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Agile Procurement: Transformation for Value

You must’ve heard about Agile as a new and more efficient method of software development and that Agile principles may go beyond that to cover various business operations. For the last 2 years I’ve been coming across this A-word practically everywhere: large business is recruiting Agile experts, leading multinationals proclaim Agile as one of their key principles, Agile awareness has become one of TOP3 requirements for many IT positions in the market. Everything flows, everything changes…

Not so long ago I came across this video and article called Agile Product Development in a Nutshell. I was prompted to tell you about my Agile thinking experience in indirect procurement. I truly believed in the effectiveness of this method after implementing a few projects in the agile kind of way.

First I heard about Agile in indirect procurement at training on Lean method. Our coach thought Agile was a sort of antagonist to Lean and Six Sigma techniques, a kind of villain-in-chief if we talk in movie terms. By that time I had accumulated sufficient experience in integrating Lean approach into relations between Procurement and internal clients of the Bank. Furthermore, it seemed first that dynamic iterations in Procurement were effective enough and there was no reason to look for another way to boost efficiency. I think it was 2014… And as it often happens, everything changed when we got one unusual tender coming.

But before we get to that, I’d like to give you more context on the method itself. A little journey into the history would help. Let’s be honest — when procurement people describe their experience, they often use the word “strategic”: Strategic Sourcing, Strategic Procurement, Strategic Purchasing, Strategic Buyer, Strategic, Strategic, Strategic… In the global practice Procurement emerged as a set of administrative and tactical processes that ensured effective goods or services purchasing: analysis of supply base, categorisation, consolidation, etc. In 1990s, with advancement of technologies and enhancement of cost control, procurement function transformed into a more strategic activity that required engagement in pre-purchasing processes, planning, post-execution control and support of suppliers and internal clients.

If we look at Procurement from the perspective of processes methodology and potential for improvement, we’ll see that the most common principle used for procurement optimisation is classical cascading, i.e. Waterfalls. It represents a sequence of certain stages. This sequence ensures completion of every stage, it doesn’t give much flexibility, though. For instance, it’ll be difficult to change anything if at the moment of contract signing our internal client decides they want to change the product. Or price. Or supplier. Or everything.

Usually, this is how it looks: the number of processes may vary from company to company but their sequence and concept are the same.

Agile method alters our perception of hard values and brings 4 key principles:

  • People and interaction are more important than processes and tools;
  • A functioning product is more important than exhaustive documentation;
  • Customer relations are more important than alignment of contract details;
  • Readiness to change is more important than following the initial plan.

It means that in order to deliver as planned, your whole Procurement process (people, processes, technologies) should be structured according to Agile principles.

The foundation of the effective method application is when all areas of the process are covered by the same function, because in many cases internal and external resources in companies are too diverse to be consolidated. This method is effective due to its immediate flexibility, ability to respond to changing conditions and readiness to change internally and externally (suppliers and market peers) that it provides at any given moment of time.

A good example I can give based on my experience is the selection of payroll services provider for our employees. From the perspective of the classical procurement, the process was supposed to look as follows: we develop an RFP, analyse the market, select the bank, agree terms and prices, sign agreements, report on savings. From the perspective of the Strategic approach, the process would’ve been supplemented by the following elements: long-term planning, market insights, potential consolidation and review of HR policies according to market conditions. At rough estimate, a tender like that, given its scope and number of approvals, would take approx. 8 weeks in the best-case scenario. However, in reality employees received their cards and application by the end of Week 5.

When the project started, this new format of operation for my department wasn’t documented in policies and procedures, so internal audit was one more stage of the project))

The way we see processes:

people and interaction: all stakeholders, including suppliers’ representatives were involved in conditions discussion and decision-making process. We developed a procedure to assess proposals, current status and decisions that we used for every meeting. The group was always open to suggestions and changes of any sort;

a functioning product is more important than exhaustive documentation: we were able to assess operational risks at any given point of the project taking into account the current stage and project’s focus. In order to avoid mistakes, some employees were equipped with real-life piloting tools from the very start of the project;

customer relations are more important than alignment of contract details: thanks to engagement of suppliers and IT services providers into discussion at the initial stage of the project, we were able to deliver multiple iterations to support process excellence aligned with the current market environment and today’s requirements (e.g. we are in 2016, which means we have ApplePay, Tesla, IOT capabilities, etc. that have to be taken into account);

readiness to change is more important than following the initial plan: from the very beginning, the mission of the project was not about delivering the best price and appropriate quality, but about delivering a simple and efficient service that is fresh for 2016 at appropriate cost and resources. Our cross-functional cooperation translated into a 4-page RFP instead of the initial 17-page draft. At meetings, more and more often I heard people asking for a simplified process instead of deep dive and granularity requests that happen when every function hogs the covers. If we compare initial expectations with final deliverables, there was only one element in common: employees has their salaries paid to their cards. Certain conditions were out of the box for the parties involved. We implemented about 12 changes internally in such areas as HR, Finance, Ops, Risks, and Treasury. Signing of the contract and light implementation was followed by continuing streamlining.

This is a strange thing to say, it’s even hard to imagine, but projects like that bring together the whole organization and strengthen its internal cooperation by setting up a strong basis for other Agile company-wide initiatives. And what matters the most, this method is accepted as fully operating and effective. Some time after, when I meet with colleagues outside business and we talk about work, we often look back of those Agile projects we did…

Let’s state the fact — today is November 2016. Procurement as other areas is going through the transformation process. I don’t think we should and can change in a week. And not every area of indirect procurement can be transformed. Still, transformation should be priority #1 for anyone working in the Procurement. Not only because market and business call for a change, but because changes and transformation will bring value and help keep apace with 2016!

Thank you!

Oleg Remizov

@olegremizov or www.remizov.com

(c)

This is the translation of my article. Originally posted on LinkedIn.

Опубликовано в Procurement