thinking

The challenge for Procurement: become – or remain – relevant to our organisations.

Procurement can deliver value.

Unfortunately, our stakeholders and executives don’t always agree.  They may have had bad experiences in the past, or believe that they can buy better.  As a result, procurement professionals are often in the position of convincing others of our value.

I recently attended one of Peter Smith’s Tejari events* and he said something that really resonated with me.  There are three reasons why users will engage with procurement: expertise, resource and compliance.

So true!

Capability, capacity and the big stick of corporate governance.

Our greatest challenge is to become – or remain – relevant to our organisations.

Relevancy gives us the platform we need to show that there’s far more to our profession that sending out RFP’s or squeezing the last margin point out of our suppliers.

However our path to relevancy isn’t an easy one.  It requires an ever changing skill set to support an evolving value proposition. New delivery models are changing the face of how organisations are accessing procurement people, services and technology.  The future of procurement is upon us, and it’ll look very different from what we are used to.

We can grow the procurement team – so that we have the resources available for our stakeholders’ needs – and we can audit and impose authority through compliance frameworks.

Nothing wrong with that.

And still the stakeholders will need convincing that ‘good procurement’ is something that can help them achieve their goals.  They have to be persuaded that it’s the Procurement function or individual who is best placed to help them.

And that means starting with you; with your capabilities.

Ø Why would someone want to involve you in a procurement?

Ø How can you improve your procurement performance?

Ø What are the important things you need to do to be relevant to your organisation?

For successful learning, there are four main factors in play. They are as follows:

  1. Wanting to learn is important When people really want something, they usually get it sooner or later (whether or not it’s good for them!).
  2. Learning by doing. Learning by doing is how most people learn, including by trial and error, practice, and learning from mistakes. Academics refer to this as ‘experiential learning’.
  3. Learning through feedback ‘other people’s reactions’ is the most frequent reply about how people account for having developed positive feelings. Ignore our feelings about learning at our peril! Feedback comes from all directions including  stakeholders, learning resources, expert witnesses such as tutors, and so on.
  4. ‘Making sense’ of what has been learned. I often say that the important step in this area is ‘getting my head round it’. It’s tempting to use the word ‘understanding’ for this, but it’s not the best word. The problem with ‘understanding’ is lack of a shared view of what the word really means. More appropriate is the word digesting for the ‘making sense of it’ dimension of learning.

The Procurement Revolution

Here’s a resource for your procurement learning you should consider exploring (and yes I am involved, in a small way – and no I’ve no commercial benefits from this).

For the procurement world this is really quite a nifty approach to learning – video and podcasting.

There’s a range of leading procurement types giving their perspective  and sharing their insights including Kate Vitasek, Mark Perera, Gordon Donovan, Ed Cross and Stephany Lapierre.  You’ve probably come across their insights on social media.

The Procurement Revolution will run from September 26th to September 30th 2016.

It’s free! and 100% online. The majority of the content will be made available to watch or listen to on-demand, during the course of the week.  There’ll also be a series of live events for enlisted members to participate in.  On-demand content will typically run from 5 – 15 minutes, and live events will be 30 – 60 minutes long.

 

Sign up on here http://theprocurementrevolution.com/ to register, and you’ll receive log in details for The Procurement Revolution site.

Till next time

Steve

 

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4 facets of FIDIC that kinda blow me away

Model forms of contract are used on major projects – think JCT, DEFCONS, FARs, NEC3 – but the daddy of them all is FIDIC, the International Federation of Consulting Engineers, set up way back in 1913 and reflecting the global application typically referred to by its French acronym – naturellement🙂

Rather grandly, FIDIC has a ‘rainbow suite’ of model forms of contract – different colours for different types of contracts.

I’m gonna focus here on the Yellow Book – Conditions of Contract for Plant and Design-Build.

This is the basis of a Contract between the Employer and the Contractor and is used on projects where the contractor carries out the majority of the design i.e. the Contractor carries out the detailed design of the project so that it meets the outline or performance specification prepared by the Employer.

The Yellow Book is a lump sum price contract with payments made according to achieved milestones on the basis of certification by a third party appointed by the Employer and referred to in the Yellow Book as the Engineer.

Before I go on, can you imagine the risks involved in the process, detail, timing and consequences of the Engineer giving ‘certification’?

Meantime, who am I tell you anything about the yellow book?

I’m no lawyer!

I’ve been working on the world’s largest public transportation program in Jeddah, Saudi Arabia (which I’ve loved!) and applied the Yellow book to a series of Tender packages. Only 20 conditions (I recall DEFCONS had 118 last time I looked) but by Jove there is some complexity in there.

For the avoidance of misunderstanding (and in case my employer or the client- or the contractors – are looking in) I’ll be making no reference to the program detail or indeed any other projects I’ve worked on.

Here’s my take on 4 facets of FIDIC that kinda blow me away:

  1. It’s full of holes!

Let’s start right off the bat with ‘definitions’.

The contract is silent (as the lawyers would say) on a raft of terms that I really do think would benefit from being defined. For example ‘supplier’ (although to be fair ‘contractor’ and ‘subcontractor’ are defined), ‘stakeholders’, ‘authority’ and ‘neighbours’. I could go on.

When you use FIDIC you need a full set of ‘particular conditions’ to fill the holes – or tailor, I suppose – the contract to meet your specific needs and appetite for risk.

Maybe this is the whole(!) point of model forms of contract…does NEC3 need this level of special terms and conditions? To manage the allocation of risks some real finessing of the FIDIC is needed. This is no off-the shelf solution.

       2. For the Engineer, with great power comes great responsibility.

The Engineer is primarily responsible for contract administration.

Curiously, the Engineer, a third-party, is appointed by the Employer (and acts on behalf of the Employer – FIDIC doesn’t state the need for the Engineer to be impartial – except when fair determinations are required). But under FIDIC the Engineer must act fairly. Of course ‘fairly’ is not defined in the contract (he said, tartly).

When the Engineer issues instructions and notices and acts as certified (I shudder at the implication of ‘approval’) it’s to be in the best interests of the project. Tough gig!

    3. The importance of the Employer’s relationship with the Engineer.

As mentioned in 2., above the Engineer is not ‘impartial’ but is ‘deemed to act for the Employer’.

It’s absolutely key that the Employer designates a staff member, separate from the Engineer, to represent him (the Employer) whenever the Contract requires, notice to, or action by, the Employer.

Why am I making a thing of this?

Well, the Engineer needs the Employer for a whole host of approvals and instructions e.g. determinations, Subcontractors, extension of time, performance certificates, variations. It’s a long list if you check out the detail. The impact is that rather than working in some kind of collaborative spirit of the contract, FIDIC demands utter rigour that each and all contractual obligations are fully met…or there will be consequences.

And this relates very much to the need to create and maintain formal and yet positive relationships between the Engineer and Employer, never mind with the Contractor. A good example is effectively managing contract variation to avoid undermining the negotiated intent.

And not forgetting to maintain an impeccable documented audit trail of key decisions and outputs e.g. in case of dispute.

   4. The Letter of Conditional Acceptance.

Back in the UK, I was taught, nay, ordered, to steer clear of letters of intent or anything that wasn’t the signed, written contract – to mitigate risk of entering into agreement by accident. Ensuring there was no evidence of terms that would supplement or contradict the one and only contract document. Nothing else to be admissible!

And yet there is the Letter of Conditional Acceptance?

Inevitably shortened to LoCA – infrastructure projects love acronym soup. The LoCA is issued to the preferred tenderer and, fingers crossed they sign it with full compliance. Then the one and only contract is issued and signed by both parties.

Did you see what I did there?

I referenced a ‘contractual’ document that is outside the one and only final contract. Risk!  Of course the purpose of the LoCA is to mitigate risk…but still… you can see where issues can arise with (any) conflicting provisions of the final contract taking precedence over the LoCA… as I said, fingers crossed.

That’s it!

4 facets of FIDIC that kinda blow me away.

The takeaway:

Hopefully calling out these 4 facets of FIDIC stimulates your approach to managing projects. As I write them, I’m reminded of their risks (and opportunities) and my aspiration to effectively deploy the whole of FIDIC for my clients.

Does FIDIC stimulate disputes?

Maybe no more than other contracts for high-risk, high-value projects. Although, there appears to be few dispute case reviews related to the Yellow Book, as the majority are conducted through arbitration and are not in the public domain.

Good news then, and fingers crossed…hopefully, all will go well. Such fine words, noting, as a previous colleague (hello Jon!) might add when it comes to FIDIC:

‘hopefully doth butter no parsnips’

 

What lessons have you learned while managing projects? Please share your thoughts in the comments section below as I learn just as much from you as (hopefully) you do from me.

Image: taken with an Iphone 5 by the author when out and about in North London, July 2015  – thought it fitted quite well with the theatrical quotes🙂

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The #1 action of Procurement leaders.

This week, the procurious Big Ideas Summit was played out, and apropos of nothing, survey findings from 500 procurement professionals were published by DeltaBid.  Like many, I followed the Summit online (I’m in Jeddah) and was enthralled, stimulated and impressed.

As I read the survey findings, I’m depressed.

William Gibson, one of my favourite authors said:

The Future Has Arrived — It’s Just Not Evenly Distributed.

That appears to be the case with Procurement.

How do I draw that conclusion via a Summit and a survey?

The top challenge, concludes the survey results – of procurement professionals – is Suppliers; namely finding suppliers, managing relationship with suppliers, evaluating suppliers and selecting the best one.

Imagine, for a minute if a lawyer informed you that their biggest challenge was drafting a contract – or a footballer that their biggest challenge was kicking a ball. You get the idea – you can see why I’m a little bit blue.

But as I reflected on the impassioned, smart Summit insight from Dapo Ajayi at AstraZeneka, Gabe Perez at Coupa, Martin Chilcott at The Economist, Tania Seary from Procurious and the many others it appears pretty obvious what is the number one action of Procurement leaders.

Attracting talent.

Assembling a team of technically smart (by technically, I mean procurement knowledge and skills) committed people, with integrity and then getting rid of barriers to achieve the organisational goals. Give them the tools to do a great job. Set them a course and unify the team around that direction.

As illustrated by the Summit’s speakers and the survey’s findings, Procurement is wholly reliant on the talent to deliver success – and the essence of the issue is attracting, retaining and developing Procurement people.

Procurement leaders, company directors, heck, even bid managers and legal advisers working together understand how people embracing an integrated approach to generating success from the supply chains can have immediate impact, across any business sector.

And technology is a vital platform(s) to equip and enable Procurement to deliver for their organisations and indeed wider, for the modern World – and maybe the DeltaBid tools are what’s needed – (btw I have no commercial links with procurious nor DeltaBid).  And the contract terms and the sustainability policies and, the risk methodologies and the parametric estimating and, and, and – there’s a whole heap of other issues, I realise.

But the starting point, as always, is people.

anya

Why isn’t everyone utilising eSourcing?

Anya Mckenna, from Market Dojo, is our questioner and guest blogger:

 

eSourcing adoption has increased in larger organisations as they implement software to bring eSourcing in-house or use consultants to conduct tenders on their behalf.

We all know eSourcing comes with a huge number of benefits and companies are aware of these, yet it still seems that companies, small and large, are lagging when it comes to adopting the technology.

Recently I started a discussion asking the lovely members of Procurious:

‘What’s the first thing that comes into your head when you hear the word ‘eSourcing?’

They all responded positively with the majority stating ‘efficiency’ as the key factor of eSourcing. Other thoughts that people had around the topic include; “Repeatability”, “a way to engage suppliers”, “Collaboration”, “Centralisation”, “Innovation”, “a means of driving further savings”.

All great reasons to start using eSourcing. However, as noted by one respondent:

Why isn’t everyone utilising eSourcing?

The biggest competitor is not an all bells and whistles ERP system- it is email… still!

What is it about email that keeps procurement professionals tied in? Or is it just a matter of being stuck in their old ways, unable to see the wood for the trees? People are notoriously opposed to change, but it doesn’t mean you can’t teach an old dog new tricks. Is it a matter of ‘if you can’t beat ‘em, join ‘em’? Are eSourcing providers going to have to incorporate email within their technology as the CRMs of today have done?

What ways have you found to promote eSourcing to your fellow procurement professionals, who may still be stuck sourcing goods and services without all the benefits of eSourcing mentioned above?

Thanks Anya, particularly impressed with the discussions you fired up over at Procurious – and, dear Reader, please let us know your thoughts in the comments below.  Always learning! – Steve

About Anya McKenna.

Having joined the team in early 2015, Anya manages marketing and market analysis at Market Dojo. Market Dojo is a e-Sourcing software providing an easy to use, professional solution with completely transparent pricing. From creating content and managing social platforms, to attending networking events and building client relationships, Anya is the first point of call for any questions you may have about Market Dojo.

leah

Doing Procurement differently for International Development

Guest post from Leah Dembitzer: Leah is part of the International Development team at AECOM, leading on UKAID-funded projects related to disaster risk reduction and response.

The international development space is one that encourages diversification of the supplier base and aims to crowd in smaller and niche actors so as to ensure a tailored and locally-drive response with the intention of strengthening local capacities and fostering sustainable programmes.

International actors need to take a lead in ensuring smaller, niche suppliers are able to influence sector activities and thinking. It is local actors who are often at the epicentre of programme activities and thus have the most nuanced understanding of the needs on the ground. Large, international players can cut their learning curve by working together in mutually beneficial partnerships with local partners. 

Not only does the implementation of a project need to be locally driven but the design must also be locally-informed. The economies of neighbouring countries across the developing world are growing and shrinking at vastly different rates and climate shocks and stresses vary substantially from one part of a country to another. It is therefore not enough to ‘copy and paste or’ to ‘apply best practice’ as a result of past successes. Local technical assistance providers, for example, should be consulted as part of decision-making processes throughout the duration of a programme so that the programme can be adapted continuously to meet changing needs on the ground.

Instead, international development actors need to begin with assessing and consulting the local market to understand what the underlying cause of any given issue is. This market intelligence can in turn influence international development actors to align their supply chain decisions with local capacity rather than undermining the market by bringing in additional competition. In conducting post disaster reconstruction work for example rapid needs assessment and market assessment must be prioritised. Construction materials, wherever possible, should be sought from local suppliers and only when there are gaps in the local supply chain should external suppliers be brought in to fill these. The same applies to using local street vendors before reliance on transportation of food parcels and bottled water in humanitarian emergencies.

The effectiveness of how the sector is currently engaging with smaller and niche actors is often criticised. It is not enough to bring in these suppliers to meet quotas or as part of a box-ticking exercise. Suppliers should be brought in to partnerships that are mutually beneficial in order to move away from a purely transactional relationship with suppliers.

 

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How to escape Procurement overwhelm

Here’s an insightful guest post from Peter Dallaway, a Transportation Systems & Smart Cities Senior PM & CTO, that really does hit the mark about what is key for Procurement to escape the overwhelming volatility, uncertainty, complexity and ambiguity in international business. 

By the way, its the first time I’ve ever come across the word stochastic, so I looked it up for you ‘having a random probability distribution or pattern that may be analysed statistically but may not be predicted precisely’.

 

This week’s shut down of manufacturing by Toyota exposes the vulnerability of flawed procurement and supply models. Did common sense go out of the window? Didn’t they ever do a 6 sigma squeaky clean risk identification and management plan. Since it is Toyota they probably not only did it, but they also wrote a book about it.

Just in Time (JIT) might be adapted to JIT to miss the bus. I wonder what else that is strategic to manufacturing cars has been outsourced and beyond the control of the manufacturer. Didn’t we see this problem with the 787? So it is hardly new. British Airways once outourced its in flight catering and discovered it was strategic after the kitchen went on strike (that was when it was normal to be fed on flights).

 

We also have this week’s example of Google, the latest in a chain of multi-nationals operating outside of the countries they service so they can avoid paying tax or sales tax on services delivered. So we have products going one way, invoices going another way whilst the lawyers, accountants and bankers sit in the middle and try and figure of what is legal.

 

So where I ask, does the Procurement Manager sit in all this? To whom is his/her loyalty directed? Is there a duty of care for customer and company that will give him/her the strength to step up and be counted.? I think there probably is. There is a right way to do things and all you need is common sense.

 

Procurement and logistics are a little bit like string theory. Yes I am (not) sure that we need 12 dimensions (or is it more) to describe the universe and cling on to some desperate model that will only work on every second Tuesday when there is a full moon. This is all reminiscent of how many angels can you get on  a pinhead?  And the answer was I don’t care, please buy another papal bull.

 

Does it make sense for the Procurement Guru to allow his/her company to blunder into the land of strategic error, did the product manager approve ? Of course not. So I suggest that the Procurement Team be the voice of reason and risk during the development of the buying plan.

You can’t get something for nothing, you can only get nothing for nothing.

See?

Common sense!

Oil companies used to scramble jets to fly mission critical spares to a drilling site because the cost of the downtime was very high. But if the oil is worth $15 a tank, why bother? Well you bother because your CEO loves his customers (not bonus). So you will put in the extra time to develop a stochastic queuing model to sample in a Monte Carlo manner the likelihood of running out of shipping labels or grease nipples so you can say, yes it is OK, we thought of that. But did you try common sense? It is an old ally and usually very reliable. And sometimes common sense will say ‘No’ – this is not appropriate for what we are doing.

That being so, the issue now becomes: are we mice or men (squeak, squeak)…

 

 

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Why is a Project Procurement Strategy absolutely necessary?

An effective procurement strategy is based upon a shared understanding of the role and purpose for the procurement process.

Frequently, there’re different perceptions of this at senior management, project management, end-user, and supplier levels. A shared focus needs to be built upon an alignment of perceptions and understanding around what the Project requires from a well performing procurement process that’s consistent with the agreed aims and objectives.

A procurement strategy that’s successfully integrated and implemented within the Project’s cascade of objectives and performance measures is recognisable by the following five characteristics.

  1. Clear “buy-in” from Project senior and broader stakeholders to the benefits from embracing an agreed role and purpose for the procurement process and how people need to interact to ensure that outcomes are achieved in a satisfactory manner.
  2. Competent professional commercial people playing a key role in the process, at the right interaction points, to ensure delivery of clear solutions from supply markets that meet Project needs.
  3. Key suppliers and contractors who treat the Project as genuine “preferred customers”.
  4. Processes, systems, measures and enabling structures that support delivery capability along the entire procurement process cycle.
  5. Capacity and capability that’s available at the right pressure points.

Setting out the Objectives, Goals and Guiding Principles

Strategy documents need to outline two key facets — the objectives of the strategy, and the goals which are necessary to achieve these objectives.

The goals describe what will actually happen and objectives describe what will be achieved as a result. The guiding principles reflect the core values on which the strategy is based, and which will inform all the actions which are planned as a result.

Procurement will:

  • be transparent;
  • be driven by desired results;
  • create the most economically advantageous balance of quality and cost;
  • reduce the burden on administrative and monitoring resources;
  • lead to simplified or routine transactions;
  • encourage open and fair competition; and
  • follow all appropriate regulations and legislation.

These values in turn translate into key performance indicators that can be used to assess the quality of results.

Setting the Objectives 

There’s no short, definitive list of subjects to include in procurement strategy objectives.

And priorities change over time – strategies need to be reviewed and revised to reflect changes in circumstance and focus.

Subjects to consider include:-

  • Operating Structure – is it fit for role and purpose, influencing where it should and as it should in a devolved environment? Do end users know what’s available to them by way of contract access and the procedures that they must follow, and are these procedures benchmarked against best practice, reviewed and updated as required? Is there clear Project leadership of the procurement process?
  • Expenditure Analysis – is Project expenditure on bought-in goods and services analysed in such a way that amounts spent, with whom, on what and by whom are understood, under control and spent optimally?
  • Maximising Value – how’s it intended to maximise value through procurement activity; the use of competitive tendering and established collaborative contracts, the deployment of procurement professionals?
  • Supplier Strategy – does the Project have a strategy for dealing with suppliers and markets, such as buying local and compliance with relevant Regulations? Is there available guidance to suppliers on elements of the procurement policies (sustainability, SMEs etc, key contacts and signposts), and core values?
  • Social Responsibility – how does the Project plan to take account of its social, economic and environmental responsibilities through procurement e.g. sustainability, health, safety and welfare, environmental management, equality, ethical procurement, working with the local business and social communities?
  • The Use of Procurement Tools – is there a strategy for operating the most appropriate, efficient and effective Purchase to Pay systems and procedures including use of procurement cards, e-tendering, e-auctions and an e-procurement platform and are the benefits of such use – reporting, planning, measurement and cost control – clearly explained and understood?
  • Supplier/Contract Management – are key suppliers identified and, if so, who are they and why are they key? What is the Project approach to supplier and contract management and what are the plans for monitoring supplier performance and managing improvements?
  • Performance Reporting – are there mechanisms/indicators in place whereby performance monitoring within the procurement process is routinely reported to senior management? Do such mechanisms include benefits and savings reports, customer and supplier feedback on the effectiveness of procurement performance?
  • Risk Management – are key risks and dependencies relating to procurement process, legislative and regulatory non-compliance identified, understood, monitored and appropriately communicated across the Project?

ACTION: develop and adopt a clearly documented procurement strategy in terms of measurable and managed contributions to the achievement of procurement, and ultimately Project, objectives.

 

Stephen Ashcroft BEng MSc MCIPS is a procurement learner stuck in the body of a procurement veteran, and with over 20 years’ experience still sees the glass as half full. 

Steve helps Directors and leaders reimagine procurement to drive improved performance – across a diverse range of sectors and categories of spend. Twitter, @ThinkProcure