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IACCM Contract Management Forum

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CM3 Consultancy Ltd
2016-09-14 13:09:01

Procurement Today and Over the Coming Decade

Interesting webinar presentation from Pat Mitchell to IACCM members on 'Procurement Today and Over the Coming Decade'. Particularly interesting on the subject of embedding Suppliers in the Business under Supplier Relationship Management (SRM) and Supplier Engagement Initiatives (SEI).


Supplier Relationship Management appears to offer a panacea to deal with an organisations supply chain challenges and allow it to assess and streamline the processes between an organisation and its supply base and to make it more effective. The focus of SRM is however to deliver ongoing year on year cost reductions; singularly a laudable strategy.

Expectations have however changed. Assessing and evaluating suppliers technically, commercially and emotionally reveals a number of drivers that can affect an organisations supply chain.

I heard an analogy on Supply Chain relationships, which said 'the relationship should be close by not cosy'. I disagree.

Another analogy says "Supply Chain is like a marriage but someone always has to wear the trousers'. Better, but still not meeting the parameters of a partnership.

Buying organisations must dispense with the cosy marriage and trousers analogy and acknowledge a Supplier knows its business and capabilities more than you, you might get to know them, and them you over time, but only if you get really close and engage in serious pillow talk.

'To get the very best and more from a supply relationship and to capitalise on the discretionary effort given by a Supplier, purchasing organisations need to engage Suppliers to emotionally engage with them to get to the point of being a customer of choice.'

I worked in the Oil and Gas industry and as every knows it is suffering a dramatic turn of fortune; it is now scratching about looking for value wherever it can be found, looking under rocks and digging over old ideas.

I read an article recently where Enquest had offshored its procurement to the UAE and created value in valve procurement a gaining lower cost of ownership and better deliveries.

Enquest has simply moved its Procurement office to a different place and gained an advantage. Good try Enquest but way too simplistic.

Let's look at it differently. Take the Enquest example of value creation in the procurement of valves.

The Supply Chain is procuring the valve and is the final transaction in the process i.e. tendering the scope, making a contract for a product and having delivered to a nominated delivery point at the right price, right?

Wrong!

The Supply Chain process begins way before this with a number of qualified engineers 'designing' a valve, writing a functional specification, drawing a very nice picture of it, writing a valve data sheet issuing a Supplier Document Requirements List (SDRL), a Spare Parts Interchangeability Requirements List (SPIR), quality checking all the documents (several times) and then issuing for enquiry.

The Engineer then receives a number of different offers designed in compliance with the functional specification along with a very nice picture of the valve and a valve data sheet, a proposed Supplier Document Requirements List (SDRL), a Spare Parts Interchangeability Requirements List (SPIR)...sound familiar?

(In the oil and gas industry amongst the Main Contractors and Subcontractors there is still a propensity to demonstrate to their respective Clients the age old three bids and a buy methodology although this grubby tactical approach should have been consigned to the dark ages a long time ago.)

The Engineer then selects his preferred technically compliant offer and makes a recommendation.

The Procurement representative makes the PO based on the commercial offer and the Supplier commences work.

The Supplier firstly sends the Engineer the design of the valve Issued for Approval and in compliance with the functional specification along with a very nice picture of the valve and a valve data sheet, agreed Supplier Document Requirements List (SDRL), a Spare Parts Interchangeability Requirements List (SPIR).......sound familiar?

The Document Control Centre (DCC) then receives this avalanche of key documents which it appends to a front sheet and sends to lots of people in the Project office.

Approval is given and the supplier starts manufacture and delivers the valve...but only after someone has gone to the factory and thoroughly inspected the product for compliance with the functional specification along with a very nice picture of the valve and a valve data sheet, agreed Supplier Document Requirements List (SDRL).

The Document Control Centre (DCC) then receives another avalanche of key documents which it appends to a front sheet and sends to lots of people in the Project office, puts in a digital cabinet and also sends to the Client DCC to put in its digital cabinet.

I just don't get it. Valve manufacturers all have design capability and capacity and a DCC. Why then does the Engineering contractor design a valve which the Valve Manufacturer already has in its design catalogue or can design in compliance with the functional specification, and issue documents for the record.

I described a process for buying a valve!!! Scale this up to Process Equipment, PAU's, FPSO's and Platforms then you can image the inherent waste in our Supply Chain process and then you start to feel the UK industry will never survive in its current form.

Why is the Engineering effort and cost duplicated to achieve the same end? Why does the industry consistently re-design everything? Is it really necessary to do the three bids and a buy? Why does the Supplier carry a large sales/business development organisation and cost solely to deal with multiple Requests for Proposals (RFP's) from Customers requesting multiple variations on a theme i.e. multiple customer designs for the same function?

Until there is a fundamental change in the way the oil and gas industry works its Supply Chain then the industry will continue to congratulate itself on incremental changes such as the offshoring of Procurement given in the Enquest example.

In a different example; nearly a decade ago I put a proposal to my management and our Clients developed by a young smart procurement professional, to embed a key supplier (for valves) in our business to minimise preferential engineering, to offer savings on engineering design hours, unit cost for materials and products, shorter delivery times and sustainable supply.

Valves have always been the Achiles heel of every project; on this basis I put this to our management team and we piloted it on a project to ensure it was a viable and workable proposal. Based on its success and acceptance we would roll it out over more engineered products.

The outcome of the work was that our Client did not like it because they could not see any competitive tenders (three bids and a buy), that grubby tactical methodology I chastised earlier.

Our Engineering Managers did not like it because it took away their opportunity to burn hours designing a Rolls Royce when in fact all that was required was a standard family saloon.

Our management team did not like it because it reduced the billable hours which would have come from Engineering and Procurement disciplines on the Projects.

Eight years ago the Supply Chain process in the oil and gas industry was like a Brachiosaurus dinosaur big, slow and cumbersome and has moved forward slowly but very little since.

It always takes a crisis in the industry to engage minds and come up with strategic initiatives in the supply chain; although I believe the incremental initiatives now are less 'strategic' and more 'survival' initiatives.

In its article; Gallup Supplier Engagement proposed that 'Customers of choice gain unique benefits, such as access to the supplier's best people, access to the resources required to serve account relationships, first access to the supplier's latest technological advances, more favorable terms, shared risk taking, and priority allocation of resources or production capacity in times of scarcity. Being a supplier's customer of choice creates a vital strategic advantage.

To become a customer of choice, companies must develop a supplier engagement strategy that builds on an accurate assessment of the strengths of their supplier relationships. Using a simple consistent instrument to assess these relationships across markets, languages, and product or service categories gives companies a highly effective way to measure and manage supplier perceptions -- and to determine whether they are a customer of choice with their suppliers.

Gallup Supplier Engagement research indicates that companies that adopt a proactive approach to measuring and managing the emotional connections that drive supplier engagement can reap substantial economic gains, including higher quality, improved planning, improved product development, greater supplier support and value, and lower costs'.

Gallup advocates opening the door to Suppliers and willingly sharing information, engaging with Suppliers and to 'Be easy to do business with. Strive for clarity, simplicity, and consistency'.

Simple words but bloody hard to implement in our industry with all the dinosaurs tramping around.

www.gallup.com/businessjournal/169103/strategic-advantage-supplier-engagement.aspx

My final anecdote is the best one, in that I was told by my Manager 'your Job is to put yourself out of a Job'. Meaning I should redesign the process end to end such that the Supply Chain should be so seamless there is no need for a Procurement function.

Still looking for buy in to that proposal.
 
 
 
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