Regardless of whether the company has a dedicated procurement function or the process is decentralized, whether you create a team or join an already existing one, or the company realizes the need for change at some time, everything starts with people.
Speaking about my own experience, I was lucky to create my "dream team" in each company that invited me to accept the challenge. These were smart and talent guys who loved their job as much as I did, and we started a procurement system up together from green field. However, buyers do not exist apart, they are integrated to the processes of the company, and to transform the procurement culture and approach to cost management is a long and painful process. And the deeper the procurement function is integrated into the business process and the higher its impact, the mission becomes more difficult.
Change management is certainly a dedicated topic, I'll just say for buyers that it’s not enough to be the best only in procurement profession for buyers, you need to be a marketer, lawyer, psychologist (and sometimes a psychoanalyst) and, first of all, a seller - to sell your mission, promote your ideas by making sense, to explain and repeat, over and over again, and work with the human factor every day, overcoming natural resistance to change.
When speaking about relations with the Client, we need to talk about KPIs, perimeter under control and maturity of the procurement function as well, the principles of communication, and the ecosystem on the whole. Building relations with internal Clients is one of the most difficult target of our profession.
Why do the buyers need to “sell” something first? There are two options: 1. Internal Clients come themselves to share their projects with you to get your professional help. Congratulations! You are already a recognized expert and do not need to “sell” anything. 2. You mostly go to convince the Clients to involve you in new procurement projects (if you look forwards to becoming a business-partner to them once).
What is the added value of the procurement function for the internal Client?
We always start by diagnostics of procurement to better understand the context in which a company exists and to formulate an appropriate value proposal to the internal Client. Let's consider three prerequisites: threat to economic model; commercial expansion of the company; transparency of procurement processes and control needed.
The threat to the economic model is when the growth rate of the company's expenses exceeds the growth dynamics of profitability, and the company urgently needs to take measures to improve business efficiency. Why does it happen?
Firstly, that's because of the “uncontrollable commercial creativity”: wealthy companies do not consider it necessary to pay much attention to costs. They want to be always ahead of competitors, which is rather difficult in a rapidly transforming market, therefore they permanently invest in expensive projects that sometimes do not return on investment. I am personally for commercial experiment, but also for understanding its economy at the beginning as well as after implementation. Unfortunately, even if profitability is evaluated to be "sold" to decision makers, there is no control of “plan vs. fact”, neither assessment of general utility for the company.
Secondly, suppliers of key resources raise the prices. The reasons why are various: a threat to economic model of their business, desire to increase the profit, focus to the export market, or need to regulate demand in such a way. They make professional associations to strengthen their position and come to their customers with united proposal, thereby reducing the level of competition in the market. What does it mean for the Clients? They need to spend time and resources negotiating with suppliers, finding solutions, because it should be difficult to find an additional budget in the middle of the year, for example.
Meanwhile, the company may have quite another tasks: commercial expansion, focus on key indicators such as traffic, turnover and profit, in other words, on the “heart of profession”, and there is no resources to manage the costs properly. What to do? You can ignore the costs and try and boost your sales and stocks rotation or you can increase the selling price (but there is a risk of losing customers). Or you can look into the P&L structure to find out the ways of optimization. And if the procurement function is decentralized, the process becomes uncontrollable at some point and provoke the risks of abuse.
And now it's time for professional buyers to act: they will take over the work with suppliers to propose a solution, and they will organize the project team, ensuring transparency of processes and control.
The procurement team should realize themselves as a "company within the company', analyze the context and consider their activities in terms of added values for the Client (meaning the business as a whole), and evaluate the result as integrated into the overall result of the company. For example, do the savings impact on P&L, does it contribute to a greater return on investment?
It is important that the targets of procurement team meet the needs and objectives of the company. For example, we apply the “smart procurement” (a set of levers) to improve financial performance, we make effective negotiations and organize cost control. We shorten the procurement cycle and expand the perimeter, developing a network of suppliers, to accompany expansion to new markets. You need more cash to invest? Terms of payment improved! You need to streamline processes and increase their efficiency? Procurement policy and automatization solutions will help.
Conclusion: make diagnostic of procurement processes first, prepare a strategy and get the support of top-management. Here is the relations with your Clients begin.
Who are they, our internal Clients?
We are used to thinking that an internal Client is a department of a company who needs to purchase materials or services. In fact, there are various types of Clients, and for each of them, the buyer has his special tasks to solve. For example, quality and delivery time are important for users, cost reduction - for budget holders, simplification of processes and reduction of corruption risks - for business executives, cash flow and return on investment - for shareholders.
These tasks may not coincide or even conflict. The procurement team should take this into account when setting goals and formulating an action plan. Experts can help solving tasks such as financiers, lawyers, business-controllers and experts of professions, internal audit and security services.
Supporters can be formed from both of them (Clients and experts) to popularize the procurement function.
Do not neglect the expertise of suppliers (market leaders) in complex projects, they will help you better understand the subject of procurement, will offer alternative solutions and share market innovations.
However, "there is a difference between knowing the path and walking the path". This is what buyers often hear when speaking with their Clients about procurement:
- "Everything is working well, you are nothing to do!"
- "This is a complex specificity, you do not have any competencies"
- "The market does not work in such a way, not for large (small) companies"
- "This is a unique supplier!"
What are the real needs or interests behind such a position? What does the Client really think about procurement team involvement?
- «He will buy something cheap and of poor quality and will talk to everyone about saving and well done, and I will work with this ...»
- «If I do not control the process, how should I guarantee the delivery on time in full and be responsible for the whole project in front of my boss?.. No way!»
- «Well, I have to coach a new supplier, but no time for this. Let's keep the current one»
- «And why will someone else be engaged in procurement? Do I work poorly and the company do not trust me anymore?»
- «So how to work with this supplier? I won't be able to control him, because I didn’t find him, I didn’t signed a contract with him."
There may be professional ambitions behind this (“protection of territories” by participants of the procurement process), as well as ordinary habits (“it’s more convenient for me, I’m used to work with this supplier”). Mental particulars also play a role, an individual result is closer to us than a collective one.
Why does resistance arise?
- Internal Clients do not see any added value or do not know you as a professional;
- There is no general goal-setting: the goals of the procurement team are not integrated into the company goals that provokes a conflict of tasks;
- There is no synergy in actions (sometimes different teams work on the same project independently of each other, and then try to protect the results of their work);
- There is no agreement on strategy and separation of roles;
- Human factor (resistance to changes, personal ambitions, corruption interest) reinforced by the lack of ideological sponsor for procurement team.
If Clients criticize your ideas or attack you, do not be defensive or justifying yourself - this would be a big mistake. Instead of this:
- Give arguments, be constructive and restraint (this will not only convince the Client, but also enhance professional respect for you); formulate your value proposal in a way that the Client can see the link between his need and the benefits you offer;
- If some of some Clients support your point of view in some issue, make immediate alliance with them to achieve the goal;
- Offer a test project (quick win);
- Appeal to your ideological sponsor.
Any resistance, objection or tricky question is a natural reaction of people to changes or new information. If the Clients do not have questions or objections at all, that means your activity does not matter to them or they do not take you seriously.
An ideological sponsor who is interested your strategy succeed will provide ideological support in working with objections, and will also help resolving the conflict of tasks and priorities of different groups of Clients in one project.
How to avoid a conflict?
Move the task from individual level to collective one. As noted above, there are many internal Clients in each project: from users to company's owner. Work the needs of the “collective internal Client” jointly, while some of the individual needs may be adjusted.
Come to agreement at the very beginning. Get the support of top-management. Define three levels of decision making related to the procurement process: global, common and local, and let this become a part of company strategy and your procurement Policy
Global decisions are mandatory to be respected by internal Clients, e.g. the Code of Ethics; use of catalogs or contracts if they are already worked over by procurement team; respect of the Supplier Selection Procedure if the procurement function is delegated to the internal Client.
Common decisions are made when setting goals for the company, budget planning, building a procurement plan for the year, as well as during its implementation with experts.
Local decisions can be taken by the internal Client independently (for example, for spot purchases with a limited budget).
Involve internal Clients to your procurement projects as experts, but be sure to agree on a strategy, define areas of responsibility and leading roles for all stages of the project.
Key factors of success
in transforming the procurement function as-a-service to a recognized business partner and the center of professional expertise:
- Analyze the context, make diagnostic of the current situation in the company.
- Get the support of top-managers and be involved as early as possible to contribute to the global strategy.
- Participate in setting goals for the company and be an expert in the budgeting process.
- Find out the true needs and formulate targets in terms of added value for a each group of Clients.
- Follow the principles of synergy, involvement, separation of roles.
- Do what you promised, and do your best, because you'll never get a second chance to make a first impression.
- Be the best in your profession.
- Be impeccable in complying with the Code of Ethics; do not compromise with your principles, whatever the context.
- Develop business network: create your ideological sponsors and supporters.
- Be sure of where you go and never give up!
АAnd if something went wrong, take a break, think it over and adjust your path. As Henry Ford said: “Failure is simply the opportunity to begin again, this time more intelligently”.