Today most all business functions rely on data to make decisions. Big data, little data, cross section of data, charts, graphs, numbers, percentages, on and on and on.
Nowhere is this more evident than in the Procurement function. Most Chief Procurement Officers (CPOs) live and die by the data they can pull and look over and make decisions for the department.
Cycle time, cost to spend ratio, cost savings, number of POs placed by commodity. That’s just the beginning of the list of key performance indicators.
I’m not going to say data isn’t necessary. I mean, sure, it would be a lot of fun to say that and watch the angry eyes and pitchforks come out at the very thought. People sure are beholden to their data.
I think we can all agree that running the numbers and taking a look is a valuable part of running any procurement organization, but not to the exclusion of also using the gut when reading the numbers.
Intuition is an incredibly large part of data analysis and leadership, but this notion seems to get lost in the big data shuffle.
I’ll give you an example: Last month ended my company’s fiscal year. Always a challenging time and my team performed miracles, right up to the last hour of the last day.
Just this morning, our stats for last month were delivered (it takes the data crunchers several weeks to publish results). Knowing my own CPO loves to look at the stats, I took a quick look at the report so I could get ahead of the curve.
Right there in a boldly colored bar chart is the truth. My team’s cycle time for the month of September is about one day longer than the established goal. My team took too long to get procurements done on behalf of our clients.
And so of course, “Gah!” can be heard all around. “We’re not meeting goal! What do we do! Change! Fix! Improve!”
Well. No. For the eleven months prior, my team had been well below the goal and performing at a high level. So what happened last month?
From a customer service standpoint, I certainly don’t like extended cycle times, but my gut tells me that in the crush of year-end activities, The Client understands. All they want to know is that their money was spent before the clock struck 5pm on the last day.
And my team did that. They delivered everything on time, nothing fell through the cracks.
Included in that list of completed procurements were some pretty easy slam dunkers and some pretty large, ugly and complicated procurements. But nowhere on the pretty blue bar chart bar do you see that.
You also don’t see that the team was learning a new procurement system during that month. Or that there was also a policy change in how to handle a certain kind of contract.
All the bar chart tells me, and anyone reading it, is that my team missed the mark.
So should I come down on my team? Make changes? Demand improvement?
Hell no. I will share the data so they know how they did. Then I will compliment them, encourage them, and reward them because they turned in a fine performance, even if the data doesn’t agree.
At this point you may be reading along and thinking I am quite the simpleton. “Of course!” you might say, “It’s not just about data it’s about interpreting the data!”
But in the real world, it’s not actually quite that obvious. I spend a lot of time at networking events, teaching procurement classes and talking to my peers and I sure see a different story.
You’d be surprised at the bashing going on out there with data as the stick.
I am personally quite lucky as my own CPO uses a nice blend of both data and gut and that means I can rely on her to ask questions, explore the background, and look at the chart and then what is on the other side as well.
It seems the research backs this up. I was starting to despair a little until I came across this article and this quote:
According to recent research by Time Inc.’s Fortune Knowledge Group and global advertising agency, Gyro, 61% of business leaders said real-world insight tops hard analytics when making decisions. Okay, but what about the hard decisions? This same study showed that the more complex a decision is, the more we rely on emotional factors.
– From “Gut vs Data Driven Decisions: What’s the Best” by Andrew Hermann and found on corsource.com
Seems there is a place in the Procurment world for both data and trusting the gut. Neither alone is the best way to run the show, but together, well, that’s where the magic happens.
Image found here
As the burgeoning Procurement organization that I live, work and thrive in continues to grow from a small “push paper” mentality to a best in class organization, it was only a matter of time before we had to begin discussing supplier scorecards.
Known as Supplier Business Reviews, Supplier Performance Reviews and a variety of other names, the supplier scorecard process is widely recognized as valuable, meaningful, and a part of any high functioning Procurement organization.
So why are so many organizations so bad at it?
For better or worse, suppliers business reviews and the scorecard are often a “nice to have” in any short staffed hardworking procurement organization. They are not front-of-mind when fighting the daily fires that a Procurement Hero faces.
In the many companies that have employed me, the cadence and application of supplier scorecards ALWAYS came as a push from leadership and not a drive from the Procurement Heroes out there doing the actual work.
Why is that? Why do we all (me included) balk at doing this valuable step in supplier management? Something we can all agree has value but can’t get ourselves to do with any regularity.
Well, for one, it’s time consuming. There has to be a survey of end users that needs to be created, unleashed and compiled. And then a presentation, and scheduling dates and who should be invited and how do we present the tough topics.
And then the actual event is always a drag.
Suppliers *love* getting this kind of feedback but always *hate* whatever score they are granted (even if it is a good score). Then the salesfolk push hard to understand exactly how to improve their score and then throw it back into the conversation at every turn for the next period of time between scorecards.
“You said we needed to do a better job of communicating and now I am emailing you every day with issues, and our latest sales campaing and can I come out and give your team our latest presentation and other stuff! Will this improve my score?”
Yeah. Painful. It’s a double-edged sword too, or at least when done right it should be.
The Procurement team should score the supplier and the supplier should have time to score the procurement team too.
Oooch. That feedback can be tough to take, but useful, if a procurement organization wants to grow and get better.
To be honest, the kind of suppliers that can take this feedback and improve are often the top scoring suppliers anyway. The suppliers with a low score will just get ticked off and often don’t use the scorecard as a way to improve.
So does this really drive change? In my experience, not really. Not unless the Procurement organization is able to build teeth into the supplier scorecards. Some sort of hold back of fees or an incentive program that relates to the score. That’s the only way it works and these incentives can be tough to establish and also tough to get buy in from the end users.
While I do see the value in supplier performance reviews, I also see them as a lot of work for not a lot of payback. At least how I’ve seen them work. Maybe some of you have other thoughts?
For an interesting read related to this topic, try this Procurement Leaders article:
Working in the Procurement role for quite a bit more than twenty years, I find that my view when reading business articles is different from most.
Over the weekend, I took a look at an article in SFGate about the bus drivers who pilot the shuttles for big tech companies in Silicon Valley.
SFGate tends to expire links rather quickly, but in the short term, here’s the link to the article:
I’ve always thought that driving a shuttle seems like a difficult job, having to navigate Bay Area traffic for a living is no easy feat. The article points out a lot more areas that make the job a real challenge. For example, the drivers have to work split shifts, something like 7am – 11am and then 4pm to 11pm. The hours in between are unpaid and since the drivers are on call, they can’t go home or get another fill in job or anything. They are stuck waiting and not being paid.
As I read the article and quotes, it certainly sounds like a difficult situation for many of these drivers.
But where my procurement brain kicked in was when the author of the article began dropping Google’s name liberally throughout the piece. Never outright blaming Google but making it clear that Google uses a lot of these buses, along with other tech companies in the valley.
I know that the name Google will entice a lot more page views than the name of a relatively unknown bus company, but to clickbait using those big names is unfair. These drivers don’t work for Google or the other tech companies, they work for a transportation company.
Entities that have employed me (including my current employer) have contracts with transportation companies for shuttle service. I have watched many a peer go through the RFP process to select a service that meets the needs of the company at a reasonable price. Issuing an RFP is certainly what any brand name big tech company has done.
Is it the fault or the responsibility of Google or Genentech or Apple to ensure that shuttle drivers are treated fairly? The fault lies squarely with the companies who employ the drivers. Yes, I know that supplier social responsibility comes into play here, but in any of those RFPs (I’ve read more than a few) fair labor practices are always part of the requirements. And if they aren’t they certainly should be.
So while I believe that many of these shuttle drivers are being treated terribly, and something really should be done, I also feel like it’s wasted energy to point an awful lot of fingers at the entitles that cannot fix it just to get a few more clicks onto a website.
If fingers are going to be pointed, perhaps they should be properly aimed.
But then again, truth and honesty in journalism doesn’t always create ad revenue.
Meanwhile, I stand with my fellow Procurement Heroes at these companies who conducted the best RFP they could and selected the company that offered the best combination of price and service and are now dealing with negative press and a difficult contract.
From there, we have to start talking about supplier management. And that’s a whole other blog post for another day.
Image found here.
Earlier this week, while locked in some pretty intense negotiations with a stubborn telecom supplier, I found myself reverting to some old ways. Not necessarily good ways, but sometimes effective ways, of getting a supplier off of high center.
Let me step back and explain.
I started my procurement career with zero background or education in the profession, but a small government entity liked the cut of my jib, and gave me a chance.
My years in that job are still among my favorite career related memories. I had incredibly strong and talented management, an excellent mentor and an environment where a young procurement professional could thrive.
I thrived so well that I started to eye bigger and better things. Inevitably I moved from my fairly small town to a very large urban area and took on a job with a then medium sized (and now gigantic) tech company.
This is where my career accelerated. I went from a “nice but firm” negotiating environment to “take no prisoners” style. The leadership at that company was brutal, brilliant and showed no mercy.
For a decade, I lived and worked in that environment and I learned how to cut and cut deep when it came to negotiating procurement contracts. I supported something of a firebrand of an IT director and a mercurial CIO. I worked hard for them, was very loyal and got results. They were loyal to me in return, giving me bonuses and gifts and making sure I felt well taken care of. And I did.
Eventually, over time, the company I worked for had grown and changed so much that it wasn’t fun to work there anymore, so I decided to move along.
My next role was for a profoundly large multinational tech company with a reputation for brutal negotiations. I fit right in.
At at the end of almost three years of traveling the world and learning to temper my style for a variety of cultures, I found myself burned out. I was tired of the aggressive style, the relentless pace, and the constant beating up on suppliers.
So I moved again. This time to a small non-profit doing scientific research. Since we receive a lot of funding from the government, we have to keep things like small business goals and supplier partnerships in mind.
The style here is quite different from anywhere I’ve ever worked. We do seemingly insane things like give way IP rights which makes sense in the environment, but is a bit shocking to me still. We allow higher prices for the sake of completing a deal. We aim to end each negotiation in as positive light as possible, meaning we’ll give up a lot to get the deal done.
It’s a mindbender, to be sure. In the two years here, I’ve had to learn to step back, to filter the brain, to be clever more often than using brute force.
Until earlier this week. This recalcitrant telecom company is hung up on one last fairly minor item in a substantial contract. I have been ready to award for a week and they have hemmed and hawed and whined. Negotiations are at a standstill.
Meanwhile, the underlying project that their service will support is slipping schedule. Never fun to mention to the federal government that you couldn’t deliver because Procurement couldn’t finish their work.
At the end of one long day earlier this week, I called the supplier’s sales rep to try to talk through their problems and get them moving forward again.
As the sales rep talked and whined, I became exasperated. I know she’s at the mercy of her unreasonable Legal counsel, but we had given and given until we’d hit the point that we couldn’t give away anything more.
Something slipped inside of me. Due to my own exasperation, mixed with exhaustion I suppose, the switch flipped and I went back to my old ways.
I very clearly, concisely and brutally sliced that sales person to shreds. When she protested, I did it again. When she raised an argument and got a little snotty, I went in harder.
And that’s when she started crying.
It’s been a long time since I made a salesperson cry. A really long time. And while I’m not especially proud of it, there is some vestigial Procurement beast inside of me from the old days that is at least a little bit pleased.
Of course, I immediately worked to make amends. I didn’t apologize but I said soothing things, said that I understand she is working hard but that we need to get this deal done. That she needs to stay focused and come back with ideas and compromises and not demands.
We’ve healed our rift and things are fine again. The deal still isn’t done, but they are at least making progress.
In the wake of this event, I’ve been pretty introspective. Back in the day, the “I win, you lose” method of negotiations was the way to go. That’s not how things work in the business world anymore and it’s definitely not the culture where I am now.
Even though this old dog has learned some new tricks, the old habits are still hard to break.
Image found here.
After over two decades working in this profession we call procurement, I have seen a lot of change.
And the more things change, the more they stay the same.
Today I found a very read-worthy article. Here it is:
As I read the very on-point piece from the Harvard Business Review, I also had to sigh heavily.
This issue of recognizing the importance of procurement to the overall health of any business, both for profit and not for profit, is a real struggle and it’s still an uphill battle.
Sarbanes Oxley did much to force some recognition of the value of Procurement’s rigor. The recent recession did much to help executive leadership understand how Procurement can stretch budget dollars.
So the needle has moved on the dial a little bit. This article dated last month shows me that there is still much work to do.
This sentence hit me particularly hard (emphasis added):
Today’s corporations are directing more and more of their budgets toward a complex web of global specialist providers and suppliers to help deliver on their businesses’ core strategies. A recently released global study of nearly 2,000 publicly traded companies found that 69.9% of corporate revenue is directed toward externalized, supplier-driven costs.
69%! Wow. In my own company the Procurement organization runs just over 50% of the total institution budget. That is an eye-opening amount. And yet we are still working on our newest customer outreach program and still battling with rogue procurements and still begging our largest spenders to talk to us before they talk to any supplier.
Some get it. Some don’t.
We’re all still pushing that rock up a hill.
Don’t lose faith, fellow Procurement Heroes.
Image found here.
It’s been over twenty years that I have been knocking around this profession of Procurement. I have done pretty much every job that one can hold in the area of procurement, including a two-year stint where I worked in a project organization and was the requester.
I am by no means an expert, but I know my way around a set of T’s&C’s and I’ve learned a thing or two about negotiations. Heck, I’ve even taught classes to other procurement professionals.
I say all of this by way of letting you know that I’m not a rookie in this game by any means, but that doesn’t mean I’m not still prone to making big ol’ rookie mistakes.
Last week one of my most senior Procurement Heroes on my team was out on vacation, and his main backup was struck down with strep throat. My small team is very busy, so I had to get back into the game and be a backfill for these two.
This means I had to pick up a really big and fairly urgent procurement I was well familiar with, and keep pushing it along. It’s a software development deal with a small and extraordinarily finicky supplier.
Finicky is the nice way of describing them. Usually I have to refer to a certain pain in a particular part of the body.
This supplier makes great product but man are they a pain in the…finicky.
The lead tech guy and I work very well together, shoulder to shoulder, and we negotiated, squeezed, cajoled and beat down this supplier until we got them to a good place.
On Monday I sent out all of the documents reflecting the understanding. Contract, Statement of Work, tech specs, etc. All of it.
By end of Tuesday the supplier had given us back three very reasonable comments. On Wednesday after having a meeting with the client team, I made corrections for those comments, signed the contract form and sent out the full package with contract and attachments.
Boom. Done. Rock on.
But that is where I made my rookie mistake. I’m still beating my head on the desk about it several days later.
When I sent those final documents, I signed and made the contract a .pdf but I left the attachments in Word and Excel formats.
The, ahem, finicky supplier signed the contract then sent back brand new redlines on the attachments. Fairly substantial revisions. As in, shaved scope off in a lot of places.
See what they did there? The supplier made it look like they were being agreeable, but really what they did was make a counteroffer.
What I *should* have done was put every single one of the documents in .pdf format so no further changes could be made.
But I didn’t.
So after the lead tech guy blew his stack and hit the roof and a lot of other euphemisms, we walked through the changes and accepted the few that were reasonable and fired back on the many that were not.
This is still under negotiation, while the clock keeps ticking away. When this finally gets resolved, the entire document will go into .pdf for signature. No more clever tricks, please.
As of today my most senior Procurement Hero has returned from vacation and is bewildered by the fact that this contract still isn’t done. I told him the story and then I gladly handed the file back over.
Ten will get you twenty my Procurement Hero employee wouldn’t have made that rookie mistake. That’s why he’s my go to guy for the big and complicated deals.
Meanwhile I’ll go back to managering and running reports and being strategic. Thank goodness for my team of rock stars who every single day make me look good.
Image found here.
When negotiating the terms and conditions of any contract, there are always a few areas where you as the Procurement Hero just know the supplier is going to balk.
Never fails. Like clockwork.
The “always going to flinch” area most on my mind today is the acceptance clause.
I don’t mean acceptance in the spiritual sense, like “yeah man, I receive and I accept…”
No, I mean acceptance as in determining if a deliverable from a supplier is in line with engineering specifications and the terms of the contract.
Oh what a sticky wicket acceptance is. So critical for the buyer, so troublesome for the seller.
Here at The Company, we are in the process of buying some software from a fairly small supplier with a lot of expertise.
They have been developing some small bits of code for us and The Company’s engineering team works closely with the supplier. So far the supplier has hit the mark on all of their deliverables and we’re very happy with the work.
Because they have done this small work so well, we’re giving them a crack at a much larger chunk of business. The kind of large chunk that might fund a little company for a full year. Obviously, they are quite on board to get this work.
In this turn of the contract, however, we are adding an acceptance clause. What the supplier will deliver is a full software package from the ground up. It is pretty extensive and has high visibility for The Company as well. So to that end, we’ve asked for a pretty standard thirty-day acceptance term.
To a small company with cash flow concerns, thirty days seems like an eternity. They get small chunks as milestones along the way, but they can’t invoice for that last big payment until acceptance is received. While not yet a publicly traded company, they still keep a close eye on Sarbanes Oxley requirements. SOX means they can’t book the revenue until acceptance happens.
So about an hour after the Procurement Hero sent out the new documents, we got an earful from the small company’s CEO.
He took the acceptance clause as an affront. He reminded us of every time his team has hit their milestones and how closely his software developers work with The Company’s engineers. He said that the contract clause was “unpleasant” and that he didn’t think they would be able to agree to the contract if that were included.
I gently reminded the CEO that thirty days is a maximum time frame. If their code really is good and really is on time and they really do work closely with The Company’s team then why is this even a concern? Turn in good code, get it quickly accepted and send the invoice.
To the supplier, I said bluntly, “If you are sure of your work, then acceptance should be quite…well…acceptable.”
Things got pretty quiet after that. Our lead engineer is fully onboard with having acceptance in the contract and made sure to back my play. Right now there is silence on the email and phone lines, and we wait.
If pushed, we might agree to reduce the time frame a little, but not much. For us acceptance really matters, and we’re not going to back down.
Acceptance must be acceptable. The time frames and how it works can be negotiated.
Side note: Is there ever any better Procurement Hero experience than sitting at the negotiation table with an end user who not only “gets it” from a business perspective, but also backs procurement’s play?
The supplier loses a lot of leverage simply by not being able to divide and conquer. Magic!
Image found here.