Procurement transformation is an objective that many companies want to pursue. Put simply, it’s a strategy designed to yield significant improvements over time in supply chain operations, quality, and profitability.
The idea is gaining traction as a way to develop a coordinated, long-term effort to change operations and corporate culture with the goal of maximizing efficiency and profitability. As Keith Hines, president of ISM-New York, explains, it is “an over-the-horizon strategy versus a quarter-by-quarter accounting of profitability.”
And that’s where resistance to the holistically based concept begins. On paper, procurement transformation is sound. Rooted in a strategic and structural design, it is broader and deeper than continuous improvement or best practices and can, as Hines notes, yield twofold to threefold improvements in profitability.
But because the returns take time to materialize, the effort requires investment, and some people will resist the idea. Procurement transformation is often long and arduous.
“Everyone wants to go to heaven, but no one wants to die,” quipped one CPO with experience in such programs.
ISM-New York’s centennial reception in Midtown Manhattan on Oct. 3, which also featured a keynote by ISM national CEO Tom Derry, included a panel of procurement executives that examined the issue of procurement transformation and how CPOs should work to assure success across an organization. Here is the first part of a three-part series covering the experts’ responses. Their insights make a good foundation for any procurement transformation initiative.
The panelists were Joe Harney, vice president of procurement services at Columbia University; Mike Hoffman, vice president of global procurement for Pfizer; Bob Schott, managing director of procurement strategy and U.S. CTEP operations at PricewaterhouseCoopers; and Scott Wharton, managing director and global CPO at Citi.
The first question posed: How important to the success of procurement transformation is support from the CEO?
All panelists agreed that executive support is essential.
“[Procurement transformation] is hard work, disruptive, and requires investment,” said Wharton.
“Being well connected to senior leadership helps it move faster,” added Hoffman. “You can’t underestimate the inertia and resistance in an organization. Executive sponsorship makes the difference in whether it is successful.”
Harney, who made the heaven metaphor, said: “A true transformation has a painful period [during implementation]. It’s not easy, and you need backing for the journey as well as the concept. I would only do it if I had [executive] support.”
Another question focused on how best to handle the effort: Should transformation be wielded as a hammer or a rose?
“You need to use a lot of different tools,” observed Schott. “There must be agreement on what an organization wants to achieve, and then on the execution of these goals. That’s when you bring out the toolbox. Changes need to be done swiftly, but fairly.”
“You need to be aware of the culture of an organization,” Hoffman said. “You must make the business case — how it will affect individuals and how they will bring value [to the organization] in the future.”
Harney opined that the operating concept is “not a hammer or a rose but a lifeboat. This is a way to get people where they need to go.”
Wharton explained that Citi has more than 300,000 employees worldwide, and therefore discussing the changes and why they are necessary is critical. “We invest a lot of time and effort in communicating the value proposition and the expectations of the organization,” he said. “It has to be done day in and day out.”
He added, “People will behave based on how they are rewarded.” It is therefore important that they are “clear on the expectations [of the program]” and there is a way to “measure [improvements to] the procurement process carefully.”
View the full panel discussion: