Posts Tagged ‘Purchasing’

We’ve got notes – Agile, Jackall, and ‘The’ Un,

April 6, 2013
Cover of "Moral Mazes: The World of Corpo...

Cover via Amazon

  • One of the ways we can take the next step in category management maturity is to become agile. Stay tuned for a fuller development of what this means. For now, I’ll just say that it involves empowerment of teams, treating team members with respect, and harnessing collective intelligence. It involves a higher level of leadership that borrows from what the US Army calls ‘Commander’s Intent’ – i.e. the commander can’t be there to make every decision (or slow things down tremendously if they could), but can influence decisions by focusing on the overall objective.
  • A challenge in becoming agile is that otherwise intelligent ‘knowledge workers’ have, in some cases, become so dependent on falling back on managers to ‘just tell me what you want me to do’ that it will be hard to re-activate the initiative that has gradually been pounded out of them over the years.
  • Couldn’t resist one more on agile…if Hoverstadt and others are to be believed, 70% of change projects fail. Part of the issue – within procurement anyway – is that we spend a good deal of time discussing and training on strategy development, but less time in what makes projects work. One of the keys to strategy is really to have one – whether it is perfect or not is a fun debate, but the key is making a decision and then driving forward. Consultants sometimes like to encourage the development of a big, slow document. The reality is that slow and painful does not drive benefits…action does. Recognizing this reality, then, becomes the first step to making projects agile. We can’t know exactly how the implementation will go up front. So, let’s establish some guiding principles, get them agreed, and get moving. There is a great deal more to making category management agile…that really is just a tease. The challenge awaits.
  • Hilarious quote that I stumbled upon from Robert Jackall in Moral Mazes ‘the basic principles of decision-making in this organization and probably any organization are: (1) Avoid making any decision if at all possible, (2) if a decision has to be made, involve as many people as you can so that, if things go wrong, you’re able to point in as many directions as possible.’ Do we have any hope of moving beyond the blame culture (except in small pockets, of course)?
  • Did anyone see Jon Stewart’s roasting of Kim Jong Un this week? Incredible stuff.

Procurement’s role – a behavioral economist’s perspective

March 25, 2013

Regions of the cerebral cortex associated with...

Procurement’s role in a modern, giant corporation – discounted by many – is to promote ‘decision efficiency.’ ‘Decision efficiency’ may sound like some piece of business jargon, but it is actually the fundamental reason why procurement is absolutely necessary to an organization. Here’s why:

When people spend money on something, there is some amount of pain associated with that purchase. For some of my tightwad friends, this pain is almost unbearable. Spendthrifts, on the other hand, are particularly good at fooling themselves – i.e. shutting it out of their minds.

I hear the procurement naysayer crowd now…’that’s great for individuals, but what about organizations.’ Ok, maybe you weren’t saying that, but I’ll go ahead and refute it anyway.

People experience the pain of paying to the degree to which they feel directly affected by it. So, while a budget holder may feel mildly connected to the pain of spending some of her budget, the next layer removed will feel even less. By the time we get to the maintenance supervisor that runs out to Home Depot/B&Q on a regular basis, he may actually look forward to some time away from the plant.

Even the budget-holder, however, will be much more in tune with the utility (pleasure/usefulness) derived from an expense or ‘investment’ than the pain. After all, it is one line of expenditure, and the only incentive is to stay within the budget. This phenomenon is called ‘hedonic efficiency.’ I.e. the budget holder wants the benefit and to sweep the expense out of mind as quickly as possible.

What does that mean in practical terms. A). Ownership – i.e. to be able to control the good or service purchased B) Prepayment – i.e. get the money out of there and forget about it.

So, where does procurement come in? We promote decision efficiency. In practical terms this may mean leasing or renting, paying only for what we use (avoiding the prepayment bias), and making opportunity costs explicit. To the extent that we show the utility the business receives against the costs involved, we become an effective conscience for the business. We are there to prevent bias.

Companies – specifically executives – must first be cognizant of the biases that impact them. At that point, they will recognize the need for procurement to be there to counteract those biases.

Procurement has a responsibility here too. We must present the case as clearly and rationally as possible. There is an interdependency present as well. If the business continually shows they do not want to be inconvenienced with the facts, procurement receives the implicit message that their lives will be easier if they just remain quiet.

CEO’s – yep, pointing directly at you – take note.

No PED’s…just cat man energy – the natural way

February 4, 2013

Category Management in procurement needs an energy boost. That much is clear.


Windmills…not much energy, but they sure are pretty! Energy (Photo credit: Open Days – European Week of Cities and Regions)

Now, am I suggesting a call to “Dr.” Anthony Bosch? No, not unless you have a bunch of hats that are too big.

So, if PED’s are unacceptable, what can we do to give our category management projects an energy boost? Well, let’s start with the process to be followed. Step 1…have one! If you make it up on the fly, the risk is that your stakeholder group will spend too much time and energy discussing the process, and not enough time making stuff happen. You – the procurement guy/gal – need to come prepared with your process…hopefully one that, well, works.

So what makes a category management process work? For one, it’s flexible. Not all categories are the same, so it needs to be applicable to a wide range of categories. Think of the process as if it were a platform like Facebook, and the category team is a group of friends. Lots of different groups of friends – with lots of different interests – use Facebook (even you anti-system types…admit it!).

The second one is that it is simple and practical. I have seen processes that go into painstaking detail and cover every objection, but real life happens outside the graphic. Pretty diagrams may impress your friends, but rigorous application of they key points drive value.

Finally, keep up the momentum. The art of the procurement professional is motivating people to make it happen. Go forth and do great things!

Related articles

Quick thoughts and links

May 30, 2012

English: This is a photograph from the assortm...

Taking the lazy way out, here are some links that I found educational. And a couple snarky comments thrown in at no charge.

  • My man Nassim Taleb gets angry with a Bloomberg article. And check out commentary here. Taleb is a sensitive guy, and a bit extreme in his views, but he’s still the man. Even if he was taken out of context, I think his point about the US deficit putting us at risk is an important point, even if I want no parts of the political debate  here on the TPS report.
  • WSJ reports on a Booz-Allen study that says that CEO’s hired from within last longer and do better for shareholders. I think there is something to be said for an insider being better positioned to gain support for change. He/she knows who the power brokers are. Plus, it unmasks the prima donna effect – it takes a team and a leader that makes it more about the team than about himself/herself. Having said that, this is a good example of rationalizing after the fact.
  • Taleb talks about the danger of centralization…kinda goes along with the point raised by the TPS report the other day regarding not being able to rationally plan or centrally dictate a “complex” entity such as an economy.
  • Who’s going to win the mobile ads race? I’ve got one idea on how, but clearly, the crowd will make a solid decision.
  • Jeff Haden weighs in on business cliches. He hits home on a couple, and draws a couple shoulder shrugs. Implicit in number 6, “transparency” is a solid message. Leaders that are not upfront or try to hide real motivations are quickly discovered. “Pulling levers” is as ineffective as it is demotivating. On the other hand, face-to-face “telling it like it is” builds trust.
  • Google building Nexus 7 tablet. I’m still happy in my iWorld. Our ability to come up with ways of locking others in has outpaced our rational decision-making.
  • Jason Busch provides some praise for Ariba’s business decisions leading up to its acquisition by SAP.

Can TPS report make project buying fun?

April 30, 2012

Let’s give it a shot. Let’s do this in the form of the procurement version of a self-Q+A.

Pretend interviewer: What do you mean by project buying or project purchasing?

You laugh, but Milton is a heck of a buyer

Me: When companies buy things for a specific project rather than as inputs/services to an ongoing product or service offering. As an example, there are firms that build plants of various types for other firms. These plants have unique specifications and requirements, and therefore, the companies doing the plant-building are buying different things all the time.

Pretend interviewer: Must I continually vocalize these questions even though we are the same person?

Me: Yes. Next question.

P.I.: What makes project buying different from other types of buying?

Me: There is greater time pressure since there are clear incentives to deliver on time. Project buying really brings assurance of supply into focus since not having inputs on time has very clear, tangible consequences. I understand that in some parts of the world, caning is involved. It also tends to operate in difficult markets since suppliers have a great deal of process knowledge, technical knowledge, capital barriers to entry are high, etc.

P.I.: What are the implications?

Me: If we just continue to buy project to project, we’ll likely encounter the same problems that we currently have. We can’t do the traditional ‘I’m-the-buyer-use-leverage’ thing, so we need to be a bit creative. We also can’t predict the specifications for things like tooling and machinery. The keys are developing supplier relationships…and I’m not talking about just being nice to the suppliers. Having joint systems in place to react quickly, developing mechanisms for innovation, and working together on longer term plans and strategies are the keys.

P.I.: So, will category management work in this scenario?

Me: Yes. Going through a strong process (I would have said “robust process,” but then I would have had to ask the pretend interviewer to slap me) will help (whew, narrowly avoided “add value”). If done well, we’ll acquire and share knowledge, improve supplier relationships, and be ultra-prepared for the next project that the CEO tells us we must deliver by tomorrow. Under budget. And wows the client.

P.I.: What is your favorite word that is the opposite of “robust”?

Me: Well P.I., I’m glad you asked. “Sapless” is my favorite opposite. Whenever someone’s process does not quite make the grade, I will refer to it as a “sapless process.”

Purchasing?! Those guys are full of it…

February 7, 2012
English: Anna Karenina (Kareninová)

Anna is that you? Image via Wikipedia

The title, for those who may not have guessed, is tongue in cheek. However, in some circles, that is the general line of thought even if some are too passive aggressive polite to say it openly.

One criticism that we often hear is that procurement savings are not actually savings at all, but rather more like an intra-group hug. This feedback is sometimes well-deserved, and even if not, at least provides insight into what the rest of the business is thinking about us. Better to bring this stuff to the surface than complain to your neighbor/boss/dog, right? Agreed.

That is why, I’d like to thank T. Cummins (don’t call me ‘Mister’) for his latest blog post on this very subject. Check it out here. Go and read it if you like, but hurry back. It’s lonely here inside a WordPress server. Plus, the web config file is digging into my ankle.

I think the discussion has some good points about the need for improving the way in which we measure savings and the need for improved focus on contract management and performance management, as often the ‘finishing’ and follow-through parts are the most problematic.

Having said that, I think it also reflects the established mental framework that non-procurement people have that reduces procurement to the role of the cheap uncle who unplugs his television every time he leaves the house. Picturing procurement in this way provides Alexey Alexandrovitch-style mental relief. (Here’s a hint: Google “Alexey A., Anna Karenina, Tolstoy and Read a book that does not include a bunch of business truisms”).

However, where crunching the savings numbers falls short is the scenario in which a supplier relationship delivers a huge increase in sales because of having a joint approach to marketing. Or where the relationship translates into a focused investment that delivers a service that customers can’t wait to open their wallets for. Or…well, you get the picture.

Contract management is certainly one strong way to get value, especially when coupled with relationship management efforts. However, there are plenty of others, and which one delivers the most depends on the specific opportunity.

He also mentions the aggressive approach we sometimes mistakenly take with suppliers, which again is valid in some circumstances. Having said that, a semi-organized approach and united stakeholder front – all easier written than done – can alleviate that particular issue. It’s basic, but applying the basics well is significant.

Now, everybody back to work.

Behavioral Economics and Purchasing

November 19, 2011

I am currently reading a collection of scholarly articles by George Lowenstein. Who is George Loewenstein? Why, only one of the pioneers in the field of behavioral economics! If you did know who he was, well, neither of our lives are very exciting.

Ol’ George is also a man after my own heart. He’s taken concepts from psychology, and applied them to economics.

Painless Saving

Some of you out there will think you are very rational decision-makers when it comes to buying stuff. You are the ones that are especially dangerous…biased but in denial.

The funny thing is that humans make irrational decisions in systematic ways. For instance people fear loss more than appreciate the joy from a gain. We create stories by making sense out of random events. We predict that we’ll be more disciplined in the future than we act today, and inevitably don’t deliver.

It just so happens that in the day job, I advise on purchasing decisions, except in the realm of big corporate decisions rather than on an individual level. The question I get to, then, is whether behavioral economics is applicable at the organizational level. My hunch is that it is, but my next hunch is that “powerful” people will be uncomfortable with this notion…until 20-30 years from now when behavioral economics goes mainstream.

The other issue is the “So What?” factor…i.e. what do we do about it. Going through a process involving multiple viewpoints is a start, but the fundamental challenge is the fact that people who are, in fact, wildly biased are often those most convinced that they are perfectly rational. And, if perfectly rational, what need would there be to account for any biases? Compound all that by those same people surrounding themselves with those who either think the same as they do, or those that will realize it is much more profitable to fly under the radar without saying a word, and the problem is obvious.

All this may sound a bit cynical. However, I prefer to look at it the other way. Those who are open to this new knowledge will have an advantage over the rest.

Training, learning, and word games

October 6, 2011
2nd half of 14th century

This is no U-shape! Image via Wikipedia

One of the occupational hazards of delivering training sessions professionally is the person who believes they are being truly insightful by explaining the difference between training and learning. Ok, so no actual person has done this to me, but they could have! The thought is that training explains how to follow some sort of process, methodology, system, or rules and learning is, well, almost anything beyond that.

As an aisde, business people love to point out small differences between the meanings of words. Never mind that they are just parroting it from someone else. Or that in practical terms, the difference fades into obscurity faster than Anna Kornikova on her thirtieth birthday. Its a seratonin thing.

So, in a training session, we should just explain how x follows on from y, and if y is this, then z is that, right? Well, I’m not so sure.

I think that wrote, step-by-step learning (for people who have real blood coursing through their veins) remember things that spark those emotions. They’ll quickly forget the logical progression but remember an animated discussion of which they are part. They’ll remember working Porter’s Five Forces and realizing that they are playing a losing hand trying to diminish supplier power through a tender exercise, but that developing a new supplier might change the game.

When learning is tossed into the mix with training, people’s minds form connections in their brains that they wouldn’t have otherwise made. One of the most powerful ways to generate insights is to ditch the subject matter expert, and ask someone from another discipline. Just ask the guys that compete in crowdsourcing-style competitions that solve problems outside their areas of expertise – e.g. Ed Melcarek, a physicist that solved a “chemistry” problem that stumped scientists at Colgate Palmolive (from Crowdsourcing by Jeff Howe).

Why would people like Melcarek even think to try? My hunch is that someone challenged them, and that somewhere along they way, they realized that the brain is capable of much more than following what they’ve been told by someone else.

Clouding up purchasing

September 15, 2011
Cloud Computing Summit Brasil 2010 10/08/10

Conference in the cloud - Image by rafaeldesigner via Flickr

One of the outcomes of cloud computing is that it will put more information in the hands of more people. is a great example of being able to spread sales information, status, proposals and requirements throughout an organization.

One of the only good reasons for a hierarchy is that the people at the top have more contact with the customer and better understand their requirements. This reasoning is sometimes valid, and sometimes a cover for getting our way as leaders.

With the cloud democratizing information – e.g. people sharing and viewing and editing the same documents at the same time – this imbalance of information is reduced. In purchasing, strategy reviews become collaboration sessions in the truest sense.

One result, we here on TPS planet would hope, is that the idea of rank always determining direction will fade away. Not completely, of course, but mostly. Or possibly that overconfidence in past experience, rather than problem-solving ability will rightly diminish. Or maybe even that people from a different discipline armed with the intelligence to work collaboratively to solve problems will be able to quickly get up to speed.

In one sense, the cloud does the data storage, we do the thinking.

Supplier relationships – a view from the sky

July 19, 2011
TPS report cover sheet.

Never forget the cover sheet on your TPS'll have 8 bosses coming by to tell you about it. Image via Wikipedia

A pure procurement post for a change, although previous posts apply to procurement as they would for any aspect of business.

We are finding an increase in interest in supplier relationship management recently among our larger clients these days, which is encouraging, since SRM seems to be one of those things that people know they should be doing, but don’t actually invest the time to do. Often, when things don’t feel important, they often aren’t and are wisely pushed to the back burner. This is not that.

Supplier relationships represent the type of thing that is important, but not urgent (thanks Covey). Just like reviewing our financial portfolio or doing a will, it is one of those things that we just don’t seem to get around to doing. I personally don’t need to worry about those things, since I am, of course, immortal, but I think others should.

I won’t go through a comprehensive (read: boring) list of why we should be more concerned about supplier relationships, but my main reasoning here is we here at TPS report see the way business works as a giant system. The farther away we move from our little corner of that system, the less we focus on individual personalities, and the more we see either breakdowns in coordination or good coordination making operations flow smoothly. It doesn’t fit with our cultural narratives, but there are no real heroes nor real goats (ok, we all know a couple duds).

So, if we spend a great deal of time designing our organizations as systems, why shouldn’t we include our strategic suppliers? Just like individual relationships (see previous post), supplier relationships based on trust can deliver surprising results.

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