Profit from Procurement. Jose Oliveira Valentede
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book is not an all-encompassing guide to all matters “Procurement.” Look at it as a collection of essays on key topics. All of these topics are of relevance to the CPO. The CFO and other executives might prefer to dip in and out of specific chapters, but we would argue that the Introduction and Conclusion, and the chapters on People, Sourcing Execution, Operating Model, Savings Realization, and Cross-Functional Change are highly relevant to all.
We have tried to pepper the book with relevant and interesting client anecdotes, without boring you with too much detail. Finally, the three authors are management consultants. We think this gives us a very good perspective, since we've seen all the issues discussed here with multiple clients many times over. It also means that we have a large toolbox of consulting frameworks. What we've found is that a small number of these frameworks have proven particularly powerful in transforming Procurement. So, at certain points in the book we intend to share with the reader the “secrets” of some of the more successful Procurement consulting frameworks, and how to get use from them in practice.
We're keen in this book to move beyond the hype, so our intent has been very much to be honest about the Procurement opportunity and how to capture it, and to keep the advice pragmatic and useful. Our aim was to “tell it like it is, warts and all,” the “No b-s!,” C-level guide to Procurement. We hope we've fulfilled that aim. We'd love to hear from you, but please don't write to tell us the following:
“You're such a bunch of consultants”—We know that, we can't help it! We don't think we know all the answers, but we think we have a valid external perspective; we have humbly showcased only a small number of consulting frameworks that have proved effective over the years.
“You're repetitive”—Yes, and that's a good thing! There are certain themes that run through the entire book, revisited in Chapter 14: Conclusion, that are touched on in multiple chapters…and these are the things we'd like you to remember; hence the repetition.
“The book isn't exhaustive”—No, it isn't. This is not a structured textbook. View it more as a collection of essays on some of the most important topics to take into account when transforming Procurement.
“My company is very good at Procurement. We've already done much of what you're advocating”—Great. We recognize that many companies have sophisticated Procurement functions; this book is aimed at those that don't and are looking to maximize Procurement's potential, as well as those who do but want to get some insight into what other companies are doing that they might learn from.
“You're down on Procurement”—No, we're not. We're down on bad Procurement, and Procurement whose potential is not maximized, and sometimes we're quite vocal about that. But we are champions of Procurement teams that have devoted their careers to the cause.
“All your examples feature simple indirect spend categories”—This is true. We tried to feature more complex direct materials case studies, but they're not universally understood and require more explanation, which makes it awkward to refer to them. Hence, we've relied more on indirect category examples, such as Travel, MRO, and Office Supplies. While not “strategic,” these categories are in fact quite complex and served us well in illustrating our points.
“You're too focused on savings”—The premise of this book is that Procurement is a significant and underexploited profit lever, which does put savings center-stage. Of course, Procurement has other objectives, as discussed in Chapter 8: Non-savings Priorities. But we firmly believe that it's the bottom-line contribution to profitability that puts Procurement on the map, and that is the central thesis of this book.
Of course, you can write to us anyway, but hopefully the above helps to clarify where we're coming from, and what this book is and isn't trying to be.
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In the following pages, this book will examine the Procurement Transformation journey from all angles and asks the questions that the C-level executive should be asking:
Where is the opportunity, and how big is it?
How do I capture this opportunity and its cost savings in practice?
Why do so many companies get it wrong, and how do I get it right?
How do I build the right team in Procurement, and how do I work effectively cross-functionally?
How do I ensure the savings actually flow to the bottom line?
What Procurement technologies do we and don't we need?
How do we use Procurement to minimize supply chain risk and drive non-savings agendas like Sustainability?
What can we learn from Private Equity and its approach to Procurement?
The central theme that runs right through this book is cross-functionality. Procurement's potential cannot be maximized while operating within a functional silo. That means that the entire C-Suite needs to engage with Procurement, and vice versa. Which is why this is not a book for just the CPO…Procurement is an inherently cross-functional endeavor, and success is only possible if the C-Suite works together.
We hope you enjoy the rest of the book.
2 AMBITION: Ensuring You Are Set Up for Success
A Dirty Procurement Word
I attended a Procurement panel event last year where the audience was putting questions to half a dozen senior and well-respected people from the Procurement profession. The audience was itself full of successful Procurement people, and it's one of those evenings where you learn a lot about the profession.
The theme of the evening was the future of Procurement and what people should be considering when deciding on the next priorities for their function. In other words, What should Procurement's ambition be?
Most of the panel were CPOs from large companies—a couple of the brands were household names. The panel had been generally agreeable up until that point, but thankfully it contained a couple of characters who are known to hold strong views and not to be shy about voicing them.
One question and answer round I found particularly fascinating was when the following question was asked: “Do you think that Procurement should be measured on savings?”
Now, the first reason I thought this was interesting was because of the way the question was asked. The questioner might as well have added the words “surely not!” at the end, such was the tone used. It's funny because savings (or any other word to denote monetary benefits) has become a bit of a dirty word in Procurement in recent years, as if people in the profession are ashamed to talk about it.
It's certainly less fashionable to talk about savings at events such as these, where surely there must be some new and exciting things for Procurement to aspire to after all these years!
Perhaps that is because sometimes savings programs have failed, or CPOs have been unable to translate savings into wider business-speak and therefore constantly come up against internal brick walls. Then there are the CFOs who have “learned never to trust a Procurement savings number.” So, all of a sudden, we have an entire industry nervous to associate themselves with the thing they all thought they specifically existed for just a few years ago. It's an interesting phenomenon, and I was eager to see how the debate would play out.
First up was the successful CPO of one of the world's largest engineering services company. She immediately declared that her function was “past that.” Indeed, apparently her latest Procurement strategy didn't even have a savings number in it. She went on to explain that the success metrics they use are engagement level with the business, automation, and quality. Finally, and only as she was offering some closing thoughts, did she admit that savings were