Setting up a procurement function
Does anyone have any advice on setting up a procurement function?
Where to start
etc etc etc
Bit of background, I am setting up a procurement team within a department in an organisation, in hope to eventually role it across the whole business.
I have worked in procurement for around 8 years and have been involved with setting up a previous centre but as you would expect, the situation differs majorly.
Some of the areas I have previous experience in are;
Contract & Vendor Management
Any thoughts or tips would be appreciated.
I can't speak for all of procurement, as it isn't my background, but I do know how to set up an eSourcing centre if excellence. Phones4U are a great example of this, and before their unfortunate demise, they really had eSourcing nailed with Market Dojo.
Also with information systems make it a ‘Transformational Plan’ and not an IT plan (reduce the influence of IT as much as possible). Go for cloud technologies to disconnect IT. Need to win the CFO over with an end-to-end P2P process that includes AP as a part of the overall process – remove his or her pain in AP if there is any. Aim to create a good ‘buyer experience’ and a ‘hybrid model’ that leverages the ERP. Getting hold of all the existing contracts can be a challenge as the BUs normally have them and they think if they are in a shared repository they can’t access them – they can if it is ‘digital’. Above all your technologies must fully support your business model and be shown to do so. Avoid sales speak and vendor promises – get them to prove their stuff delivers via Use Cases and demos and show how they will ‘stand up’ the service.
Done this many times. Through experience the place to start is the creation of a ‘business model’ that describes the role and objective of the proposed procurement function and the operation of its supporting ‘procurement value chain’ - analytics through to payment/settlements. This is a ‘strawman’ that you use to sell/market into the business and in your case it has to be enterprise wide as a concept from day one – if not the initiative can stall as it was never signed off. This acts to surface issues and understand challenges from vested interests (BUs). Helps understand who all the blockers are. The two main blockers are usually IT (control freaks) and Finance (why can’t it all be done in the ERP?).
Once this has been refined and SIGNED OFF by the executive team you then start to fill in the blocks within the business model – process layers (macro process through to micro processes), roles and responsibilities, information services, policies/governance, points of interaction with BUs and externally to the organisation, etc. Additionally, you need to write a business plan that contains your enterprise wide category plan (activities over multiple time horizons). This should be then linked to the corporate business plan and clearly show how procurement will contribute to this plan – get that signed off also.
While I agree on the policy process first statements - also you need to understand the spend you are dealing with - as consideration of this should influence the degree of flexibility in your processes. Developing processes and policy in isolation of an understanding of the spend profile may cause you to have to make wholesale changes to processes later. Nobody wants to do things more than once!
Process, process, process. Be sure you start with strong processes and work from there. The biggest issue I see in most organizations is that they "grew up" with no or limited processes and trying to put them in place when native processes have development makes process improvement a struggle.
Start with the policy and procedure. Once you get that right, at least everyone else will understand what the rules are and will try to follow them too.
Try not to work alone and involve key stakeholders, if they are involved in the process being setup, they will also be your champions for it and will be enthusiastic about you and the new policy/procedure.
Record your savings, it is your best/easiest ammunition to demonstrate your value to the organisation.
You've already gotten a lot of great responses to your questions. I thought I'd include a couple links to posts on this issue from our blog to give you a bit more food for thought. And just so you know, DeltaBid has an SRM feature (https://www.deltabid.com/supplier-relationship-management-srm-software/) that can store supplier information and documents such as contracts and a requisitions module (https://www.deltabid.com/requisition-software/), as you mentioned you were looking for a smaller provide that might be able to provide these tools.
Here are the posts:
I agree with Justin and Philip. The procurement function must start with a plan to go forward. Before you start this process get everybody and dept that you need to work with on board. Start with getting KEY stakeholders locked in. As Christian said they will be your champions to drive it onwards and upwards. Before you can do any of this look at your current systems and if where they are not delivering. There is an old saying 'If it is not broken don't try to fix it.' Keep what is working and replace or improve what is not. Work out what processes you need by listing them out as modules.
To kick it all off - Start with:
1. Business Identification / business plan and design / business model / sustainability of the final business model to be used
2. Approach it like a project - project planning
3. Set about the task/activities that must be done to reach the next task and activity
4. The more depts. you involve the more likelihood of success, so getting commitment at this point is critical
5. Identify the key areas you wish to remove, improve or replace with these depts., if they see an improvement in their own departmental processes they will be onboard more quickly
6. Look at cloud based systems working in real time, opposed to expensive systems such as Oracle or SAP or even having a system tailor made for your requirements
7. Look at systems that have CLM 'Contract lifecycle management solutions and EP, P2P and AP processes in place (world leading organisations are virtually paperless)
8. Remember the golden rule. Just because a supplier has delivered before, does not mean they will continue to deliver if they are not monitored.
Remove any suppliers that you have had issues with by doing a replacement transition
9. At every step of the procurement function involve the stakeholders and relevant depts and complete he function activity/task by activity/task then move onto the next until you can complete a project sign off
It is worth also considering the issue of sustainability since the parties signatory to the Paris Accord are aligning against greenhouse gas emissions reduction of 80% plus over about the next 10,000 days. Leading corporations are already publishing their 1000 day targets and these naturally are taking significant bites out of supplier ghg emissions. An example is the Adidas 2020 target with 30% reduction at strategic suppliers. The insurance industry is particularly vulnerable to the impacts of climate change, with global natcat losses recently exceeding $100 billion and estimates in the industry of potential annual losses of $1 trillion if global action is not taken. The insurance industry is directly in the line-of-fire of climate change financial repurcusions. Procurement is a critical function in enabling the positive reponse required (since global supply chains are where most of global ghg's are commissioned). Building sustainability into the new procurement function would likely be an important consideration. Tools to predict where ghg savings can be made through suppliers are available; eg see the case study at http://tinyurl.com/z4u7avp
I recently read a book, more geared towards launching an indirect spend focus, but it very well might be helpful. It outlines a lot of the processes involved for a very fragmented/decentralized purchasing function. The book is called Managing Indirect Spend (Amazon link - http://www.amazon.com/Managing-Indirect-Spend-Enhancing-Profitability/dp/0470886889).
The book is going to be more specific to what you will need to be effective and add value to the procurement function, but as everyone else has already mentioned, establishing processes to roll out to the rest of the organization will be key. I've worked with a few other procurement & sourcing professionals that went through something similar and getting the executive team on board was priority #1.
I'm happy to hear that IT is on board, as that group and Marketing are typically the last two groups to really buy-in to procurement being a value-add tool for them. Focusing on general "corporate spend" to drive some immediate "quick-win"results may help ease your way in with other departments.
Recently I've come across more cloud based procurement software that functions as a P2P process tool, eAuction platform and more. Unfortunately, I don't have any experience using the software to give you insights on functionality.
Best of luck with the undertaking! Feel free to reach out if you'd like to chat more about anything I've mentioned above.
First and foremost, what does your organization want or need from a procurement function? I would always start there. Too often we build things in isolation because it is what we THINK our companies want, based on a notion of what we know is best-in-class. However, what is important to your company? Is it delivering cost savings? Driving compliance? Mitigating Risk? Facilitating growth? All would require a different approach.
I think only when you have alignment with your leaders (executive and functional) over what they want from procurement can you start to build something that meets their needs. I have an Art of Procurement show that is going live on Friday this week discussing this very topic as I talked recently at a conference about it. However, I'll link up to the audio from the show here which is a summary of the presentation I gave: (http://traffic.libsyn.com/artofprocurement/EP49_Strategic_Governance.mp3). The full presentation including a screencast will be available at http://artofprocurement.com/governance from this Friday (Apr 29).
I hope this helps!!
I see a lot of good answers based on the very broad nature of your question and description of what you are trying to accomplish. If you can share more details (without giving away any confidential information) about they type of business you are supporting and the nature of the materials / services that you are trying to bring under control, you may be able to get more specific suggestions that you can leverage to accomplish your objectives. For example, are you supporting a manufacturing operation where you need to obtain parts that are used to make products, or are you supporting a non-manufacturing operation? Do you know where your spend is going (categories and suppliers)? Also, I did not see so far any mention of the "system" that will be used to capture and process the purchase requirements from your internal users and translate those into orders to your approved suppliers. Do you have approval for staff? Will they be dedicated or shared resources? Where will you obtain that staff? There are lots of things to consider to ensure that you have the correct structure and systems in place as well as the correct policies and procedures.