make-over magic - reinventing procurement (and ourselves)

Make-Over MagicReinventing Procurement (and Ourselves)

© 2016 Vantage Partners. All rights reserved. | 1

118 S u p p l y C h a i n M a n a g e m e n t R e v i e w • M a y / J u n e 2 0 1 6 scmr.com

Procurement is at an inflection point. For many leading companies, procurement has been transformed into a linchpin of enterprise strategy. Yet many remain trapped by outdated paradigms and struggle for influence within their companies. Here’s how organizations can reinvent the procurement function and put the past behind them.

OF PROCUREMENTREINVENTION

THE

Jonathan Hughes is a partner at Vantage Partners, and the firm’s sourcing and supply chain management

practice leader. He can be reached at jhughes@

vantagepartners.com. Danny Ertel is a partner at Vantage Partners. He

can be reached at [email protected].

By Jonathan Hughes and Danny Ertel

AT MANY LEADING COMPANIES, procurement has been transformed in pro-found ways to become a linchpin of enterprise strategy. Meanwhile, many procure-ment groups continue to struggle for influence within th ir companies—in large part because they remain trapped by decades-old paradigms that are far too prevalent.

In this article, we will share what we have learned during our work with leading procure-ment organizations around the world as they seek to adapt to a future that is already upon

them. In these organiza-tions, the need to drive innovation is paramount, and an increasing propor-tion of the opportunity and risk with suppliers involves not only physical materials or equipment, but also complex services and intangible assets like intellectual property, data and brand equity. In that

new environment, the strategies and skills that constituted a recipe for procurement success in the past need to be reevaluated, and to some extent upended, based on a 21st century world with new risks, threats and opportunities.

A changing world and a changing contextIn order to understand the future of procure-ment, it is useful to briefly review its historyand evolution. For a very long time, procure-ment was a back office function focused onprocessing transactions. The selection of sup-pliers, and the negotiation of supplier agree-ments, was highly fragmented, unsystematic and non-rigorous. That began to change in the 1990s with the advent of strategic sourcing. Over the past several decades, this simple but powerful discipline has delivered enormous savings at countless companies, and earned procurement groups a substantial degree of respect and influence.

What is unacknowledged is the fact that stra-tegic sourcing rests largely upon a set of concepts and principles laid out by Peter Kraljic in his clas-sic Harvard Business Review article “Purchasing must become supply management”—which was published in September 1983.

SUPPLY PROCUREMENT CONTRACTS MRO MANAGEMENT

2 | © 2016 Vantage Partners. All rights reserved.

2scmr.com S u p p l y C h a i n M a n a g e m e n t R e v i e w • M a y / J u n e 2 0 1 6 19

REINVENTION The article is full of many useful examples and case

studies that remain relevant, as do many of the principles

and methodologies of strategic sourcing that developed

later. At the outset of his article, for instance, Kraljic asks

how a company can “…guard against disastrous supply

interruptions and cope with the changing economics and

new opportunities brought on by new technologies? What

capabilities will a profitable international business need to

sustain itself in the face of strong protectionist pressures?

Almost every kind of manufacturer will have to answer

these questions.” Those questions remain top of mind to

business leaders who are grappling with disruptions from

natural disasters, rapidly changing technologies, the digiti-

zation of business and shifting geo-political alliances.

While the article remains an often quoted classic, there

is also much that is obsolete, and some that has become

counter-productive. For example, the word “innovation”

never appears in this article. What’s more, it viewed pro-

curement through the lens of a manufacturing economy;

indeed, all of Kraljic’s article focused on the procure-ment

of physical goods. Yet in 1984, services were already

approximately 55% of U.S. GDP; today the number is

approximately 70% (Figure 1). Here’s another important

statistic that procurement needs to understand and grapple

with. According to Leonard Nakamura, an economist at the

Federal Reserve Bank of Philadelphia, U.S. companies may

have intangible assets worth more than $8 trillion. That

figure is almost half of the $18 trillion market capi-

talization of the all the companies comprising the S&P 500

index. Moreover, according to research conducted by

economist Carol Corrado and reported in the Wall Street

Journal, in 2014, companies invested the equivalent of 14%

of the private sector’s share of GDP in intangibles (such as

their brand and data assets) versus approximately 10% in

physical assets (such as factories).

Clearly, the world economy has changed, and procure-

ment needs to catch up—quickly.

The next wave of valueProcurement is, in many ways, a victim of its own success. As recently as 10 years ago, there was significant value tobe gained by using competition to motivate better supplier performance and to re-balance supplier profit margins andcustomer costs. But rigorous and coordinated sourcing has enabled companies to maximize purchasing leverage based on their total spend. While there will always be some

suppliers with a high degree of pricing power because of a unique technology or market position, today we find a co -solidated supply base, operating with profit margins kept incheck by competitive pressure.

In other words, the low-hanging fruit has been picked. So what will drive the next wave of value?

Fundamentally, we believe it is innovation—not just in product design or manufacturing technology, but also in business processes and models, and in the capture and utilization of data and information. A critical function for procurement in the future will be the capability to strike the right strategic balance with different suppliers between competitive pressure and associated uncertainty (which helps guard against supplier complacency, but also acts as

FIGURE 1

Increase of services-producing companies as a share of U.S. GDP

Source: U.S. Dept. of Commerce Bureau of Economic Analysis–Gross-Domestic-Product-(GDP)-by-Industry Data; Gross Output

(http://www.bea.gov/industry/gdpbyind_data.htm)

80%

60%

40%

20%

0%1965 1975 1985 1995 2005 2014

Per

cent

age

shar

e o

f G

DP

Goods-producing

Services-producing


3

Reinventing procurement


power dynamics between a company and suppliers—and thus encourages an unhelpful over-emphasis on “bar-gaining power” and an under-emphasis on the power of engaging suppliers in the joint exploration of ways to work together that deliver mutual benefits. Or, as Kraljic put it: “The purchasing portfolio matrix plots company buying strength against the strengths of the supply market and can be used to develop counterstrategies vis-à-vis key suppliers.”

Traditional ways of thinking about supply markets and suppliers, rooted in an industrial past, also fail to guide effective thinking about the fairly different risks and opportunities that arise in working with suppliers of services, and suppliers whose primary value derives from their intangible assets.

Services, solutions and innovations Procurement groups need a new framework for driving additional value in different sourcing contexts, including complex services such as legal services, marketing and advertising, research, design and engineering and yes, even management consulting. Such categories of spend used to be off limits, but are now increasingly managed by leading procurement organizations. Even in manufacturing con-texts, companies increasingly rely on top suppliers to col-laborate in early stages of new product design and develop-ment. Such suppliers may make most of their money from manufacturing parts, tools or equipment, but they also sup-ply critical services on which their customers rely.

Sourcing services is different from sourcing physical goods in a number of ways. For one, economies of scale do not reduce unit costs in the same way as they do in a man-ufacturing environment. For another, the profit drivers of service supplier are different from those of manufacturers. The primary asset of service suppliers is talent—people. And “A-Team” talent is highly mobile—in a way that physi-cal assets are not. Procurement needs to think differently about leverage, risks, opportunities and value with suppli-ers whose business depends in whole or in part on selling services. Moreover, companies should often be sourcing more than discrete products and services. They should be sourcing solutions to important business needs. What do we mean by this?

Consider an industrial company we worked with for many years. For this company, the regular maintenance of chemical manufacturing and storage tanks constituted a major spend category. Historically, procurement sourced

a powerful disincentive to supplier investment), and deeper collaboration and longer-term commitments to suppliers (which act as a positive incentive to supplier investments).

In our experience, most companies need to re-balance their strategic focus with more emphasis on supplier com-mitment and joint investment. Companies are not simply in competition for customers and revenue. They are also in competition with one another for preferred access to supplier innovation, ideas, “A-team” talent, and invest-ment of various kinds. As firms in industries from semi-conductors to bio-pharmaceuticals to financial services recognize this fact, procurement is increasingly charged with developing and implementing strategies to become a “customer of choice.”

Drivers of past success will not drive future success A service-oriented and innovation-powered economy requires procurement to develop new strategies and com-petencies. While still relevant, Kraljic’s original sourcing matrix is no longer sufficient. It is implicitly based on markets for physical goods and the traditional relation-ship between supply, demand, power and pricing in such markets. Of course, the physical economy and associated supply chains still exist. Capacity constraints will continue to arise in many markets and lead to cost increases and/or supply shortages that lead to lost revenue.

Nonetheless, the traditional way of classifying catego-ries of supply and suppliers focuses primarily on zero-sum

FIGURE 2

Effective sourcing of services,solutions and innovation

Source: Jonathan Hughes and Danny Ertel

Sourcinginnovation

Value drivers of whatis being sourced

Key strategiesand skills required

• Creative ideas• Risk taking• New investment

• Joint problem solvingand co-creation

• Learning from failure

Sourcingsolutions

• Communicate context

• Apples to orangescomparison

Sourcingservices

• People• Talent management systems

• Creative paymentand incentive

structures

Sourcinggoods

• Process• Scale• Prior capital investment

• Tight speci�cations

• Competitive pressure

• Knowledge and expertise• Ability to integrate

assets and capabilities



specific services including the set up of scaffolding fo maintenance workers, a number of specific cleaning an maintenance services and, when the job was complete, the breakdown of and removal of the scaffolding. What hap-pened when the company looked at what they needed to source in a different way? They ran a sourcing initiative without traditional requirements. Instead, they shared infor-mation they had never shared before with potential suppliers under a non-disclosure agreement (NDA) about their busi-ness model, manufacturing processes, production schedules and bottlenecks. They then asked their suppliers for new and better ways to maximize production up-time and reduce operating costs. What happened when they did this?

Most suppliers offered proposals and bids similar to those they had provided in the past. But one supplier noted that they were prototyping a new portable elevator system that might eliminate the need for scaffolding set-up and break down. The supplier’s bid was more expensive than its conventional competitors—but it reduced maintenance and lost production time from weeks to days. The increase in revenue from more up time made up for the increased cost many times over.

Of course, as companies seek revenue and profitgrowth in a hyper-competitive global economy, a further mental shift toward sourcing innovation is required. In this realm, customers may not even be aware of the needs or opportunities relative to which suppliers may have new technology under development, new ideas or untapped expertise. Procurement thus needs to engage with suppliers in completely different ways. They need to encourage and reward supplier investment and innovation—and ensure a disproportionate share of that comes to them versus their competitors. Traditional RFX and bidding processes will not go away, but they need to be augmented with greatly enhanced “upstream” engagement with key suppliers.

Such engagement may take many forms, including not only joint ideation sessions with suppliers, but also regu-lar joint strategic business planning—during which a cus-tomer and its key suppliers exchange information about their respective strategies, business plans and technology road maps, looking many years into the future. Customers who do this well will gain disproportionate influence ove supplier investments, and the innovations that results. Suppliers will benefit from more information to guid their investments such that risks are reduced and time to revenue is accelerated.

Figure 2 is by no means exhaustive, nor are the value drivers, nor are the strategies and skills for each context mutually exclusive. Nonetheless, this framework high-lights some of the critical ways in which the effective sourcing of services, solutions and innovation differs from the sourcing of physical goods.

The questions we ask determine our answers In our work with procurement organizations across a range of industries, we have observed that most are guided by a

set of fundamental questions, often to a degree they are not consciously aware of. • How do we extract more savings from our suppliers?• How do we motivate suppliers to improve their

performance?• How do we get internal stakeholders to involve us ear-

lier, and comply with sourcing strategies, policies anddecisions?

• How do we define supplier requirements in a way thaenables us to conduct “apples-to-apples” comparisonsacross suppliers and maximize competitive leverage?

• How do we get more innovation from suppliers?There is nothing wrong with these questions. But as

with any questions, they focus attention in certain ways, and reflect and reinforce assumptions that can be limiting.In any event, new solutions to business challenges and the identification and realization of new value will not comefrom asking the same questions. Below are a fundamentally

FIGURE 3

Procurement paradigms


Traditionalprocurement paradigm

• Primary value is cost reductionand securing external supply of

goods and services

• Primary value is solving business problems anddelivering competitive advantage

• Competitive pressure and leverageover suppliers is key to value

• Collaboration with suppliersand balanced dependence iskey to value

• Internal focus is on stakeholder compliance

• Internal focus is on being atrusted advisor to the business

• Manage transactions • Manage relationships

• Analytical skills • Business acumen and soft skills

• Own and execute • Facilitate and enable

Newprocurement paradigm


5

Reinventing procurement


different set of questions. They are not meant to replace the questions above, but rather to augment them and expand the scope of solutions and opportunities that pro-curement can uncover and address.• How do our suppliers make money?• What do we do that creates cost, risk or frustration for

our suppliers? How do we inhibit their ability to delivermaximum value to us?

• How can we better support the goals and strategies of ourinternal business partners? How can we more effectivelychallenge their assumptions and thinking, while alsoremaining open to learning from them?

• How can we help our suppliers better understand thechallenges and opportunities our business faces, so thatthey can propose solutions based on their unique exper-tise and capabilities?

• How do we create more innovation with our suppliers?

A new procurement paradigmSitting at the intersection of a company and its external suppliers, procurement can play a unique role in leveraging supplier assets and capabilities to drive innovation, actively support revenue growth and deliver competitive advan-tage—all while minimizing risk to a company’s operations and reputation.

In other words, procurement can—and must—focus on maximizing total value from suppliers. This requires a new procurement paradigm (Figure 3), or a revolu-tion in the way procurement leaders and their teams see themselves and their role, the value they can add to their enterprise, and the ways in which they deliver value to the enterprise.

New metrics and KPIs for procurementCurrently, most procurement organizations focus primar-ily on a limited set of metrics and performance indica-tors—with cost-related metrics foremost amongst these. They also typically rely heavily on supplier spend levels to segment suppliers, and to make decisions about where and how to focus limited resources on supplier management. To be successful in the future, procurement organizations will need to learn from current leaders and expand what they measure to better align with an expanded focus and delivery of broader value.

For example, levels of spend (within a commodity or category, or with an individual supplier) are often a poor proxy for the strategic importance of that category or sup-plier. Often a more useful metric is “revenue-at-risk”—a more complex but also more meaningful calculation that links external expenditures to the customer revenue streams that depend on supplier inputs, whether those are materials, equipment or services.

Similarly, the current emphasis on cost-savings should be expanded with broader measures of value delivered—by suppliers and by procurement. For example, a few years ago we worked with a consumer products company that was in the process of designing a new product. Based on extensive research, the marketing organization believed that a more expensive packaging would be highly valued by consumers, which would lead to greater sales and higher profit margins. Rather than fight a battle to select the l -est cost supplier, procurement partnered with marketing and product designers to select a supplier that had the expertise to help design and manufacture a unique packag-ing solution. (Incidentally, this was not the supplier that the marketing group had initially wanted to work with.) The result was a substantial cost increase—but one that paid off in expanded market share, increased revenue and higher margins.

Companies put significant emphasis on measurin their return on assets and invested capital—naturally, because the shareholders that provide them with invest-ment capital care about these metrics. But we now live in the world of the extended enterprise, where a major-ity of what goes into the products of most companies is manufactured, and often designed, by or with external suppliers; where an increasing percentage of a company’s operations are outsourced and/or enabled by third-party solutions and services; and where a company’s R&D

Co

mm

itm

ent

tost

akeh

old

er s

ucce

ss

FIGURE 4

Ways procurement can engagewith internal stakeholders


Expertise, initiative and assertiveness

HighLow

High

Dead-weight Rival

Order-taker Trusted advisor



investments and patent portfolio are usually dwarfed by the combination of innovation investments and assets of its top suppliers. Consider that Unilever reported a few years ago that 70% of its innovations came from suppli-ers. World-class procurement organizations will therefore increasingly measure and report the returns they realize from supplier assets (RoSA), and the extent to which they are commanding and benefiting from a dispropo -tionate share of supplier investment and innovation vis-à-vis their competitors.

New competencies for procurement The transactional and routine activities (from PO pro-cessing to market analysis) that used to be procurement’s focus are increasingly being automated or outsourced. What remains, as we have argued above, is for procure-ment to take on an increasingly strategic role within the enterprise. This entails developing the competencies that are most difficult to replace with software, and taking o a role that is so closely integrated with a company’s core competencies and sources of strategic advantage that it cannot be outsourced.

Based on our benchmarking and work with clients, there are three broad competencies that procurement organizations generally need to strengthen. The first isbusiness acumen. Analytical skills to calculate total cost of ownership or develop should-cost targets are valuable, but they are far less valuable than the ability to think like a business owner or executive, to understand the very dif-ferent business models of different suppliers and how they make money (even when those suppliers operate in the same industry) and based on that, to determine how best to design an engagement model with a given supplier and construct contract terms as well as informal incentives to motivate that supplier to deliver maximum value.

The second competency is strategy development and strategic thinking. What passes for a category or com-modity “strategy” within many procurement organizations would often be better termed a category “profile”—a often impressively researched and formatted report of past and projected spend, information about the supply market and the classification of spend or suppliers int segments like “strategic” or “bottleneck.” Such analysis is useful, but it is not a strategy—a long-term plan that articulates important choices and explains why difficul choices and trade-offs must be made, and how.

For example, if our company is highly dependent on a particular supplier, and our business is not particularly important to them, what should we do? Invest in devel-oping one or more alternate suppliers? Or invest in try-ing to make our business more attractive to our current supplier—and if so, how? Framing such choices and rigorously articulating the costs, risk and benefits of di -ferent choices (under conditions of uncertainty) is the hallmark of true strategic thinking.

The third area of competence that is increasingly important, and often deficient, is that of soft skills including: relationship building, influence, confli management, negotiation, change management and leadership. For example, not too many years ago, procure-ment groups looking for negotiation training were often interested in the latest bargaining tactics and techniques. More recently, we have seen an increasing interest in building skills for a more strategic approach to negotia-tion focused on principled persuasion and joint problem solving, while also accounting for the psychological and emotional dimensions of negotiation.

Another example: We have seen a huge upsurge in requests for training focused on stakeholder engage-ment, alignment, influence and how to become a truste advisor to internal business partners (Figure 4). This is a welcome change from a not too distant past in which many procurement organizations were focused on obtain-ing C-level mandates that they could use as a cudgel to enforce compliance from recalcitrant stakeholders.

A procurement road map to the future Different industry sectors confront different procurement and supply management issues, and the pressures to bring procurement practices up to date with the realities of an innovation-driven and increasingly service-oriented econo-my will likewise vary. Nonetheless, we believe that almost any procurement organization that seeks to maximize the financial and strategic value it delivers to the enterprisemust evolve and mature.

As we noted at the outset: Procurement is at an inflection point. Those organizations that evolve along maturity model will drive innovation, deliver value and enable their enterprises’ strategies. Those that remain trapped by old paradigms will continue to struggle in a 21st century world with new risks and threats, and miss out on new opportunities. jjj


Picture Quiz

Name ________________________________________________________________________________

Please write down what you see on the slides.

SLIDE 1

1. 2.

3. 4.

SLIDE 2

5. 6.

7. 8.

SLIDE 1

9. 10.

11. 12.


Reinventing ProcurementReconsidering and Exploring How Procurement Adds Value

1. What challenges does our enterprise have that some of our suppliers could help solve?

Our Challenges How Some Suppliers Could Help

Developing new products or services:

Getting our products or services to market quickly and at the right price:

Winning our customers’ business:

Other challenges:

If I have no idea, how will I find out?


2. What challenges do our best suppliers face in dealing with us, with which we could start to help them?

Understanding our current requirements:

Managing changes in our requirements:

Understanding our demand forecast:

Understanding our future direction and likely needs:

Incurring high logistics or transaction costs (inventory, deliveries, invoicing, late payments, etc.):

Relationship challenges (effective communications, feeling respected, appropriate access to decision makers, etc.):

Other challenges:


© 2016 Vantage Partners. All rights reserved. | 11 1

This is the first in a series of reports comprising the results of a global research study conducted by Vantage Partners to analyze supplier relationship management best practices, the value delivered by SRM programs, and the ROI associated with specific SRM practices. The following pages highlight some initial results from this research, focusing specifically on the investments companies have made in SRM, and overall value generated. Subsequent reports will dig further into specific areas of investment and include additional in-depth analysis of the ROI associated with specific practices.

SRM Importance and Focus

The study results highlight an overwhelming belief that SRM will be “important” or “very important” to a company’s success over the next 3–5 years, suggesting that many companies should carefully consider increasing investments in SRM in the near future.

SRM Value and Benefits (to date)

An overwhelming 81% of study participants reported that their companies’ SRM programs yield value. 35% reported that their companies’ SRM programs yield “significant” value.

The top 10% of performers (in terms of value achieved through SRM) reported an average of US $304MM, inclusive of savings and other strategic and financial benefits, was achieved through their SRM programs in the prior year.

Preliminary Overview of Select Findings from Vantage Partners Global Study of SRM Best Practices and ROIBy Ashley Hatcher and Jonathan Hughes

� Of little or no importance

� Somewhat important

� Very important

70%

4%

27%

Predicted importance of SRM over the next 3–5 years

“Please indicate the extent to which you believe SRM will be important to your company’s success over the next 3–5 years.”

12 | © 2016 Vantage Partners. All rights reserved.2

� Little or no value

� Modest, but difficult to measure, value

� Modest measurable value

� Considerable, but difficult to measure, value

� Considerable measurable value

Characterization of results achieved through SRM

“Please characterize the results achieved through your company’s SRM program.”

20%

13%

22%

26%

19%

Average value achieved through respondents’ SRM program — over past year

Average approximate total value (inclusive of savings and other financial and strategic benefits)achieved over the past year through responding companies’ SRM program

$0 $100 $200 $300 $400

Top 10% of performers (in terms of value achieved over past year)

Average across all responses

Bottom 10% of performers(in terms of value achieved over past year)

Average: $304M Standard Deviation: $482M



Average value achieved through SRM program (Millions)

SRM Investments (to date)

The study data indicate that many companies are making investments in SRM — and plan to continue doing so for the next several years.

However, for most companies, investments in SRM to date have been low, relative to other investments, and to the potential benefits that could be realized through more effective supplier relationship management.

On average, responding companies invested $17.3MM in SRM during the past year, and an estimated $60.8MM over time.


43%

42%

15%

Characterization of the level of investment made in SRM

“Please characterize the level of investment (e.g., dedicated headcount, staff time, software tools, etc.)your company has made in SRM.”

� Little to no investment

� Modest investment

� Considerable investment

Investment of time, effort, and/or capital in helping key suppliers improve and grow

“Our company invests time, effort, and/or capital in helping our key suppliers improve and grow their business,in order to increase the value our company realizes from them.”

� Disagree

� Agree47% 53%

8%

64%

27%

1%

� $1 ¬ 999K

� $1MM ¬ 99MM

� $100MM ¬ 1B

� $1B+

Average total investment in SRM

“Please estimate, to the best of your ability, the approximate US dollar value of your company’s total investment in SRM(e.g., dedicated headcount, cost of staff time, software tools, etc.).”


Investments in SRM still fall short of other investments in procurement and supply chain effectiveness and capabilities (only 14% report SRM as one of their top areas of investment).

Of the potential value of supplier relationships that is actually realized today, respondents indicate that, on average, they are only realizing 44% of the potential available value. This number is in stark contrast to the 85% of the potential value currently realized by the top 10% of performers (in terms of actual value realized).

Allocation of the total investment (both money, and time and effort) in SRM

“Please indicate the approximate allocation of your company’s total investment (both money, and time and effort) in SRM.”

0% 10% 20% 30% 40% 50%

Increasing (e.g., new headcount; changing roles & responsibilities for staff) the number of people & amount of time spent on SRM

Defining & utilizing formal SRM governance mechanisms & business processes (incl. joint strategic planning, performance reviews, etc.)

Individual SRM skill development (training, coaching) for staff who have significant interations, of any kind, with suppliers

Software tools for SRM (inclusive of development, configuration, implementation, and license fees

Other

Percentage of investment in SRM

� To-date

� Ideal allocation over the next three years

Characterization of the level of investment made in SRM, compared to other investments

“Please compare the level of investment your company has made in SRM relative to other investments inprocurement and supply chain effectiveness and capabilities.”

46%

41%

14%

� One of our lowest areas of investment

� Neither at the top, nor the bottom of our investment areas — somewhere in the middle

� One of our top areas of investment


Potential (As Yet Unrealized) SRM Value

When asked about the extent to which policies, procedures, attitudes, and behaviors at their companies need to change to capture the full potential value of optimal collaboration with suppliers, more than half of respondents (53%) report that either major change, or total transformation, would be required.

Average value currently realized from/with suppliers and range of responses from average

“Consider the total potential value (financial and strategic) your company could realize in a hypothetical world of ideal collaboration with important suppliers. What percentage of that total potential value would you estimate our company currently realizes?”

Top 10% of performers (in terms of potential value currently realized)

Average across all responses

Bottom 10% of performers (in terms of potential value currently realized)

0% 25% 50% 75% 100%

Average potential value currently realized

85%

44%

6%

StandardDeviation: 6%



Degree of change at our company required to fully capture currently unrealized value with/from suppliers

“To what extent would policies, procedures, attitudes, and behaviors at our companyneed to change to take full advantage of this opportunity?”

0%

10%

20%

30%

40%

50%

60%

Little to no change

Perc

enta

ge o

f res

pond

ents

Moderate change Major change Total transformation

60%

37% 40%

13%


About the Research

Methodology

The data includes responses from 956 respondents representing more than 500 companies. (Not all respondents disclosed their company, so an exact count of participating companies is not possible.)

Most responses (811) were collected between May 2013 and March 2014, via a survey where individuals were asked 27 Likert-scale questions on SRM practices, as well as eight multiple choice and eight open-ended questions about the specific kinds of value SRM generates, how they are measuring that value, and what challenges and barriers companies are encountering as they seek to enhance supplier relationship management effectiveness.

An additional 145 responses were collected between November 2011 and April 2014 via the Vantage Partners Online SRM Maturity assessment, which included identical questions as the primary survey.

In addition, follow-up interviews were conducted with a cross section of survey respondents, and in-depth case study analysis conducted with multiple companies.

Respondents, by region

53%

3%

3%5%

21%

15%

Respondents, by revenue

7%

37%

24%

7%

25%

$500M - $1B

$1B - $10B

$10B - $50B

$50B+

< $500M

Percentage of respondents

Note:457 respondents

did not provide their companies’

revenue data.


Respondents, by industry

0% 10% 20% 30% 40% 50%5% 15% 25% 35% 45%

Real Estate and Rental and Leasing

Public Administration

Management of Companies and Enterprises

Construction

Arts, Entertainment, and Recreation

Accommodation and Food Services

Wholesale Trade

Educational Services

Agriculture, Forestry, Fishing and Hunting

Transportation & Warehousing

Retail Trade

Information

Other Services (except Public Admin)

Utilities

Professional, Scientific, and Technical Services

Mining, Quarrying, and Oil & Gas Extraction

Finance and Insurance

Health Care and Social Assistance

Manufacturing

Percentage of respondents

Note: 25 respondents did not provide their job titles

23%

35%

31%

2% 3%

6%

� Chief Executive

� EVP/SVP

� VP/Director

� Senior Manager

� Manager

� Individual Contributor

Respondents, by job title


Reinventing ProcurementImproving Our Business Acumen

1. What kinds of business conversations could we have with stakeholders, in what context or setting??

Useful Conversations With Whom? When and Where?

2. What kinds of experiences (assignments, projects, or other opportunities) could our managers provide to help us get stronger at this?

3. What kinds of training should we prioritize to address this need?


May–June 2014 | 120 | May-June 2014

OutsOurcing | AnAlysis

By Danny Ertel

Discover value:cause it Doesn’t finD itself!

In many of today’s most important supplier relationships, customers are dissatisfied with the lack of ongoing improvements in quality, value and service. Contracts are negotiated and expectations are created, but when implementation starts, the supplier’s focus rapidly shifts. First, to managing what can be a messy transition, and then to meeting contractual obligations in a way that turns a reasonable profit.

Our most recent research suggests that across all kinds of contractual relationships and supplier categories, customers are systematically under-recovering relative to the value potential of the contract.

Why is so much value left untapped?The reasons why customers routinely get less than the value they expected are varied. Some have to do with the way deals are negotiated – often with more focus on getting them signed than on what it takes to implement them well. (My partner Mark Gordon and I have written a whole book about that topic, which I won’t get into here: The Point of the Deal: How to Negotiate when Yes is not Enough (HBS Press, 2007). Others have to do with how the transition was handled, especially when the supplier is providing services or a blend of goods and ser-vices. But the reality for many supplier relationships is that the fundamental structure of the relationship makes that leakage, or even wholesale destruction. of much of the potential value a foregone conclusion.

Because most customers view their suppliers’ profitability as something to minimise, or at most ignore, they fail to help suppliers deliver at their best. And

20-24_Outsourcing-i37.indd 20 6/11/14 6:41 PM

20%

40%

0-25% 26-50%

25%28%

17%

9%

51-75%

Perc

enta

ge o

f res

pond

ents

76-100%0%

Average: 44%


2 | May–June 2014

May-June 2014 | 21

because many suppliers view the extent of their obligations as defined by their specific contractual commitments, they fail to target their efforts where they are most likely to help their customers succeed.

For example, whatever else may have driven a company’s decision to outsource IT or some other back office function, invariably, management also expected, demanded, and obtained short-term cost savings. In many cases, those savings were made immediately available to the customer. But the pro-vider, on the hook for these savings, then has to deliver the same services for less, cover their own sales and marketing costs, and still earn a margin.

Even with better technology and lower labour costs, this can be a daunt-ing challenge, and they will have to focus on righting their own P&L rather than on delivering innovation or further rounds of savings to their customer.

As soon as transition begins, most service providers try to move as much of the work as they can into more stan-dardised ways of doing things, where they can achieve some economies of scale and apply some labour arbitrage. They must also maintain contractual service levels, minimise disruption and dissatisfaction among end users, and generally stabilise the account.

It is only with the comforting (and lower cost) routine of post-transition stability that providers can reliably earn a margin. Staying in that “safe”, stable state, however, does not neces-sarily serve customers well. Customers want continuous improvement and innovation; they reasonably note that had they not outsourced, they certainly would have made some incremental improvements on their own. While the expectation may be a reasonable one, it is not one providers can easily meet on their own.

Indeed, our research shows that sup-pliers also recognise that they are not delivering all the value that they can. When asked to estimate the percentage of total potential contract value “actu-ally delivered by their company to their customers” during the average contract implementation, the average response was 66%. The suppliers’ perception of value delivered, while noticeably (but unsurprisingly) higher than the custom-ers’ perceptions of value received, is still quite low. On average, suppliers believe they are under-performing the true potential of the value “they could be delivering under their existing contracts”, by a third.

To make real progress and capture more of that unrealised potential value in most contracts, suppliers have to look beyond just meeting their contractual requirements, and find ways to “over-deliver” without having to turn their own P&L upside down to do so. Similarly, customers have to find ways to help

A customer is uniquely positioned to kick off a value discovery process by first looking internally to identify ways to become easier to serve.”

Customers have to find ways to help providers get beyond simply delivering contractual service levels at the least cost.

providers get beyond simply delivering contractual service levels at the least cost. While either side can initiate a productive conversation about value discovery, in my experience, customers are somewhat better positioned to tee up the issue, especially if they do so constructively. For example, the most successful customers:

• Shareinformationabouttheirbusi-ness objectives, challenges, and strategic direction.

• Engageimprovementeffortswithan open-mind, recognising that for a provider to actually deliver “best practice” and innovation, the customer must be willing to adopt processes and technologies that were “not invented here”.

• Reconsiderthemetricstheyusetoensure they are not creating adverse incentives.

• Proactivelyaddressrelationshipdeficiencies in areas such as scope management, problem solving, decision-making, communication, and commitment management.

The bottom line is that post-signing improvements do not just happen. Cus-tomers who want to realise the “other half” of the value in their contracts must step up and help co-create it.

What does it take to uncover additional value?Finding that elusive additional value is actually easier than it sounds. At a high level, what is required is a bit of advance work engaging key stakeholders to de-velop some hypotheses about where the value might be and what is keeping us from achieving it, a couple of structured workshops where these hypotheses are further fleshed out and tested (or plans are developed for testing them after the workshop), and some careful prioritization and planning for how to go about realising the value. The difficult part is actually following through with the initial commitment to unearth and act on sources of value.





Engaging stakeholders: As you embark on the process, you will need to tap into what stakeholders on both sides of the relationship understand about the value that is being delivered today, where there may be opportunities to go above and

beyond the current state, and why those opportunities have not already been pursued. It helps to “prime the pump” with stakeholders and to come to the discussion equipped with at least some examples of the kinds

of value and the sources of value they should be thinking about. One graphic we find helpful, which lays out some of the levers available across a wide range of supplier relationships – not just traditional outsourcing contracts – is found in the below graph.

a global financial services company had outsourced many functions over a period of many years as they saw opportunities to shed non-core functions, generate cost savings, and access different kinds of expertise through service provider relationships. This required a fundamental change in how they ran their business. Because of the way they had rapidly added to their portfolio of provider relationships, they had not developed a standardized approach to outsourcing relationship management and, as a result, many of their relationships were believed to be under-achieving their potential.

A cross-functional group of senior functional and business leaders, Procurement and Supply Chain Operations, and representatives from key suppliers came together to understand how relationships were currently being managed. The Procurement team, who had taken the lead in the effort, then identified a handful of the most critical outsourcing relationships and implemented a value discovery process.

Each relationship that went through the process reported that the

workshops put their relationship back on track. Suppliers especially welcomed the opportunity to work more closely with their customer and understand how to overcome stakeholder resistance to change so they could deliver additional value.

For each of the relationships, several ways to access unrealized value were discovered. During a value discovery session with an insurance products provider, for example, both sides identified regulatory scenarios they needed to prepare for, discussed changing the current sales process to better meet minimum product cover standards, and brainstormed new insurance products to be market tested as a way to mitigate lost profit.

During a session with a print provider, both sides discussed areas where the provider could take on additional creative generation, ways to develop a better, more efficient workflow management system, and ways to get better stakeholder buy-in, such as developing a virtual tour to better explain the provider’s capabilities to the business units.

The conversation with stakeholders needs to be about more than just “what do we wish for.” To engage in a productive value discovery exercise, it is also necessary to understand something about why these great ideas have not already been acted upon, so that the group can engage in some useful discussion about what can be done to overcome those barriers. The most common obstacles to taking action with respect to innovative ideas are:

• Relationship/Trust Challenges: The buyer and provider are unable or unwilling to trust one another, thereby making it difficult to create a productive, value-realising relationship

• Zero-sum Framing of Problem: The buyer or provider (or both) view the other side’s gains as coming at their expense• lack of Consensus Around a solution: Too many stakeholders are involved and/or organisational structures are unclear,

making it difficult for the group, as a whole, to reach solutions• NotInventedHere:Thebuyerisslowtosupportsolutionsorapproachesviewedascomingfromoutsideitsorganisation• stakeholder Resistance to Change: Stakeholders on the buyer’s side show apprehension about changing the way things are

done

Case Study


Business Value Business Benefits Value Levers

Value Enablers

Process efficiency Joint process redesign

Preferred access to best talent

Preferred capacity access

Supply chain effectiveness Joint supply chain redesign

Joint product design

Joint forecasting

Reduced inventory Joint specification analysis

New technology access

Supply chain visibility

Product innovation

Specification simplification Joint demand management

Shared marketplace insights

Joint risk management

Joint process innovation

Demand reduction Remuneration model redesign

Joint strategic planning

Gain sharing

Increased speed to market

Reduced supply disruption

Favored customer pricing Volume consolidation

Gain sharing

New market access

Fewer quality or service issues

Total cost reductions Total cost modeling

Strategic alignment/influence

Balance of dependency

Reduced capital expenditures Shared investments

Performance scorecards

Relationship governance structure

Joint review meetings

Post-award contract management

Supplier resource investment

Reputation protection

Reduced costs

Increased revenue

Reduced risk exposure

Open Communication

Mutual RespectMutual

Understanding

Mutual Trust

Impr

oved

end

use

r sa

tisf

acti

on

Service level improvement

Quality level improvement


4 | May–June 2014

May-June 2014 | 23

putting it into actionAs noted earlier, customers are well positioned to take the lead. When sup-pliers try to initiate these conversa-tions, they have to overcome natural skepticism by customers who fear being upsold. When customers put value on the table, they too have perceptions to overcome, especially the one that this conversation is just a pre-text for cost (and margin) cutting; but they have the ability to demonstrate what they mean.

Every customer, in every relatively complex relationship with a service provider, sometimes does things that make them a more difficult customer: they fail to forecast effectively (or at all), they resist process changes, they fail to take advantage of self-help or automation opportunities, they ask for lots of changes to standard

A constructive conversation: Using the input collected from stakeholders, the task of working through the hypotheses, validating them, and making some choices about which ideas to investigate or develop further can be fairly straightforward. While there are many ways to structure the agenda for value discovery workshops, experience has shown that some approaches work better than others.

A Value Discovery Workshop is A Value Discovery Workshop should not be

• Anopportunityfortheproviderto inquire about value perceived and to share information about its capabilities

• Apenalty-freesessionwhereparticipants may share percep-tions, brainstorm possibilities, and ask for help solving prob-lems

• Aplacetotakeabreatherfromday-to-day operations and look at longer-term or more strategic issues

• Anopportunitytoreflectonthe relationship and how it is working (or not) and how the parties can improve it

• Anegotiationaboutscope,pricing,orother terms

• A“pitch”fromtheprovideraboutnewservices the customer might buy

• A“triptothewoodshed”toremonstratethe provider on operational performance issues

• Asubstantivedecision-makingmeet-ing (but agreement about how to move forward is appropriate)

• Aone-timeevent• Animprovisationalexercise,withoutsuf-

ficient up-front preparation, senior-level participation, and appropriate follow-through

Well-run value discovery workshops are characterised by:• Opencommunicationandmutualrecognitionofeachside’sgoals,objectives,

strategies, plans, needs, and capabilities• Activeinvolvementofbothbuyerandproviderinthedesignofgoalsandstrate-

gies for the relationship (not just one-way)• Enhancedawarenessamongkeystakeholdersofthefullscopeofactivities

between buyer and provider• Opensharingofinformation,bothduringandafterthesession• Willingness(onbothsides)tocommitthenecessaryresourcestorealisedesired

value in response to well defined business opportunities

The reasons why customers routinely get less than the value they expected are varied.”

Most customers view their suppliers’ profitability as something to minimise, or at most ignore, they fail to help suppliers deliver at their best.





processes and/or they change their requirements and specs frequently,

they insist on complicated paperwork around new service requests, etc.

The interesting implication of that observation is that if a customer’s behaviour can impose costs on a sup-plier, the inverse is usually also true: most customers can find ways to make themselves less expensive to serve. Unfortunately, most customers don’t bother to do so.

Therein lies the opportunity to take the lead in an effort to uncover greater value. A customer is uniquely positioned to kick off a value discovery process by first looking internally to identify ways to become easier to serve. When they do so, they typically create

a potential surplus in the provider’s P&L, which itself creates the space for a discussion about how best to allocate that surplus: to provider’s margins thereby addressing a deficit that might otherwise detract from service quality and provider mindshare?

To the customer, by requiring that the provider pass on the savings? To fund some innovation pilots that may create even greater opportunities for improvement? A conversation about how to allocate a surplus is more likely to engender some flexibility and open-mindedness than one about filling a hole.

It doesn’t have to take a lot of effort to significantly improve the value equa-tion in an existing provider relation-

Tug of war … Every customer, in every relatively complex relationship with a service provider, sometimes does things that make them a more difficult customer.

ship. Outsourcing arrangements are by their nature rife with opportunities for improvement, but the opportunity is quite real across many kinds of supplier relationships. (Just consider what the data says about the value left untapped across most significant supplier con-tracts.)

What it does take is a bit of temporary detachment from the day-to-day battles over performance, quality, contractual requirements and others. and some focus on what additional value is pos-sible, “if only” we can overcome some common barriers.

Danny Ertel is a founding partner of Vantage Partners – a spinoff of the Harvard Negotia-tion Project.

At odds … The buyer and provider are unable or unwilling to trust one another, thereby making it difficult to create a productive, value-realising relationship.



Reinventing ProcurementCreating More Value

1. For the supplier I know best, what are the three most valuable things we could do to help them be more profitable and/or “win” in their space, at relatively low cost?

Supplier ______________________________________________________________________________

Idea How it helps supplier Cost to us


What are some things that a supplier could do for us (other than just cutting price) that would help us get our products or services to market better? Faster? Cheaper?

In order to Idea Type of supplier who could help

Get better products to market (innovation, quality, etc.)

Get to market faster (cycle time, inventory management, distribution, etc.)

Get to market cheaper (lower cost of inputs, manufacturing, logistics, cost of sales and marketing, etc.)


3Copyright © 2005 by Harvard Business School Publishing Corporation. All rights reserved.

N E G O T I AT I O N

Why Your Supplier Relationships Fail to Deliver Their True Value

Understanding that your negotiations with supply chain partners never really end is critical to unlocking a deal’s full worth

BY JONATHAN HUGHES

MOST SUPPLIER CONTRACTS fail to deliver their fullworth—or anything close to it. According to asurvey conducted in August 2004 by Vantage

Partners and the International Association for Contractand Commercial Management, only 13% of companiessaid that their contracts realized all their anticipatedvalue.

Why is it that the potential value of so many deals is sorarely realized, let alone expanded? At the root of the prob-lem is the approach most companies take to negotiation.Specifically, they view negotiation as an activity that endswith the signing of a contract, and that is a mistake that cancost millions. At a time when so many companies are dra-matically increasing their reliance on external partners tohelp fuel their business and compete effectively, this viewshould occasion significant alarm among both supplychain managers and senior operating executives.

The initial contract: You’ve only just begunData-driven evaluation of potential suppliers and rigorouscontract negotiations are not enough to ensure that a deal’sfull worth will be realized, particularly when deals representlong-term commitments between companies and suppliersto work together in complex, interdependent ways.

Maximizing the value of these relationships requiresfirms to embrace the financial significance of the hundredsof transactions, subdeals, and compromises that composelong-term arrangements with suppliers and bring to bear asophisticated approach to managing them. Companiesmust take the view that during the course of a relationship,they are in a continual state of negotiation.

The more complex the contract and the supplier rela-tionship, the more important it is to take this point of view.The conclusion of initial contract negotiation is only thefirst of many formal and informal negotiations that willoccur around a host of issues—from addressing opera-tional problems and managing project scope to dealingwith change orders and adjusting design specifications. Intumultuous markets in which circumstances and the people

involved in them are in continual flux, even the most care-ful planning won’t enable you to anticipate and dictate inthe contract itself specific responses to every eventualitythat might arise.

So what can be done? There are several more specificpractices companies can follow.

1. Build organization-wide negotiation capabilitiesAt ACME (a composite exhibiting traits we have observedin many companies), major value was lost during ongo-ing negotiations with suppliers over specific purchaseorders, change orders, fees for rush orders, and the like.Most of these cost-related discussions were handled byproduct managers, supply chain and logistics managers,and engineers—individuals who were highly skilled tech-nically and well positioned to understand and manage thebusiness issues at stake but who had never received any for-mal negotiation training. In fact, very few of these individu-als even thought of their interactions with suppliers asnegotiations.

An essential first step in improving ACME’s managementof suppliers was to design and deliver training for multiplegroups engaged in significant day-to-day interactions withsuppliers, both to build their awareness of the business andeconomic impact of their actions, and to equip them withcustomized tools and enhanced negotiation skills. Thisrepresented a fundamental change in mindset from seniormanagement down to individual contributors. Negotia-tion was no longer viewed primarily as a competency forthose in the procurement organization; it was recognizedas a necessary competency for anyone who worked closelywith suppliers.

2. Ensure coordination among those interacting with suppliersAlthough many issues that arose with ACME’s suppliersneeded to be negotiated by the managers from the businessunits that worked with suppliers daily, there was also apressing need for better coordination both among these


4 | supply chain strategy

Enhancing Supplier Relationships (continued)

groups and between them and corporate procurement. Forexample, for engineers and others to negotiate over scopeand specification changes, they needed a better under-standing of the master agreements in place and the reason-ing behind them.

Simultaneously, the negotiation of master contracts,which was led by procurement, suffered from inadequateinvolvement by those in the business areas who needed tooperate under those agreements. Consequently, deal termsoften did not fully address key business needs of eitherACME or its suppliers. Moreover,agreements were often negotiatedin a manner that was adversarialand focused on closing a deal withmaximum price discounting, leav-ing suppliers feeling unfairlytreated and many issues essential toeffective contract implementationunaddressed.

To address the need for bettercoordination, ACME adjustedbusiness processes and redefined job responsibilities. Inaddition, a shared electronic workspace was developedto provide a common set of tools and informationresources to the business unit managers who workedwith suppliers.

This not only gave everyone easy access to contracts,but it also provided business units and procurement withvisibility into one another’s interactions with suppliersand a more efficient way to collaborate on ongoing nego-

tiation goals and strategies. Because these tools werealso designed to track and enable effective negotiationof ongoing business issues, procurement gained valu-able insights into the day-to-day realities of contractimplementation.

For example, last-minute requests to suppliers toincrease or decrease production runs had long frustratedbusiness units at ACME (whose managers felt contractlanguage got in the way of efficient resolution of suchissues) and to procurement (whose managers believed the

business units agreed to pay exor-bitant rush and change-order feeswithout even attempting to nego-tiate).

With the advent of the sharedelectronic workspace, businessunits were equipped with a simpleelectronic tool that prepared themto negotiate such requests with sup-pliers. The tool guided individualsin prioritizing their needs (includ-

ing timing, cost, impact on supplier relationship, and soon), considering multiple different options for resolution,and gathering standards and precedents that could beused to negotiate with suppliers to determine a reasonableand justifiable fee.

This tool was linked to a knowledge database thatprompted users with potential options and useful stan-dards most likely to be relevant to their situation, based onthe collective experiences of others at ACME. Moreover,issues related to production-run changes were automati-cally tracked and could be analyzed. Reports generatedfrom the tool highlighted the fact that contracts were beingwritten to obtain lower prices by locking into unrealisti-cally specific production forecasts.

Based on this insight, procurement, with input from thebusiness units, was able to renegotiate master-contractlanguage with suppliers to include more flexible terms anda standard production change-fee schedule based on thetrue costs incurred by suppliers.

3. Strengthen relationships between procurement andbusiness unitsAt ACME, as at many companies, a major cause of poorcoordination was the suboptimal relationship that existedbetween procurement and the business units. While therewere few overt tensions, the business units saw procure-ment as too narrowly focused on price reduction andsomewhat arbitrary contract language. Procurement sawthe business units as indifferent to cost considerations anduninformed about marketplace alternatives.

A NEW VIEW OF NEGOTIATION

Negotiation has long been thought of as the process bywhich contracts are created and committed to and,hence, as the province of procurement groups. At thecore of addressing the value-leakage problem is theneed to reconceive negotiation more broadly: as amutual effort to develop ways to meet the interests—shared, different, and conflicting—of customer andsupplier.

Understood in this way, negotiation is an activitythat spans the life cycle of supplier relationships andthat involves multiple groups and individuals whointeract with suppliers. In other words, negotiation isfundamentally a supplier relationship managementcompetency, not simply a contracting or procurementcompetency. Recognizing the pervasiveness andimportance of negotiation is the first step in minimizingvalue leakage and realizing the full potential value ofeffectively managed supplier relationships.

A focus on maximum pricediscounting left suppliers

feeling exploited and issuesessential to implementation

unaddressed.


Month 2005 | 5

Consequently, procurement tended to try to minimizerather than maximize business unit involvement in con-tract negotiations—just as the business units avoidedactively reaching out to procurement for advice and guid-ance on a variety of postcontract negotiations over scopemanagement, interpretation of contract language, revisionor amendment to contract terms, and the like. Even thebest-intentioned efforts by each side to provide input orassistance often were often interpreted by the other side asattempts to exert control and were resisted.

While defining and formalizing coordination amongthese groups is essential, such efforts are bound to failunless procurement and supplier-facing groups withinbusiness units come to understand and respect eachother’s unique competencies and the value and impor-tance of coming together to jointly manage negotia-tions with suppliers—both during and after formalcontracting.

At ACME, procurement led an effort to solicit inputfrom business units on how procurement could partnermore effectively with them and, based in part on this feed-back, took steps to reposition itself as a strategic businesspartner with the business units. This required upgradingnot only technical skills but also skills related to communi-cation, consultative problem solving, and the ability tofacilitate internal negotiations over competing objectivesamong multiple internal stakeholders.

Transforming the procurement function also requiredmajor changes to procurement incentives, away from sim-plistic measures such as the amount of year-on-year pricereductions to more important (albeit more complex andmuch more difficult to measure) metrics related to thetotal value created through supplier relationships and pro-curement’s contribution to business unit success. ◆

Jonathan Hughes is a partner at Vantage Partners, a Boston-based

consultancy specializing in strategic relationship management,

and head of its Sourcing and Supplier Management Practice. He


WHEN NEGOTIATION ISN’T ONGOING

The failure to recognize the role of negotiation in ongoinginteractions with suppliers can manifest itself in severalways. Some of the most common are:

• Quality and/or service levels that do not meet expectations.

• Contract pricing that is undermined by poorly managed scope or volume changes.

• Expected innovation by suppliers that does not materialize.

• Contract compliance monitoring costs that are higherthan expected.

• Relationships that do not adapt to technologychanges or shifts in market demand.

Enhancing Supplier Relationships (continued)

© 2016 Vantage Partners. All rights reserved. | 29 3Copyright © 2005 by Harvard Business School Publishing Corporation. All rights reserved.

Turn Your Suppliers into Cost-Cutting Allies

Demanding nothing but price reductions from your suppliers is a zero-sum game. Instead, focus on bringing some creative juice back into negotiations.

BY JONATHAN HUGHES

PROCUREMENT GROUPS HAVE PLAYED a key role in meet-ing their companies’ ambitious cost-cutting targetsover the past several years. Through recurring nego-

tiations with suppliers, buyers have achieved repeateddiscounts. But as deals with suppliers have matured,negotiators are finding it increasingly difficult to repli-cate earlier wins. As buyers face continued pressure fromtheir companies to continue to drive down costs, they areincreasingly resorting to high-pressure tactics to squeezemore concessions out of suppliers.

For some companies, this zero-sum approach contin-ues to deliver the goods (at least for now), but for many,such tactics are failing. Too often, they result in time-consuming, highly contentious meetings that sour rela-tionships without producing significant or sustainablesavings.

A less adversarial approach is needed, one that viewssuppliers strategically, as valuable assets of the extendedenterprise rather than merely cost centers. This is particu-larly important for noncommodity suppliers that havemore to contribute than low-cost products or services.

Indeed, developing more robust relationships withcertain suppliers may well help firms return more to thebottom line than hard-line negotiations ever could. Tocite one example, research by the Boston-based AberdeenGroup found that integrating suppliers earlier in theproduct design process yields additional reductions of3% to 15% in product cost and can drive improvementsof 10% to 20% in quality and time-to-volume cycles.

So how can procurement groups forge more productiverelationships with suppliers, particularly when currentcost-cutting programs are bogged down? Try the followingstrategies for rejuvenating supplier relationships and put-ting the creative juice back into negotiations.

Shift from an emphasis on reducing costs to enhancing competitive advantageJust as revenue is rarely the only goal of a customer relation-ship (margins, cost of sales, use of a customer as a reference,supplier’s contribution to total sales, and market share all

matter to varying degrees), minimizing costs should not bethe primary goal of every supplier relationship. Before initi-ating any cost reduction negotiation, analyze what youneed most from that supplier. Dell Computer works withsuppliers to increase supply chain velocity—a key driver ofprofitability and competitive advantage in an industry inwhich prices fall rapidly and product life cycles are short.

Focus the negotiations on taking costs out of the supply chain, not the supplierMany suppliers hear “cost reduction” and immediatelythink “price reduction” or “margin erosion.” Try reframingthe discussion to focus on improving the efficiency of theoverall supply chain. Explore changes in materials require-ments, product specs, and business processes (includingyour own). Looking for opportunities across the entiresupply chain will produce larger and more sustainable sav-ings than extracting price concessions or new efficienciesfrom individual suppliers.

Chrysler’s SCORE (Supplier Cost Reduction Effort)program took this more constructive approach by solicitingideas from suppliers for innovations in design, materials,and processes. In its sixth year of operation, the programdelivered annual savings of more than $1.7 billion as well asprofitability gains through improved quality and fasterproduct development. A core element of the program wasgain sharing with suppliers. (For more information, seeJeffrey Dyer’s article “How Chrysler Created an AmericanKeiretsu,” Harvard Business Review, July–August 1996,Reprint # 96403.)

Create an attractive role for your counterpartConsider initiating negotiations by asking for your counter-part’s help instead of pressuring him to deliver costreductions. The supplier will naturally resist suchdemands—especially ones that feel unfair or arbitrary—and may well respond in kind. At the very least, high-handed treatment of suppliers is almost guaranteed todiscourage the kind of creative thinking necessary for con-tinued cost reduction.


BUILDING DEEP SUPPLIER RELATIONSHIPS

Toyota and Honda enjoy the best supplier relations in theU.S. automobile industry. In an alien Western culture,they’ve replicated the supplier webs they built in Japan:close-knit networks of vendors who continuously learn,improve, and prosper along with their “parent” compa-nies. This kind of partnering isn’t easy. It takes time, andit unfolds through the disciplined application of the fol-lowing six principles:

1. Understand how your suppliers work. Observesuppliers’ operations, cultures, and capabilities first-hand. One Honda engineer spent 12 months gettingto know a potential supplier.

2. Turn supplier rivalry into opportunity. Spark com-petition between vendors with your existing suppli-ers’ support. Toyota encouraged the formation of anew seat supplier with the blessing of its existingsuppliers.

3. Supervise your suppliers. Regularly assess suppli-ers’ performance on agreed-upon metrics, respondingto problems immediately. When a supplier can’t findthe root cause of a problem, Honda sends engineers totroubleshoot.

4. Develop suppliers’ technical and product-development capabilities. Toyota teaches suppliershow to collect precise data on equipment toler-ances so they can design products appropriately.

5. Share information intensively but selectively withsuppliers. Toyota shares proprietary information oncertain components with suppliers—then has themdevelop the parts on its premises.

6. Conduct joint improvement activities. Honda’sU.S.-based engineers lead continuous-improvementevents and create model product lines at suppliers’factories.

The payoff is well worth the effort. For example, Toyotaand Honda design new cars in just 12 to18 months—versus U.S. automakers’ two to three years—and areknown for their high quality.

This sidebar presents a summary of ideas originally published in

“Building Deep Supplier Relationships,” by Jeffrey K. Liker and

Thomas Y. Choi, Harvard Business Review, December 2004,

Reprint # R0412G.

4 | supply chain strategy

Turn Suppliers into Cost-Cutting Allies (continued)

A large aerospace company achieved only limited suc-cess over many years by demanding annual cost reductionsfrom suppliers. When the company found itself in financial

crisis, procurement teams insisted on even steeper cuts.When their demands were met with flat refusals, a top exec-utive stepped in and met with key suppliers. He expressed acommitment not to solve his company’s problems on thebacks of the suppliers, but explained that his companycould not solve its financial problems without their help.

One supplier offered to share ideas for redesigning keyparts in a way that would deliver enormous savings. All thesupplier wanted was to share in the gains.Amazed, the exec-utive asked why they had never shared the ideas before. Theresponse was disheartening: “We’ve tried for years to tellyour people, but they always dismissed us and told us theydidn’t need us to tell them how to run their business.”

Balance carrot and stick incentivesToo many companies negotiate through coercive leverageat every opportunity (even with suppliers that they dependon for much more than the lowest price) and explore alter-native approaches only when they are desperate. Othersrely simply on threats (explicit or implicit) to take the busi-ness elsewhere or on other negative incentives, all of whichare unlikely to maximize cost reduction and other forms ofvalue. A balance of positive incentives and negative conse-quences for subpar performance almost always producesbetter results than a pure-carrot or pure-stick approach.

Taking a more balanced approach does not mean com-panies have to be lenient with their suppliers. Since themid-1990s, Harley-Davidson has achieved tens of millionsof dollars in real cost reductions—along with majorimprovements in product development time, quality, anddistribution—through closer, more collaborative relation-ships with key suppliers. Suppliers know, however, thatHarley-Davidson will replace them if they consistently failto meet rigorous quality standards or deliver continuedcost savings—but only after working closely with them toimprove performance. Suppliers that perform well earnmore business and share in Harley-Davidson’s growth andsuccess.

Between 1996 and 2000, the company reduced thecost of goods and services sold by $37 million and cutinventory from 15 days down to as little as 6.5 days—andits 70 top-performing suppliers have prospered from thissuccess by receiving 80% of Harley-Davidson’s supplypurchases. ◆

Jonathan Hughes is a partner at Vantage Partners, a Boston-based

consultancy specializing in strategic relationship management,

and head of its Sourcing and Supplier Management Practice. He



Reinventing ProcurementImproving Our Functional and Soft Skills

1. Which topics or skills seem to be especially important for us?

Functional Skills Soft Skills

Supply chain mapping and risk analysis

Spend analysis and demand forecasting

Total cost of ownership calculation

Category strategy development

Sourcing strategy development

RFP reverse auction development and administration

Contract drafting and contract management

Other ______________________________

Stakeholder engagement

Influence

Negotiation

Communication

Conflict management

Creative joint problem solving

Facilitation

Building and sustaining constructive interpersonal relationships

Other _____________________________

2. What kinds of experiences (assignments, projects, or other opportunities) could our managers provide to help us get stronger at this?

3. What kinds of training should we prioritize to address this need?

32 | © 2016 Vantage Partners. All rights reserved.1FEBRUAR 2011 ÅRGANG 48 DILForientering

BY JONATHAN HUGHES, DIRECTOR, VANTAGE PART-

NERS AND JESSICA WADD, SENIOR CONSULTANT,

VANTAGE PARTNERS

It is no simple task persuading busi-ness units to give up relationships with long-term suppliers and begin

buying from new approved vendors. Nor is it easy to facilitate alignment among multiple groups – each with very dif-ferent priorities, goals, concerns and constraints – around the selection of preferred suppliers, or the terms of global contracts. Ironically, even negotiating for time and mindshare from key business unit leaders and staff for the express pur-pose of soliciting their input and trying to address their needs can be difficult.

Of course, procurement and supply chain groups need to be more than facili-tators of alignment and builders of con-sensus. They also need to drive change and champion enterprise objectives that transcend (and may be in tension with) the goals of particular business units or functional groups. That can be a difficult balance to strike, especially when many sourcing and procurement organizations are struggling to be closer and have stronger relationships with their internal business partners.

In our experience, common influence strategies and tactics often prove inade-quate to such complex challenges. Many people naturally approach persuasion as something that is done to others, not a collaborative activity to be engaged in with them. Not surprisingly, most advice about influence consists of techniques for getting others to agree to a preconceived plan or request. When making a recom-mendation or request, we assume (con-sciously or not) only two possible re-sponses – agreement or disagreement (yes or no), and therefore create conversations that allow for only two responses. The framing of persuasion as a one-way pro-cess reinforces the common but unhelp-ful tendency to focus only on finding at-tractive ways of presenting our own ideas, without doing enough to understand others’ resistance or to explore alternative solutions. When the stakes are high, when we are confronted with a complex landscape of myriad stakeholders with conflicting interests, and when we need to influence others with whom we will

have ongoing interactions, and thus need to build strong working relationships, a fundamentally different approach to per-suasion is called for.

In our work with procurement and supply chain organizations around the world, we have consistently observed three fundamental traps that commonly lie at the root of failed attempts to influ-ence others (see figure 1). Below we de-scribe and diagnose these traps in greater detail, and share three simple but power-ful strategies that we have observed, em-ployed ourselves, and coached others to employ, in order to influence others more successfully.

Trap no. 1: Seeking to persuade without being open to persuasion Recommended strategy: Approach influence as a joint problem-solving activity Many of us naturally assume that the goal of persuasion is to get our counterpart to agree with whatever we are proposing or requesting. Unfortunately, in many of the complex situations that sourcing and supply chain leaders confront, an as-sumption that “I have the right answer, and my job is to get you to agree,” is dan-gerously limiting. There are two problems with this mindset, and the influence tac-tics that naturally flow from it. First, this attitude almost inevitably leads those who hold it to act in ways that make others feel manipulated or disrespected. The second problem is that such a one-sided approach to persuasion generally forecloses opportunities for learning or jointly developing better solutions.

By contrast, it is far more fruitful to think of influence as a mutual, joint prob-lem-solving activity. Time and again we have observed successful leaders over-come resistance and gain the buy-in of others by re-framing the context from one of selling an idea (or in many cases some-thing more adversarial like a debate or ar-gument), to one of jointly exploring how to address a shared challenge. Such an ap-proach also creates an attractive role for

COMMON INFLUENCE TRAPS

Figure 1.

1.Seeking to persuade without being open to persuasion

2.Relying primarily on efforts to prove when attempting to persuade

3.Failing to view the world through the eyes of those we are seeking to influence

Influence and persuasion have become essential competencies for procurement and supply chain managers and professionals. Whether it is leading a new sourcing initiative, trying to maximize compliance with existing supply agreements, or driving organizational change around a new supplier relationship management program, the ability to persuade and to build and maintain alignment amongst internal stakeholders is critical. Moreover, with much of the low-hanging fruit available through traditional competitive bidding already picked, and as the need to reduce supply chain risk and foster innovation with suppliers rise to the top of the procurement agenda, influence has also become an indispensible strategy and skill for external negotiations with suppliers.

Approaching Persuasion asJoint Problem Solving

© 2016 Vantage Partners. All rights reserved. | 33 2 DILForientering FEBRUAR 2011 ÅRGANG 48

those we are trying to in-

fluence, namely as partners in addressing the issues at hand – rather

than objects of manipulation. By creating opportunities for stakeholders to share their ideas and perspectives, and see those reflected in the ultimate solution, a joint problem-solving approach to influence increases the likelihood of genuine stake-holder buy-in, and thus successful adop-tion and implementation of new plans or policies.

Trap no. 2: Relying primarily on efforts to prove when attempting to persuadeRecommended strategy: Seek to understand before seeking to be understoodArgumentative models of persuasion sat-urate most areas of our lives. From politi-cal debates, to our adversarial justice sys-tem, to the way the media covers key is-sues, we observe efforts to persuade that are founded on an attempt to marshal data that support one point of view, while developing arguments to under-mine alternative perspectives. So it is hardly surprising that we see exactly the same methodology employed in the workplace. People develop complicated business cases and PowerPoint decks to advocate for their preferred solutions (of-ten ignoring or glossing over any holes in the logic or data behind their conclu-sions). When they do bother to ask a question, the questions are typically de-signed to expose holes in the reasoning of others. One of our clients has coined a term to describe this behavior – “the col-lective monologue” – a mode of interac-tion that occurs when two or more execu-tives get into a conversation where each party focuses on defending their own views and attacking the views of others, and no one spends any time trying to un-derstand, much less learn from, other perspectives.

Ironically, we are usually least persua-sive when we are most emphatic in de-fending our own views and attacking the views of others. By glossing over any un-certainties or gaps in our own reasoning (in almost any reasonably complex situa-tion some gaps or uncertainties exist), we diminish our overall credibility, thus in-advertently undermining even our strongest arguments. Furthermore, an ar-

gumentative style of persuasion triggers actually makes it more difficult for others to agree with us, because doing so has been implicitly framed as defeat, as an ac-knowledgement of error, and a loss of face.

Being persuasive in the face of strong resistance often requires just the opposite approach. Rather than hide the gaps in our arguments, we need to highlight them. We need to expose our entire chain of reasoning and invite challenge at every level, from the facts we are considering, to the assumptions we are making, to the inferences we draw. In so doing, we are far more likely to be credible, to create a con-versation where others can truly stop and listen to what we are saying, and to create opportunities for learning. At the same time, such an approach is more likely to defuse the ego-driven, anti-learning de-fenses triggered by more argumentative approaches.

Rather than ask questions to poke holes in the reasoning of others, it is es-

sential to ask questions that are based on genuine curiosity about how and why someone may see a situation very differ-ently than we do. As long as we assume in our heart of hearts that those who are re-sisting a new supply chain initiative ar-motivated solely by a desire for unilateral control, or protecting their turf, or just because they are too stubborn or stupid to understand why our proposal is the most sensible approach, it is unlikely we will ever be successful in influencing them.

To be persuasive, it is essential that we ourselves remain open to persuasion (af-ter all, when was the last time someone convinced you by simply advocating for their point of view and being unwilling to listen to your perspective?). A useful technique is to acknowledge the validity of other perspectives (or at least the spe-cific elements that strike us as reasonable, or even compelling – even if we don’t

CONTRASTING CASE STUDIES

Consider the example of Brian, the head of a newly-formed central sour-cing organization at a major consumer products company. He and his team were completely deadlocked with the heads of two business units. Tasked with consolidating the company’s sup-ply base and reducing a supply-chain with over 5000 suppliers to one with 1000 or fewer, Brian’s team performed a thorough analysis and selected ap-proximately 3800 suppliers to cut. Brian personally spent many late nights refining a detailed business case and carefully crafting a series of arguments to persuade business unit leadership of the merits of his proposal. Eight weeks later, after countless meetings and de-spite having answered every concern and countered every objection, resi-stance had only become more entrenc-hed.

Now consider a similar situation at another multinational company. Shortly after she was tasked with con-solidating the enterprise’s suppliers, Maria, the head of corporate procure-ment, met with the heads of each of the company’s business units. She ex-plained the mandate she had been gi-ven, and asked for their help in deter-mining what criteria should be used to evaluate suppliers and decide which to cut. She also asked for their help in brainstorming ways to manage the risks of consolidation. In addition, while acknowledging the pressure she was under to deliver savings to the en-terprise, she also asked for advice on how the consolidation might be pur-sued in ways that would deliver additi-onal operational benefits to their busi-nesses. The process of gaining align-ment was difficult and at times conten-tious, but by enlisting line executives as partners in solving a complex pro-blem, rather than trying to push a solu-tion and persuade them to accept it, Maria was successful in implementing a consolidation effort with widespread buy-in – one that reflected robust and creative thinking from executives whose organizations depended heavily on having strong relationships with the right suppliers.

Many people naturally approach persuasion as something that is done to others, not a collaborative activity to be engaged in with them. Not surprisingly, most advice about influence consists of techniques for getting others to agree to a preconceived plan or request.

34 | © 2016 Vantage Partners. All rights reserved.3FEBRUAR 2011 ÅRGANG 48 DILForientering

share them) before advocating for our own views. By doing so, we avoid the common trap of assuming a binary choice between agreeing that someone’s ideas are correct, or attacking them (the ideas, or the person, or both) as foolish or unreasonable.

Not only is it important to carefully acknowledge what strikes us as having merit in the views of those with whom we disagree, it is also critical to share very explicitly how and why we see things dif-ferently. This last point is crucial. Too many of us try to gain a hearing for our views by faking respect for different view-points. We trot out formulaic phrases like “Horatio has a good point, but…” and then proceed to articulate our opinion in a way that makes it obvious that we think there was nothing of merit in Horatio’s perspective.

Such behavior is based on a correct intuition about human psychology – that demonstrating respect for the views of others often leads to more openness and less defensiveness, and therefore is a criti-cal ingredient in an effective influence repertoire. But insincere attempts at ma-nipulation, no matter how skillfully we think we are in employing them, are al-most never effective. In reality, it is very difficult to be influential without a genu-ine respect for, and curiosity about, the different views of others. Persuading oth-ers requires us to do the hard work of ar-ticulating specifically how and why we see at least some elements of their argu-ment as persuasive or at least reasonable, even as we reach a different conclusion about the situation.

Trap no. 3: Failing to view the world through the eyes of those we are seeking to influenceRecommended strategy: Actively and respectfully explore concerns and resistanceWhen trying to persuade a business unit to shift spend to a new preferred supplier, or a key supplier to share detailed finan-cial information to enable joint should-cost analysis, most of us naturally begin by thinking of all the reasons the other party (or parties) should agree. Indeed, we may well come up with a number of reasons why it is really in the other side’s best interest to say yes, or why it would be foolish of them to say no. Sometimes this works. The trouble begins in those situa-tions when the other side says no. Per-haps the other person is not a team player, or they are short-sighted and

don’t yet really understand what is in their long-term interest. Faced with re-sistance to what seems eminently sensi-ble or fair to us, the natural human ten-dency is to assume, at some level, that the other side is self-serving, ill informed, or even a bit irrational.

So, we redouble of efforts to come up with more reasons why the other party should say yes, and additional explanati-ons of why they would be unwise to say no – and more compelling and persuasive ways of articulating our reasoning. We handle their objections and explain away

their concerns. Unfortunately, such com-mon techniques, even if skillfully emplo-yed, often have the unintended conse-quence of leading others to feel unheard and disrespected.

A joint problem-solving approach to

persuasion, by contrast, leads us to dig into the stated (and unstated) concerns or objections of the person we are trying to influence. To change someone’s mind, we must first understand where their mind is at. Engaging and exploring resist-ance is somewhat counter-intuitive and often feels risky or uncomfortable, but in the end it enables us to better understand the underlying needs and concerns of others, and enables us to re-craft our pro-posals or requests in ways that make agreement more likely.

In reality, to change someone’s mind, we must first understand where their mind is at engaging and exploring resist-ance is somewhat counter-intuitive and often feels risky or uncomfortable, but by enabling us to better understand the un-derlying needs and concerns of others, it often facilitates the identification or de-velopment of alternative solutions that are more easily accepted by others, while still enabling us to achieve our objectives.

A useful way to codify this thought process is to systematically consider all the possible reasons, from the other side’s perspective, why saying “no” would be reasonable and justifiable. The mental ex-ercise of trying to understand (actual or potential) resistance as founded in rea-sonable and valid concerns or unmet needs provide important information for

A joint problem-solving approach to persuasion, by contrast, leads us to dig into the stated (and unstated) concerns or objections of the person we are trying to influence. To change someone’s mind, we must first understand where their mind is at

Figure 3.

Limiting assumptions Common traps

My goal when persuading others, and the way I can be most helpful and effective, is to help them see and acknowledge the validity of my point of view.

Seeking to persuade without being open to persuasion

I have all the facts I need and I understand the complete picture. Disagreement indicates that others are wrong or that they do not see the situation as clearly as I do.If I articulate my perspective or position clearly and force-fully enough, I’ll get others to “see the light” and agree.

Relying primarily on efforts to prove when attempting to persuade

Given the above, if others continue to disagree or choose to do something other than what I am suggesting, they must be irrational, stupid, or motivated by purely selfish considerations.

Failing to view the world through the eyes of those we are seeking to influence

ILLUSTRATIVE ANALYSIS OF STAKEHOLDER CONCERNS ABOUT SWITCHING SUPPLIERS

Figure 2.

Consequences of saying “yes” Consequences of saying “no”

-

-

-

-

-

I lose a valuable relationship with my current sup-plierMy group has to spend time getting the new sup-plier up to speedSome of the cost savings that procurement expects will accrue to Corporate, but all of the cost and risk will be borne by my business unitQuality will suffer, both as the old supplier loses motivation, and as the new supplier gets up to speedA precedent will be set that Corporate Procurement calls the shots on supplier selection – if this doesn’t work, my unit suffers; if I can make it work, I’ll just succeed in making the case for more Corporate meddling

+

+

+

+

+

+

+

I maintain my relationship with a valued, reliable supplierMy group’s productivity won’t suffer during a compli-cated transition periodMy business continues to be a priority with a supplier that views us as a key account – service will be good and issues will be resolved quickly and easilyI won’t need to have any uncomfortable conversations disengaging with my current supplierI avoid complaints and morale issues with my team, all of whom like working with our current supplierI set a precedent that our business unit drives supplier selectionANDI can always say yes later

© 2016 Vantage Partners. All rights reserved. | 35 4 DILForientering FEBRUAR 2011 ÅRGANG 48

moving into joint problem solving. A simple way to ensure robust analysis is to do a somewhat counter-intuitive balance sheet (see figure 2) – anticipating and/or diagnosing resistance from two perspec-tives: (1) the downsides of saying “yes” to what you are proposing or requesting, as perceived by the party or parties you are seeking to influence, and (2) the per-ceived upsides, from their perspective, of saying “no.”

It is important (though not always easy) to avoid being distracted by the fact that we may not agree with many of the concerns we uncover. The first priority is to discover how others see the world, and to develop an empathetic understanding of their resistance. Such efforts not only uncover information that enables more effective influence and problem-solving, it demonstrates a genuine concern and respect for others – which in turn creates a more receptive audience for virtually any proposal or request.

Cultivating an influential mindsetThese strategies may sound simple, and to a large degree they are. Nonetheless, it is when these approaches to influence are most needed that they are often most dif-ficult to put into practice. In a fast-paced, results-oriented business environment, smart, experienced people too often see their job as figuring out the right answer, and then getting others to agree. No tac-tic or technique is likely to help us when we confront resistance in such a frame of mind (see figure 3).

Instead, enhancing our ability to in-fluence others depends in large part on changing deeply engrained assumptions about influence, and beginning to view both ourselves, and others, in a new and different light (see figure 4).

As sourcing and procurement organi-zations continue to evolve from their roots in tactical purchasing to increas-ingly strategic roles within the enterprise, influence skills – and the ability to lead change and build alignment among mul-

tiple stakeholders – will only become more important. It is therefore crucial for leaders and professionals within these groups to develop and employ sophisti-cated influence strategies and skills. /

Figure 4.

More empowering assumptions More effective influence strategies

I can be most effective by understanding and leveraging the perspectives of others — regardless of how unconstruc-tively their views may be expressed.

Approach influence as a joint problem-solving activity

A complex situation can generally be interpreted in several valid ways, since the involved parties almost certainly have access to, and focus on, different information. In order to come to a good solution, I need to be able to understand the views of others who disagree with me.

Seek to understand before seeking to be understood

People tend to do (a) what is in their best interest and (b) what seems reasonable and justified to them. Actively and respectfully explore concerns and resistance

In a fast-paced, results-oriented business environment, smart, experienced people too often see their job as figuring out the right answer, and then getting others to agree.


Reinventing Procurement Opportunities to Show We Can Help

1. What are my most significant internal customer’s top priorities?

Internal Customer: _____________________________________________________________

1.

2.

3.

4.


2. How can I use my specialized knowledge and skills, my relationships, or my tools to help with those?


2


4

FIGURE 1: The Five Core Concerns in Action

COMMON BUT UNHELPFUL EXAMPLES CONSTRUCTIVE EXAMPLES


Reinventing ProcurementBuilding the Right Mindset

1. How do we build the right mindset within the Supply Chain organization?

2. How do we get buy-in or the right mindset from our internal stakeholders?

3. What change management activities should we prioritize to address this need?

Leadership messages (both internally and externally)

Process changes (e.g., in how we align with internal customers, source, manage supplier relationships, etc.)

Tools (e.g., job aides, playbooks, dashboards, knowledge manage-ment, etc.)

Skill building

Management systems (including what we recognize and reward)


Putting It All Together

1. Reflecting back on your organization’s business needs, and those up and down your supply chain, what are the most important things your sourcing and procurement team should work on to add the most value?

Ways to add the most value Necessary enablers

2. Indicate above what you need in order to be able to deliver that value, by way of stakeholder or supplier relationships, skills, or other resources?


Vantage’s Sourcing and Supply Chain Management Practice

We partner with clients to help them achieve world-class procurement and supply chain

management performance through strategic advice, organizational transformation,

hands-on advisory support, and design and delivery of training and coaching programs

` Spin-off of the Harvard Negotiation Project

` Faculty at Harvard University, the Tuck School of Business at

Dartmouth, and the US Military Academy at West Point

` Leaders in international conflict resolution through CMG

(now part of Mercy Corps)

negotiation collaboration innovation transformation

Vantage Partners | 10 Guest Street, Boston, MA 02135 USA | T +1 617 904 7800 F +1 617 904 7850 | www.vantagepartners.com

Copyright © 2016 by Vantage Partners, llc. All rights reserved.

Danny Ertel | Partner

T +1 617 904 7801

[email protected]

make-over magic - reinventing procurement (and ourselves)

Documents