All successful projects start with a plan, setting out the objectives, timescales and resources required. But no matter how comprehensive and professional it may be, says Fabio Sona, if it’s not put into effect with great care it will produce less than optimal outcomes.
It is human nature to think that if a project is well enough planned it will look after itself. Clearly, this is a big mistake. As every business executive knows, real success will only be achieved if the project is not only well planned but also expertly executed.
Here I highlight the issues in successful implementation of strategic sourcing projects. The issues are generic, however, and can be applied to projects in all areas of business.
Big sourcing projects usually represent heavy investment of resources and involve most parts of the organisation concerned from sales through to operations. To protect the investment and achieve ROI objectives, top management must make sure that an appropriate savings implementation strategy is set up. Executed properly, this will ensure successful outcomes including cash benefits.
In both direct and indirect procurement categories — items including raw materials that are part of the production process and other goods and services that support the business generally — some key aspects emerge as critical to a successful implementation.
First, an effective approach to implementation must be aligned to the objectives of the business as a whole and, specifically, in line with the projections it makes in terms of future performance.
Potential savings are usually based on a projection of future volumes of purchased components, for example. Due to volatile market conditions and customer behaviour, though, demand for finished goods can vary significantly from year to year and the mix and volumes of purchased components can vary too.
The implementation strategy must address such volatility, especially in direct categories, for example, where the component qualification process might be resource and time-consuming.
Effective project management is the key to ensuring consistent savings implementation across the organisation. Particularly in large organisations with a range of categories to implement and the involvement of a number of departments and business stakeholders, a coordinated effort is required to make sure that workstreams run consistently and on time and that benefits are properly accounted.
A programme manager who coordinates several implementation plans, runs progress meetings, sets priorities, reports to the CEO and manages potential clashes among workstreams or organisational issues is necessary. Project management tools and techniques must be deployed and integrated with a proper internal communication strategy.
The best candidate for this role is normally the chief procurement officer or someone belonging to their staff. It is also good practice that Procurement and Finance together set up a benefit tracking tool to measure the effect of the savings implementation effort. Finance would normally run the tracking tool.
When it works best strategic sourcing is cross-functional: procurement ideally works alongside a range of other functions to put it into effect successfully. Given this, it is crucial to bear in mind that implementation, often addressing several categories, can substantially increase the workload of the whole organisation while the business attempts to proceed as normal. This has the potential to create disruption.
Two elements need to be addressed. First, it is crucial that the organisation as a whole is committed to the project and understands the benefits. A top-down approach should ensure the right priority is given to the implementation phase. Sponsors such as the CEO, directors or VPs need to give the right message about prioritisation to the whole organisation even if it would appear to clash with the day-to-day business.
A proper communication strategy must be in place. Keeping strategic objectives clear and motivation high is essential to eliminating any potential “can’t do/it’s too difficult to change” attitudes.
In addition, responsibilities must be clear. Category leaders in the procurement organisation who manage the sourcing process upfront are the best candidates to take the lead of a category savings implementation, acting as programme or project managers.
Because conditions change quickly, a savings implementation strategy needs to incorporate potential new scenarios in a pragmatic, agile approach.
A multinational company in the manufacturing sector, for example, took the strategic decision to enter new markets in the Far East and the developing world and to move production tofacilities nearer to the region.
However, the change in strategy was not properly analysed and urgent action had to be taken to enable the supplier base to adjust to the new scenario. Agreements with suppliers to cover delivery of goods to different regions had to be renegotiated with new terms and conditions and a quick tender launched for certain key components. The financial implications of such major readjustment in terms of management time and organisational disruption were clearly substantial.
Protecting return on investment and maximising the benefits of a strategic sourcing programme is imperative for every CEO as well as for senior procurement managers and the financial officers who must protect the company balance sheet. It is not enough to set a good strategy: the way it is implemented makes the difference.
Fabio Sona is Principal at procurement consultants Efficio