The goals of a business haven’t changed too much in the 150 years since the procurement function first arose at the dawn of the second industrial revolution – enterprises need to purchase goods and services for less money and sell for higher prices—this impetus has not shifted much since business first began. What has changed, however, is the environment in which most sourcing teams must operate. 2015 finds us in a world with increasing economic volatility and regulatory changes that put pressure on the profit margins of businesses around the world.
This changing world has required procurement and supply chain teams to focus on moving beyond the tactical aspects of sourcing and start to look at the strategic aspects more closely, creating plans and policies to guide sourcing events as they arise. It is this challenge that Nadia Malek, Cirque du Soleil senior director of supply chain, and Marc Calhoun, Abercrombie & Fitch senior procurement specialist, discussed in a session I attended at AribaLIVE 2015 in Las Vegas last month.
Cirque du Soleil: High-Flying Sourcing Acrobatics
When Nadia Malek arrived at Cirque du Soleil in 2009, three years before taking her current job, the company’s sourcing efforts had a much more tactical focus. She told session attendees that Cirque’s procurement policy was 27 pages long, owned by three distinct functions in the company, and did not have any consequences for non-compliance. The general attitude throughout Cirque’s operations at the time were that the procurement policy applied to other people, when employees actually knew about the policy. For that matter, Malek said, 172 people had the ability to create suppliers in SAP and there were no standard forms for these inputs.
Part of the reason for this is because procurement historically was a decentralized organization at Cirque. Many of the company’s products are purchased in a one-off manner, typically from suppliers local to the various shows Cirque puts on, which makes for a different situation to many procurement functions. This has changed in recent years, however, as now Malek said she hires buyers for their sourcing skills and not their ability to type a purchase order.
It was this change in hiring, and a new policy that Malek and her team created, that has helped Cirque turn a proverbial corner when it comes to sourcing operations. Malek’s new procurement policy is much shorter than the old one, and she has added teeth into the policy as well as built strategic relationships with procurement’s internal customers to drive results. These strategic relationships, first with the most senior executives and then moving down the ranks, have really helped Malek ingratiate sourcing with the entire Cirque du Soleil operation.
To help with this, Malek advised sourcing professionals to involve budget holders as closely as possible, and to make the budget holder look good by telling his or her boss how well they worked with the sourcing team to find deals for the enterprise. It is this ability to share credit, and the skill at finding out what internal customers really want, that Malek said has allowed her to grow the Cirque procurement function into a powerhouse of value to the company at large.
Abercrombie & Fitch: Sourcing for the Modern Retail World
Marc Calhoun has worked as a senior procurement specialist for Abercrombie & Fitch for about a year; before that he held a procurement position at Cardinal Health, where he worked as a category manager sourcing difficult services such as facilities management, legal, marketing, and data and information services among others. He brought this experience to the four brands of Abercrombie, which are A&F, A&F Kids, Gilly Hicks, and Hollister.
Some of Abercrombie’s particular struggle can be tied back to the information the company did and did not have about its suppliers. Historically, Calhoun said, Abercrombie was more concerned with what impacted its stores rather than any indirect spend. There is now a litany of suppliers, Calhoun said, that Abercrombie did not really know much about. And this is a problem because, according to Calhoun, this represents a lack of the data needed to really advocate for procurement inside the organization.
“Data is what’s going to be key for sourcing professionals going forward,” Calhoun said, noting that improved data also makes it easier for procurement to showcase its value to management and the rest of the enterprise.
Abercrombie has a very mature process overall, Calhoun said, noting that formalizing the process means that he can tell at which point in the process certain things will happen. On the technology side, Abercrombie has used eSourcing from Ariba since 2011, which has allowed what data the procurement team collects to churn data quickly and return it to the business to create value. They have also wrapped spend analysis and contracts modules around that eSourcing process, which has allowed Calhoun to start to have specific conversations with different executives to negotiate contracts and reallocate spend to make it more effective.
For Calhoun, all of this comes back around to making the procurement team an extension of the business that is important enough to be brought into contract deals with suppliers earlier in the process. This early entry into the negotiation process can result in improved results for the business, according to Calhoun, and thus prove procurement’s value very quickly.
Final Thoughts
Having a strong process and advanced sourcing technology can only go so far. After all, what use is an eSourcing tool if no one in the business brings procurement into deals? The key to crafting a lasting sourcing initiative, which both Malek and Calhoun hammered home during the AribaLIVE session, is the ability of procurement to create lasting relationships with internal and external stakeholders. Once tied with rich spend data, these relationships will bear fruit for all levels of the organization.
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