August 2011 |

Guy-New

Following our latest Enhancing and Redefining the Role of Indirect Procurement research study, I will be commenting on various snippets taken directly from the research.

About the research:

The in-depth study, developed in conjunction with NelsonHall, involved 120 CPOs and CFOs from FTSE 100 organisations across Europe and the US to better understand procurement?s changing role within business today and tomorrow.

Focusing on indirect (or non-core / GNFR) procurement, the in-depth study identified a number of challenges and opportunities for global businesses in realising maximum benefits from indirect expenditure …read more >>

The first key snippet from the research is:

Fewer than half of executives are highly satisfied with the current management of indirect spend in their business.

The research found that executives frequently are highly satisfied with the calibre of personnel in their indirect procurement function. However, over half of the same executives express only low or moderate levels of satisfaction with their organisation?’s ability to manage and control indirect procurement spend.

In order to increase this level of satisfaction indirect procurement departments should evaluate:

  • Enhancing their roles as strategic business partners
  • Increasing their coverage of indirect purchases
  • Enhancing their own processes, in terms of speed, cost-effectiveness, and ease of use by requisitioners.

Proxima Commentary

The critical question is why are senior management happy with the calibre of personnel within their existing indirect procurement teams yet dissatisfied with their organisation’?s overall ability to manage and control costs?

One would assume these two go hand-in-hand – but only if they are truly aligned within the business. Senior executives still have the perception that the role of the indirect procurement function is to assist the various stakeholders by negotiating a % off last year’?s contract rate and drawing up the new contract. Ultimately senior executives are satisfied with indirect procurement personnel?’s ability to negotiate and manage contracts within the organisation – but not their ability to manage and control costs across the business – why?

  • Lack of understanding (across the business) around the benefits of including procurement in any sourcing initiative: Many indirect procurement teams are not proactively going out to the business and educating the various stakeholders and senior executives on the benefits that can be realised by applying a proper sourcing approach, from the start of the demand generation process right through to negotiation. The true value in any sourcing initiative is ensuring a suitable level of scrutiny is applied at the demand generation stage, ensuring the specification truly represents the desired outcome at an acceptable level of risk, or to bring alternative (ideally scalable) options to the stakeholder which will achieve the same goal.
  • Lack of Mandate: In most cases, procurement doesn’?t actually have any mandate or budgetary power over any other function outside of procurement (and what?’s more, indirect procurement teams don’?t actually have any budget of their own). This means that either there needs to be a senior executive sponsor who can push stakeholders towards the procurement team or procurement need to actively build relationships with each of the stakeholders – which requires a completely new set of skills to the negotiation focused skills engrained into many indirect procurement professionals. 
  • Poor Stakeholder Management Skills: Carrying on from the above bullet, many of the skills associated with effective stakeholder management are simply missing from the traditional indirect procurement professional?s tool box,  which is no surprise given their role has been so heavily focused on the supplier base. These poor stakeholder management skills, in many cases, have resulted in a certain level of reluctance from various stakeholders to work with indirect procurement teams for fear of them ?’getting in the way’? or delaying a purchase.
  • Lack of Capacity: Even, if the above stakeholder management skills were present within the indirect procurement team, the question remains ?”How can the indirect procurement team effectively and consistently manage all categories, across the business?”? The answer is either significantly increase headcount or look at alternative models offered by third party service providers.

Overall, managing the cost base better requires visibility and granular categorisation which can only be achieved by working closely with the various stakeholders within the business. Establishing the perception of a strategic business partner in the eyes of senior executives requires strategic thinking – truly understanding your team?s strengths and weaknesses, focusing on those and potentially reaching out to a third party provider to leverage the skills and knowledge that is too costly to hold in-house.