Providing news, views and unrivaled content for the global sourcing community

 

 

Why We Should Stop Chasing “Best-in-Class”

Posted: 07/12/2018 - 08:39

I do a lot of reading about next-generation strategies, trends and tactics being employed by leading procurement organizations. Often, I find myself confronted by the notion of “best-in-class.  

Leveling up and looking for ways to better oneself, department, capabilities and outcomes is critical. That said, I believe most companies should not pursue best-in-class out of the gate. A fixation on a best-in-class standard set by someone else may present a utopian vision that is not achievable or even relevant to the situation at hand, leading to frustration and misaligned expectations.

For companies that are already in the top quartile of procurement performance, best-in-class benchmarks offer an interesting perspective on where continuous improvement efforts could be made. Companies that are looking to improve their procurement performance or capability from a more modest starting point would be better advised to focus on simply becoming what their organization needs them to be.

Early in my career, I went from working for a company that was known as one the world’s leaders in our profession to working for a company that was at the beginning of a procurement transformation journey. I entered my new role gung-ho about trying to quickly elevate my new company’s procurement department to the level of my former company.

At that time, my manager told me something that has stayed with me ever since.

“Successful, lasting change is usually incremental.”

Had our procurement capability and performance been rated on a scale of one to 10, we might have been a two or three. In reality, we had no need to jump to a nine or ten right away. If we could rise in a timely fashion to a rating of five or six, we would demonstrate our growth and establish ourselves on a steady track of improvement. We could then use that foundation to improve to a rating of seveneight or even a nine or 10 over time.

A company that values growth, risk management or supply base innovation will have a completely different view of what they need from procurement than one that needs to reduce Selling, General and Administrative Expense expenditures or increase gross margins to become more competitive. Rather than chasing best-in-class, look at what is most important to the organization and the gap between that and what it is right now

Tim Jones, Director of Strategic Sourcing at Google, discussed the company’s procurement journey with me in an episode of our Art of Procurement podcast. In Google’s early days, it pursued best-in-class benchmarks and focused on increasing spend under management. As a result, they became an RFP shop. They saved money by using a formal sourcing process that wasn’t necessarily practical for a company growing by 15 to 35 percent annually. 

Google’s procurement team decided to take a step back and consider what the company really needed from their supply base. They determined that it was leveraging its supply base to fuel growth and innovation. This new approach directly enabled Google’s corporate objectives and lead procurement to focus on the needs of its top 10 to 15 stakeholders (out of the company’s 60,000 employees). This had a second-order positive impact of positioning the procurement team as a strategic asset to their organization. Procurement rightly focused on select stakeholders and their objectives, rather than diluting their reach by pursuing savings across all areas of spend. 

When leading a procurement transformation, consider the following:

First, understand your business needs (from procurement):  

  • What is the overarching strategy of your company?
  • What are the short-, medium- and long-term objectives of the company? Of the specific stakeholder?
  • What do the stakeholders expect from procurement?  

Secondly, make sure the appropriate foundations are in place:

  • Does procurement have access to the necessary information and does it have the ability to turn that data into actionable intelligence?
  • Does the team have the ability to build strong relationships and take a business-oriented view of value creation?
  • How can stakeholders leverage suppliers in the pursuit of the company’s goals? And how can procurement facilitate that?
  • Is a structure in place that enables the team members to focus on mission critical activities 100% of the time?
  • Does procurement have the processes and tools to keep operational activities consistent, as well as the flexibility to adjust them when necessary to meet the needs of the business?
  • Is there a governance program in place that includes a feedback loop with business stakeholders to ensure procurement remains relevant to its clients?

Although external benchmarks can act as a guide, procurement should build the function(s) that its company needs rather than something touted as “best-in-class. Any improvements in procurement capabilities or ability to execute should not be in pursuit of arbitrary, third-party best-in-class benchmarks, but specific to each company and its procurement team.

Only when procurement understands and is aligned with corporate objectives can it successfully build and implement a platform to support these objectives. Any procurement team that approaches its role in this fashion I would call “best-in-class.

 

Region: 

About The Author

Phil Ideson's picture

Philip Ideson is the founder, editor and host of the Art of Procurement Network.  His prior experience includes work at Accenture, Ally Financial Inc., and Chiquita Brands International Corporation. 

The Art of Procurement podcast delivers multi-channel learning and development programs to help procurement leaders increase the capabilities of their internal teams.