The current business environment prompts me to ask executives these questions about their purchasing organization
1. Can your team handle a surge in demand (or are they praying NOT to get one)?
2. Are you under-whelmed by your purchasing team’s savings and declining customer service?
3. Is your purchasing personnel Under-skilled for your new challenges?
4. Do you lack systemic strategic sourcing process?
5. How much risk is in your supply chain?
I will use a case example to illustrate what we see and what to do about it if these performance gaps are found in your company.
The procurement and supply chain management team at a manufacturing client was in disarray, spending time on many tactical “firefighting” activities. The chart below summarizes company staff’s time allocation during a typical week in the purchasing environment. A whopping 68% of the time (over 3 days per week) was spent reacting or attending administration. Only about 22% of time (about a day per week) was spent directly in procurement planning, commodity management, supply market intelligence, joint process improvement with vendors, qualifying vendors, negotiating strategically.
To add insult to injury, only 20% of their $1 billion purchasing spend went through the purchasing group, indicating significant maverick or “rogue” spending. Houston, we have a problem. The organization was spending more than the purchasing group. We practically have a “non-spending” purchasing group!
They needed to complete this checklist fast (and you may need to also):
1. Solicit the support and “bully pulpit” of the CEO since the cost of procurement was 63% of revenue!
2. Immediately stop the profit-leaking habit of purchasing outside the procurement organization.
a. Townhall video and in-person meetings headline: “Stop it and here’s why”
b. Triage 101: stop the bleeding
3. Structure contracts with all major suppliers instead of handshake agreements
a. Identify the key negotiable issues and put into memorandum of understanding
b. Engage the legal department
c. Use simple business language, not “Legalese”
4. Create a profile of your team to identify any gaps based upon your company’s strategy (example chart below)
a. Solicit help from Human Resources since you may need to upgrade
b. Sell company executives on your business case for significant supply chain cost savings
5. Assess the skill of your procurement team in each category of spend with something akin to the chart below. Are there any skill gaps that explain why your organization is impatient with the
group’s results? Or is non-conforming maverick spending occurring because employees find it easier to shop online or stop by personal favorite local vendors? What’s working that you should
6. Determine how good is your purchasing process. Create a standardized strategic sourcing process if necessary. (Hint: if you have grown by acquisition, your number of processes equal
a. Get agreement on using one process
b. Focus on best practices
7. Consider training the procurement team to build contemporary skill
a. Don’t exclude executives; it’s hard to say your are too busy when the head honchos
have made time
b. Do training close to time of on-the-job application so concepts stick
c. Use lots of role plays since adults learn best by doing
8. Build a business case for improvement
a. How much financial benefit would your company gain if you closed the gaps?
b. How would it edify your employees?
Procurement and Supply Chain Management
By completing this checklist, you can get closer to positive answers to those initial questions about
demand, savings, skill, process, and risk. Consequently, your company can grow savings and build
customer service. You will know your company is ready for post-COVID when you stop hearing:
• “Suppliers say they have no more product after this week”
• “The vendor’s price went up three times our budget”
• “Leadtimes has gone from 5 days to 3 months for that part”
• “I can’t believe our key supplier just fired us”
• “Our sole warehouse in the region for our top-selling product is closing next month”
My encouragement is for you to form an internal team and get started reviewing your procurement and supply chain management group right away since profit leaks usually get bigger with time.