What is Procurement?

well good morning or good afternoon here from dubai and good morning or evening from wherever you all are across the world my name is sam champong i'm the regional head of the chartered institute of procurement supply for the middle east and north africa region and welcome to this the sixth webinar in the sips mena series in today's session we're going to go back to basics back to the beginning let's forget about the complex models or strategies that people often associate with procurement or even the basic concepts that people assume procurement is all about today we're going to focus on exactly what this function this profession actually is all about now we'll have the opportunity to ask questions at the end so please do use the q a button below to ask questions as we go along if you wish just simply type your questions in the q a box at the bottom of your screen if you want to ask me a question live then use the raise hand button which is at the bottom of the screen as well and i'll do my best to interact with you what is procurement what is procurement that's a good question because it's a moving target it isn't uh what it was just a few years ago and it certainly isn't what it was um a few decades ago or even a decade ago the function and the requirements of people who do procurement has changed significantly and today it's the strategic function that sits at the heart of the business or is it looking at the evolution of procurement from what it used to be to what it is now or what its capabilities are it certainly is but that sometimes depends on the organization you work for or the location geographically in which you're situated the maturity of the profession those within it and its internal and external stakeholders differ widely so much so that a question that's been asked certainly to me before is exactly this the question of can anyone do procurement can anyone do procurement what is this function and what's so special about it surely just anyone can do procurement and that's been said a few times and and let's face it it depends on what your specific perception or description of procurement is can anyone do procurement you've got a few people in this picture here who seem to have stumbled upon a way in which to acquire certain goods they're in the right place they're most probably getting those goods for the right price they seem to be getting a good price here so from a representative perspective are they doing procurement and if they're doing procurement can anyone do procurement a commonly asked question so that's what we're going to look at today we're going to go back to basics we're going to explore what procurement is from a perception point of view and from a reality point of view and we'll take some questions as we go along so definitions let's go back to the definitions again what is the definition of procurement because there are many you see some organizations who have a strategic sourcing department some have a supply relationship management department and in some organizations a procurement team was set up to negotiate and that was their main focus in some organizations procurement have more of an audit and compliance function other tags are assigned to procurement from category management supply chain purchasing even cips as an organization until a few years ago were known as the chartered institute of purchasing and supply not procurement supply so titles are just that there are many titles that are attributed to the art and science of procurement supply but they are just that they're just titles let's stick to the the main focus here and the main focus is that the definition of procurement is probably a little bit more straightforward the actual actions involved in obtaining goods and or services for the lowest total cost of ownership that's pretty much what procurement is all procurement professionals or procurement department is trying to do is to ensure that an organization achieves the lowest tco or total cost of ownership in every single thing they do and that involves a combination of those bubbles around the screen at the moment and more often than not it involves more than one of those bubbles no procurement department can act effectively if all they do is negotiate in the same way that no procurement department can operate effectively if their main focus is on the relationship they have between suppliers or on managing contracts it's a holistic profession and it always has been and the way it is now uh makes it even more complex than it was before so what's tco what is total cost of ownership again very basic concept certainly not rocket science but let's just think about it for a second here and let's just kind of divorce our thoughts away from one perception here because we did say that procurement is the is the act of obtaining goods and services for the lowest total cost of ownership not for the lowest price and obtaining goods and services for the lowest price is something that is not and shouldn't be within the vocabulary of when you're talking about procurement it doesn't describe anything into what this function represents total cost of ownership is what we're looking for price is something very very different so if you look at what we have in front of us you may well have a stakeholder whoever that is the head of your transport department or um your ceo um who's your stakeholder in this case who says for our organization today we need you to go out mr procurement we need you to buy us for the company a cheap car now let's forget about what the perceptions of a cheap car is or are from a procurement perspective it's very very simple the only thing that defines a cheap car is the specification that's it not the price so your stakeholder asking you to buy that cheap car in looking at the car on the left to the car on the right it becomes the responsibility of that procurement profession professional to investigate and ask those questions to find out what's the specification so it just so happens that the specification in this case is the organization wants to buy a car to transport 10 employees a day from dubai to abu dhabi and they need to be there within an hour suddenly the cheap car on the left doesn't meet the specification and therefore is out of the equation and in this example the cheap car is the one on the right because it's the only one that can meet the specification and a basic concept like that seems to escape the abilities of a lot of people many many times one of the most basic concepts of total cost of ownership is the specification if your stakeholder asks you to put in place a cleaning facility or cleaning contract for your warehouse you can do two things you can engage with the lovely little mrs mop on the left hand side there for 20 dirhams an hour or whatever the price is or you can invest over a five year period to buy some equipment such as the scrubber dryer and all that's going to determine which avenue you go in is the total cost of ownership and the specification if you need a particular area to be cleaned within a one-hour period and that's the only window you have despite the cost differential mrs mopp may not be able to do that and if if you spread out the period of time that cleaning is going on it may well disrupt your operations and therefore the differential in cost that you saved by employing an individual cleaner may have been eaten away by your reduction in production capacity for example so specification is key here and that's what procurement professionals time and time again need to push back to their stakeholders and make sure that the specification is fully understood and that the outcome of the of any exercise any procurement exercise satisfies the specification or of course you can challenge the specification now if you really do want to buy a cheap car you may well go back to your stakeholder and say does that car really need to get from dubai to abu dhabi in one hour or can it can it take three hours and if it can go back to the car on the left very very simple and it's those basic tenants of interrogating and questioning specifications that make procurement teams prove their value as value added to the business you've got to challenge the specification because the remit of procurement is to obtain for the organization the lowest total cost of ownership and there are many elements to total cost of ownership not just the specification not just the price as we've already said but certainly not just the specification there are several other concepts that are not rocket science but also add to the exposure or the economic exposure that your organization are going to have one of the most important parts of procurement and supply is risk management the mitigation of risk is one of the most important things in procurement and supply and if you look on the left hand side there where we have a picture of the unfortunate grenfell tower incident in london that's a classic case of price or cost over risk so in this case a refit of a building happened using cladding which was more economically beneficial to the project let's put it that way so it saved the overall project money but let's look at the risk aspect part of the total cost of ownership is managing risk and if as a consequence of um putting uh economically beneficial cladding on a building has led to that building being burnt down then the remit of total cost of ownership has not been met and there are many elements of this i recall reading a story about the fast food chain kfc in the uk not so long ago a couple of years ago changing their supplier probably based on economic reasons i believe i stand to be corrected but they changed their supplier in any case and within a few days of that change of supplier they were unable to deliver chicken to the kfc stores around london and they had to close for i think three days something along those lines now if you think about it any savings you've made in that change of supplier and the renegotiation of whatever commercial arrangement you had has certainly been obliterated by the fact that you were unable to serve your customers for three days that's a loss in total cost of ownership and therefore that needed to be taken into account for many reasons including risk so risk is a very important part cost avoidance also comes into the value you can build into specifications and the example on the right shows the olympic stadium in london and as part of the the um the specification or the initial discussions between the uh procurement team and suppliers um they were they were able to identify um significant amount of savings in the in the construction phase and those savings were then put to enhance the design so the exoskeleton you can see around the the the stadium itself that was possible from the savings that were made from the initial stage of procurement so you know the the budget for that particular stadium has gone further by using the re-engineering redesign and specification in alliance with suppliers primarily that led by procurement so there are many areas in which procurement can add significant value and they're not all about uh reducing the the the price they're not all about getting the lowest price they're all about other elements such as risk management value creation cost avoidance and taking care of the specification that's where you're adding value to your organization on a long term sustainable way rather than just in as far as the price point is concerned and there are other areas as well because procurement or the effect of procurement or the influence of procurement can be very very wide ranging can be very very wide-ranging the effect of procurement is sometimes overlooked and if you look at this example we're exploring something called the procurement effect now the procurement effect is the effect procurement has or an effective procurement function has in their ability to control and manage third-party costs so if you just think about the fact that procurement on an ongoing basis um by adding value is managing reducing and safeguarding third-party costs then if we look at the effect on on overall organizational strategy it could look like this so the scenario is you have an organization and if you look at the screen to the far left you have an organization who are currently running on a revenue basis of let's say a hundred million dollars they're making a profit of 30 million dollars profit ebit whatever you want to call it in this particular scenario um on a very basic level that's how the organization is running and from a strategic perspective they decide they want to increase their profit by 20 million a year so profit is currently 30 million they will increase it to 50 million and they want to look at how they can do that strategically as an organization now let's assume this is a manufacturing organization maybe they manufacture perfumes let's just say there's a couple of ways they can do this now the obvious and i guess the traditional way would be they would increase production advertising marketing the sales and marketing production influence in other words so they want to increase their profit from 30 million to 50 million and uh if you look at the example number one they've done that they now have a profit a bottom line of 50 million and they've done that by increasing their revenue by 50 million so revenue from 100 million is 150 million but they've also done that by having to increase costs they've had to increase their cost from 40 to 60 million they've anti-increased the overheads from 30 to 40 million so what have they actually done here so they've increased their revenue which means they've increased their sales but to do that they've maybe had to increase the advertising costs more and more adverts at media campaigns they've had to probably increase their staff to manufacture more products increase their facilities management allocation maybe increase warehousing to to cater for a large a larger number of stock and all those costs have led to an overall increase in in the revenue that they make and has hit the bottom line so they've actually got the effect that they wanted they've increased by 20 million albeit what they've had to do is significantly ramp up production they've also had to spend some more money on marketing but overall from the bottom line perspective they've achieved their objective now what you can do is if you look at number two you can align that against the procurement or savings influence now at the end of the day the strategic requirement for the organization was to increase their profit uh by 20 million to 50 million in the example number two they've done that their bottom line is 50 million they simply done that by by not having to increase their revenue they haven't increased their revenue at all they haven't had to do that status quo they have gone in there looked at their existing costs probably re-injured re-engineered them rationalized them with making sensible decisions um on a strategic basis um and they've managed to reduce the they actually managed to keep their costs pretty static they made sure that costs don't increase um but they've looked at the overheads which could include anything could include facilities management costs third-party um um consultancy costs things along those lines that are considered not essential to the business and just by doing that um they've managed to reduce the bottom line now if we just look at overheads that we we're not talking about the procurement effect um looking at your direct human capital we're talking about looking at some of your overhead costs in terms of what is your marketing budget and what's your arrangement with your marketing supplier and is it optimal what is your facilities management costs and the cost of running your warehouse are they optimal is there a change to technology things along those lines and those the costs we're talking about procurement impacting and just by doing that you get the same effect that's the procurement effect now in the real world of course you would probably do both uh but it it really stands to say that you should not ignore the influence that your procurement function can have over your business as well because that's what they're there to do so overall what does a professional procurement department or function do it does a lot of things but they fall directly into some main categories it goes without saying that procurement is all about the right quality right place right right right quantity right price that goes without saying um that's basic but actually to achieve the total cost of ownership what procurement teams are aspiring to do is to have the right balance of supply relationship management contract management and category management and also to have the requisite skills in at least all of these three areas because they're not mutually exclusive so for a professional procurement team or professional procurement function they need to be highly skilled in supply relationship management and category management and contract management as well as all the other elements not and or but not mutually exclusive need to be well-rounded and have the skills in all those areas so let's delve a little bit more deeply into these three areas what are these things so supply relationship management what exactly is supply relationship management it's mentioned sometimes you know i've seen in texts you see people talk about supply relationship management how to treat your supplies srm what is that well it's another term that goes back quite a way but what's the history of srm very very simple business concept before the 80s late 70s when u.s organizations were not doing so well in comparison to organizations in japan the usual exercise was was undertaken where some of the big four firms big four strategic consulting firms were tasked with finding out exactly why that is why these japanese companies doing so well they did that research and the outcome was unexpected because they thought it was going to be something fundamental as to why u.s companies are not doing as well as their japanese park counterparts it was discovered that the only difference between how the japanese companies were operating or certainly the overwhelming difference between how the japanese companies were operating was actually simpler than it seemed it's it seems that actually what happened at the time the managers or the operators or the seniors in the japanese countries cut companies simply treated their suppliers as partners simple as that and just by treating the suppliers as partners that had a fundamental effect on how effective and how successful their businesses were so that's how supply relationship management was was born so obviously from these um strategic uh reviews that came back from these the consultants the aim was to say look to perform even better you need to form strategic relationships with your suppliers and that's how srm was born to have that effect on organizations so that's what srm is it has quite a long-winded description but essentially what srm or supply relationship management is supposed to be it's supposed to be all about the the actions related to forming a strategic and mutually beneficial relationship with your suppliers which can elicit results over and above the type of results that you would achieve by having a normal traditional transactional arrangement in other words a contract so if you're just going to have a traditional relationship with the supplier you run a tender sign a contract and get on with it then you'll get a certain amount of results and success but what srm is designed to do is to say by entering into a more strategic relationship with your suppliers you're able to get a more strategic effective efficient relationship and as a result better business outcomes so that's what it's all about now the ways to do that obviously are a wider subject which we can go into in a different seminar but essentially that's what srm is all about because there are other elements around supplier supply management per se because all of us have functions where we go through registration and pre-qualification of suppliers that's not srm that's an element of it that's the transactional side yes you register supplies here you pre-qualify suppliers that's fine that's standard that's that that that's a part of the overall srm experience at the end of it you also performance manage suppliers you make sure they comply with contracts fine that's part of the supply experience but core to all of that what sits in the middle of that is something called supply relationship management where you actually um you know strategically intervene and make sure that you develop a strategic or on a basic level a good relationship between yourself and supply for the benefit of two parties so a partnership in effect and as we know every partnership like marriage which is a partnership relies on a good relationship between the two parties otherwise it's not a partnership so supply relationship management has the same fundamental concepts as that it relies on you as an organization having a good relationship between you and the suppliers and it's proved that just by doing that there are beneficial business outcomes so so how's that done the first on a very basic level what you have to do is just to put into context we're talking here about your strategic suppliers so we're not talking about every single supply you deal with but you are talking about your strategic supply so from an srm perspective the first thing you do is you decide who your strategic suppliers are and who are going to be subject to all the efforts um in in building those strategic relationships and in your srm activity so use something like this this the standard four box matrix or the cralia matrix and you would go through an exercise to decide or identify who your strategic partners are who your strategic suppliers are that could be quite a complex exercise but they will fall into one of these boxes you look at your leverage suppliers and who are they uh they are you know organizations who you deal with who have a high impact on your profit but there's a high availability of the items which they're providing and it depends it depends on the organization you're with so if you're if you work for an it company for example you may look at the company who supplies the casing for your computers let's say the plastic casing now that's a that's a high profit impact okay it's essential and it's a high profit impact on your organization because you do need those suppliers to provide you uh with those cases for your laptops or to provide you with the raw materials however in this case there are many suppliers who can do that so they may not for your organization be a strategic supplier they'll be a leverage supplier so they are very important but you wouldn't necessarily have to have that high level strategic close relationship with them just for the fact that there are other suppliers out there and you may look at suppliers who are non-critical who are non-critical suppliers for most organizations you know your stationary and consumable suppliers are non-critical you wouldn't necessarily have a strategic relationship with your um with your consumable suppliers unless you are that type of company unless your printing company perhaps your supply office stationary and consumables will be a non-critical supplier there's high availability of those items and there's low risk perhaps and then you look at your bottleneck suppliers and who are your bottleneck suppliers um again it depends if you're if you're maybe a producer of perfumes perhaps then you may look at um you know the supply of some of the commodities there the natural flavors the vitamins you may look at those as bottleneck suppliers and what do we mean by those those critical items yes however the prices fluctuate there are several suppliers out there you will change supplies on a regular basis based on availability based on different pricing levels so you wouldn't necessarily build a very strong relationship with the supplier but you would want to make sure you have relationships with several suppliers so you can ensure continuity of supply so you'll call them a bottleneck supplier but those strategic ones are the ones who you who we would put you know top right hand corner and those are the ones to which you would you would aim to be building a strategic relationship and if you're tesla for example if you're the car manufactured tesla then the supplier who provides you with batteries the electric batteries the lithium batteries would probably be one of your strategic suppliers you'd want to have a very very strong relationship you want to keep very close to those guys you want to make sure that they're available supply is going to be maintained because that is critical to what you do and you can't afford for any hiccups because that will have a high profit impact uh there are not many suppliers out there you can't switch overnight they are key to what you're doing because you're you're building electric cars so they they hold in the key components and those the relationship those are the suppliers you'd have a strategic relationship with a win-win relationship so that puts into context but there is a there is a separate side to this and and that's of course the buyer perspective what you have in front of you is the seller perspective and while i'm not going to go into this in too much detail you always have to remember that there is a seller perspective and suppliers also would most likely do the same exercise if you as you've just done and they would want to put you in certain boxes they would put you into top left hand corner they'll want to decide that you as a client what are you are you aligned with their brand values in which case um great yes they do want to work with you you're very attractive but you're not core to what they do okay so they they do want to work with you your account they want to develop and perhaps they will be open to you talking about or negotiating with them over value-added activities perhaps but if you go down the bottom left if you're a nuisance supplier if you if you're actually adding no value add to the organization there's no brand association you wouldn't necessarily know that but if you are a nuisance client to them then one of the outcomes of that would be i mean you certainly couldn't negotiate hard with hard with suppliers like that because they don't have an issue with losing you as a client so again it all depends how the suppliers have segmented you in the same way as you segmented them are you exploitable there are suppliers who who have goods or services that that they would place you as a client in the exploitable box they know that they can they can get a lot of value from you they can get higher profit margins from you because what they have is valuable to you and they know that they have the the upper hand over you so for example again it'll be very difficult for you to drive a hard bargain with supplies like that especially if they put you in that exploitable area so it's only those suppliers who see you as a client as core who you're going to be able to organize a strategic relationship with in any case and if you are as i say if you're tesla then you want to make sure that you're able to um to work that you're able to align with your uh supply of lithium batteries and you're able to agree and you're able to to position yourself so that you in fact are core to them in the same way as their strategy to you so know your suppliers and importantly you need to know your suppliers as well as they know you because suppliers do know you as an organization and sometimes you know as a procurement professional you can get carried away you can look at you can forget that suppliers do have a lot more power than we think they have and they're not going to tell you everything suppliers know the cost of what they're producing now what we have in front of you gives you an obvious choice and and says the supplier is saying to you that you can you can only pick two of these okay so these are the outcomes you're gonna get but they're not gonna say that to you if you're saying you want something that's good cheap and fast they may say fine we can give that to you and they may admit to say but it's not gonna be delivered on time so remember you just have to know your suppliers as well as they know you and that's the core of supply relationship management the important thing is that you've got a win-win scenario between the between you and your strategic suppliers so that it is it really is a win-win scenario that's the only way srm works and as i've said it's been proved that that was the fundamental difference between the companies in japan and the ones in the us at the time so moving on uh actually sorry without moving on from supply relations management the final a final um example of supply relationship management in action is this is the example of apple apple invests only three and a half percent of its revenue in research and development now apple has significant revenues as we know and it invests 3.5 of that in r d and other organizations on different verticals in which apple works as it says here spends spends significantly more on research and development than apple do that's supply relationship management in action because what it says is that apple as an example may be on the verge of designing the new iphone 12 or whatever we're on to now and it's likely that what they'll do is go to a strategic supplier of theirs and say we are going to produce the new iphone in six months time can you go out there and develop the new battery for the iphone and that's your task in six months time the strategic supplier will come back to them with the battery they would have done the research and development around designing that battery and apple would have developed the phone as an example and it's a win-win scenario because the supplier knows that apple will buy the stock of the battery they bought to satisfy their own demand and uh apple will get what they want because they they have not expended the same time and money of research and development in developing that particular that particular component so just by doing that just by exercising supply relationship management is different aspects um what you can see is the differential between apple saving what between 10 and almost 20 of their of their revenue which is not insignificant by applying srm supply relationship management concepts so that just shows how important it can be because the reality is that by using traditional procurement concepts by floating a tender for example nobody is going to save 10 or 20 of apple's revenue that kind of money just by just by floating a tender and selecting the lowest bidder it's not going to happen so that's the benefits of srm in action in in alignment with all with other procurement concepts as well so supply relationship management the other one we mentioned was category management now what is what is category management category management in effect is the the methods of taking a a helicopter view of the spending activities of an organization in a in a very holistic way so all category management means is that if you're working in a large organization or small organization you have a full handle of all the categories of spend in which you engage in and let's go on a basic perception different departments in your organization by pens it doesn't make sense that different departments by different specifications uh from different suppliers of different pens of different costs and different delivery times with different logistical methods um within the same organization on the same category spent and your category management strategy will either prove that it's necessary to do that or it's not and your category management strategy will put together a strategy that maximizes the value of buying that pen and it's very basic form but you can go further than that and certainly a review of the procurement spend some time ago the uk government looked at for example the spend on i.t and they discovered that the the spender 90 with one particular supplier will spread disparately across loads of different departments so this supplier had different contracts with different government departments at different prices different terms for the same components but there is actually one single buyer there's one single budget holder in this case it knows the uk government a category management structure would have looked at all of that and gone back to the supply and said um look why we why have we got contracts for you to provide 10 laptops to these guys here 20 to these guys here and 100 to these guys there actually the full amount is 2 000 laptops okay so let's now talk about the volume for that let's talk about the distribution for that let's talk about the logistics for that let's be realistic so your category management strategy would use data to to collect exactly what you're spending on a particular item and then formulate that into into a coherent strategy contract management what's contract management contract management again seems very basic but essentially a lot of people will enter into a contract and once the um a service to start that contract will be put in a draw and out the way which is the correct thing to do okay because you don't run supply relationships by you know going to the contracts every day and seeing what needs to be done but the key thing is before entering into that contract it should be exactly clear and everyone should understand what the requirements are so are you going to have key performance indicators are you going to have service level agreements are you going to have a cleaning contract that says we want you to provide us with 10 cleaners or you're going to have a cleaning contract that says we want our building to be clean because those are two very very different things the supplier can provide you with 10 cleaners but how are you going to hold them to account how are you going to define what your perception of clean is so it's important that all those things are put in there what the incentives are around the agreement and and what governs the agreement and especially now in the covit 19 scenario the number of people have said to me um we're in a pandemic surely um that is force major well is it force for sure what does your contract say force per jaw is not it's not just an english language term it's a clause and a contract have you designed it what jurisdiction are you in are you a civil law jurisdiction are you in a i are you following different uh forms of law what part of the world are you in so those are the considerations you know it's not just a case of is something force for sure you've got to look at your contractual relationship and you should really the idea is to have have tried to assimilate what those outcomes are going to be before entering into contracts you need to look at all outcomes before you enter into contract because that's going to govern your relationship when things go wrong so that's what contract management is it's an important tool for procurement managers and everyone else to make sure that you're not just rubber stamping a contract you're not just taking a pdf form of um key terms and conditions and entering into a contract without understanding exactly what the implications are when things go wrong another tool for procurement other areas of course not just supply relation management not just contract management or category management ethics is a key consideration for procurement as well because ethics is quite a complex area which people think only revolves around uh people acting in an unethical way or taking bribes or something along those lines it is actually a very very key tool of knowledge for procurement professional why well first of all because we know from looking at ethical behavior that 80 percent of ethical issues in a contract happen at the specification stage so this perception of people taking bribes and and you know awarding contracts at the end of it or or manipulating contract evaluations is almost like the thin end of the wedge that's not the whole problem most ethical issues happen at the specification stage so for everyone involved in procurement and supply chain decisions they need to understand what constitutes ethical behavior so that you can actually guard yourself against that and ethics is a big subject because as you can see from here it's adding something like 10 to 20 to the cost of doing business so prices costs of goods and services are inflated to that effect depending on where you are in the world simply because of ethical issues so ethics is a key part of procurement supply and it's something that procurement professionals need to understand and need to be fully versed in to be effective procurement supply professionals so just just coming full circle on this what does that mean we spoke about a lot of things um over the course um and we've covered a lot of ground but essentially from where we started to what we thought procurement was it actually involves a lot of things total cost of ownership value creation risk management we mentioned those project management contracts ethics stakeholder management category management and many many things so procurement is a lot of things and negotiation so because it's a lot of things it means that the people who work in procurement or the departments that are representing you in procurement also need to be fully versed in all of these areas otherwise it's not procurement so these are the these are the key areas that your procurement professionals or your procurement departments need to be fully rounded and fully bursted and at that point you're delivering procurement value when you have those skills and you're able to take all of these things into account to make sure that your organization is getting total cost of ownership or value for money so going back if we go full circle can anyone do procurement can anyone do procurement yeah of course anyone can anyone could do procurement in the same way that anyone can do any other function anyone could do procurement in the same way that perhaps i could go to an organization and be a legal director based on the presumption that i have an acknowledgement and knowledge of certain areas of law but that doesn't make me a legal professional does it in the same way that it goes for any function that doesn't make me a car mechanic and if i had an expensive car if i had a friend who had a knowledge of cars i may get them to look at the car if something went wrong but on the annual service i'd have to take it to professional there's no difference in procurement procurement needs to be done by procurement professionals who understand all of the concepts that that i mentioned before because that's what will get you the professional outcome so using that definition well yes not anyone can do procurement so procurement managers like anybody else need to be professionals in what they do and probably even more so because this function involves the actions of not spending your own money but spending other people's money the key here is i think what you have is you have a trend in the evolution of procurement by many organizations stakeholders non-governmental organizations governments around the world who are getting into the concept of the licensed procurement team which means that yes um we we will ensure that anyone who's spending our or other people's money is fully qualified and skilled to do so so you have the undp the united nations department for example they already have the ethos of anybody who works in that team the biggest procurement team in the world has to be qualified to do so has to be sips qualified and there's a number of organizations across this region who have the same concept and the same appetite to work towards ensuring that their teams are their procurement teams are fully qualified to do procurement and fully skilled to do procurement and these are some of just some of the organizations in this region in the middle east north africa region who have also given a full commitment to that ethos as well that pretty much covers most of things i was gonna i was gonna go through thanks very much for listening i'm gonna go to there there are some pings some um some questions that i've seen so i'm now going to have a look at some of these questions and i'll see if i can address them for you so thanks very much for listening so let's uh the first question let's have a look at these questions here the first question i have is um many organizations are given importance to procurement ignoring the rest of the chain is there any reasons why the rest of the chains are lagging behind the limelight as procurement i can't really um articulate that question too much except to say that well as far as i'm concerned when you're talking about supply chain uh or procurement they're all tags really um they're all part of the procurement cycle um and you can't leave any part of it behind why are some people not paying more attention to supply chain why some people not paying more elements to logistics it depends on the industry it depends on the company but you can't ignore one out of the other if you if you don't have a very good logistics framework or or you don't have a very good supply chain network or you you're not practicing supplier relation management or you're just deficient on one of those areas then you're not obtaining a good total cost of ownership for your organization so you're not doing procurement to the optimal level i would argue another question says risk and value creation do have set parameters savings can still be achieved although quality and standards are met while maintaining the design quality time and cost yeah i tend to to agree with that uh you're absolutely right you do need to have parameters for for everything for everything you do next question um we have a huge role to play but procurement doesn't have this much of influence in most cases if business gets budgets from finance they'll want to spend that this has been my experience so far so i'll agree with that um to a shipper who asked the question uh fully agree in some cases yes procurement does have a role to play but has a i'll say a lack of influence in certain cases so the key thing is this some people believe that the technical skills around procurement are the overriding have overriding importance and i tend to disagree to a certain extent and i would say that the soft skills in procurement have have an overriding importance in other words influencing skills and stakeholder management skills are soft skills if you are a senior procurement practitioner you need to have an abundance of those skills you need to have an abundance of influencing skills you have an abundance of stakeholder management skills otherwise you cannot improve improve the influence of procurement in your organization and therefore all of your technical skills um will almost be be going to waste because you won't be able to to add the value you need to because you're unable to influence your stakeholders so um yes you're right the influence of procurement in some organizations maybe may not be what it should be but you can work to increase that through using um through using your own influence uh right uh another question from kingsley what's the link between logistics procurement and supply chain a good question now what you can do is you can you can at any time go to the sips website www.cips.org and look at our knowledge section and there's something called the procurement cycle and and really what you'll notice is that the procurement cycle covers everything from the logistics to the interaction with the supply chain um and what i'm trying to articulate here is that um the link between logistics procurement supply chain is that they're all part of procurement overall because they all contribute to total cost of ownership your cost of obtaining a good from goods and services from somewhere else from another region or or within the same country all has an impact on your total cost of ownership so you can't take that out of the equation so the logistics supply chain they're all part of the overall procurement cycle um what's the next question uh can you give us some insights into areas that procurement uh professionals must focus on in the current situation very good question that's from from ramesh there's two ways of looking at this uh ramesh there really are two areas so are there specific areas of of procurement that are relevant to the kovid 19 pandemic if you went into that era then yeah you would say look um let's forget about you know negotiation advanced negotiation at this stage because the horse has already bolted but certainly supply relationship management is a very key skill um to have uh in this current scenario you know to be applying srm to its highest degree to to making sure you maintain uh keep those strategic relationships between you and your key suppliers the ones you're going to rely on um that that's very very key uh so to have an advanced knowledge of supplier relationship management having said that there is a caveat to that you need to have already been um implementing an element of srm before kovid19 happen if you if you did not have in place strategic relationships with your suppliers before before um the pandemic happened you will struggle to build those relationships up in this period of time but those who have good strategic relations with their suppliers pre-covered and then and maintain them during covid will have the best outcomes when they're coming out of the scenario and they will be the the organizations who perform the best because like any economic situation or any any any recession it's not going to last forever so you've got to think about what your relationship is going to be with your suppliers when you come out of that situation uh one question from kingsley how can a nigerian get certified um you can you can sip sips is available in 150 countries in the world uh we do have operations in nigeria certainly uh send me a message um you can send me a message um on sips.org on linkedin or sam.champonga cips.org and i can i can direct you to our represents our representatives in nigeria uh certainly our website has it cips.org but if you wish to contact me i can point you in that direction of how to get certified uh in nigeria we certainly do have uh quite vibrant uh operations and events and thought leadership uh community in nigeria so so please do reach out uh another question can an individual be successful in in being a procurement specialist um uh i don't quite understand that question fully um in being a procurement specialist um so perhaps if you're saying can you be a specialist as opposed to a generalist um if that's what the question is then the answer is yes you can either be a specialist or journalist and both of them make sense and uh so kingsley if you want to ask that if you want to ask that question live um i will allow you to do that uh so just just unmute your mic it might your microphone and you can ask that question live if i haven't if i haven't quite articulated that properly so just let me know and i'll come back to you go for it kingsley thank you very much you need to speak a bit a little bit louder kingsley we can't hear yes okay can you hear me now please yes okay this is the kingsley from nigeria i'm actually a logistician right now but i'm not being satisfied so that's why i asked that question about them certification and then i raised my hand initially before you answered that question so you giving you clarity to read and i've sent you an invite on linkedin to for me to as well get more directions and try to point me to the right directions too thank you very much you've been helpful fantastic thanks kingsley i'm glad the question was asked was answered great thank you very much take care so um yeah thanks for that uh that clarifies that for kingsley as i said if anyone wants to ask the question live just just click the raise hand button we have another question uh from sebas uh during the current situation the risk of obtaining goods and services are challenging our businesses are highly affected where 75 of suppliers agreed on reducing the cost or offering some discounts what would you suggest for upcoming months as this does not seem to be getting resolved soon that's a bit of a general um question because it depends what area you're in so it depends on whether you're in the food supply or supply professional services uh it depends where you are but the reality here is that it's a global pandemic so you know in some ways you could argue that some people were more exposed to the situation in china for example or expose the situation in certain parts of the world uh in which case um you you may some of the advice maybe around trying to diversify your supply chain but that's not the case it's a global situation at the moment and um it's all about working with the suppliers you have seeking out new suppliers as supply chains change and uh and always looking to mitigate risk even while this pandemic is going on that that's that's the key thing so i think what i said previously was maintaining those strategic relations with your existing suppliers that's important because certain supplies depending on what they're doing have an awful lot of leverage now so what you don't want to do is to is to lose a supplier who is key to you uh for for any reason unless it's absolutely necessary so uh supply relationship management maintain those strategic relationships with your suppliers and also seek out from a risk perspective alternatives alternative supply and alternative suppliers to suppliers as the situation endures another question from um rajiv so how do you strike a balance with a strategic partner based on the buyers and suppliers perspective what if the supplier is inclined to be dominating in the relationship and to his benefit due to monopolistic nature of the products and services of course that's a great question and that's going to go back to your uh your cradlic matrix your supply matrix you just need to you just need to make sure that this supply is actually a strategic supply to you and that you are core to them now um if you're able to manipulate the relationship into that perspective then then that's good but if you're unable to and if the supplier actually sees you as a as a nuisance or or or if they um if they regard you as anything other than a core client to them then you may have to start looking at different suppliers to to to manage the risk of loss of supply or or increasing prices so so it's all about that initial supply segmentation as to what your supply relationship strategy is um next question what are the key indicators that evaluate the situation in the purchasing department and what are the achievements that any purchasing or sourcing manager could accomplish to be successful in this job a great question so key indicators are you need to have indicators that show the value that you're um that you're uh bringing into the organization now a lot of people translate that as demonstrating your savings which is fine if you if if your organization wants you to demonstrate uh what savings you've made as an organization as a as a as a department then that's fine um the important thing is you need to just make sure that the the definition of what a saving is is clearly um agreed by all parties um so so you're able to to point out what those savings are but in other ways you could point out you know what value you're bringing to the organization because different stakeholders may have different requirements you may have a marketing team that is looking to have an extraordinarily quick speed to market from their procurement team maybe they want contracts to be put in place in times quicker than the procurement team was previously doing so if that's what the marketing department for example if that's what their kpi is then maybe you need to be [Music] able to demonstrate to them that that you're able to improve uh cycle time speed to market things along those lines um question sips has got any plans to come to india offering certifications uh we certainly uh do some things um around the region the the answer i'll say yes i'll say to that at the moment is you can take sips uh remotely anywhere you you can you can do it online but yes currently we don't have an awful lot of uh physical study centers in india but certainly uh if you reach out to me i can guide you in in the right way to um to allow you to embark on your study if you need to and uh we have uh a man did you want to ask a question uh ahmadullah i'll come back to you in a second go for it uh you need to speak a little bit louder we have i went to architecture regarding a department where we work a participant is a part of a department and there's a various departments in in an organization um which are looking for services from suppliers and these various department has department heads who like to push their suppliers to the purchasing department and you know there are various reasons for it like which i i will tell you like you know there is some relationship that they made with suppliers which they want to keep it which can be over the table or another table in that case our purchasing method will act so okay this is a good question i'm just going to thanks for the question uh man i'm just going to to meet you again so um great question i think what a man is saying is that in certain cases you have stakeholders who want to uh maintain control over essential parts of the of the procurement process in some cases we're talking about the control over supply relationships sometimes over the negotiation part and and that's true and that's unfortunate because what where that happens in organizations where that happens uh and i'll be interested to hear from people if that's that sounds familiar but in organizations where that happens it leaves the procurement team to be a very transactional procurement team because actually everything's been done as far as the the procurement process and it just it just leaves it to you to transact to issue a purchase order sign a contract issue issue a tender things along those lines which to be honest is um is is not the most effective use of procurement resource so so what's the answer how do you how do you improve that and and and what i will say is that again in this day and age in the year 2020 in which we are if you look at the evolution of procurement um aside from the technical skills the import the most important skills that procurement professionals should have at all levels especially at the senior level are those soft skills are those influencing skills and stakeholder management skills and you need to be able to influence within your organization to gain the trust and respect of your stakeholders so that they trust that you can get better results from a procurement process and they can trust you to do that then they could do themselves and that's when you get the ultimate trust from from your organization and you're then able to start adding ultimate value it's not an easy process but it does take a lot of soft skills to do that over a period of time now and you'll find organizations uh of different types where some organizations procurement is mandated so if you want to procure something if you want to buy something it has to go through the procurement team okay and then you have some organizations where procurement is not mandated so you have a procurement team and if you want to you can engage them i prefer the latter i prefer the the scenarios where you have a procurement team in an organization and if you choose to use them you will and the reason i prefer that is because in those scenarios the stakeholders actually see the value in procurement and voluntarily go to them because they know that they could get better outcomes now again it takes time to build up that kind of um reputation trust amongst various stakeholders uh and credibility uh but at the end of the day that's what it's all about you can have strong technical skills but if no one's entrusting you to do things then then you're not able to add value to an organization now that doesn't talk about your second point which is around uh the ethical perspective of it i think i think in your own words what you said was um uh you know money under the table i think was your um exact description that's a whole different perspective altogether that goes into the ethical perspective of procurement and i just got off a call earlier on today where i was congratulating an organization who had just received the sips ethical kite mark so we have uh what we call the sips ethics test where an organization or an individual rather goes through a process and takes an ethics test and does that every single year um and if you if you pass the test they then you you get an ethics certificate and you're ethics certificated and for organizations where their entire procurement team have gone through this process or in some cases where the entire organization has done the sips ethics test they have an organizational ethics certificate and they're also on a public ethics register which is which is available for anyone to view so you'll see organizations including facebook for example facebook are on the sips ethics register because all of their procurement staff have taken the ethics test and passed it so that's a whole different consideration so again it's it's influencing the rest of the organization uh to have a commitment to ethics um and then that makes your your job a little bit easier um there was a question uh from someone who says how long does it take to become a certified procurement professional well um look if you if you look at this the sips route that then there are there are several levels there's you go from the certificate all the way to the to the professional diploma and that's five levels level two three four five six um how long it takes you to get there is entirely up to you um that there are different ways to go there uh there's about four different options in terms of how quickly you want to do it uh but i will caveat that by saying that there's no shortcut um to get there you do need to get the learning and we can certainly guide you through that either through uh through through various methods to just just get in touch and we'll be happy to guide you wherever you are in the world as i said there you you can you can uh you can do sip study in over 150 countries in the world but we also have regional um regional centers um the the middle east one is based in dubai but we also have an australasia one in melbourne the uk one south africa uh uh west africa in ghana chicago north america so so we we do have and turkey as well so we do have regional centers where you can reach out um either yourself or through your organization then we can see how we can assist you um next question can i talk about the procurement cycle um yeah i think um the procurement cycle uh from a holistic basis uh talks about the different elements of of procurement and procurement of course is obtaining goods and services for the lowest total cost of ownership so so what does that mean the cycle means that you start off with the identification of that demand so someone either an organization someone in your organization says they want to procure something well the first thing they need to do is articulate that demand what exactly do you want uh what's the bet what's the benefit to the organization um is it required specification how many do you need so that's the first part of it and once once you do that you you would you then go to the next part of the cycle where you're agreeing exactly what the specification is so you are you the the the the requirement is we need to um engage a cleaning company to um to clean a hotel uh so you have a certain specification uh do you have the same specification of cleanliness at the front of the building and at the back well that's where procurement may come in and challenge that and say well actually look you could rationalize that that requirement by by by focusing the the quality work in the visible areas as an example so once you've got the specification then you need to identify the suppliers who's the best place to do this um who are the people who can actually satisfy this demand then you enter the marketplace select a supplier evaluate that suppliers bid based on uh not just what they're saying uh not just the price they're going to um supply this goods or services to you for but also based on the specification and the methods to which they confirm they can do this on they they can do this with aligned with a bit of due diligence from yourself as to the capability of doing this as well um how they're going to supply the service to you where they're based what's the logistics are there any additional costs um are there any other complications or considerations from a legal perspective and and how and once they get that those goods to you um how does a contractual relationship continue so you know you may have goods are they going to sit in a warehouse are they going to be supplied to you in a just-in-time basis are you going to have um a cleaning or security provider are they going to provide you with people or are they going to provide you with the service in other words do they take the risk in in how many security guards they provide you so if the security threat level goes up um is it within their contract to to fill that additional risk or uh do you take that risk because it's an input specification and you have you you've told them um the the level of personnel they need rather than what the specification is so that those that the kind of elements you need to think about um when you're looking at the procurement cycle what else do we have um when we work in a volatile demand pattern and supply ends up with holding huge stock due to dropping demand is exploiting suppliers is exploiting suppliers and not taking responsibility for stop stock is it ethical sourcing i'm not sure i fully understand that but i think what you're saying is the supplier is holding huge stock due to a drop in your demand um are you exploiting the supply if you're not if you're not uh taking responsibility for this stock uh well i guess yes or no i need to know this scenario but but again this is where contract management comes into it you you'd really there's two things you'll need to be clear in what your contractual relationship is and what your obligations are to the supplier um in terms of stock have you given a um you know an indication of what the elements are that that generate your demand are you using historic volumes or is this covered in a contract so you'll you always need to fulfill your obligations in a contract unless uh you've got you've got a negotiated outcome which which allows you not to fulfill your obligations so i i'll really frown on people walking away from the obligations and saying uh we're in a pandemic so we're not going to pay you or we're in a pandemic so we're not going to buy this off you even though it's clear that that service is an ongoing service and it's within the contract if you're able to negotiate a reduction in service from your supply and i do negotiate from on a two-way basis then that makes sense uh but to walk away from obligations um if that's what you're saying it's not really ethical and just remember that the pandemic will end and uh it's probably better to maintain a good relationship with suppliers right but rather than a bad one so uh we had another question here from uh now that's key indicators let me just have a look um someone's saying i'm looking to obtain msips after completing a master's degree should i still go through level four five six okay so that's a bit of a technical question um in terms of the qualification but um certainly you can reach out to me directly uh the general answer is that uh yeah if you have got a master's degree in procurement or supply chain management uh then then there are several uh number of exemptions that mean that you don't need to go through the full sips curriculum to obtain m-sips um question here is there any preferable approach to follow within this duration uh i.e the pandemic to handle the difficult business units and stakeholders who don't understand the impact of kovid 19 on supply chain and want to fulfill the requirements with the same level of service um i would say yes i think the uh preferable approach is to um it's all about communication it's all about articulations and stakeholder management the i don't think that the situation is a surprise to anybody in in any business in any way shape or form um [Music] so really you just need to articulate it to suppliers um to let them understand that we're dealing with a global pandemic and depending on what supplies they're talking about they're going to be affected there there's no part of the world that or no service that is not affected by the global pandemic and certain categories will be affected more so food supply may have the unique challenges medical supplies may have the unique challenges other industries which require p people to physically go into the office or physically going to the factory or physically go into the plant to fulfill their duties will also be affected differently as well so um clearly the supply chain is going to be impacted on multiple levels and i'll be surprised if if any stakeholders don't understand that next question when is our next webinar session on procurement i'll advise everyone just to go to the sips website and look at the events page so that's the www.sips.org and you can look at the the events page if you want to look at that uh we had a question uh who's this did you have a question for us that you wanted to ask live okay i'll come back to you in a second i'll take some other questions um right okay in creative services uh the question here is around uh creative services so in creative services some products that are used do not have suitable alternatives in such a situation the supplier is core to your business but the value of your business the supplier oh sorry we've had that question already i do apologize that's around [Music] monopolistic scenarios um [Music] procurement targets is to save cost and bias kpis around how much they save in order to get a lower cost of an item procurement agrees the vendor to go for higher moq's and the moq equals the requirements of a year or more leading overstocking invites deceivation of quality and ultimately a loss for the organization is this ethical so um that's a long winded question but all i'll say is i i'll refer to the earlier part of my presentation which says that really we're talking about um obtaining goods and services for the lowest total cost of ownership and that involves several elements um and you know if you're if you're undertaking in unethical sourcing or you're overstocking um that's going to be to the detriment of your organization and and and as a consequence you're really not of achieving the lowest total cost of ownership in any case so i would then argue um whether you're obtaining what your organization want you to want you to achieve so i think on that point really um i think we had a lot of questions which are which are touching on um most of the points we spoke about before um i'll just go to this point and say look i thank you all very much for attending this session uh great interaction you can engage with us again uh www.cips.org or you can link with me on linkedin sam.champong or sorry just samachamp on linkedin but via email sam.champong at sips.org it's been a great session thanks for your questions keep in touch and look out for our next webinar thank you very much [Music] [Music] [Music] [Music] you

Channel: CIPS

Views: 202,223

Keywords: procurement, cipsmena, cips, knowledge, What is procurement, what is procurement and supply chain management, what is procurement process, procurement process, what is procurement, what is the procurement cycle, supplier relationship management, supply chain, procurement management, CIPS, cips level 4, procurement career, CPO, what is, procurement explained, procurement basics, procurement strategy

Id: ZOg_JgLWv1Y

Length: 80min 20sec (4820 seconds)

Published: Mon Feb 15 2021