Procurement's image problem

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Delegates.JPGThe Procurement profession has a serious image problem. Most South African organisations, whether corporate or government, still do not see the profession as a strategically important function...
"How many Procurement professionals report directly to the CEO? Only two out of over 70!" Dr. Douglas Boateng, CEO of Panavest International, was responding to a show of hands from delegates at the 3rd annual SmartSourcing Conference held early in November.

Dr. Boateng is adamant that the day the Supply Chain function reports to their CEOs is one worth celebrating. “That is the day that the great strategic importance Procurement and Supply Management (P & SM) have to drive change has been recognised,” Dr. Boateng told SmartProcurement.

Douglas and Bernie.JPGDr. Boateng has tracked the evolution of the P & SM function from Purchasing to Procurement to Supply Chain Management (SCM), which now encompasses more progressive functions:

• Procurement was positioned as the strategic aspect of the supply chain process, whilst Purchasing was left to focus on the administration aspects of the more sophisticated Procurement process.
• SCM related professionals became the change agents for the vocation within and outside of the organisation.

“Procurement has the primary responsibility of taking charge of cost management” - Fred Welman, Principle member of Welman Consulting.

To do this with organisation-wide success, it is essential for Procurement to get involved at specification level, which is where costs reside. “It is the cost that keeps costing”, said Welman in his presentation.

Welman insists that the starting point is a question: How can you increase the company’s competitiveness, remain profitable and survive the recession?

The primary objective in managing costs is to beat inflation year on year, for which you need to be focused and innovative. Developing a detailed change-management programme is a challenge to all involved, said Welman:

1) Create a clear understanding of your targets and identify the subsequent challenges.
2) Get buy-in from top management.
3) Develop a spirit of commitment and hands-on involvement from all personnel concerned.
4) Create a structure to support the savings drive.
5) Implement savings processes.
6) Create a visible record of the savings achieved.

“The current corporate reality in SA is that there are too many suppliers in the 'preferred' class” - Dion de Gruchy, Welman Consulting.

De Gruchy attributes this to:

• A lack of skills and capacity to develop cost efficient procurement strategies.
• A particular lack of 'international' procurement skills owing to South Africa's pre-1994 isolation.
• The number of true B-BBEE qualified suppliers within given sectors is limited, necessitating other vendor support at a price premium.
• The small to medium enterprise (SME) Development strategy requires vendor support at any cost.
• Politically connected vendors are unavoidable.
• One ends up using a 'front' with little or no value-add, resulting in a price premium.

De Gruchy also presented some statistics regarding methods used to control the prices of strategic suppliers, information which he gathered from Procurement professionals. The methods were:

• 13% by tender process.
• 73% through negotiations.
• 13% though supplier development programmes.
• 1% did not give a strategy.

Peter and Bernie2.JPG“Technology is a primary enabler of best-in-class procurement and can be effectively deployed to support sourcing and operational needs” - Peter Alkema, Head of Procure-to-Pay operations at Absa.

Technology has enabled Absa Group Sourcing's success and it's journey to world-class operational procurement, said Alkema in his address at the conference, which discussed the bank’s leveraging of technology in supply management.

Absa's approach is integration (into their existing ERP system) as opposed to maverick niche application, he said.

Although there are different technology deployment options, there are generally accepted priorities on processes to automate. For instance, procure-to-pay is the area of single biggest value-add to the bank.

Alkema said that the key drivers for using technology are:

• To achieve transparency and governance through advanced management systems - at the end you must be able to show a clear audit trail.
• Manage and control almost all purchasing spend.
• Track performance holistically, beyond cost savings.
• Manage knowledge, the organisations Intellectual property (IP)
• Manage supplier performance and collaboration.
• Streamline category purchasing processes.

Future technology will deliver enhanced reporting and automated, supplier-collaborative sourcing processes, he noted.

Absa’s success stemmed from the confidence showed by parent banking organisation Barclays International, which empowered Absa by giving its Group Sourcing ownership of the procurement policy. This enabled Group Sourcing to direct how the whole Absa organisation purchases and spends it's money, concluded Alkema.

Ian trigger.JPG“Effective contract management… can only be successful once it has been integrated into the organisation’s overall business strategy” - Ian Trigger, CEO of Wanama Solutions.

Contract management is the most important commercial aspect within contract lifecycle management (CLM). CLM must be embraced by the department as a modern procurement best practice, said Trigger.

Trigger noted that the elements that procurement must have in place to increase compliance to contracts are a procurement plan approved and endorsed by the executive, an effective spend analysis solution with an integrated contracts management module, and adherence to proper communications and change management principles.

The key elements and pitfalls of contracts, says Trigger, include:
• Procurement must beware of verbal contracts because they are fraught with risks.
• The terms of a contract must be clear and certain.
• Beware of prescription, i.e. claims arising from contracts have specific time limits.
• Be aware that subsequent actions and behaviour by a party to a contract can ratify unclear aspects of an agreement.
• Do you need an original signature? The answer is an emphatic yes, and be clear on who signed for the other party.
• As the buyer, make sure you use your own contract, not the supplier’s.

Andrew and Bernie.JPG“If there was only one single barrier to achieving a sustainable and high-performance procurement organisation, then it would be the availability of competent and well trained personnel” – Andrew C. Hillman, Director of the Commerce Edge Academy.

Hillman discussed increasing competitive advantage by developing, managing and leveraging supply management personnel.

“The changing dynamics of the global supply chain has seen massive price fluctuations for critical commodities and services, which in turn has tested organisations’ abilities to control and contain costs. In this progressively more complex international marketplace, commodity and sourcing specialists require constant up-skilling and the resources of advanced management systems,” said Hillman.

The increased importance of the Procurement function requires new skills and capabilities from your talent pool. They need to be prepared for leadership at the broader business level and in addition to their technical 'hard skills', their ‘soft skill' expertise in for e.g. Acccounting, Data Management and Finance will be increasingly relied upon, explained Hillman.

“It is therefore encumbent on CPOs to have a very clear personnel development strategy in place,” he said.

“Technology will come and go, your people at the end of the day are the differentiators” – Peter Alkema, responding to a panel discussion: Hosted versus Outsourced Core Systems?

Paul McKane.JPGAn organisation would base such a decision on whether it has residual capabilities and skills in-house, noted Paul McKane, Solutions Manager at SRM.Reuben Badana.JPG

“[Technology choice] is not about your transactional capability, it is part your business process evolution and your decision should be based on a detailed analysis of the offerings and what constitutes the best 'value-add',” said Reuben Badana, SAPICS President and Senior Manager at Oracle.

What should a CPO aim for in technology selection? An integrated or a ‘best of breed’ application? (The HR and P & SM modules must fit to 'talk to each other')

“Off-the-shelf programmes have the advantage of solid research behind them aimed at meeting a defined need in the market and are designed to complement most applications,” said Marc Silberbauer of Marshan Technologies.

“At Absa, for example, the contracts management system is a niche best-of-breed, which was selected on the basis that it could be seamlessly integrated into the main ERP system,” explained Alkema.

SmartProcurement will provide feedback on day two of the 3rd SmartSourcing Conference in the January edition.

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