The Procurement Value Proposition: The Rise of Supply Management – Chapter 7

Chapter 7: Cometh the Hour Cometh the Man: Realizing Procurement‘s Potential by Building Winning Teams

Overview

In previous chapters we have contemplated how procurement has changed and the different levels of procurement maturity that exist today. We have looked too at how the changing world order has impacted everything from demographics and consumption levels to a shift in the economic centre of gravity and the game-changing impacts of globalization. It is becoming obvious too that people, talent and creativity are key.

All too often we hear that there aren’t the people ‘out there’. But clearly these people are available. How is it that other parts of business such as finance, HR or marketing can find people with the qualities and skills required to work in the contemporary business world?

Procurement‘s journey to core business capability truly began when it became apparent that they could win market share by making products that buyers yearn for, and delivering them consistently at the right time, in the right quantity and at the right location. In doing so procurementrecognized that this would be key in gaining the dominant market position they yearned for.

A quick refresh

Let’s begin by reminding ourselves of the new practice developments since the mid-1980s and the major issues that have brought the need for professional procurement to the fore. The emergence of just-in-time and make-to-order business models brought higher levels of efficiency to businesses – models that require extremely efficient supply chains in order to be effective:

  • Globalization. As enterprises expanded internationally they came to realize that profiting from global growth is not possible without supporting supply chains. Buzz terms such as offshoring and, latterly, near-shoring, became part of the business lexicon.

  • Changing world orderThe rise of economic powerhouses such as China and India has underscored procurement‘s role in facilitating global trade. Within these regions companies have to learn how to create supply chains that deliver goods worldwide, while Western companies must adapt their supply management know-how to unfamiliar markets in these culturally diverse developing economies.

  • Market volatilityThe financial meltdown that rocked Western economies continues to reverberate through markets. As a buffer between companies and their customers, supply management plays a critical role in helping enterprises to face the volatility that has become thenormality in the business world.

  • TechnologyThe explosive growth of online commerce has further enhanced procurement‘s position within businesses. The sheer pace of change in the markets requires enterprises to be very responsive to shifts in demand. Moreover, online consumers have a low tolerance for mistakes or delays, and can injure a brand by communicating their displeasure far and wide via social media sites. The bottom line is that businesses that do not have efficient supply managers supporting their online operations will almost certainly stumble.

  • The growing awareness around sustainabilityProcurement is one of the primary players in the global movement to develop sustainable businesses.

  • Risk management. As businesses adopted many of the practices outlined above, and their operations began to span the globe, they became exposed to a wider range of risks. Moreover, the procurement push to drive cost out or down has led to a situation where they have managed risk in. Whether it is the discovery of lead paint on toys, deplorable factory conditions, the devastating impacts of the weather, or terrorism, the disruptions created by unanticipated outcomes can and does lead to extensive operational and reputational damage.

This rise in the role of procurement has also brought a major challenge: how to ensure that there is enough talent to meet the profession’s needs now and in the future. In addition to increasing the demand for talent, procurement‘s elevated role requires a mix of skills that is very different from what was needed in the early 2000s.

As already discussed, for some time professional bodies and academic institutions have been playing their part to build a better talent pipeline. Meanwhile, the big question is how do we get the best and brightest talent to realize that designing, deploying and managing the sustainable flow ofgoods, information and finance across the globe is one of the most exciting and fulfilling careers imaginable today. High finance is alluring, and the law offers some attractive challenges, but procurement offers much more. Procurement leadership as a profession now provides a route to theC-suite.

It is easy to spend a lot of one’s professional life looking at what the future might bring. Of particular interest right now is the debate about the rise and impact of big data and the power of the cloud. Maybe it is this introduction of a more scientific procurement that will bring the smart people into the field. The perennial discussion regarding just how big a change this might be, reminds me of something Peter Thiel said: ‘We wanted flying cars, and they gave us 140 characters.’[1] So maybe we should watch this particular space with a degree of suspicion.

Peter Thiel notwithstanding, it is increasingly apparent that the most debatable issue is that no matter how much procurement tries and succeeds there are still those who treat it with disdain; George Bernard Shaw wrote that, ‘the difference between a lady and a flower girl is not how she behaves, but how she is treated’; so what procurement professionals need to do right now is to persuade the rest of the organization that they are what and who they say they are.

[1]Peter Andreas Thiel is an American entrepreneur, venture capitalist and hedge fund manager. Thiel co-founded PayPal with Max Levchin and served as its CEO.

Deep ‘smarts’ are key

In Chapter 4 we suggested that one of the key game changes (no. 2) related to technological advances. Technological innovation has placed the availability of an unprecedented volume of information at one’s fingertips. Add to this the availability of tools and techniques available to business today to make sense of this mass of data, in the hands of the right people with the right skills mix – and a picture begins to unfold regarding the potential of the modern procurement team. Put simply, being a smart procurement organization is the differentiator: knowledge and a talented team are key – and they need to develop new concepts on old themes.

Procurement leaders need to deliver ‘a different mindset’, a whole different approach to convey the value of procurement practices to the whole organization and, in particular, to the CEO. To do this CPOs need to develop ideas about the highest leverage changes that have the highest probability of succeeding.

Despite a plethora of readily available and high-quality commentary about contemporary procurement practice – which is frequently backed by solid experience and empirical data – many remain loath to move beyond the most basic levels of professional procurement practice. The progress of real change in supply management has been slow. It is now well documented that few if any companies can allow procurement to be managed in isolation from overall business systems. Bath School of Management have produced evidence that suggests supply management requires greater integration, stronger cross-functional relationships and more senior management involvement. Identified too was that the days of the sourcing ‘nerd’ are numbered. The era of ‘scrape out the barrel’, where people squeezed suppliers for every last drop, is going or has already gone. With it, the hard-nosed beat-’em-up attitude of ‘the barrel ain’t scraped until there are splinters in your tongue’ is fast disappearing too.

This viewpoint has been echoed by many of the senior procurement professionals we have worked with, who agree that a new modus is what is needed in order to get some traction in their businesses. It is incredible to think that it is 30 years since Peter Kraljic published his seminal paper – Purchasing must become supply management – in Harvard Business Review. Today this serves to underscore the issue of change inertia in procurement.

And yet one still hears voices in procurement calling for the so-called ‘silver bullet’ – that one thing to get them a seat at the ‘top table’. Frequently their calls are answered with responses framed in a procurement-only context. But in contemporary businesses we are seeing the shrinking ofsilos, and an evolution in professional procurement. Organizations are moving away from large, discrete, enterprise-level organizations dedicated to doing procurement to a more aligned and agile procurement with a firm focus on profits rather than simply cost-savings.

We have seen too the growing trend in loose networks rather than the tight functions mentioned above – networks of supplier-facing procurement people embedded into strategic business units. Procurement is becoming increasingly linked to financial supply chains, with the role of optimizing cash flow and working capital and implementing dynamic discounting and supply-chain financing. Finally, with the growing trend in procurement outsourcing, supply management practitioners are increasingly faced with the curious paradox of buying ‘buying’.

Brave new world

A cursory glance at the foregoing gives us a flavour of not only the changes in business models and operations but also that skill sets need to change to meet the new challenges.

Procurement professionals must become experts in multiple fields:

  • respected;

  • influential;

  • persuasive;

  • visionary;

  • strategic;

  • sharp;

  • global;

  • collaborative;

  • executive;

  • business savvy;

  • and, above all, focused.

As a profession, procurement needs to develop a new definition of what ‘expert’ means in supply management today. Contemporary supply professionals must be or soon become students of their own industry. They must develop their skills in and knowledge of the sectors, categories and geographies they work in as well as the practical aspects of securing supply into, as well as from, those markets. They must also offer expertise and cultural awareness to sales-focused areas of business.

This may look something of a tall order, but competent people, the best and the brightest, will meet the challenge and excel. As the shift in procurement from ‘doer’ to ‘enabler’ continues, those who remain will be consummate professionals who will drive forward supply management and business. Many of these competent, confident, high-achievers are already in the profession – some are waiting to be recruited. Above all, these professionals need to be nurtured and directed by competent leaders in the field.

In supply management, competence must be based on an understanding of appropriateness – knowing what to do to deliver strategic goals operationally within specific supply chain and market circumstances. Supply management professionals in the future will be people with a well-developed professional knowledge of the procurement tools and techniques at their disposal, supported by well-developed commercial acumen. Key will be their ability to discern, in detail, the range of contingent supply chain market circumstances facing them and know what needs to be done. In essence, they will know how to use the right tools in precise circumstances to deliver corporate goals operationally.

If we pause to reflect on the supply chain complexity we are faced with today, the need for these ‘special’ people becomes quite clear. Factory collapses in Bangladesh, Somali pirates, counterfeiting, conflict minerals, the Bribery Act, batteries catching fire in aircraft, obsolescence, cultural boundaries and child labour: contemporary procurement requires people to be entrepreneurial, brand-conscious, skilled analysts with a bimodal capability:

  • Commercial prudence is a prerequisite in the contemporary supply management professional.

  • Competent and confident, they will be able to work with both risk and reward in contracts, and to accept and manage greater risk in relationships.

  • They will be the ‘intelligent client’ able to motivate suppliers.

  • Technology too has created challenges – smartphones, tablets and embedded chips have all initiated a mobile work environment in which the modern supply professional must feel comfortable.

  • In the era of ‘big data’ they have to be adept at handling and analysing data while being able to see major trends and important takeaways at a glance.

As has already been mentioned, special skills need special people. So who will they be and where will we find them? Possibly the most immediate and impactful thing that organizations can do is to develop a ‘talent mindset’. Organizations must believe that talent is essential to success now and for the future: talent breeds competitive advantage. Supply management leaders should recognize the broad set of capabilities outlined above and understand that this requires eclecticism. The diversity of skills and experience required will take time to find or develop in people.

Committing time to building the next generation of leaders also requires a degree of introspection. You must be an innovator and spend a lot of time looking for and developing your eventual replacements. Many of those filling these roles will be ‘millennials’. The term millennials generally refers to the generation of people born between the early 1980s and the early 2000s. Perhaps the most commonly used birth range for this group is 1982–2000. The millennial generation is also known as Generation Y, because it comes after Generation X – those people born between the early 1960s and the 1980s. But are Generation Y people all that different from the rest of us? According to a study commissioned by the Institute of Leadership in Management (ILM) they most certainly are.[2] According to the ILM study, Generation Y tend to have (among other traits) high self-esteem, don’t trust the system, are idealistic and extremely tech-savvy. They are the ‘digital natives’ – as opposed to earlier generations who are the ‘digital immigrants’. They also find different approaches easy to tolerate and are naturally collaborative. When it comes to their expectations, they respect people who are organized, open-minded and expert in their field. They look for mentors who are respectful of their generation and have an understanding of their need for a work–life balance.

As we enter this new era, where business models are increasingly agile, we must play our part in leading and inspiring people who think differently and faster, and who are looking for continuous challenge. To lead talented people and make the most of their talent we need to learn quickly how to spot and respond to talent, how to develop it and understand what role they play in the organization’s success. Most important of all, as their leader you must be credible and respected and be the person that a talented individual is happy to be led by.

[2]The ILM Index of Leadership Trust, 2009.

Two big questions

There is clearly a need, then, to explore two big questions: first, whether an alternative procurement mindset is starting to emerge; one that recognizes the enduring need for functional legitimacy and authenticity (ie there is no substitute for having deep procurement skills) together with a sense of ambition, accountability and self-responsibility – accepting that senior roles sometimes trade responsibility for influence. This more collaborative and inclusive personal credo must be aligned with specific organizational goals but, more significantly, should be actively aware ofstrategic issues and longer-term horizons. The second question is the need to ask in what ways this new attitude can be nurtured and how individuals can themselves make the transition.

 

Coming together is a beginning; keeping together is progress; working together is success

Regarding the first question, in today’s complex world there is a clear need for a new business mindset and procurement is at the heart of establishing this. Listed below are some specific elements to be considered when trying to understand how to put together a winning procurementorganization. Procurement clearly needs to develop sophistication in thought and deed. Moreover, reflecting on the five game changers discussed in Chapter 5 we can highlight a list of attributes that are demanded of procurement today:

  • Effective execution: delivering against your remit.

  • Perfect alignment: systems, procedures, people and leaders all aligned.

  • Agility: adaptation is necessary for external as well as internal changes.

  • Clear and ‘fuzzy’ strategy: this will allow you to adapt to change and put right mistakes.

  • Leadership: being able to lead and develop a ‘following’ is critical.

  • Focus: your focus must be both internal to deliver results to your stakeholders and external to be aware of markets and customer needs.

  • The right people: it is important to get the right people. Teams work in harmony and team players, the right people, are not prima donnas and are not into self-aggrandizement.

  • Manage the downside: evaluate risk well and plan for risk rather than attempting to become risk-free – it will never happen.

  • Balance everything: combine the above.

If procurement is to deliver its value proposition it has to be united. Not just within the function but also across the business, it must focus on synchronicity. The supply chain and its internal and external relationships is the glue that holds the business together. Ever-closer synchronization is key. Tighten links between suppliers, operations and your customers. Procurement should be central to the building of information bridges to suppliers and stakeholders. Through the establishment of a flow of information amongst and between stakeholders, suppliers and customers, procurement can build a common bond of trust.

One of the most important elements for procurement professionals to focus on is the development of sustainable enduring relationships. A re-examination of existing relationships to determine whether they are effective will deliver clear value to the business. It is ridiculous to imagine that the establishment of a partnership with every supplier is possible or even pertinent. Consequently, procurement leaders need to ascertain which of them are likely to be sustainable. Establish the strategic changes to make; and then make time to tightly focus on the supply chain. These considerations are a joint exercise and must take into account other parts of the business in order to clarify the optimal relationships portfolio – so some hard and careful thinking needs to be done.

By doing this procurement brings this collaborative mindset to life. In developing an understanding of the need for connectivity they make the value chain everyone’s business. The more people think about their individual impact in the business, the better they will do their jobs. In promoting greater coordination at all levels between procurement and the other service functions across the business there is a greater chance of stimulating innovation through this united approach.

A winning team is as strong as the relationships within it; its driving force, the creation and maintenance of excellent relationships adding robustness to the team’s dynamic. Focus on gratitude and vitality to strengthen and deepen the relationships within.

We have already discussed the recognition of the value of the broad set of capabilities and an understanding of the diversity of skills and experience required, and the fact that it will take time to find or develop the right people. Committing time to building the next generation of leaders also requires a degree of introspection. You must be an innovator and spend a lot of time looking for and developing your eventual replacements.

Where to look for the right people is often the stumbling block, and in that search there are a number of underlying traits to look for:

  • Seek out people with intensity, with extra energy and enthusiasm.

  • Look for people with sensitivity, reactivity; those who will readily offer discretionary effort. These people thrive on ambiguity; they thrive on ‘impossible’ problems and change. They will give their wholehearted effort and tend to be sensitive to the concerns and feelings ofothers. These people are eager to learn, understand and improve.

  • Also look for people with a certain complexity, with extraordinary perception, vision and the capacity for original, multilevel thinking. These people are very fast learners and they learn more effectively than others. They are creative, visionary, quickly grasping complex ideas and problems and will readily offer unique perspectives and solutions. You need independent thinkers.

  • Finally, look for people with drive and who are clearly engaged in what they are doing. These people will be self-directing, dedicated, often exceeding expectations of them. They are intent on excellence and can develop or will already have multiple areas of expertise. They are natural leaders and influencers both within the team and outside.

The future of you

In addressing the second part of the question posed above – how this new attitude can be developed and how one can make the transition – we need to hold up a mirror to ourselves and ask: is this the future of me? Globalization and technological changes are reshaping the nature ofwork. Having a great job does not guarantee personal success: your competence no longer depends on what you know, and being an affluent consumer matters less than becoming a sought-after product. Welcome to a new era of work, where your future depends on being a signal in thenoisy universe of human capital. In order to achieve this, you need to master three things: self-branding, entrepreneurship and hyper-connectivity.

Self-branding is the signal you give off amongst the din of business activity. The stronger your brand, the stronger that signal. In today’s world, self-branding matters more than any other form of talent, not least because the mass market is unable (or unwilling) to distinguish between branding and talent. Being or becoming a brand means showcasing that which makes you special, in a way that is distinctive, predictable and meaningful, it allows others to understand what you do and why. As Antoine de Saint-Exupéry put it, ‘perfection is achieved, not when there is nothing more to add, but when there is nothing left to take away’.

Entrepreneurship is about adding value to your organization by disrupting it and improving the order of things. It is by creating a better future. We are all busy, but the only activity that really matters is enterprising activity. Entrepreneurship is the difference between being busy and being a business, and the reason why some are able to stay in business while others get outsourced. Every transaction between people is a business transaction.

The most important commodity in human capital today is people who can grow a business. Be that person. In today’s battle for talent the big issue is identifying, developing and retaining true change agents. Change agents are hard to find, hard to manage and hard to retain. Entrepreneurship is about being a change agent; change agents are signals, everyone else is noise. If you are not bringing growth, you are replaceable and recyclable.

Your future depends on your ability to offer something new: new solutions for existing problems; new services and products; new ideas. Everything that isn’t new is old, and if you are doing old you are stuck in the past. Today it is important to develop a ‘self-brand’. By this we mean that your personal brand development will get you noticed and create value for you and your employer. Your value depends on your knowledge reputation and ability to see and do things differently. As computer scientist Alan Kay pointed out, ‘a change in perspective is worth 80 IQ points’.

Hyper-connectivity is about being a signal in the ocean of data and making some waves. Everyone and everything is increasingly online, but what matters is being relevant. Hyper-connectivity is not about being online 24/7; it is about optimizing the online experience for others. Unless you are a hyper-connector, only your friends care about what you had for lunch and whom it was with – but when you are a hyper-connector, thousands of people will be shaped by your views. In the era of information overload, being a trustworthy source of information is a rare commodity – it is the digital equivalent of being an intellectual and the latest state in the evolution of marketing. The most important form of knowledge today is knowing where to find things: answers, ideas and points of view. In fact, the ability to find things is becoming as important as the ability to create things.

In short, the future of you depends on your ability to be a brand, a change agent, and a link to useful information. Paying attention to your personality and managing how others see you will turn you into a successful brand; paying attention to your ideas and defying the status quo will help you to become a change agent; and bridging the gap between useful knowledge and collective interests will turn you into a hyper-connector.

Building a winning procurement team

Only a few smart companies today know how to develop a winning procurement team: a team that is essential to maximizing efficiency, buys the best products and profits from new ideas in the marketplace. But many more are becoming aware of the inalienable fact that procurement is an area where businesses can reap major benefits.

This is because procurement impacts the whole organization, and in order for a business to preserve its reputation, the goods or services it provides to the market must be appropriate and fit for purpose, they must be the right quality and arrive on time. This is where customer value is gained.

Putting in place the right skills is arguably the most important foundation for maximizing the procurement function’s success. A procurement operation must ensure it has the skills needed to deliver results in areas such as cost, innovation, resilience, quality and flexibility. Employing and nurturing the right talent, while fostering good communication throughout the company and with suppliers, is important – given that procurement in most organizations spends in excess of 50 per cent of business revenues.

Assembling a strong procurement team is difficult because the function is perceived to be less alluring than, say, marketing or finance. For some reason, it doesn’t have the same reputation as these other service functions. In addition, because people are becoming aware of the need for smart people in procurement there is strong competition from other companies for talented staff.

The issue has become the number one challenge for CPOs and there is currently a threat of a procurement ‘brain drain’ as organizations scramble to find good people to fill their knowledge and skills gaps. In addressing the staffing problem many CXOs as well as CPOs say that thegrowing ‘science of procurement‘ is attracting smart people to look at the area. These new and interesting aspects of procurement, such as the use of analytics development of collaborative relationships, the search for innovation and sustainability, are becoming much better understood by potential employees, who are being drawn to procurement by the prospect of working in a multifaceted, value-driven environment.

In recent years a number of specialist undergraduate as well as postgraduate degrees in supply chain management are on offer, and organizations such as CIPS offers its own globally recognized professional diploma. Increasingly, too, the people or ‘soft’ skills have taken a prominent position in the mix. Clearly these are limited to supply management and the need is perhaps heralded by the increased use of technology. As e-solutions take over the mundane tactical aspects of procurement, those working in the field are moving to the more sophisticated aspects. Whereas more traditional procurement teams did deals and managed contracts, contemporary procurement needs people who can influence, lead and invoke change.

This sophistication and new-found acceptance also facilitates a deeper integration between departments and thus creates opportunities for procurement staff to gain deeper insight. It is this kind of movement within an organization that enables a broader skills base to exist in procurement.

procurement organization that serves the whole business and is aligned with the whole organization is the holy grail of procurement. Moreover, business needs to ensure that the board as well as the chief executive support procurement – and an increasing number of CXOs recognize the importance of having their head of procurement sit on the board. For this alignment to occur more widely, businesses need to rid themselves of ‘corporate ignorance’ of procurement‘s value to the organization.

Other service functions approach procurement in the wrong sequence, usually starting with cost. Instead, when they understand the function, they can begin with value creation – how they can optimize the supply chain, work well with suppliers and make use of suppliers’ capabilities. Procurement teams must create a welcoming atmosphere for suppliers. If procurement is allowed to operate effectively, suppliers should be treated as a driving force for innovation and viewed as critical partners in the company’s success.

When procurement deploys people with the right skills, encourages and facilitates communication and works efficiently with suppliers, a real strategic gain is achieved. Modern business will demand that these factors are put in place – it will want a winning procurement team. The case study below shows how such a winning team can make a big difference – especially during a major crisis.