Instilling disciplines and management systems to capture benefits and drive sustainable change
In this blog series on effective procurement, we discuss how procurement functions can successfully become a value-adding business partner to the organisation – they help the organisation execute and capture value faster, drive innovation and deliver sustainable change.
In our previous blog, we explored the first three of six steps to drive procurement effectiveness:
1. Developing the right procurement strategy, including identifying the right input performance measures and value-based output measures.2. Converting the procurement strategy into simple and effective procedures and systems that people or machines can execute to deliver the strategy.
3. Optimising the procurement organisation with an agile team structure to establish clear accountabilities and deliver against agreed targets.
In this blog, we explore step four – the importance of instilling the required management disciplines and drumbeat to deliver sustainable results.
4. Sustaining Disciplines
Once the procurement strategy, procedures and organisation model have been established to deliver on the target value-based KPIs, we turn our focus towards instilling disciplines to ensure that agreed actions are completed (closing the loop) and that the results are delivered sustainably.
For example, your newly renegotiated contract may promise significant cost savings, but these savings may never reach your bottom line if there are no consequences for purchasing off-contract, or if suppliers do not deliver to the terms of the new contract. To this end, it is critical to instil the right set of disciplines to continuously monitor results (did it work?) and actions (did we do what we said we would do?). These reviews need to be scheduled to a regular cadence across all procurement stakeholders – this includes your procurement team, as well as internal business users and suppliers.
Managing the performance of the procurement team
Once procurement KPIs and accountabilities have been defined, proactive management of the procurement team must take place. It is important to ensure that people are working on the right things and that they have the approach and the support to successfully deliver against their KPIs. Detailed review processes need to be scheduled into a regular (usually weekly) cadence across all levels of the procurement organisation to ensure that the full life cycle of savings is managed. To do this, we use detailed savings tracking mechanisms that measure results delivered as well as keep an eye out for potential unwanted ‘side-effects’ of the newly negotiated deal.
Engaging with end users to quickly respond to changing needs
Similarly, a structured review mechanism should be employed between procurement and their business users.
User meetings are a great forum to build relationships, gather information and ensure procurement remains relevant to the business. Ideally, they are scheduled monthly to identify and forecast changing needs (and to pre-empt/match that to changes in the marketplace) and to also identify any performance issues both within Procurement and the end user. Discussion usually covers challenging and controlling any discretionary usage, implementing spend controls to ensure compliance and coaching end-users on limiting discretionary usage.
Beyond this, procurement must also transparently communicate category performance to their stakeholders – ensuring that performance of both parties is clearly visible to the other and remedial actions can be agreed and implemented.
Managing suppliers effectively
Many companies do not implement consistent supplier reviews, and even if they do, they are rarely effective in identifying and achieving performance uplifts. Rigorous supplier management leads to improved performance by systematically investigating performance variances and agreeing and tracking remedial actions.
Supplier reviews can be held quarterly, and while performance tracking will likely be the focus in these reviews, regular working sessions with both parties can help to identify opportunities to jointly improve their way of working that would generate mutually shared benefits. These joint sessions and relationship-building elements should also be embedded within the contract so that it is a properly defined agreement and not just lip-service[1]. This ensures that both organisations are focused on driving value and that the relationship is structured for the long term.
Without establishing sustaining disciplines across the Procurement team, its stakeholders and its suppliers, savings and results generated from any improvement initiative will be difficult to track and will gradually fade away – this diminishes credibility of the procurement organisation both within the organisation and in the external marketplace. The reviews must be implemented on a disciplined basis, so they focus on the right outcomes and actions, and are executed to a regular schedule and cadence.
In our next blog in this series, we will outline the final steps to driving effective procurement – driving continuous improvement and visible leadership of the procurement function.
Read about how we have helped clients improve the effectiveness of their Procurement function here.
[1] Read about developing Relational Contracts here: https://hbr.org/2019/09/a-new-approach-to-contracts
Click through to read other blogs in this series:
Part I - Establishing the strategy and supporting disciplines
Part II - Optimising the organisation structure to support accountability
Part IV - Driving continuous improvement to deliver sustainable change
Part V - Demonstrating visible leadership to deliver sustainable change
Tom Sonnen
Tom Sonnen leads the global Procurement Practice and the Singapore business at Partners in Performance, having successfully led major operations improvement and business transformation efforts for global companies in a large variety of industries.
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