Transforming global procurement – a use case!

Introduction

This is about a global procurement transformation executed in the period 2017 until end 2018. AIE company led the transformation with interim management in a hands-on, shoulder to shoulder manner with the business units and functional leaders involved. The whole transformation team was a colleague interim manager, a high potential of the company strongly supported by members of the leadership team, the board and people in procurement.

This post will give insight on the approach and the interventions within the first year. Next week’s post will describe the second year of the transformation and its results.

 

Intake and startup

At the intake the simple questions in the board conversation were ‘can we get more out of our supply base and procurement?’ and ‘can you recognize a good procurement professional?’.

Simultaneously with these questions there were also expectations for more cost savings, establishing a professional procurement organisation, implementation of category management and strategic sourcing, certain system implementations, more focus on sustainability and implementation of business ethical codes as well as compliant processes.

We discussed a fully decentralized business with 15 significant business units and at that time an unknown level of indirect spend, estimated to be close to 1 bln Euro.

Procurement position in the business units ranged for some close to being business partner, most as very operational, and for some even with no presence of procurement as a function. Most purchase managers reported to the CFO or the Operations MT member, only a few were part of the local MT.

 

The answers to the board’s simple questions were ‘two times yes’. The transformation scope was defined in four stages as finding, delivering, enabling and sustaining value via:

• people and talent management, standardized functions, function house, competences and recruitment
• developing and uplifting the procurement capabilities via training
• strategic sourcing and category management
• performance measurement
• working collaborative in a more x-functional manner in the wider organisation
• digitizing procurement with focus on spend, master data and implementing a new procurement system for Sourcing to Contract and for Contract to Pay

Supplier relationship management, professionalization of contract management and supplier enabled innovation were not part of the  transformation scope for the first two years.

 

Already an initiative had started to roll out a global spend database (finding the value) and external support was used for the first category initiatives, demonstrating the leverage opportunities and costs savings available (delivering the value).

The governance of the program was kept simple with a steering committee consisting of a board member, strategy director and the transformation team members (#3) that met on a monthly basis.

 

PRE-PHASE of the transformation

In the pre-phase of the transformation, many CEO’s and procurement colleagues of business units were visited and connected to. This resulted in an array of ‘procurement concerns and ambitions’ that in a later phase were integrated in the overall roadmap for the transformation.

Colleagues from internal audit, finance, HR, legal were immediately involved to discuss how the procurement transformation could align to their functional programs and how they could support some of the transformation initiatives. This led in some cases immediately to opportunities for supporting the transformation.

Implementation of spend transparency got full attention as it also gave the basis for a first estimate of attainable savings and category initiatives.

In the first months in each business unit a procurement maturity assessment  was held to define a baseline. This was completed by MT members and the procurement managers in each unit.

 

Based on the results of the baseline assessment the leadership team was given feedback and got insight in the ambitions for procurement. The leadership approved that a roadmap with milestones had to be created by all business units within the first half year of the transformation. These roadmaps linked to the initiatives of the overall transformation.

The model used for capturing the results of the baseline assessment over de different years had 8 modules for three strategic areas as displayed in figure below.

 

 

This post describes a selection of initiatives in the first year.

 

FIRST YEAR transformation elements

Support and commitment Management Board and leadership business units.

Extremely important during the whole period was the support of the board and the leadership team and not to forget many other colleagues in the organisation. The transformation was one of the leadership initiatives (besides IT, Innovation and HR) to create more value resulting cross BU collaboration. Even when the procurement transformation was shifted to different board members during first two years, the crucial support was always there.

Another important success factor was to include in the personal targets of the BU CEO’s a quantitative (savings related over a 3-year period) and two qualitative targets (roadmap and purchase plan 2018) for Procurement fitting the transformation roadmap.

 

Functional leadership team

Part of a larger communication plan a ‘procurement leadership team’ with monthly remote meetings and one f2f meeting per year was established. In this team the updates of the category initiatives and the overall procurement transformation were shared and decided upon. The procurement leadership team for the larger part strongly supported the initiatives of the transformation. They saw the uplift of their function as a major opportunity. One of the main challenges was to manage the increased workload, as new things were expected and ‘old things’ did not disappear.

 

People and professionalizing the function

The incumbent population showed a large diversity in terms of professional levels where functions related to transactional activities dominated the numbers. Early days in the transformation core procurement processes and the related functions were defined jointly with HR. This included describing standardized functions profiles with relevant competences, a function house and first set of trainings to create a common language, to bring newcomers up to speed and to adjust the level in core procurement practices.

It was decided and supported by the board and the MT leadership team to recruit new and future procurement leadership (#22 people) in the different countries in 2017. Which was done. This allowed to strengthen the organisation and to bring in knowledge from external and young talents. The recruitment which was done locally was supported centrally and based on the newly agreed function profiles and the competence framework.

Further to strengthen the organisation, category management trainings started for all commercial procurement people. All procurement leaders in the countries were requested to participate in this training as well. It was important to establish a common sourcing methodology and a way of working in procurement,

 

Spend analysis and digitization of the function

Transparency of spend was realized mid 2017 over most countries and resulted in an estimated savings potential. Some countries started at the same period with e-sourcing. With the same software supplier a global framework agreement was concluded for spend, e-sourcing, supplier life cycle management, contract life cycle manager in 2017 to support the Sourcing to Contract process. This enabled financially a lower threshold for the business units to start with these modules. In 2017 and 2018 the focus was on spend cleansing, creation of better spend data, moving to monthly spend reporting, e-sourcing and onboarding suppliers with the defined master data and compliance checks.

 

Performance management and functional KPI dashboard

Together with finance a performance management system was developed with a number of simple rules around savings calculations, approval of those and reporting by the finance organisation. In different remote meetings both the procurement teams and the finance teams were trained in the usage of the performance management systems. In the second half of the year some improvement and simplifications were applied jointly with a workgroup from finance.

The monthly reporting of savings and some other KPI’s was shared with all business unit MT’s. This report tremendously supported the interest and awareness of the transformation from mid 2017.

 

Legal documents

Together with the legal council a number of legal documents were prepared to support the outcomes of category management initiatives. There was a need to have cross-bu documents under international law with signing rules that replaced the local BU documents. Most important were documents like framework agreements for services and goods, NDA’s and general terms and conditions of purchase. At that time already taking into account GDPR and Data security aspects for relevant supplier categories.

 

Internal control and process compliance

In the first year, a number of internal controls were defined for the internal control framework that related to the most important risk areas for the company. Initially this was mainly in the Contract-to-Pay process and related to order authorization and processing as well as invoice checks and payments. This supported in a later instance to work together with the business units to define the right processes, functions and controls in procurement and as such uplift the maturity of procurement in the self-assessment.

 

NEXT PHASE – second year of the transformation

Next week the second part of this transformation journey will be published.

You can read then more about the resulting organisation structure, the focus areas and results in year two of the transformation.