Thursday, 6 March 2014

Strategic procurement and departmental organisation



Thinking of becoming more strategic? How should you adapt your organisational structure? Some time ago one of our client's was asking the same questions. We sat down and worked through our past experience. We have seen how a large number of companies including Rolls-Royce and PriceWaterhouseCoopers have approached this challenge. We have summed up a simple structure below and we hope you will find it useful.

The introduction of ERP programs, new sourcing methodologies, continuous supplier rationalisation and commodity management, can force companies to adapt the structure of their procurement organisation.

There is a normally an emphasis to reduce the Downstream activities such as:

    • Issuing orders 
    • Expediting 
    • Trouble shooting 
    • Sorting queries 
    • Invoice queries 
    • Inspections 
    • Reporting 

And to increase the upstream activities such as:

    • Customer analysis 
    • Budgeting and forecasting 
    • Market Research 
    • Sourcing Group strategies 
    • Supplier Analysis and visits 
    • Supplier Strategies 
    • Concurrent Engineering 
    • RFP’s 
    • Negotiation planning and negotiation activities 
    • Supplier development 
    • Should cost exercises, parametric analysis, risk analysis, process and quality capability studies. 

A typical modern approach is to break the standard buying role into these four areas:

    • Operational 
    • Strategic 
    • Internal customer facing 
    • Supplier facing


Once you have identified the roles and created a job specification, the next step is to produce a person specification. This is a crucial step, often missed, which ensures you know when you have found the right person for the job.

The roles and responsibilities could be broken down as follows:

Operational professionals

These procurement professionals would be focused on the daily buying, the functional role.

Within this area you have the two management layers, the commodity managers and the buyers. Depending on the size of the organisation, these could be the same role.

Or the day to day functional buyers could be here (who you rotate from time to time) and the Commodity Managers might be in the strategic group.

The buying in this area should be driven by pre-agreed contracts, frameworks and pricing.

Strategic professionals

These strategic professionals would be looking at the higher level arrangements, such as:

    • e-Auctions, e-Sourcing 
    • Group buying 
    • Commodity plans (perhaps the commodity managers will sit here) 
    • Sourcing methodologies 
    • e-Cademies 
    • Supplier Rationalisations 
    • Volume aggregation 
    • Increasing efficiencies and reducing administration. 
    • NPI – new product introduction 

Essentially these professionals would be developing methodologies that other teams can follow. They could also provide advanced support on procurement exercises or even run complex tenders themselves. These would also form a principal part of your e-Cademy, if you decide have one.

Customer-facing professionals

Procurement professionals who focus on project work would be the best people moving forward to take this role.

The internal customer-facing role is about creating a good relationship between the buyers and the project teams.

This allows the buyers to work within commodity groups and the project teams can still get their due care and attention.

This kind of relationship would work well for concurrent engineering and liaising with sales teams around discounts. It would also help reduce renegade purchasing.

Supplier-facing professionals

The procurement professionals in this role would be primarily focused on the supplier side of the equation. They would need to liaise heavily with the commodity managers.

This would involve:

    • Managing supplier statistics around cost, quality, delivery, responsiveness, flexibility 
    • New supplier introduction process 
    • Managing supplier lists: approved, preferred, etc. 
    • Auditing 
    • Quality failures 
    • New product introduction 
    • Design and make 
    • Developing cost out 

In Summary

This is really a flavour of where you can go. The great thing about this methodology is you can implement as much or as little as you like. The main objective is to find a strategy for your procurement team that fits your organisation.

2 comments:

  1. Alun, a great introduction to this area, where views of the most appropriate model shift & change continually. But what about Procurement in the Service Sector? How do we translate a manufacturing / retail based approach in to a model that works in a sector that has many similarities yet many differences? Many of us face a challenge of dispersed operations & a need to satisfy local factors & priorities in addition to leveraging the scale of a larger group. Too often we reactively swing between localisation and centralisation!

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    Replies
    1. Hi Tim, Thanks for your comment. The centralisation/localisation debate seems endless. In some ways I would say that the natural cycle to swing between the two is as much to do with change to bring more efficiency in organisations that have become complacent, as to do with new methods to compete in an ever changing market.

      At Rolls-Royce they did have a centralised procurement department but they also had the challenge of local project buyers and engineers spread amongst the organisation. In my opinion, a very successful model that we have seen many times is a mixture of a centralised and de-centralised approach {if you have the resource}. There are contracts/ categories/ functions that have advantages in a centralised approach. However one would also need to accept that there are times when the local approach would yield better success. The biggest challenge that we have seen with this model is having an organisation that is motivated and willing to collaborate in a local/ global level for shared success.

      In the model above, even though the central procurement function was split, many of the operational personnel would be spread around the organisation locally, as well as the customer and supplier facing people (mainly close to projects). This was very important in cross functional teams spread across categories and projects. A key factor was the central strategic function realising when the time was right for more consolidation/ frameworks etc.. balanced against the local projects needs.

      Thus I would see the model could also work well in the service sector, although I would welcome your thoughts here?

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