1) Procurement represents a huge untapped opportunity

Well, I think we've made that much clear in this book. We've talked about how Procurement represents 50–80% of all costs depending on your industry, how maybe 60–70% is addressable in the medium-term, and how you can probably take out 10% in cost in aggregate, even if you already have a good Procurement team in place. We also talked about the fact that, for a typical manufacturing company with a 10% margin, these savings would yield a 36% uplift in EBITDA, a magnitude of opportunity that would be extremely difficult to find elsewhere.

Why is the opportunity untapped? We talked about the fact that relatively few organizations have reached Procurement best practice as exemplified by the automotive OEMs since the 1980s. How it's difficult to bring together all the elements required for success. How Procurement is on the one hand simple, but on the other hand difficult to execute. How Procurement came from an administrative, contracting place and doesn't enjoy the remit to challenge the business as an equal partner, which prevents it from reaching full potential savings. And how, in some cases, Procurement falsely believes itself to have already reached best practice…or at least wants to convince others that it has done so…which then results in the door to further value creation being firmly locked shut.

Finally, we started to introduce the theme of cross-functionality and the fact that sitting in a functional silo and casting itself as a group of professionals or, worse, a corporate policeman, is not a basis for unleashing the potential of Procurement.

2) You need to have a strong team that's appropriately organized

In anything you do, you need to have good people. Nowhere is this more true than in Procurement, where, to really optimize your spend, using all Procurement levers, you need people who are intelligent, numerate, commercial, analytical, motivated, persuasive, and impressive. That's because you need them to execute a very complicated task, namely sourcing (or facilitating the sourcing of) other people's requirements, often across geographies and markets.

If you're a CPO, your team's skill and competence is probably the most important thing in your transformation journey, and one that many companies don't get right.

We talked about how Procurement as a function often suffers from a skills deficit. And about how those skills are not about negotiation expertise, knowing sourcing processes, or knowing supply markets, but rather a mix of analytical / commercial and influencing skills. The latter are critical in a function that interfaces with, and has to influence, so many varied stakeholders across the organization.

These skills are also linked to the personal culture of your people—given the nature of the Procurement function, they need to see themselves as facilitators to the business, rather than as controllers. Good, strategic Procurement people also need a level of drive and motivation; they have to question why things are the way they are and push to change them. Finally, they need project management skills, since a Procurement function is ultimately a project function that sends resources out to complete projects for its internal clients.

We talked about the need to segregate strategic from non-strategic Procurement activities and people, and we discussed how training needs to be much broader than Procurement hard skills (such as negotiation, supply market analysis, and contracting), and focus heavily on soft skills (stakeholder management, influencing, presenting).

You can't grow or retain strong people if you don't have good career development, and we gave the example of the automotive OEMs that rotate their people across functions, leading to a much higher level of mutual respect and understanding between Procurement and Finance, Manufacturing, and Engineering. They feel part of the same team and work together relatively seamlessly. In order to succeed, Procurement must break out of its silo, and this also applies to its approach to career management.

We talked about the fact that, to build an optimum talent pool, Procurement should not hire exclusively from amongst Procurement veterans, but look to mix this up with people with non-Procurement backgrounds, for example, drawing in people from Finance, graduate trainees, and MBAs. This enriches the talent pool within Procurement, while promoting cross-functional working and integration.

Finally, Chapter 5: Operating Model, explored the need to organize your Procurement resources in the most impactful way—seeking to balance two things: (i) local internal client needs with the desire to aggregate spend centrally, and (ii) the need for category specialism with flexibility of deployment. No point recruiting even the strongest individuals if their position on the organigram hampers their effectiveness.

3) You have to drive a sourcing program and execute it well

A machine needs to have an engine room and, in the case of Procurement, that's Strategic Sourcing. Sourcing is the key deliverable from strategic Procurement, it's where Procurement pulls together the requirements, fulfils them, and in the meantime generates EBITDA value. Strategic Sourcing should make up most of the work of the strategic Procurement team, and it should deliver the lion's share of Procurement's savings.

We talked about how, when it comes to Strategic Sourcing, everybody does it, but few do it well. That it has roots in 1980s “Big Auto,” and is really nothing more than a logical, structured, holistic way to take out large swaths of external cost. What sets it apart is good execution on the one hand, and proper cross-functional collaboration on the other.

A properly executed multi-wave Strategic Sourcing program allows the CPO to attack the annualized spend in each category, rather than just sourcing each contract as it falls due. To do it properly is to address all savings levers including, crucially, the specifications. Combining fundamental spec revision with well-executed supply market leverage is what gets results.

We talked about seven step methodologies—about how they're all the same, but the difference is the degree to which they are being applied—and applied in an effective manner. “Box-tick sourcing” is the enemy of Procurement value creation, and we discussed how to avoid it.

Tied to the theme of Strategic Sourcing is the theme of good execution. Strategic Sourcing is not rocket science, and in fact the seven steps seem remarkably simple and straightforward. The magic lies in how well they're executed, and that in turn is down to execution excellence at the working level—the baseline, the supply market analysis, the supplier list, the tender documentation, the sourcing strategy, the cross-functional engagement. If these things are done well, then savings and credibility will follow.

Sourcing underlies everything we do in Procurement. It's how we add value, it's how we make savings, it's how we're viewed by the rest of the business. It needs to be structured, holistic, data-driven, project-managed, cross-functional, empowered, and high quality. Then the CPO will shine, the savings will be co-owned, the sourcing solutions will be good for the end customer…and your chosen suppliers will be happy! Do sourcing badly on the other hand, and you're a laughingstock internally and not trusted by suppliers.

Linked to the need for good sourcing is of course…the credibility of your savings.

4) Savings credibility is vital; without it, you will fail

The importance of savings to Procurement cannot be understated, hence the dedication of an entire chapter of this book to the subject. If sourcing is the engine room of Procurement, then savings are the lifeblood.

We talked about how, first, the savings actually need to be operationally delivered, and they need to be significant—well beyond BAU savings, such as cost-avoidance and short-term discounts. They need to encompass the total spend and take a total cost perspective. The best mechanism for driving these types of savings is a sourcing program, because it addresses annual spend across the company and because it allows the savings to be real and evident.

Then the savings need to be defined, measured, and tracked, and this is an area where most organizations fall short. The CPO should leverage the Finance function for this and needs to make the CFO his or her best friend and ally. Finance needs to be very closely involved at every step of the sourcing process—from baseline validation through to budget cut—and it needs to understand every number along the way. Finance involvement also helps drive consistent numbers over time, thereby avoiding surprises at the end. We suggested tracking savings over time through the stages of Target, Identified, Negotiated, Contracted, Signed-off, Implemented, Budgeted, and Realized.

We discussed at length the many “leakage points” that exist along a saving's “journey” to the P&L; about the need for proper follow-up, if savings are to be realized and sustained. We described the classic problem whereby the ongoing management of the category (and of its suppliers) falls between two stools when Procurement pulls out post-sourcing process. How it's no surprise then when it turns out there is only 27% compliance with our fancy new sourcing deal. How companies don't actually measure compliance with deals and policies, but that they need to, and that the compliance mechanism needs to have actual teeth in order to be successful.

Finally, we looked at the topic of budgeting, aka “if you don't take the money away, there won't be a saving.” Again, our advice is to work very closely with Finance so that they can validate and vouch for the numbers at each step. We discussed the timing of “taking the money away,” with it ideally coming in as a haircut before Procurement is set loose, rather than after the fact, so as to position the function as a helper to the budget-holder.

5) Stakeholder buy-in and cross-functional working is everything

We talked about the fact that there are two key internal stakeholder sets for Procurement, (i) the budget-holder (it's their money!), and (ii) Finance (they need to be able to bank any savings at the end). Buy-in from these stakeholders needs to come bottom-up based on category-by-category delivery and credible numbers—real savings.

To gain buy-in to a category-level sourcing decision, the budget-holder needs to feel that his or her needs have been listened to, that he or she has been fully involved, to feel very comfortable with the supplier selection decision (to fully own that decision, in fact)…so buy-in is the product of spending time with that person.

Buy-in is also based on being persuasive, and much persuasion is in turn based on having credible facts and figures. The degree of buy-in is always at least partly down to the quality of one's materials—the baseline, the RFP document, the savings business case. If these work products are impressive, buy-in is that much easier to attain.

You may say that stakeholder buy-in and cross-functional working are two sides of the same coin, and you'd be right! You certainly cannot get any buy-in unless you're working cross-functionally in an effective manner. And cross-functional is not just a buzzword; neither is it an option…it's what actually needs to happen for Procurement to be successful. And it's, again, that triumvirate of Procurement, Finance, and the budget-holder function. If between them they are aligned, and they say, “We will from now on buy 80% of XYZ from Suppliers A, B, and C only, and that results in a cost reduction of $X”, then it's a done deal, the savings will follow.

Cross-functional working is not just a buzzword. Rather, again it's the triumvirate of purse string holder, budget-holder, and commercial influencer. And what does cross-functional working mean anyway? It just means working collaboratively and involving all parties fully, rather than operating out of a silo, telling people what to do, and making decisions without full consultation.

And in the context of Strategic Sourcing, working cross-functionally means having full cross-functional involvement at all levels of the project org chart. That means that some of the sourcing teams should ideally be led by individuals from other functions, and it means that the CEO, CFO, and CIO actually need to show up for the Steering Committee meeting, otherwise it will fail.

Which brings us neatly to our final point, which is about executive sponsorship. This is required to permit the possibility that Procurement can work with the other functions. And it's all too often lacking. How high up the chain does it need to go? The answer is the C-Suite, and more specifically the CFO, who is an absolutely critical part of the success recipe. He or she mustn't be the enemy of Procurement, asking, “Where the hell are those savings you promised me?” at the end of the year. They must be the CPO's best friend—helping to build the baseline, to sign off on the savings, and to ultimately remove them from budgets.

Above all else, in working cross-functionally and in garnering buy-in, Procurement must remember its position, which is to serve the budget-holder. It's their money not Procurement's, so it needs to act like it—respectfully, courteously, professionally.

6) You have to learn to walk before you can run

Simple, really. But you'd be surprised. Just don't set the bar too high, that's all we're saying. Let's not get over-excited. And setting the bar at the right height has two components. Component 1 is recognizing where the bar is today, which may be lower than you assume, and Component 2 is setting the aspiration (in terms of the size, breadth, and timing of your ambition) at an appropriate level.

In Chapter 8: Non-savings Priorities, we talked about the non-savings related Procurement goals, which are often seen as “higher order” goals. I've had countless CPOs tell me that “we're moving away from savings as our primary measure;” even that “we're now seen as a profit center rather than just a cost center.” Ambition is good, but let's learn to walk before we run.

As we discussed in Chapter 2: Ambition, too many Procurement functions set their ambitions at too lofty a level. The reality is that, when a Procurement function is truly excellent, it is then recognized as such, and its role will then naturally be expanded or enlarged. Get the basics right, and the rest will follow.

The same caution applies to the timing of your ambitions. Many CPOs set out to achieve too much too quickly. Or are pushed to achieve more quickly, often in the shape of in-year savings or quick wins. Extreme care needs to be taken here. Proper Procurement takes time…in particular, the time to care for, nurture, and win over stakeholders. Cut that time short, and the exercise reverts to being transactional, with minimal chance of true alignment. If it could be done quickly and easily, why wasn't it done before? Exactly. Because it's difficult, a lot of people need to agree, and it takes time. So, particularly in the early months of a Procurement transformation, let's take it one step at a time, one dollar saved at a time. Rome wasn't built in a day.

One last thought regarding walking and running. Too many Procurement leaders spend far too much time complaining about “the business not allowing us to play.” Again, it's a case of wanting to run before you can walk. Until you've proven yourself, the business is not going to throw open the door and roll out a red carpet for you. You have to earn their trust, you have to earn that mandate…if you deliver, believe me, that door will be opened.

7) Technology is not the answer—it's only an enabler, and must be used judiciously

In Chapter 10: Technology, we talked about Procurement systems, and that the pace of technological development is accelerating exponentially. On the one hand, Procurement needs to embrace new technological developments—Procurement is the facilitator of the buying process, and it needs to ultimately strive to make that process slicker, easier, and more user-friendly. After all, Procurement's customers are accustomed to using Amazon-like user interfaces in their private lives and will hold these up as their benchmark.

At the same time, we cautioned against “rushing out” to buy the latest technology tools in the mistaken belief that technology is the answer. It's not, it's merely an enabler, and one that can only fulfil its function if (i) the processes it supports are fit-for-purpose, and (ii) the users of these tools actually adopt them. When it comes to tools such as Spend Analytics, Contract Management, and E-sourcing, we've seen countless examples of companies buying entire suites of these products, only to completely fail to drive their adoption; in fact, in our experience this is a very common phenomenon.

Why? Because everything around the tool is not ready: the data is not available, the intended users are not trained in the tool's use, or the processes that the tool hopes to automate are designed without the tool in mind. The implication is clear—too many companies put the cart before the horse. Instead of starting with the software tool and its promised benefits, let's start by focusing and fixing the inputs to these tools. That means harvesting, cleaning, and owning your data and then fitting the tool around it, rather than vice versa. A contract management tool won't automatically optimize your disparate (and often non-existing / poor quality) contracts…you need to create and / or collect them first! Sounds ridiculously obvious, but we've seen too many examples of empty contract management tools! Avoid the steam-powered Tesla!

Technology disruption is a reality, and Procurement teams need to have a digitalization roadmap or run the risk of becoming an irrelevance in their organizations because users opt out of difficult-to-use Procurement processes.

But IT systems can only ever be part of the answer. You can't spend your way to success by buying Procurement systems and then not using them properly. So, do your homework, choose the right functionality and provider, be realistic about your expectations on costs, savings, and timing…but most importantly, make sure that your Procurement team is ready for these systems. If they don't know how to run a Strategic Sourcing process, then a fancy e-sourcing system is not going to help.