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Six steps to effective procurement (Part IV)

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Driving continuous improvement to deliver sustainable change

In this six-part blog series on effective procurement, we discuss how procurement functions can successfully become a value-adding business partner to the organisation by helping execute and capture value faster, drive innovation and deliver sustainable change.

In our previous blogs, we explored the first four of six steps to drive procurement effectiveness:

1.   Developing the right procurement strategy, including identifying the right input performance measures and value-based output measures.
2.   Converting the procurement strategy into simple and effective procedures and systems that people or machines can execute to deliver the strategy.
3.   Optimising the procurement organisation with an agile value team structure to reflect clear accountabilities and deliver against agreed targets.
4.   Instilling disciplines and management systems to capture benefits and drive sustainable change.

In this blog, we explore step five – driving continuous improvement within the procurement organisation, especially catering to times of business upheavals.

 

5.  Driving continuous improvement

Once the Procurement organisation has been set up to deliver value to the business and the right disciplines are in place to drive performance, we then look at instilling the behaviours to drive continuous improvement in the organisation. This step is particularly pertinent in the current crisis environment where the only constant is change itself.

 

Build an agile culture

As the world economy becomes increasingly strained under COVID-19, it is important for procurement organisations to build a responsive and agile culture to deal with continuously changing circumstances. Events like COVID-19, and the impending financial crisis that will likely follow, call for a rapid and adaptable response. Procurement needs to be able to quickly react and reprioritise their efforts on the most critical areas – while also anticipating and preparing for longer-term shocks and changes in their supply base. Teams must move away from being ‘order takers and fulfillers’ and become strategic forward-thinkers and commercially driven doers.

 

Implement innovative sourcing solutions

As the procurement team becomes more mature and sophisticated, they should continuously test new and innovative sourcing approaches and ways of working with both internal stakeholders and external suppliers. Procurement should adopt sourcing approaches that are suitable for the existing circumstances but flexible enough to change tack when those circumstances change (like ‘remote sourcing’ in the current COVID-19 crisis environment). Keeping abreast of changes in the global marketplace and building flexibility into the sourcing approach is key to driving ongoing improvement, as well as long-term resilience in the supply chain.

New technologies that accelerate results should also be trialled and fit-for-purpose tools rolled out. However, it is important that technology is not introduced for ‘technology sake.’ Every technology decision should be grounded on the maturity level of the procurement organisation, what it needs and its business strategy and commercial realities. Any new tool deployed should be based on real business needs and prioritised based on measurable value add.

 

Continuously develop capability

As new and improved tools, technology and processes are implemented, the Procurement organisation must ensure that the capability and competencies of their teams are continuously assessed for gaps. Gaps should then be addressed through a comprehensive coaching and training development program that sharpens skills and proficiencies for faster, more effective performance.

 

Improve supplier collaboration

Besides improving internal processes and functions, significant value can be found by continuously improving Procurement’s way of working with its suppliers. Besides the ongoing supplier reviews that we outlined in step four (see previous blog here), Procurement should also aspire to work with suppliers to jointly identify and implement mutually beneficial improvement . Procurement should hold regular improvement workshops with supplier Subject Matter Experts and host annual/semi-annual ‘value conferences’ with key suppliers.

Procurement should consider very large and strategic suppliers to be extensions of their own businesses. Benefits from joint improvement opportunities should be pursued up and down the supply chain, and these benefits should be shared between the supplier and the buyer. Such benefits can be achieved by improving operations to drive efficiency and productivity, lowering procured costs for suppliers and identifying opportunities for joint product, business development and marketing. In times of business upheaval such as pandemics, financial crises or other shocks, Procurement should consider engaging with these suppliers to ensure their survival.

Other milestones of a continuously improving organisation include the adoption of ‘relational contracts’[1] that formally embed the concept of joint continuous improvement and relationship building to keep expectations and interests aligned.

In our next blog in this series, we will outline the final step to driving effective procurement – demonstrating visible leadership of the Procurement function to both internal and external stakeholders.

Read about how we have helped clients improve the effectiveness of their Procurement function here.

 


[1]  Harvard Business Review: A New Approach to Contracts

 

Click through to read other blogs in this series:

Part I - Establishing the strategy and supporting disciplines

Part II - Optimising the organisation structure to support accountability 

Part III - Instilling disciplines and management systems to capture benefits and drive sustainable change

Part IV - Driving continuous improvement to deliver sustainable change

Part V - Demonstrating visible leadership to deliver sustainable change 


 

Tom Sonnen


Tom Sonnen leads the global Procurement Practice and the Singapore business at Partners in Performance, having successfully led major operations improvement and business transformation efforts for global companies in a large variety of industries.

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