Combine winning strategies from centralised and decentralised models. What you’ll gain from this: leadership and local ownership…
By: Gavin Bowden-Hall
| “Aggregation across the business will deliver commercial benefits but Procurement is best placed to spot the opportunities” |
As organisations become flatter so Procurement has to find new ways of delivering expertise into the business and being seen to add value. Here are 11 principles for world class ‘Procurement as a Service.’
Some organisations see Procurement as a division of Finance. Others see Procurement as a gate-keeping function, making sure probity and value for money is secured. In fact, there has always been a tension between the two– on the one hand functions that need to buy; and on the other, the procurement professional. The business function may believe that Procurement cannot possibly understand the technical aspects of a buying requirement – whether an engineering component or a piece of software. Procurement, on the other hand, can take the view that those in the business may not have the probity or discipline to secure best value. This debate has gone on for decades and will certainly continue.
As businesses become flatter, markets more complex, and internal standards more exacting, so the need for collaboration between Procurement and the wider business becomes more critical. Given that a back office function such as Procurement is there to support the front line production and services, Procurement must adopt an increasingly service-orientated attitude. Procurement contributes the most to the operation of the business by focussing on the delivery of key inputs – not by brandishing a rule-book. Increased collaboration and a service culture that is seen to add value is now obligatory, particularly if Procurement is to be seen as anything other than the provider of stationery.
Procurement is invariably either fully delegated or centralised. Centralised Procurement has a focus on gate-keeping that tends to organise cross-departmental procurements such as stationery, energy and printers; it tends to be heavy on policy and procedures; and is perceived as unresponsive – which results in sidelining by the business divisions who appoint their own procurement specialists. Decentralised Procurement has a focus on business-driven contracts that is often highly tactical – however the compliance with policy and procedures is light and best value is less likely.
So, what might ‘Procurement as a Service’, which brings together the best from both the centralised and decentralised modes, look like? A hybridised approach has the following characteristics:
From the Centre
Group-wide perspective – There has to be a corporate-wide view of sourcing needs and strategies.
Procurement leadership – Procurement must lead and show the way, providing tools, techniques and support.
Pooled experience – Leadership means bringing together the experts who understand the business, the market, and the requirements to drive out the commercial outcomes needed.
Co-operative working – Procurement needs to facilitate and coach the experts and the experienced individuals to work collaboratively.
Captured synergies – The leadership and coaching should set out to capture synergies both across the business and with the market.
Economies of Scale – Aggregation across the business will deliver commercial benefits but Procurement is best placed to spot the opportunities
Within the Business
Strong skills – Procurement must provide training and mentoring with those responsible for buying and managing suppliers.
Clear processes – The business will respond positively to clear, relevant, and justifiable processes integrated into wider business processes and linked to delegated authorities – Procurement has to jointly work these out with its customers, then own them, and communicate them into the business.
Responsive – There is nothing worse than a business requirement delayed by bureaucracy and indecision; Procurement has to find ways of being agile so the business can achieve its strategic objectives.
Locally owned – Business departments must own their own contracts and not have centrally provided contracts foisted onto them.
Service driven contracts – Procurement must work tirelessly to ensure contracts and suppliers are delivering service, innovating, and adding value to the business where needed.
These principles drive a different sort of procurement organisation: the hybridised Procurement. This simply means a small centralised community with representation on the business Board, with procurement specialists (Ambassadors) embedded into the business divisions, and jointly managed by the sponsoring Manager and Procurement; the result: delivering a responsive, professional and enabling service deep into the heart of the from line. Both the centralised and decentralised staff come together to deliver the procurement service to the business sharing knowledge, experience and requirements. Within the business, the Procurement Ambassadors work closely with the management team and technical experts. In this way the tight/loose ‘Procurement as a Service’ can be achieved and the value of a world-class Procurement function will work for the business — not against it.
Read more about procurement or visit www.ssonetwork.com to find out more about the author of this article
This “hybridised” model of procurement that the author describes is nothing new. I spent the first 17 years of my career in the Automotive sector, and most large manufacturers have been using this sort of model in direct material procurement for at least 20 years… and during the past 10 years, they’ve been using the same principles on the indirect procurement side of the house.
And the “Procurement as a Service” model is what IMMs have been doing for decades with materials for manufacturing operations. Integrated Material Management (IMM) companies do your procurement for you, leveraging economies of scale across their customer base, while embedding experts at customer locations to ensure that individual location needs are understood and met appropriately. The best IMMs also bring excellent software tools, including a full suite of self-service tools that can allow clients to do everything from placing orders to running procurement reports. During the past several years, many IMMs have also begun procuring services on behalf of their clients (not just products and materials).
It would interesting to see if this type of model could be made to work in a Federal Agency. On the one hand, our contracting officers have said that our IT contractors cannot be involved too much in our procurements because it is an inherently governmental function… and then they turn around and hire contractors to work as contract specialists. When I questioned this incongruity, I was told, “But they work directly for OPS (Office of Procurement Services)… so it’s okay.”
Be that as it may… I’d love to have an IMM replace OPS, but I’d settle for something smaller… like setting up an IMM to handle a chunk of our IT procurements. What if you had a peripherals contract with an IMM? You’d pay them a management fee for their services, pass-through cost for products/materials, and they’d supply all of your printers, scanners, etc. Part of their services could be to maintain the approved products list, investigate new products, barcode/tag peripherals put into service, etc.