Next generation Procurement organizations - from Procurement Management to Business Management

 Next generation Procurement organizations - from Procurement Management to Business Management

 

 

In the following, I have collected thoughts and learnings based on own experiences working with transforming a procurement organization from an introvert contract factory to a strategy partner to the business having significant impact on business performance.  

There are a lot of movements in most larger companies on their perception of what a Procurement organization should be responsible for but there is still a way to go before Procurement professionals are able or allowed to execute their skills in a way that have strategic impact on the business. The following, in my view, summarize the key topics that need to be addressed to make the transformation successful. 

Understand the business strategy  

No doubt that a transformation described above requires a change of mind-set and does not come overnight but requires persistent push for change. One of the first key topics that need to be adrssed is to understand the business strategy and how Procurement can play a significant role onrelated to profit and business performance. You need to establish a solid story line and business proposition that can drive the change. Procurement professionals need to move from manage the procurement function to manage the business – they need to step out of their comfort zone and into a more strategic business focused mind-set.

Establish a story line and value proposition  

Experience shows that developing a proper story line and a business relevant procurement value proposition is not necessary an easy task. It requires a lot of thinking and discussions before it will drive the needed changes. The Procurement function need to take ownership of the proposition and the surrounding business need to understand and accept the content. The following was our take on a compelling and performance driven value proposition that did make an impact. As seen there are much more to the Procurement responsibilities than being “Mr. 10%”.

Value proposition  

• Improve safety & quality performance - by taking ownership of contractors to influence safety and quality performance  
• Minimize business risk - by creating financial robustness and predictability through commercial and contractual frameworks  
• Maximize cost performance - developing new business models and competitive acquisition of services and products  
• Create predictability of performance - through Supplier Relationship and Performance Management  
• Leverage supplier capabilities - bridging supplier innovation understanding the need of the business  
• Ensure compliance - good business behavior, CSR performance, cost awareness and resilience against fraud and errors through transparent sourcing processes

From introvert to extrovert – hire people with the right mindset  

To be a Procurement function that succeeds, focus should be on creating an organization that contains complimentary skills. The more traditional Procurement skills need to be supported by strong relationship creation skills that drives cooperation with internal stakeholders and with contractors and suppliers part of the value chain. Hire people with the right mind-set should be evident. People that are good a creating relationships, who are change ready, communicative and understand the business they are going to impact. We need to remove the dust from the procurement mind-set. 

Show leadership and drive changes  

All business changes require leadership. It requires a persistent push for change and performance and management need to take the lead. One of the key fundamental is the understanding of what I’m calling organizational cohesions – understand the business you are part of and understand the other functional skills that surrounds you and how you fit into this. Get you mandate in place and push for organizational impact reporting to CFO level. If not taking the lead as CPO. 

Professionalize competences, processes and systems  

Another key fundamental is, of course, to establish a Procurement organization that have the right high level of competences. Many organizations have the perception that procurement processes are boring, time consuming and do not necessary give the right result. Procurement processes need to be differentiated, they need to be agile and should deliver the business impact that is needed. Otherwise you will lose credibility and acceptance in the organization. As with competences and processes, the level of procurement systems needed to support performance must suit the business requirements, the complexity and should never remove good acumen skills. 

Establish a clear governance structure  

Last but not less important a clear and strong governance structure need to be establishing ensuring a sufficient compliance responsibility to the Procurement function. As mentioned in the Value Proposition it need to ensure good business behavior, CSR performance, cost awareness and resilience against fraud and errors through transparent sourcing processes, as a minimum.

The Author: Johnny Mikkelsen

                                              

About:

Project Director at DIS - CREADIS Engineering & Consulting 

 

During an extensive domestic and international career working as operator, contractor and consultant, I have obtained knowledge and developed competences within a number of business areas.  

Functional leadership positions: Procurement/Supply Chain, Operation, Engineering and Business Development  Business sector experience: Energy (offshore), Infrastructure, Process and Pharmaceutical

Procurement transformation and cost leadership experiences covers full lifecycle procurement and contract management, cost leadership transformation processes, negotiation strategy and tactics and advisory related to cost-out exercises  

 

Capital project strategies and contract managemen experiences covers contract strategies combining company risk profile and market conditions. Strategic partnership arrangements and performance-based cooperation, procurement activities related to outsourcing of operation and tail-end production

Leadership and management competences covers management and leadership based on empowerment and motivation. Strategic and tactical functional development and planning, operational due diligence and carve-out activities. Business process management.

Project Management competences covers project management of multidisciplinary projects, teambuilding and organizational development creating performance excellence, learning processes capturing past experiences, optimization of business processes and work flows.

Business Development experiences covers domestic and International business development establishing business abroad, hiring local staff and development of business process and infrastructure. Tendering process support and contract negotiations, development of value propositions and new services 

Personal profile: I’m an extrovert person motivated by developing business and people, and by working in an international business environment. I have a strong achievement drive and is entrepreneurial by nature.