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Change Management in Moving from Tactical to Strategic Sourcing

I had the opportunity to host a panel of Chief Procurement Officers at the Zycus Horizons 2015 meeting on October 5, 2015, on the subject of the journey organizations take in moving from tactical to strategic sourcing. The panel included Marianna Danchisko, CPO from Celgene, Angela Thomas-Anderson, CPO of QBE Insurance, and Barbara Ardell, from Palladin Associates, who worked for many years in procurement at P&G. We covered a number of questions on the panel that I felt provided some fascinating insights into the role of leadership and change management. An extract of some of their comments is provided below (based on my best recollection!).

In your experience, is there a trend away from tactical procurement organizations and more towards the strategic? How has that affected organization structure?

Angela– I’ve been in leadership for a multitude of industries – I’ve worked in global procurement operations at Dell, Intl Energy Services, consumer products, and now an insurance company. An underlying theme across different organizations is that they all struggle with the use of the information they have at hand in seeking to justify value beyond cost savings. The proposition – moving to strategic – is the use of information procurement has available on hand to create insight and show value.

What do you see as the top business priorities for procurement? What initiatives are underway to drive results in these areas?

Marianna – Overall Celgene has gone through a tremendous transformation in past 2.5 years. I started 9.5 years ago and at that time we had procurement to produce PO’s. It wasn’t about developoing relationships with the business – which we are now doing as we start to bring the business onboard. That being said – the company in 2010 implemented Oracle as its global ERP system under one platform to share supplier master and procurement systems and develop insight into what was going on. We implemented quickly and didn’t maximize effectiveness, but it did set up a framework around measuring activity where we didn’t have measurements before.

Angela – One initiative is in terms of predictive modeling for our business goods and services needs. The second is the business insights on how to strategically position partners to drive additional value. We are moving to a model where we focus less on the tactical things and the strategic sourcing, and are looking at revenue drivers around innovation to create a more sustainable model. Instead of just placing orders or driving single initiatives we have created a forward view to align human capacity around the ability to support the progressive needs of the organization and the growth projections.

As an example, we may be called on to do clean sheeting and do should cost models for negotiation.   But the other piece is creating market insight. In some cases, the sales organizations is seeking to partner with suppleirs who don’t have the best long term cost proposition. We can help them understand the need to align the supply of goods and services as an element in the value proposition, and provide them with advice on which partnerships and alliances can produce the best long-term value.

Barbara – It is important to focus on getting upfront analytics, and not just technology, but adoption and institutionalization of building analytical insight. It is not just about rolling out systems, but one has to be able to replicate it and do it over a period of the time. Technology that is not implemented and not adopted as quickly as possible results in people abandoning it – so the degree and speed of adoption is something we should be measuring as we adopt procurement systems.

What are the challenges Procurement organizations face as they journey through transformation?

Angela – I think one of the biggest challenges is around alignment of resources. Coming in to a new organization I knew we had tactical activity and organizations around the globe that were seeking to build for future income. Our first priority was being able to understand the business requirements and the fluidity and ability to shift resources for the real needs of the organization.

When procurement comes in to any operation, if they are only thinking linearly around cost savings, they can miss the larger opportunities to align more with the business. The key is to ensure procurement can support the capabilities of the business – including the tactical steady state and future state of development. I think it is both about human capital and the bandwidth of the people and systems you inherit. You will need to ramp up those who can transition quickly. For the systems piece, if the organization doesn’t have the technology infrastructure, or if they have the infrastructure but it is not institutionalized, then changes are needed. The active use of tools is important to drive insights around data that can become available once the tools are put in place.

Marianna – We are using a Zycus Analytics platform based on their master data taxonomy, which we think is roughly right (not 100% correct).   This is being used as a basis for discussions with stakeholders on how many suppliers we have for printing, in consulting (black hole) or temp labor. The response when we present this data is always the same: “I can’t believe we are spending this amount of money with this many suppliers!” These are just a few of the areas to be able to establish quick wins from a consolidation perspective, and beginning to establish preferred supplier in this space. Or when you show them globally that 80% of spend is with 300 out of a total 3000 suppliers – they say Wow, I didn’t know that! In some cases when you present these statistics, people will say “But MY team is not doing that – we are only using a handful of suppliers and staying in our swim lanes.” But when the data refutes that knowledge, they still shake their heads. “My team can’t possibly be doing that!”

To drive change, this discussion has to be pitched as educational, not confrontational. “We are just showing you the data. You have to create a data analytics team that is agnostic, independent and just present the facts. You are trying to communicate that this is a a single source of truth, using tools that will describe what our spending actually is, and what can we potentially do to make this a more cohesive process.

To facilitate these dialogues, we are moving over to a program management office created by our senior leadership. The management committee will communicate the vision and mission and get people to agree to a seat on the committee, expressing what global sourcing can do. And then it will get a little more structured. By the middle of next year, the message will be established that if you don’t follow the rules for spending, you will be called out. We will put control mechanisms in place to drive people to use a preferred supplier. We hope to gather small low hanging fruit to get some quick wins and use as a springboard for a more centralized approach.

These observations lead me to conclude that transformation is less about software and systems, but more around change management!