Making Procurement Strategic
The procurement function in most organizations is seen as the place of last resort to go to when you need to buy something you can’t build. It is a necessary bureaucratic ‘cost of doing business’ with third parties. But that makes no sense, and this is why.
’Agility is the gut issue in leading an organization today.’
This is a literal quote from James McNerney, previously CEO of Boeing.
Organizations want to be agile because this characteristic of organizational design allows them to transition offerings, markets, and business models without hefty transformational costs, or delays.
When I wrote the book ‘Agilization’ back in 2004, I brought together all the lessons learned on what it takes to be an agile business. This was one I should’ve spent more time on!
How the ‘Build or Buy’ questions are answered in business-as-usual activities is one of the differentiators between an enterprise that is capable of change and one that isn’t.
It stands to reason, that an agile business will buy more than it builds itself. Of course, it should! Calling on the resources, assets and skills of third parties brings with it opportunities for fresh ideas, new perspectives, and more affordable collaborations. Why design a product yourself and harbor all the high-risk development costs, when you can share risks?
In this lesson, Japanese companies have learned faster than others. They often design new innovations through Keiretsu’s; interwoven industry and competitor collaborations to share risk and reward.
If you want to be agile, you need procurement to step up and be able to field questions on sourcing possibilities that presuppose that procurement is already aware of candidate suppliers that fit the bill. This also pre-supposes that contractual relationships are pre-wired, so there’s no need to trudge through a new legal journey before the value can be extracted from supplier relationships.
That’s why my team came up with Just-In-Time (JIT) Procurement. Adapting phraseology that comes from the JIT Manufacturing revolution of the 20th century, JIT Procurement embraces the same core principle of delivering resources to projects Just-in-Time. This becomes a philosophy and approach to making procurement more strategic by encouraging co-sourcing, co-creation, and co-ideation because procurement leaders already know what sourcing options are at their disposal prior to any build or buy decision being made.
So, what is JIT Procurement? Essentially, it is about creating a supplier ecosystem framed by master service agreements in the usual way, but implemented in a very different way — to enable departmental managers to involve procurement leaders in early-stage build or buy decisions.
To learn more about it, you can read our original article here.
What are you buying?
For JIT Procurement to work, you need three things:
- An instant-on tier-0 digital supplier ecosystem.
- At least one Tier-0 supplier.
- A program Management Service Provider.
I describe these in more detail below.
An instant-on digital tier-0 supplier network
A key role of procurement is to know what capability and capacity third-party vendors have to offer. If procurement officers are to act in a strategic advisory capacity, they must already know the potential of suppliers to bring value in advance of any new procurement commencing. This applies to any category of product or service but it works particularly well in the area of contractors and contingent procurement. Working with Procurement on Build or Buy decisions in this way upturns the common belief that procurement should only get involved once a department has produced a Purchase Order.
The underpinning digital supplier ecosystem, framed by contracts and proactive law, streamlines the time-consuming effort of building an ecosystem of trusted supplier partners. It installs rules to ensure outcomes are contractually framed, delivered for a price, and pre-shaped to avoid unbudgeted run-ons, contradictory invoicing values, and project deferments.
At least one tier-0 supplier
In the vernacular of procurement, a Tier-0 supplier is a supplier that automatically gets requisitions for any particular category of purchase. Requisitions are pre-washed through Tier-0 suppliers before anyone else sees them.
All requisitions created for any particular category are sent from incumbent systems into the Tier-0 hub and pre-rinsed through the appointed Tier-0 suppliers. Once candidates or offers have been harvested, they are posted back into the incumbent procurement system. This frictionless approach means Tier-0 contracting can instantly switch on millions of candidates without any process or operational changes being necessary.
There are good reasons for bringing this preferential Tier-0 status to suppliers, such as:
Diversity — Increasing spend towards under-represented groups in the supply chain. Tier-0 service providers such as TheMomProtect.Com (helping women back to work) and Huddlejam.com (the diversity network) are examples of service providers that add significantly more diverse candidates to your talent pool. As a service operated by a diversity supplier itself, all candidates processed through Huddlejam.com bring diversity tax economies.
Specializations — Tier-0 players like USTECHSOLUTIONS.com and Talent4Health.com serve specific talent shortage areas like IT and healthcare with a large and diverse talent pool that’s instantly on the moment the service launches. Normally, IT roles can be filled within 6 weeks at a lower cost premium per hire. The JIT nature of this model means suppliers can afford to be more competitive with rates because they aren’t benching consultants in anticipation of ‘the next deal.’
Strategic sourcing partnerships — Some Tier-0 partners may be selected for their credentials as trusted and reliable partners based on their track record of delivery. Additionally, companies looking at developing their co-creation and co-ideation strategies might find surprising levels of cooperation from vendors that are prepared to improve their rates for a seat at the table.
A program Management Service Provider
Yes, organizations can take it on themselves to implement a JIT procurement ecosystem and deal with all of the day-to-day admin and operational challenges, but it’s not core to the outcomes of an enterprise. What is core are the services and resources delivered through a JIT procurement model. Why build when you can buy?!!
Managed Services Providers like Workspend.com and Kelly OCG have a track record of success in managing complex supply chain resourcing programs. They are well placed to work with your team to deliver an instant on JIT procurement solution tailored to fit your business needs.
A major advantage of working with an MSP partner is that they will take on the transformational change work and bring their own experience and know-how to bear — which means you profit from innovation and continuous improvements that you would otherwise have to fund or miss out on.
About the Author
Ian Tomlin is a seasoned marketer, entrepreneur, and business leader with a 30+ year career at the intersection of strategy, technology, and marketing. As the founder of successful businesses, including Newton Day Ltd, Ian brings a wealth of expertise in guiding companies toward compelling brand stories. Reach out to Ian via LinkedIn to transform your marketing approach and tell your brand story effectively.
