Podcast #56:
Procurement Series, Part 3 of 4

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Transcript: 

By Jim Tompkins, CEO, Tompkins Associates

Hello this is Jim Tompkins, President and CEO of Tompkins Associates and Tompkins International.

We're back with you again to continue our podcast series on procurement. I would like to welcome back am pleased to be with you today for Part two of our procurement podcast series. With me today is our Procurement Service Line Leader, Justin Brown.

Thanks, Justin, for joining us today.

Justin

Thanks Jim for asking me back to continue our conversation about Procurement Excellence.

Jim

Justin, in our first two Podcasts we discussed the importance of Procurement on the end-to-end supply chain. Specifically, how Procurement can help grow a company’s profits, improve margins and help achieve the most efficient use of capital.

We then defined Procurement as having four functions: Strategic Sourcing, Purchasing, Procurement IT and Supplier Relationship Management and you helped us understand more about two of the four functions, Strategic Sourcing and Purchasing.

Justin

Yes that’s right Jim, we have been discussing Procurement, its components, the breadth it covers in the supply chain and its ability to be a powerful lever to impact growth, margins and capital efficiencies.

Jim

Since last time we covered Strategic Sourcing and Purchasing, can you help us understand more about Procurement IT and Supplier Relationship Management? What are their primary functions, and what are the steps we should take to ensure we are achieving the most benefit from them?

Justin

Sure Jim. First however, before we discuss the last two of the four Procurement functions, let’s reiterate the importance of Strategy.

There is the Enterprise Strategy that should be clear and profound and states the purpose of the company and how it plans to compete. Then there is the Procurement Strategy that outlines how Procurement will help enable the Enterprise Strategy. And then for each function within Procurement, there are additional strategies that describe how the function will support the Procurement Strategy which subsequently enables the Enterprise Strategy

Jim

Ok, I understand, you always should start with Strategy but can you explain for our listeners why?

Justin

It’s pretty straightforward. If what you do and how you do it is not a directed effort that supports an enabling strategy then you will never achieving your Business strategy. Though you may feel productive, you are wasting effort on marginal achievement.

Therefore by having a clear understanding of how your company plans to compete and how Procurement will enable that competing strategy we can give clear direction to the underlining Procurement functions.
 
Jim

So a strategy first approach sets the foundation to align all the underling functions?=

Justin

That’s right Jim. And though this may sound simple, people would be amazed at how often we find little to no established strategy. Often we just find people turning the crank, trying to execute strategy even though it may be in the wrong area or in a counterproductive way.

Jim

Assuming the Enterprise Strategy is clear, and a comprehensive Procurement Strategy can be articulated, how can we use Procurement IT and Supplier Relationship Management to achieve the Procurement Strategy?

Justin

As long as we have taken the Strategy first advice before and defined the Enterprise strategy along with a clear Procurement Strategy, we can turn our attention to the enabling components of Procurement IT people, process, technology, organizational structure and performance metrics and ask targeted questions meant to uncover what is required from Procurement IT platforms to help enable the Procurement strategy.

We ask

1. What are the processes needed to execute the strategy and can they or should they be automated?
   • How do your primary suppliers receive PO’s
   • How do your primary suppliers communicate? Do they use EDI, email, only phone calls
   • How effective are you at monitoring or enforcing contract compliance
2. What type of talent exists inside your current organization
   • Do they have the business savvy and tools to manage suppliers, banks, customs and are they managing these effectively
   • Can they pull all the information together required for a strong negotiation
3. What type of technology are you currently using to support your operations
   • Do you have a large ERP, do you use it effectively
   • How much do you know about where you spend your money
   • Do you track expenses in excel, is that sufficient
4. What performance measurement metric do you use to ensure success
   • How do you measure success?
   • At what frequency, with whom do you review
   • What are the type of actions taken from measurement indicators
5. Last we look at organizational structure
   • Are IT personnel embedded into business units
   • Is the IT group integrated sufficiently to understand the sense of urgency or impact of slow response

Answering these questions should develop a picture of where weaknesses exist in your current operations that could be enhanced with IT help or demonstrate that current IT systems are not achieving the desired result.

Jim

Couldn’t the answers to these questions change frequently?

Justin

Yes they could. That is why it is important to stay abreast of current technologies and have a regular review of capabilities.

We don’t suggest that with every review you should be changing your IT infrastructure but it is important to know what you have and know what is available. Incremental changes over the years are often more easily digest by an organization then large technology shifts every 10 years.

Jim

Great. Now how about Supplier Relationship Management?

Justin

Similarly I’d suggest there is a frequent review here too, but that’s getting a little ahead over ourselves. Let’s define it first.

Supplier Relationship Management is a comprehensive and systematic nurturing, developing and monitoring of supplier relationships. We believe it is important to gather inputs and feedback from internal Operations groups, external customers, and the Strategic Sourcing and Purchasing organizations, Then we can constructively share this information with a supplier.

This openness is meant to build a relationship that can improve supply chain performance, reduce supply chain variability, and reduce supply chain risk in support of the Procurement business strategy.

Jim

I’ve seen this as a topic on the Executive’s agenda for years but haven’t seen many companies really execute this well. Why is that?

Justin

There are a couple of answers to that.

Primarily, many companies treat SRM just as you described it, a topic. It’s not a topic, it is a primary function within Procurement and should be resourced as such. It should have a strategy, and people to execute that strategy along with enabling IT and goaled performance measures.

Secondly, to build a strong relationship there has to be trust. Trust implies openness and honesty and frequently in a business setting many people believe openness with strategies and forecasts is in essence giving away company secrets. So, they are reluctant to share the information with suppliers and this leaves them achieving little on their SRM topic.

Unfortunately it’s this lack of information sharing that forces suppliers to guess how best to serve the customer which contributes to supply chain volatility. The guessing leads to variability, the variability leads to erratic supply and erratic supply within a supply chain ultimately makes its way to the end users in the form of diminished service.

Jim

You’ve greatly simplified that but it is easier to see if the outcome of Supplier Relationship Management is improved communication and stronger relationships then we will improve the variability, the risk and the over-all performance of the Supply Chain. So how then can make sure we are achieving the most benefit from SRM?

Justin

Similar to the first 3 functions we’ve discussed, we ask specific questions about the enabling components of Supplier Relationship Management.

1. What are the goals you are  trying to achieve with SRM
   • Have you segmented your suppliers do you know who your primary suppliers are
   • What needs to be improved: Operation, innovation,  development of new markets
2. What are the processes to help you achieve your SRM strategy?
   • How do you communicate
   • How often do you communicate and with who
   • What information is shared, is it time sensitive
3. What type of talent exists inside your current organization
   • Do they understand how strong supplier relationship could benefit the company
   • Are they willing to pursue relationship building over demanding service
   • Can they cultivate relationships
4. What type of technology are you currently using to support your SRM activities
   • Can your experts get to Business Intelligence/Market information
   • What data is available to share and how easily is it attained
   • Is the data timely an actionable
5. What performance measurement metric do you use to ensure success
   • How do you measure success?
   • At what frequency, with whom do you review
   • What are the type of actions taken from measurement indicators
6. Last we look at organizational structure
   • Has SRM been resourced, is there personnel dedicated to this function
   • Are the resources integrated sufficiently with internal customers to understand internal requirements

Answering these questions will identify if there are sufficient resources, what topics these resources have and if they have sufficient information to forge meaningful and productive supplier relationships. Ultimately it is the performance measures, those specific to SRM activities, Supplier activities and total supply chain success, that can really identify Supplier Relationship Management effectiveness. 

Jim

So successful Supply Relationship Management can be an enabler of Procurement strategies but also operates an enabler in the entire Supply Chain

Justin

We think yes. From end-to-end the supply chain is a series of relationships and nurturing and developing these relationships is the essence of SRM.

Jim

Well thank you Justin for speaking with us today and our previous podcast about Procurement and its four primary functions: Strategic Sourcing, Purchasing, Procurement IT and Supplier Relationship Management.

I hope we have helped our listeners grasp the importance of Procurement, where it fits within the supply chain and how they can evaluate the effectiveness of its primary functions within their company. Please join us next time for the last of our 4 part series on Procurement when Gene Tyndall shares an Executive prospective on Procurement.

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Additional podcasts are available - see the list here.