Effective purchasing is very much a case of sorting out your priorities says procurement transformation expert Paul Joesbury, as he lists the five ways you can successfully change the way your department works.
Paul Joesbury began his talk at IMPA London by stating that purchasers have the best job in the organisation by far, simply because no other has the ability to influence the company in the same way purchasing does. “In what other job can you improve product quality? In what other job can you improve the cost base? Can you improve the delivery performance? Can you improve the profitability of the organisation?” he asked.
The statement and questions weren’t so much a rallying cry, rather they sought to highlight the variety and scope of a role within the organisation that is often regarded as little more than functional. “There are not many jobs that have that reach; many organisations do not get that. And you ask yourself why they do not understand that procurement can contribute quite significantly to their business.”
As a procurement professional with more than 20 years’ experience and a recent doctoral candidate with Aston University, Paul is used to addressing such questions. His work with companies in the automotive and aerospace sectors combined with his university research has led him to develop a five-point model that he believes improves procurement effectiveness. Crucially it raises the profile of procurement too.
“Purchasers have the best job in the organisation by far, simply because no other has the ability to influence the company in the same way purchasing does” said Joesbury
“For the last four years I have researched what makes procurement effective,” he told delegates at the IMPA London Conference. “More importantly what is it that makes transformations effective in comparison to those that fail?”
The answer may seem blindingly obvious to some and a little trite to others, but that is not to say its application is universal; on the contrary it is something very few departments do well during the transformation process.
“Quite often organisations focus on the selling of stuff, but it is only fairly recently that they have adopted a mindset to buy things better to improve business performance. It seems to be only now that organisations are seeing the benefit effective procurement can bring to the organisation. “Often I see organisations that are repeatedly going through transformation too. Why is that? Why do they fail? It is because they are not focusing on what matters for success.”
“In some of the organisations I have worked for, procurement has been the difference between the business being a profit and loss company,” says Paul. “So the prize is quite significant if you get it right.”
Getting it right is not as daunting as it sounds either, it is just a case of getting your priorities in order and making sure you execute them well. It eliminates wasted effort, energy and expense, and ensures that you remain focused throughout the process.
1. Compelling case
“Often there needs to be a reason to make the change. This is usually measured by how and where the procurement department sits in an organisation,” says Paul. “Regardless of where it sits, though, there is a need to communicate why there needs to be a change. There needs to be a demonstrable reason why procurement has to change. Creating that strong need is imperative.
2. Stakeholder buy-in
“You can spend a lot of time and energy banging your head against a brick wall because you are not able to get the traction through seniorlevel support. When I trialled this model at Chesapeake the heads of the business units would all agree with the CEO to support the transformation programme but then try not comply because they did not want to cede power. This process of engaging with the people that make a difference and explaining the reasons why it is important is essential. Without doing that, organisations have spent a lot of money and have failed programmes.”
“This is the competency of the organisation and the people involved in the organisation. People are regarded as an asset, but how real is that to an organisation? Many people are very busy; how many of them are busy being effective and busy adding value and making a change? If you are critical about it, then it is not a high proportion. Those that can have a competency called a drive for excellence; some can demonstrate that and make a change. Some make the change but leave a trail of broken relationships and destruction behind them. That shows a lack of influence and communication. The most effective procurement transformations and functions have a high degree of influence and communication.
“Remember that you can teach skills and provide knowledge but it is quite difficult to develop competencies. Focus on the competencies of your people.”
4. Effective strategy
“Focus on objectives such as quality, cost, cash, delivery and innovation. Procurement is often accused of being just focused on price; the mental model of what it is about gets in the way of an effective transformation. Focus on the objectives above. Do not over engineer; look at what it is you are trying to do and are trying to achieve. Only by buying what you need to buy first can you move onto setting up the right supply chain need for that solution.”
5. How do your suppliers see you?
“You may not care about this but you should care. Your customers will make decisions on you based on how they see you. They will see you in terms of account attractiveness. Are you an attractive account for them? If it is a highly attractive account but they do not yet have much business from you they will see you as a growth customer and therefore support you in your business, invest in your business and will play ball.
"If they see you as a highly attractive business and you give them lots of business you will be seen as a core customer. They will be supportive. The problem comes when they do not see you as an attractive account. If you do not give them much business you will be seen as a nuisance. They will react to you as a nuisance and treat you like one. If you’re unattractive but spend a lot of money with them your supplier will be able to exploit you. How many times in your supply chain have people increased their prices? You need to get into dynamics where organisations are working for you, not against you.”