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This extract is a preview taken from the Making Procurement Simple series. To read the full article and find out more about making procurement simple, click here.
How many different types of prawns are there? For one catering and hospitality company, the answer was 76. Nobody really knew why they bought so many different varieties; the specification had just grown with the business, unchallenged.
For that company’s procurement manager, Simon Atkinson, now a partner with consultancy Occumen, this example illustrates the forces creating complexity in sourcing. By reducing the number of prawn varieties, he helped simplify processes, source greater volume and get a better price. But to execute this kind of strategy procurement professionals need their stakeholders to co-operate in the process.
“Forget the number of specifications we buy, how many conceivable applications do we need?” he says. “We started with 76 prawns and found we only needed seven. The process that creates complexity is relevant to lots of industries. Purchasing can drive that out and create efficiency, but when you get into it, it can involve a technical understanding of engineering, for example, or in our case catering. You can easily get tied up in technical arguments.
“You have got to engage the business in understanding the problem and get them on board in creating the solution, otherwise they will resist.”
Identifying sources of complexity
In a career including senior procurement roles at Mars, Diageo and Pepsi, Atkinson has seen a number of factors that drive growing complexity in sourcing: globalisation, the legacy of mergers and acquisitions and changing internal product development programmes all play a role, he says.
This results in having to manage more categories of spend, often without additional time or headcount in procurement. Sourcing standards, if they do exist, are not evenly applied. Therefore, spend and supplier analysis and data aggregation, which are already complex, become even more time-consuming—and even more necessary. Atkinson says procurement can save the business money, increase supplier quality, and add value by standardising and simplifying processes, reducing the number of specifications and driving greater volume through fewer suppliers.
It can be the quickest path to lower costs and higher revenues. But, in some circumstances, this must be balanced against the business’s desire to capture market opportunities, he says.
Start with the outcome
“The conventional view of procurement is to try and simplify everything, and [take a] category management approach and then apply uniform judgement as to what the desired outcome should be and then constrain options,” Atkinson says.
“But there is an emerging approach that is about making market-informed choices, not constraining at outset, but starting from the outcome. You ask, how do those options further our competitive advantage? Sometimes you do not constrain choices, but take it all in,” he says.
In these circumstances, procurement should look to technology to help manage complexity, applying computer algorithms and iterative calculations to complex supply chain processes.
“The main thing is clarity of purpose. If it is complex, what are we seeking to achieve? The perennial challenge is getting people to understand that. But you need to keep complexity away from the stakeholders, and keep the discussion in layman’s terms, not procurement-speak.”
Appropriate sourcing for each category
However, Paul Jones, procurement and supply chain practice leader at consultancy KPMG, says that sourcing processes are difficult to simplify beyond a certain point. Although procurement has evolved as a discipline which creates generic sourcing strategies, whatever the category, in reality the process can be very different depending on what the business is buying, Jones says.
“It is always an eclectic mix. People now recognise that sourcing a multi-billion pound construction project is not the same as finding suppliers for a piece of software. You then have to have the agility and flexibility in process and technology to make sure the sourcing is appropriate for the required category.
“There is a danger in one-size-fits-all. It becomes procurement turning the handle on the process rather than being a robust supplier selection with the right sourcing and contracting strategy in place,” he says.
But there are ways of simplifying some sourcing activities to help procurement organisations manage the more challenging categories.
This is an extract. You can read the rest of the article here.
The Making Procurement Simple series is produced in partnership with Ariba, an SAP company.