Jan
4
So your boss doesn’t get Procurement? Here is what your not doing and why it’s all your fault.
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In a recent CIPS article they reported on the fact that according to a recent 4C survey that half of senior management don’t’ get procurement.
It’s a great article even it’s a bit clickbate-y (go read it and then come back) and it does pose some interesting questions for the industry and how we supply chain staff go about our business within the companies we work for.
While I presume the intended purpose of the article is to shock us (and perhaps make us feel just that little bit unloved)I’m not sure I find it as any great surprise, perhaps the real challenge is understanding where we believe the problem lies.
Firstly, let’s be honest, senior management not understanding a department within their business? Well this is nothing new. In 2014 an atkearney news release they stated that “Only 10 percent of Chief Financial Officers have been engaged successfully and recognize the value and contribution of their procurement team”
That’s a shocking statistic isn’t it? But let me ask you this, why is it important that senior management both understand and value the contribution that thier supply chain team delivers to the business? Is it that as procurement professionals we have a secret deep down need to be loved? Why do we need to be “got” in the first place!
Well, the main reason is that by having senior management understand procurement it typically helps in two key areas:
1/ It helps get buy-in (senior support) for projects that you are/have launched
2/ It helps with funding (organizational or otherwise)
These reasons are of course not limited to procurement but are universal. Funding internal innovation programs is always a hard sell made even more difficult if those signing the checks don’t understand what the team delivers.
So is the problem that management are just not interested enough to find out what the engine room does? Or do we hinder ouselves through not promoting the right message, championing supply chain and the value it brings to their organization?
What people really think of procurement
In an attempt to understand what my supply chain colleagues think of procurement I conducted (albeit an unscientific straw poll around the watercooler). In speaking to some of my colleagues they place the blame at the feet of senior management citing reasons like:
“they never get involved to see what we do”
“all they want is cost reduction”
So what do the customers think? Those outside of the department often have a more critical view….
“why is it suppliers always deliver parts late”
“so and so is off on another jolly to see supplier x, it’s not proper work”
“procurement selected supplier x, they are supposed to be the professionals and look how bad THAT turned out”
Of course it’s easy for for people to hone in on issues (any department can through rocks at another) but if people are zoning in on issues then clearly the message about the value add isn’t hitting home.
Perhaps though the key reason is that Procurement teams and perhaps supply chain in a wider sense have failed to correctly market themselves to begin with
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I’ve worked with many organizations and am always to see that procurement teams generally get the rough end of the deal (as they are at the tail of the process). I think in reality procurement functions tend to face three major issues
1/ They don’t communicate in language the business understands
2/ They often have no vision or strategic plan (therefore becoming transactionally led)
3/ Easily described Issues/failures (i.e. late parts/poor suppliers) act as a mill stone around the neck and become what the department are known for.
Like any business function Procurement tend to get the most press when it’s bad press, these are the things that get reported up the chain of command. Away from the normal day to day working issues however, there are some methods of improving awareness. Some of this goes back to good old metrics in that without a credible standard allowing companies to consistently track and score procurement performance, many senior managers will (quite rightly) question the performance of and benefits delivered by their procurement teams.
Of course we should be open up to scrutiny. Significant procurement decisions, or decisions about procurement policy, should subsequently be monitored and evaluated (<a href=http://webarchive.nationalarchives.gov.uk/20090504154741/http:/www.berr.gov.uk/files/file37926.pdf>for example check out this well constructed piece on evaluating procurement benefits</a>
The thing is there are real benefits that procurement can bring,
AT Kearney has revealed the best teams deliver benefits at a rate that is ten times greater than the combined cost of their people, technology and external support. The organization also found leading procurement departments tend to generate double the return on supply management assets than their less effective counterparts.(<a href=http://www.bvdinfo.com/en-gb/blog/supplier-and-credit-risk-management/leading-procurement-functions-provide-benefits-ten>more here</a>)
So what is the procurement department to do if they are to ensure that they are both understood and valued within the business,
To answer this I think there are 8 key steps
1/ Have clear objectives (short, mid & long term targets)
2/ Have clear measures to track these objectives
3/ Communicate to the business in language and terms that are easily understood (often the CFO’s)
4/ Have a clear organizational structure which is as flat as possible
5/ Be transparent
6/ Celebrate your successes and look to promote them
7/ Learn from your mistakes. Be the biggest advocate of continuous improvement within the business
8/ Strive to empower the organization not restrict it.
Procurement professionals need to maintain considerable soft skills.
Renowned Professor John Kotters suggests that the reason for fostering knowledge regarding your teams function and buy in from the management team is that it’s crucial, even critical if you’re to make a real difference.
Real buy in, to truly “get” a function requires some form of shared vision, sharing in both the victories and failures.
Dec
28
Share KPI’s with your suppliers to get even more benefits.
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We all know the importance of KPI’s within business. Most organizations will slavishly work on pulling data together, manipulating it and then put the icing on the cake by decorating the resultant charts to make them uber presentable (if not always easily understandable). The results then usually get passed around the business execs so they can review business performance.
Plan Do Check Act should be part of any Supply Chain KPI
However, while we know the importance of KPI’s we may not always understand the value they bring to us and how we can use them to drive both improvement and performance within our wider supply chain, especially if we share them with our suppliers. As we all know better visibility requires data whether that’s focusing on service, product or operational excellence and with KPI’s businesses often find that hard.
For many organizations existing key performance indicators have been in place for a while often gathering dust delivering only moderate value. Most companies usually benefit from a warts and all review of their Supply Chain KPI’s, both in the targets they are driving and how they are shared both inside and outside the business.
When it comes to managing and leading the production of key performance indicators it’s interesting to see who has a hand in driving them.Adaptive Insights recently posted an article that stated that organizations CFO’s are increasingly leading the charge in driving organizations metrics and measures. Whoever does it KPI’s should be part of a continuous improvement cycle (Plan, do check act) designed to both highlight performance and to shine a light on failures in
Whoever does it KPI’s should be part of a continuous improvement cycle (Plan, do check act) designed to both highlight performance and to shine a light on failures in process (or business design). fundamental purpose is that they should drive improvement.
There is, of course, a multitude of KPI’s that can be used the Supply Chain Council has hundreds that you can use) and googling KPI’s there’s some further great reference material out there such as Stephanie Davies post here on linked in.
“Supply chain is a team game and if some of the team are kept in the dark by not sharing goals then your performance won’t be 100%”
However when you’re looking to share information with other participants outside your organization you may need to tread carefully on a number of fronts.
Within the Supply Chain there are often various levels of external interface (suppliers, logistics/distribution etc). One of my biggest grumbles when I work with clients is just how few of them share performance data with these stakeholders. The result is many of thier suppliers simply don’t know how they are being perceived by the buying organization meaning that the purchasing team are leaving value on the table. If we consider that KPI’s should be driving performance and improvement, then a lack of visibility into how you perceive them to be performing is short-sighted at best. For example, ask yourself these questions
• Does your supplier know your requirements for ontime delivery are and how it’s performing against them? Do you know the key contributor to any failure and what they/you are doing about it?
• Does your supplier know their DPM? (how many of it’s delivered parts get rejected back due to issues) What’s the key route cause for defects?
Ok so these are simple examples but Supply chain is a team game and if some of the team are kept in the dark by not sharing goals then your performance won’t be 100%
Top 5 Issues with Supply Chain KPI’s
Before we discuss how KPI’s can be used with external stakeholders let’s first look at potential pitfalls with KPI selection.
Here’s my list of the top 6 issues regarding KPI’s which I find when consulting with clients.
• KPI’s are irrelevant and don’t drive change
• KPI’s are hidden and seen only by execs
• KPI’s are founded on poor data and don’t present reality
• KPI’s are out of date
• KPI’s are not shared routinely (i.e. every month without fail)
• KPI’s are not shared with the supply chain
When it comes to discussing performance with suppliers, management often cite valid reasons to avoid it, these typically include:
1/ Concerns about sharing inaccurate data
2/ Data gets shared at the wrong level and not acted upon (lack of appropriate business review)
3/ Concerns about impacting supplier relationship
However many of thes fears can be overcome….some questions to ask:
• What are your business objectives and which is the appropriate information to share with your suppliers.
• How often will you share this data.
• How will you obtain the data
• How will these KPI’s drive performance improvement?
Of course even if you do share KPI data there is no guarantee that it will be acted upon. Sharing KPI data outside of an appropriate forum which enables change is a fruitless task. KPI sharing should be carried out as part of a routine performance review with the supplier where actions that drive performance are agreed.
One of the key things to remember is to not overburden yourself, most organizations would like to have a plethora of measures but realistically can only focus (and improve) on a small area at a time. Think about how you can pare down to what is absolutely necessary? Are your goals short term/Long term – how will your suppliers help/work with you? It’s all about striking the right balance. Remember that if you focus on one area too much you could be doing so at the expense of something else.
“Lots of organizations struggle with this as many find themselves on a data cleanse journey and historical data compared with current data is not always comparing apples with apples.”
Historical information is critical to effectivity. KPI’s are a journey, they tell you where you’ve been and where you are now together with your destination (the target). As such historical information is critical if you are to effectively measure the effectiveness of the KPI. How much history do you have?
Lots of organizations struggle with this as many find themselves on data cleanse journey and historical data compared with current data is not always comparing apples with apples. This is especially true when you start and share performance data with suppliers, you might be surprised to find things may not be as they first appear.
Of course, key performance indicators are only part of the supplier development bandwagon. There can be various ‘hidden’ factors such as how your supplier views you in terms of prioritization, communication etc that can all affect performance. These often fall outside the usual KPI review process.
KPI’s and relationships
Understandably you don’t want to adversely impact the relationship you have with your supplier, which can sometimes happen if you blindly trust the data and then attempt to beat the supplier with it. Transparency if handled the right way is often a good thing and acts as an enabler to improvement activity. Far too many companies fail to have the right levels of visibility putting their suppliers into some form of “black hole”. Often the KPI’s can put forward some difficult conundrums for example they may highlight that a supplier may not prioritize you as you want and may not have your best interests at heart. Various questions can come out of this that can be difficult to answer.
Finally KPI’s in your supply chain are only as good as the team that selected them and that is providing the data for them. Supply chain Management should ensure that KPI’s are necessary, accurate and have purpose, they should instigate appropriate business review processes with suppliers on which results can be interrogated and improvement to processes/workflow instigated as a result.
Supply Chain KPI’s are a powerful tool but they are just that a tool and like any tool they have to be used in the right way with the right expertise to derive the highest benefit.