Agile in Procurement?!

Author: Alejandro Basterrechea (28.12.2020)

According to the Oxford dictionary the word Agile generally means the “ability to move quickly and easily”, but also in terms of business, Oxford defines Agile as “… a way of managing projects in which work is divided into a series of short tasks, with regular breaks to review the work and adapt the plans…” (Source: Oxford Dictionary https://bit.ly/2KBPOiB).

The agile methodology is mostly known in project management and software development. Many IT developers, Product Managers and Project Managers are using agile methodology already over years to provide solutions or products for their organisations.

However, can Procurement use the Agile methodology? Can Procurement become an agile organisation? What does it mean for Procurement? Why is important?

First, we need to differentiate between (I) being an agile organisation and (II) applying agile methodology in procurement. Both are very important but serve different purposes. In this article, I will focus first on the premise that being an agile organisation (‘mindset’) is becoming increasingly important and secondly, I will lay out two use cases on using agile within Procurement (‘method’).

I.              Being agile: it starts with the mindset

McKinsey has developed the five trademarks of agile organisations (Source: McKinsey https://mck.co/37NYOtQ) and all five elements have in common a “mind-set shift” factor. They see organisations as living organisms where flexibility, adaptability, purpose, end to end accountability and focus on actions are key.

Due to the rapid development of technology, the disruption of digitalisation, the complexity of globalisation, the ocean of data and the unexpected volatility of supply chains (e.g. covid), Procurement plays a key role in ensuring companies can translate this into a competitive advantage. Therefore, a change of mindset in Procurement leaders is needed, from pure cost reduction organisations to agile organisations ready to manage volatility, risk and complexity, while delivering best value for money. Being a strong negotiator is not enough, this is a given.

Already in 2014, there was an article in Industry Week (Source: Industry Week https://bit.ly/34Nz6Up) about “The Importance of Procurement Agility: How to Turn Volatility into a Competitive Advantage. Companies with high-performing procurement functions consistently outperform their rivals on a range of financial indicators, and the best companies are building advanced talent-management strategies into the very heart of their procurement organisations.”

This means that agile organisations outperform their peers not because they are agile per se, but because agility has changed their mindset in turning challenges into opportunities.

Customer first, but it also requires new ways of working, talent and upskilling!

The most valuable companies today, measured by brand value, have all one thing in common: great products, loyal customers and increasing revenues. If you look at the market capitalization evolution of companies (Source: Visual Capitalist https://bit.ly/34N4Add) we have entered the era of big tech. In the past oil corporations, telecoms, pharma and retail led the list of market cap, now platform technologies are leading the pack. One of the main factors is their potential for fast scalability, disruption through digitalisation and customer obsession. They offer products people love to use (Source: Visual Capitalist https://bit.ly/3rt0TDc). So why does this matter?

Customer centricity

If customer obsession is at the heart of all successful businesses, customer obsession must be at the heart of procurement. This means:

·      Enable the business to grow by procuring goods and services that supports fast growth

·      Eliminate bureaucracy by either helping out or getting out of the way

·      Bring innovation and disruption from the supplier base

·      Reduce risk, manage volatility, be able to predict

·      Become a trusted advisor by enabling fact-based decision making, bringing people together and being the network integrator

Skills

Since the role of Procurement is changing and a mindset shift is required, those resources doing these activities, the buyers, need the mindset and skillset. These go beyond stakeholder management, negotiation and commercial acumen and requires further capabilities. According to Forbes (Source: https://bit.ly/2WM0k9l) the ten vital skills you will need for the future of work include:

·   Creativity: Human workers in the future will need to be creative to fully realize the benefits of all the new things for the future—new products, ways of working and technologies. Robots currently can’t compete with humans on creativity. The future workplace is going to demand new ways of thinking, and human creativity is the key to it.

·   Emotional intelligence (EQ): A person’s ability to be aware of, control and express their own emotions as well as being cognizant of the emotions of others describes their emotional intelligence. You exhibit high emotional intelligence if you have empathy, integrity and work well with others. A machine can’t easily replace a human’s ability to connect with another human being, so those who have high EQs will be in demand.

·   Analytical (critical) thinking: A person with critical thinking skills can suggest innovative solutions and ideas, solve complex problems using reasoning and logic and evaluate arguments. The first step in critical thinking is to analyze the flow of information from various resources. After observing, someone who is a strong analytical thinker will rely on logical reasoning rather than emotion, collect the pros/cons of a situation and be open-minded to the best possible solution. People with strong analytic thinking will be needed to navigate the human/machine division of labor.

·   Active learning with a growth mindset: Anyone in the future of work needs to actively learn and grow. A person with a growth mindset understands that their abilities and intelligence can be developed and they know their effort to build skills will result in higher achievement. They will, therefore, take on challenges, learn from mistakes and actively seek new knowledge. 

·   Judgment and decision making: Human decision-making will become more complex in the future workplace. While machines and data can process information and provide insights that would be impossible for humans to gather, ultimately, a human will need to make the decision recognizing the broader implications the decision might have on other areas of business, personnel and the effect on other more human sensibilities such as morale. As technology takes away more menial and mundane tasks, it will leave humans to do more higher-level decision-making.

·   Interpersonal communication skills: The ability to exchange information and meaning between people will be a vital skill during the 4th industrial revolution. This means people should hone their ability to communicate effectively with other human beings so that they are able to say the right things, using the right tone of voice and body language, in order to bring their messages across.  

·   Leadership skills: Traits you commonly associate with leadership such as being inspiring and helping others become the best versions of themselves will be necessary for the future workforce. While today’s typical organisational chart might not be as prevalent, individuals will take on leadership roles on project teams or work with other employees to tackle issues and develop solutions.

·   Diversity and cultural intelligence: As our world and workplaces become more diverse and open, it is vital that individuals have the skills to understand, respect and work with others despite differences in race, culture, language, age, gender, sexual orientation, political or religious beliefs, etc. The ability to understand and adapt to others who might have different ways of perceiving the world will not only improve how people interact within the company but is also likely to make a company’s products and services more inclusive and successful. 

·   Technology skills: The 4th industrial revolution is fuelled by technological innovations such as artificial intelligence, big data, virtual reality, blockchains, and more. This means that everyone will need a certain level of comfort around technology. At the most basic level, employees in most roles will be required to access data and determine how to act on it. This requires some technical skills. On a more fundamental level, everyone needs to be able to understand the potential impact of new technologies on their industry, business, and job.

·   Embracing change: Due to the speed of change in the future workplace, people will have to be agile and able to embrace and celebrate change. Not only will our brains need to be flexible, but we’ll also need to be adaptable as we are required to adjust to shifting workplaces, expectations, and skill-sets. An essential skill during the 4th industrial revolution will be the ability to see change not as a burden but as an opportunity to grow and innovate. 

New Work

Therefore, developing new skills, managing different organisational formats and even defining new ways of working must be on every Procurement Executive agenda, because it will come sooner or later. Rather sooner than later.

The World Economic Forum (Source: https://bit.ly/2KCtOUO) published a 167-page insightful report on the future of jobs. They already predicted “…changing nature of work, flexible work…” as the number one demographic and socio-economic impact to business models, even before the Covid pandemic. Covid just accelerated it by x-times. With regards to technology shifts “…mobile internet, cloud technology and big data processing power…” as their main drivers of change.

The good news is that all of these changes can be led by Procurement. From digitalization to sustainability to AI to remote work. Procurement can be the driver of change for Procurement but also for the Company.

Coming back to the original question, can Procurement be agile?

The simple answer is YES. Not only should become more agile, it must become more agile.

The Covid pandemic has shown that Procurement can lead the way and that several of previous paradigms have been broken. For example:

·      remote work is possible in almost all business professions. Virtual negotiations are the new normal. AI-driven negotiations could follow soon.

·      supply chains are going from lowest cost possible globally, to a more risk aware regionalization and diverse supply base.

·      cost of goods and services include a total cost of ownership with higher consideration of risk factors like disruption, unavailability and volatility

·      supplier relationship management is becoming increasingly (more) important than tendering and sourcing

A CPO survey conducted during Covid by McKinsey (Source: https://mck.co/34L36js) indicated the top challenges CPO’s are facing right now are “…supply disruptions, cash flow, shifting market dynamics…” as the three major ones.

In addition, leaders can reimagine procurement in five key areas:

(Source: McKinsey https://mck.co/34L36js )

Agile is a transformative process. In Harvard Business Review Article “Embracing Agile: How to master the process that’s transforming management they describe six crucial practices that leaders should adopt if they want to capitalize on agile’s potential.

1.    Learn How Agile Really Works

2.    Understand Where Agile Does or Does Not Work

3.    Start Small and Let the Word Spread

4.    Allow “Master” Teams to Customize Their Practices

5.    Practice Agile at the Top

6.    Destroy the Barriers to Agile Behaviours

(Source: https://bit.ly/34NiZGk)

II.            Agile methodology in procurement

There are probably plenty uses cases to apply agile methodology in Procurement, but here two specific uses cases that I have personally experienced and were successful.

Use Case 1: designing, implementing and rolling out a user-centric procure-to-pay solution

This is probably the most obvious case since is related to software. While the software is already available and provided by a third-party software vendor, the design-to-roll out process, can be organised as per agile methodology. For example:

·     Agile methodology delivers the software on a regular basis for users to test and provide feedback.

·     It can be organised in sprints for continuous iteration(s) during the customization and testing of the process design and software implementation project

·     In the Agile process, leadership plays a vital role and scrum fosters a self-organizing, cross-functional team to focus on delivering the business value in the shortest time (e.g. via daily stand-up meetings, Kanban,...)

·     In Agile process design and execution should be kept simple whereas in scrum process design and execution can be innovative and experimental.

Result: quicker, more efficient and higher user satisfaction rate after Go Live

Use Case 2: negotiations

Some companies also called them turbo negotiations, negotiation factory or savings accelerator. This approach should be used for specific extreme situations when companies are in urgent need of cash, Ebit and short in time. However, if organised correctly, the program can be run similar to an agile event. For example:

·     Build swarm teams of buyers from different commodities to focus for a limited amount of time (e.g. one week) on one commodity to obtain higher results in a short period of time.

·     According to Agile Alliance (Source: https://bit.ly/37Q49Ra) “Swarm teams provides for collective intelligence and problem solving, real-time collaboration, fluid leadership with no explicitly defined roles. Because of this, swarming proved to be an excellent organisational pattern for resolving complex problems in a complex and tense environment where positive results had to be demonstrated almost immediately”.

·     Negotiations can be iterative, run similar to sprints and using techniques such as daily stand-ups to align negotiation strategy or the use of a sandbox approach to cool off, collect feedback from peers, re-align next steps

·     The use of a Kanban system to organise input and output of each ask and negotiation round which keep a systematic approach but also leaving space to adapt quickly if needed

·     The main preconditions are pre-qualified suppliers, full buy in of relevant stakeholder, preparation of negotiation in advance and release resources to focus on the negotiations

Result: Bundling resources to focus on 1-2 commodities to maximize outcome in generation of cash and price reduction for complex negotiations in a very short period of time including extreme supplier consolidation. 

III.           A journey without an end

If agile in procurement requires a shift of mindset, leadership, upskilling and embracing the change, how do we start? Small. When do we start? Now. When does it end? Never.

“While firms can achieve a great deal in the transformation to agile within the first 365 days, the journey is never complete. By nature, being agile is a process of ongoing continuous improvement. Creating an agile mindset and implementing agile methodologies are pre-requisites for an effective transformation, but the beauty of agile is that it is a constantly evolving effort, leading to ongoing opportunities for improved performance. Leaders and participants should keep this in mind as they apply agile throughout the enterprise” (Source: Accenture https://accntu.re/3nTi9z7).

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Sources:

·     Oxford Dictionary https://bit.ly/2KBPOiB

·     McKinsey https://mck.co/37NYOtQ by By Wouter Aghina, Karin Ahlback, Aaron De Smet, Gerald Lackey, Michael Lurie, Monica Murarka, and Christopher Handscomb

·     Industry Week https://bit.ly/34Nz6Up by Peter Spiller, Nicolas Reinecke, Drew Ungerman and Henrique Teixera

·     Visual Capitalist https://bit.ly/34N4Add By Jeff Desjardins

·     Visual Capitalist https://bit.ly/3rt0TDc by Katie Jones

·     Forbes https://bit.ly/2WM0k9l by Bernard Marr

·     World Economic Forum https://bit.ly/2KCtOUO by World Economic Forum

·     McKinsey https://mck.co/34L36js by Tarandeep Singh Ahuja, Yen Ngai, Sukrut Kharia, and Harkanwal Singh Sidhu

·     Accenture https://accntu.re/3hu10de by Michael Werder, Markus Heise, Esther Recktenwald, Markus Prakash

·     Harvard Business Review https://bit.ly/3rytBCM by Darrell K. Rigby, Jeff Sutherland, and Hirotaka Takeuchi

·     Agile Alliance https://bit.ly/37Q49Ra by Danijel Arsenovski