This past Tuesday, we met with a group of CPOs as part of PERT (Procurement / Supply Executive Round Table) and the topic was “How to Maximize Value through Relationships (Internal and External) and Governance”. The discussion focused on the journey from Strategic Sourcing to Category Management and how developing and nurturing internal and external relationships was the key to success. Yet, most organizations do not have a structured, disciplined way to make that happen. We often hear that despite the tremendous success the Procurement organization has had in delivering bottom line savings to the business, they continue to experience resistance. What we have discovered through years of research is that while it may appear that everyone in the organization should value cost savings, there are many cases where focusing on cost (this is the primary metric for most Procurement organizations) can work in direct conflict (thereby destroying value) with what is important to the business. In addition, in our relentless pursuit of cost savings, we neglect to tap into the real value we can achieve by having strong relationships with both our internal business partners and our suppliers. So how do we fix this?
We need to start thinking about our relationships differently (both internal and external). Here is a definition of collaboration from BusinessDictionary.com:
Collaboration: A cooperative arrangement in which two or more parties (which may or may not have any previous relationship) work jointly towards a common goal.
Enough said, I hope. Here are some building blocks for effective collaboration:
It seems logical that having a better relationship would yield more value than not. Yet, we do not take the time to build those relationships. One CPO at our PERT meeting noted “we are so focused on execution; running as many sourcing events as we can to improve the bottom line of our organization that we don’t take the time or make the effort to develop relationships”. Everyone in the room nodded their head in agreement. Let’s look at the following:
If you look at this list, the biggest challenge in relationship building is – time and effort! Without taking the time to understand the goals of your business units and what helps drive their business, we will continue to focus on cost, since this is what we know and this is how we are measured. We see this in our personal lives as well– our best relationship are those that we work at!!!
We have a similar issue with our suppliers. We spend so much time running the sourcing event to ensure we get the best price and to identify EVERYTHING that could go wrong so that we get it into the contract that we ignore the real value – the relationship.
Again, we asked our CPO group how many of them had a robust Supplier Relationship approach in place and everyone agreed that they did not. When we think of building supplier relationships there are five key elements:
- Understand Mutual Needs and Form Relationship
- Develop Strategy & Plan
- Monitor & Manage
- Evaluate and Improve
- Develop New Products /Services & Innovate
Those that have some process in place noted that they focused on “monitor and manage” as opposed to the other elements. We also asked how much time they spent with their key Suppliers after the contract was signed and most admitted that time was mostly dedicated to those Suppliers that caused problems ☹! SO MUCH value is left on the table when we take a tactical approach to working with our suppliers. They can and should be an extension of our organization and can do so much more to help grow our business (see element 5 above) and we simply neglect to engage them in those strategic discussions.
Do you want to make the transition from Strategic Sourcing to Category Management? It’s all about relationships – internal and external and what drives those relationships is Collaboration!!! If your Procurement organization is struggling to figure out the “How”, let us know and we would be happy to help 😊!
Let us know what you think and join in the conversation . . . . . . . . .
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