The Transformation of Procurement relies on various tactical, strategic and transformational tools and techniques in order to develop change within the procurement department. It is generally a complicated process that involves complex analytical and cultural steps that often change the beliefs, structure and strategy of the department.
On paper this seems daunting and in practise it has the potential to spiral out of control. It is important to know why you are moving to a more a strategic approach and where you want to be, but it is far more important in the early stages to know where you are. You can’t navigate to your destination if you don’t know where you are on the map.
That first step on the journey is the Procurement Health Check. It is an evaluation of how your department is performing, its capabilities and the support it receives from the organisation’s hierarchy. It is a tool that allows you to benchmark where your department is in the industry and to identify the steps and changes you need to make and take to reach your desired state.
According to Carl Jansma, Vice President of Procurement at Wilhelmsen Ship Management, the procurement department is much like the human body in so far as there are key indicators as to whether it is functioning efficiently and effectively.
Despite that, many procurement departments fail to ask the right questions of themselves. As such they have their operations deeply rooted in the hands of individual and decentralised business units that are managed separately.
“Such companies may continue to lose the opportunity to leverage procurement resources,” says Carl. “In so doing they won’t gain synergies from standardised and/or best practices and achieve savings and value from better sourcing processes.
“Fundamentally, they ought to be asking themselves is it possible to transform the function into a more strategic focused organisation? Would our department have the skills’ in house’ to do so? Where would we start? What areas should we focus on first? How would we convince our CEO this was needed? How could we measure whether improvements have been achieved?
A further step in the right direction is for procurement departments to be able to answer the initial set of questions below objectively:
- What changes will be necessary for the future of procurement in your organisation?
- What must change from how procurement functioned previously?
- What are the key benefits for the business and future opportunities for your procurement professionals?
- What are some of the key success factors & challenges our procurement professionals will face?
- What is the benchmark service level expectations of Procurement capability in your company, industry and in today’s world?
- What are the characteristics, behaviours, skills and attributes required for your future procurement professionals?
- What/how much support will we need from CEO/Management to ensure?
If they’re unable to do so, then a comprehensive capability health check will help.
A comprehensive procurement capability and health check
According to Carl, in this scenario ‘a capability health check is critical’ to identify the strategic focus areas of such a decentralised organisation with a non-matrix structure, absence of global strategy and policies, low capability overall and a large gap in procurement systems/resources.
“A health check is the first necessary ingredient needed to take purchasing from a tactical state to being a key driver of the strategic success. A thorough and properly conducted health check is the foundation to drive a global procurement transformation program in policy, price, process, people and systems to build a strategic center-led organisation.”
“With a little research an in-house procurement Health Check can be developed to review your company’s strategic procurement capability,” adds Carl. “Assessing your sourcing ‘transformation’ skills capability (in-house vs outsourcing it) through a health check is very important. I suggest categorising health check’ issues into people, process and technology – which will make assessment of any gaps easier to understand in terms of real business drivers.
A comprehensive Health check should be based on measuring and benchmarking your organisation against key business indicators that highlight the potential areas for strategic sourcing capability across your business. These should broadly include but not limited to:
- Sourcing strategy
- Policy and Process
- Contract Risk Management
- Training and skills Development
- Business Case management
- Integration of Procurement into Project management
- Contract Management tools and Guidelines, and more recently CSR and Responsible and sustainable procurement practices
Future desired state
Many companies, upon completion of their health check, will need to decide their new future desired state. For example, for a company transforming from tactical purchasing and operations to a more strategic focused procurement department may need to:
- Think beyond the traditional purchasing focus
- Introduce a sourcing policy, methodology and process framework
- Plan for visibility and transparency of their spend
- Maximise use of enabling technology
- Make intelligent & wider use of electronic systems – find the best technology provide an enterprise wide procurement planning function
- Aggregate and leverage their buying power
- Adopt different approaches (eg: relationship style contracting & outsourcing)
- Apply contemporary best practice approaches & techniques
- Develop procurement skills on a continuous learning basis
- Apply contemporary best practice approaches & techniques
- Apply analytical rigor to spend (but not paralysis by analysis - use 80/20 rule)
- Engage consultants where gaps or specialised skills are needed.
“Many companies choose to create their strategic sourcing capability in-house based on the vision of the Head of Procurement, because of the significant cost in outsourcing it,” says Carl. “However, it is possible for almost any organisation to transform from tactical buying to strategic sourcing - they just need to become highly organised, well staffed, and operate differently to traditional purchasing departments.”
“As a business function, procurement departments should be better placed to play a part in business success largely due to the capability assessment which originates from the health check. A common saying in many organisations is “If we’d only had this health check in our toolbox earlier, we would have improved our performance long ago.
“A properly conducted health check will do much more than adding significant savings to the bottom line; it will improve all aspects of your company’s procurement through identifying gaps and strengthening capability, thus achieving desired cost reductions through smarter sourcing.
“As procurement professionals we lead a journey of discovery that seeks answers on how to change attitudes and priorities that will take procurement to where it belongs.”