Today, we are pleased to welcome procurement industry leader and “friend of the site,” Scott Forest as a guest contributor. Scott’s been adding value to his business units by managing spend and services for many years, most recently as the Chief Procurement Officer at Kuehne + Nagel, Inc., one of the world’s leading logistics providers. You can read his article below and you can read more about his background here.

[Publisher’s note: From time to time, CPO Rising has welcomed guest contributors. We’d like to do this a bit more in the future; so, please contact me if you have interest in contributing.]

Adding Value to the Business Unit (BU)

We all see ourselves as contributors, but is it making a difference?

Unfortunately, in this economy it is difficult to know who determines the real value of what we do and the level of success that it provides. Many self-help publications have made gallant attempts at pointing us in the ‘right’ direction, such as improving your leadership skills, striving for additional certifications or getting more ‘connected’ in your specific circles of influence. These personal enhancements are good and should be considered. Yet, there is one consideration that remains paramount as an indicator of how you, your department, or division are adding value. How closely are your goals and projects aligned with your BU, i.e. your internal stakeholders? If a third party auditing firm were to ask you, how would you rate your answer?

Let’s say you establish a cohesive sourcing project plan, anticipate all issues involving vendors, provide tremendous savings, and bring it in ahead of schedule and under budget. At first, this sounds like a total success, right? How concerned would you be if you found out that your project was moving in the opposition direction of your BU? Would management still consider your savings to have the same amount of value as your original assessment? Making sure that your goals are fully aligned with the BU is the first and most fundamental part of your job description. Here are three examples of gaining alignment.

1.) Lease Schedules – When branch or corporate facilities are leased (vs. owned) each contract is tracked and supported by a myriad of variables, e.g., taxes, work letter (landlord obligated assistance), maintenance, etc. The Procurement professional adds value and aligns themselves to the BU if their Lease Management Program coincides with the same schedule as each facility and makes sure that all pricing is correct, Legal is OK with the verbiage, and the facility is getting what they expect. It would be disastrous if a 4-year contract was erroneously executed when a corporate edict had already been issued to close this facility in 2 years. A lack of communication does not add value.

2.) Hiring Resources – Most companies are very sensitive about adding temporary (i.e. contingent) headcount due to the high cost of training, benefits, seasonal requirements, etc. It is also a very large category for many companies. As such, the business usually has a great interest in knowing the type of labor being used, e.g., clerical, warehouse, technical, etc., and how much it is costing each facility (and Business Unit). Procurement can help the BU by delivering monthly reports containing relevant metrics such as hourly rates, overtime worked, and spend by agency. Other essential parameters tracked in the procurement-generated report should include: quantity of each type of labor at each facility, time estimates for tasks, and the performance of labor. Beyond the monthly reporting, it is critical to maintain proper paperwork (e.g., agency contracts, time cards, appraisal reports, etc.). After all, you don’t want to hire, train, and promise the providing agencies with definite time periods for work, unless you have confirmed all necessary information for each facility. To achieve 100% visibility and compliance, it is best time to involve each facility before, during, and after your RFP (request for proposal) process and to establish reporting standards with the agencies within the RFP.

3.) Buying Capital Assets – We have all heard stories of companies that have failed because of poor financial decisions. Many wonder whether their Procurement professionals could have added more value and somehow prevented such a mishap. Assets are one of the vital statistics when evaluating a company’s fiscal health. It could also be said that there is a proportional relationship between how well a company manages its assets and its present company value. So, when improving the management of capital spend, senior executives are apt to scrutinize your results with great interest. How to run CapEx RFPs can vary, but a few Scorecard variables that will help the business would be: category profiling, supplier assessment, negotiations, implementation, and acceptance. While Strategic Sourcing projects are complex and time consuming, a Procurement professional and team will add much greater value if they fully comprehend the business strategy prior to implementation and report out information that helps management make better decisions.

Communication is another critical aspect needed to gain alignment with the business since companies often have an unwritten policy of requesting monthly or quarterly management reports and then provide little-to-no feedback on them. Limited commentary and feedback then forces procurement to ‘guess’ at what is best for the company. So, while there can be a degree of latitude and creativity when it comes to internal communications, getting the word out on your projects is not just a casual exercise. Articles in your company newsletters or updating the intranet with departmental notices are excellent ways to present what procurement is doing and how well it is doing. However, to add greater value, procurement needs input from supervisors and feedback from senior managers on what support is needed…. one solution: proactively craft an internal report that provides a review of the work procurement has done on behalf of the business and is currently being planned as well as other data that is germane to the business and request the business leaders to comment and respond as a way to determine if the work procurement has done and is doing is inline with current corporate business plans, if additional information is needed and to request a brief meeting to discuss new ventures/requirements.

Additional evidence supporting the importance of procurement’s alignment with the business exists in current procurement job descriptions which requesting experience that focuses on the ability to ‘communicate’ with their BU, such as the following excerpts:

• “You will lead communication with BU leaders and other senior managers within the organization to ensure that the Procurement team strategy and approach is understood and agreed.”
• “Ensure that procurement strategy is developed in line with the corporate strategy.”
•  “You will contribute by developing the strategic direction of procurement and ensuring that this strategy correlates with overall business initiatives.”
•  “You should ensure quality, whilst achieving an optimum balance between value for money and cost savings.”

Today, you might have established a procurement strategy that is currently blessed by the BU, but nothing stays the same and corporate news changes daily. So, what does all this mean to the professional, independent thinking procurement leader who plays by all the rules? Simple, regularly confirm the rules, communicate with stakeholders, and verify that the corporate compass is in direct alignment with your procurement goals – this will put you and your team on a clear path to adding the greatest value to your BU.

CPO Rising would like to thank Scott for sharing the above insights and recommendations that are based upon his years in procurement as a Chief Procurement Officer.

Tagged in: Case Study, Chief Procurement Officer, Collaboration, CPO, CPO Shop Talk, Guest Contributor, Outside Experts, Performance, Strategy