensive resource, within their budget to lead the Procurement Transformation. Many companies intuitively know the Procurement team brings value, most often in the form of savings, but they fail to realize the financial and operational impacts of hiring an inexperienced leader to build a new or transform a failing team. Hire the wrong leader and you can damage the internal business partners perception of the Procurement Department for a very long time and once damaged, it takes years to recover, often long after that leader has left the company. The wrong leader can create a negative perception of Procurement as being a roadblock, lacking in understanding of the real business imperatives and too concerned about beating up suppliers. I’ve seen leaders hired or promoted who didn’t even have a procurement background but rather great experience in IT or Engineering. Not that there is anything wrong with IT or Engineering professionals, they are some of my closest friends, however, success in one functional area does guarantee success in another. Neither does a fancy degree, by the way, but I digress. OK, there may be short term savings gains but pretty soon it becomes unsustainable and the downward spiral is fast. Penny Wise, Pound Foolish. Great Procurement Leaders are paid exceptionally well, are worth every penny and will pay for themselves and their teams, 10x over, the first year and every year thereafter.
2. Failure to Build The Foundation
Without a solid foundation, companies, departments and buildings fail. What do I mean by Foundation in Procurement Transformation? I’m referring to the People, Process & Systems necessary to create a successful and sustainable Procurement team. The right People, like the right Leader is critical. You need to hire a core team of Procurement Pros who are great at Procurement but who are also great at building strong, trusting relationships. It doesn’t matter how great you are at negotiations, if you can’t build those critical relationships, those internal partnerships with those will be your advocates, you are dead in the water. Without this strong, experienced and invested team, even with a great leader, your Procurement Transformation is doomed to fail.
Processes are there to help the Procurement Pro and your internal partners know what to expect from each other. Its like setting “Rules of Engagement” and creating a tool kit so that every partner experience is a positive one, is repeatable and is sustainable. I’ve seen great teams thrown together, each pulling from the tools and experience they had outside the company only to create confusion and dissatisfaction from the internal partners as each time they engaged with Procurement it seems the process and thereby their experience was different. Create a standard methodology and process and you not only help the Procurement Pro deliver their best, you provide comfort to the internal partner they will get what they want and have come to expect from the Procurement department.
Now Systems. Almost without fail, the Procurement team is left cobbling things together manually for lack of systems. Systems are the critical tools necessary to have a lean and efficient Procurement Department. I’m not suggesting you run out and invest in an all new and expensive Source to Pay (S2P) system, no, but you do need to have a road map for those systems to be implemented that aligns to the maturing and evolving team, starting with the most critical; Initiative Management and PO systems. Initiative Management (or Project Management), for many is a spreadsheet of ALL initiatives that the Procurement Department is responsible for. It helps you keep track of and prioritize those projects that are most critical and balance the work load among the team. Beyond the spreadsheet, I’ve used Salesforce, Ariba and others and all are easily configured to manage Procurement Initiatives. A PO system is also a basic and foundational tool that is critical. You need a tool that has a front end requisitioning component (Shopping Cart) and work flow approval so that the PO’s can be approved by the functional manager and finance. Ariba, Coupa and others all have great PO tools in fact the entire suite of S2P tools but there is no need to implement them all at once. Start with the most critical, build your road map and implement new tools as and when needed. Note, don’t just implement tools from your ERP system which Finance most often dictates, just because its part of the software suite. That is absolutely a recipe for failure. Without the right tools you will end up hiring an army of procurement people who offer no value other than running PO’s around for signature.
3. Failure to look beyond Savings for Procurement Value
This is a really controversial one with Procurement Pros. Yes we absolutely can and will save companies money, it is a core indication of Procurement Value Contribution (PVC) and Return on Investment (ROI) but its not the only value Procurement Pros bring to the table. I absolutely cringe when I hear business partners talk about Procurement hammering suppliers. Its insulting and devalues what we are truly capable of. The best Procurement Pros do not hammer suppliers. They conduct fact based negotiations to achieve the best market competitive price. When I go into a negotiation, I most often will already have the answers at the back of the book. How?? “Benchmarking” or “Should Cost” analysis. Hammering a supplier into the dust does not build a strong, reliable and trustworthy supplier relationship. They will either make it up on the next deal or go bankrupt from all the hammering. That helps no one. Not all supplier relationships are created equal. They are not all Partners despite what many will say both from the supplier side and inside your very own company. More on Supplier Governance in a future post. Focusing solely on savings also has a morale impact on the team. Procurement Pros, once they have sourced and negotiated, reach a point where the savings will plateau or decline until the next cycle of negotiations or through the expansion of your spend under management. Putting all your value into the savings bucket is short sited and not sustainable. Leaders who continue to push Procurement Pros to focus myopically on savings risk losing really great team members as they become demoralized and disillusioned.
Beyond savings, Procurement Pros, while experts in sourcing and negotiations, help identify and avoid risk while also building a blueprint for the project they are working on. A contract should not just be a legal document thrown up on a shelf to be forgotten. It should be a clear blueprint for the project spelling out for both sides, the Roles and Responsibilities, Activities, Deliverables and Outcomes. It spells out what success looks like and spells out the GOVERNANCE Framework necessary to ensure success. It must not be one sided to the customer nor supplier but balanced so that both parties can work together in a fair manner to achieve mutual success. That is what’s best for both Parties. That is good business.
Finally, my favourite; Innovation! What, you say, Procurement can drive innovation? Absolutely, 100% YES! When Procurement teams reach best in class maturity, are firing on all cylinders and are managing Strategic Supplier relationships, they have visibility across the entire enterprise and are included at the C-suite table. This vantage point gives them a unique position to align their companies direction while tapping into the hot bed of Supplier Innovation. They have an enterprise wide view of almost everything, not something any one department usually has except for maybe our friends in Finance. If you have strong, trusting supplier relationships, true partnerships, there is an investment on both sides in each others success. If a supplier gives you access to their secret sauce, the next generation of whatever, that is an incredible opportunity to capitalize on that innovation and leap frog the competition. That is heady stuff. What Procurement dreams are made of!
Procurement, Supply Chain, Strategic Sourcing, Supplier and Contract Management done right can be a substantial competitive advantage for a company, positively impacting EBITDA, enabling the success of critical projects, managing risk, capturing innovation and driving market competitive pricing for reinvestment in your business, that is truly what Procurement is all about.
Need help with your Procurement Transformation? ProcurePro Consulting can help. We are Procurement Pros with decades of Procurement and Transformation experience spanning all procurement categories and industries.