Is your procurement department really delivering what your company needs?

In today’s modern procurement department, purchasing is no longer just about the orders. So is it time to take a more strategic approach?
Is your procurement department really delivering what your company needs?

Carl Jansma thinks so. As vice president of procurement at Wilhelmsem Ship Management Carl is certain about one thing. Procurement is becoming increasingly complex and we need to change what we're doing to stay ahead of the curve.

“We have environmental regulations, we have more sustainable and more corporate social responsibilities. Companies now expect procurement to deliver a much more structured and comprehensive programme to how, when and where they buy and source products from.

“Today the challenge is this: Is your department really delivering what your company needs? We have much more demand from management about how innovative our procurement approach is when it comes to saving the corporation money.”

In setting out his case, Jansma drew on the 18-month strategic procurement transformation programme he oversaw at Wilhelmsen. The programme was designed to transform the purchasing department into a more strategic and much more functional department that would support WSM’s vessel owners and the ships they manage. Critical to this process, he says, was defining the company’s future strategy.

“Their requirements were to have a greater focus on cost reduction. Their agenda is about delivering value, lowest total cost across the business. They were focused on us working more strategically to deliver the value add that was necessary for our customers.”

The programme has built greater responsibility into the procurement department. Elements such as anti-fraud, probity, transparency, accountability, and visibility in WSM’s processes now fall under the procurement remit. Management is taking a greater interest in the department’s strategy and activities, and is determining the key strategic drivers of the organisation that it has to react to.

“Today ship owners face a challenging market – post global financial crisis we see today the average earnings for ship owners is still at a 20 year low,” Carl says.

“The shipping industry still hasn’t recovered – it’s still a very difficult market. The vessels and the ship owners we manage are still very focused on cost reduction and getting value for money. As a ship manager that’s our core business and we have to deliver.

“Procurement is complex. Today is about sourcing more strategically and having integrated e-procurement and ecommerce business-to-business platforms. Today it’s about managing relationships with our suppliers and managing relationships internally. For sustainable supply chains – there must be contingency, there must be back up. If you look at any part of the world you’ll see problems in certain regions, you’ll see natural disasters. There are many, many things that can threaten the supply chain. Contracts management is very important still – having the legal side of things taken care of.”

Paradigm shift

The modern focus on ethical business practice has brought into sharper focus the need for good governance, sound ethics and probity, and as such the need for parameters to control them. With CSR and sustainable procurement now firmly on the business agenda, companies are being held accountable for what they buy and how they buy it.

Gone are the days of the 1960s when the buying clerk need only make purchaser orders, the 1970s focus on just in time and warehousing inventory or the 1980s where purchasing managers were the most senior person in procurement in most organisations. A far more complex agenda stands in front of procurement people today, which Carl argues will see a change in the way procurement departments work.

“Over the last 10 to 15 years we’ve seen larger organisations starting to rely on procurement to deliver business outcomes and be part of the corporate strategies that these companies rely on to stay in business.

“We’ve also seen procurement reporting into the board and into the CEO and the CEO relying on the heads of procurement to deliver cost reduction, value, internal stakeholdership, focus on the governance and the transparency in the sourcing processes.

“Procurement’s role is evolving and changing. In the next 10 to 15 years we will see a much greater focus on procurement professionals managing the relationships with suppliers, more so than managing internal processes and procedures.”

Towards a strategic approach 

So what is strategic procurement? According to Carl, it’s the comprehensive approach to sourcing goods and services on a company-wide basis, which he says has seen procurement move from the basement to the boardroom over the past decade.

“Now organisations are starting to understand the value they’re getting from strategic sourcing and strategic procurement. We recognised that we had to make some changes. The business environment was telling us to change. Where did we improve? How did we improve?”

To identify the changes it needed to make, WSM developed an in-house health check that contained 150 criteria. It looked at its strategy, it looked at procedures and polices, its people and its CSR - all of the functional responsibilities that procurement has today were assessed to see if they were healthy or not. Identifying issues was fairly straightforward.

“You can easily find where the department is not functioning properly,” Carl said. “We spoke to stakeholders, suppliers, we spoke to management and we spoke to our ship owners and we got feedback on where we can do procurement better, where we can improve. We looked at our internal policies and procedures and discovered that a lot of those were copied and pasted from decades ago and in need of update.

“We looked at the organisational structure. We measured against an industry average, or below average and best in class; we measured where procurement in Wilhelmsen is today.”

The internal health check found that access to data was holding the procurement department back, so a business case was made for some new e-procurement software. The software gives the department greater visibility and transparency, though it brings with it a fresh set of challenges – integration, staff training, new policies and procedures, a change in thinking - all of which take time and are critical to the process.

“Getting a cultural shift so that procurement is supported is what you need to achieve,” Carl says. “It’s the point at which the company says ‘we need to change the culture.’ It’s not about just putting a new procedure or policy in place.”

Future desired state

After going through that process WSM found that it needed to think beyond its traditional purchasing focus and introduce strategic sourcing policy and methodology, as well as a much more structured framework to procurement.

If it was to evolve, the procurement department had to plan for transparency and visibility of spend, aggregate and leverage its buying power, adopt different contracting approaches and upskill its workforce. Crucially, it had to win the support of the board for what would be an 18-month project that it believed was critical to the organisation.

“It took some time for the organisation to learn, understand and appreciate what procurement is trying to do,” Carl said.  “It’s a learning curve for all. Give yourselves some time – only then will you see some savings through your sourcing processes. Don't have an unrealistic expectation that you’re going to start saving money from day one. Make that clear to your company.

“Transforming from tactical to strategic means that you are challenging and focusing on your processes, challenging and focusing on your people, coaching your people. The success of your transformation is with your people. If they are really dedicated and they are working with their clients, internal customers and suppliers, this process happens a lot faster.”

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by Tom Holmes

Marine Trader Editor

Tom Holmes is the Editor of Marine Trader and readmt.com, the official publications of the International Marine Purchasing Association (IMPA). To discuss news, features or contributing to Marine Trader please get in touch.

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