Sunday, October 9, 2011

Procurement Diligence Pays Dividends - Part 2

Requirements planning is a key first step.  It is important to be forward leaning, anticipating organizational and key customer requirements ahead of initial requests.  This proactive behavior is built upon two foundations; relationships that enable anecdotal and hard data information sharing as needs first begin to emerge (long before they are normally translated into a requirements request), and strategic alignment of the FM operation with enterprise goals and activities.  Having the advantage of these two perspectives allows the FM leader to forecast properly and bring creative contributions to bear.  Importantly, requirements planning improves the quality of investments made, thereby contributing to capital preservation which in turn improves leverage.  Optimizing the requirement minimizes unproductive expenses and helps optimize the supply chain, both of which improve the overall value of any given requirement.
The specification process establishes criteria for successful outcomes.  Whether you are looking for a new robotic manufacturing system, land for a new headquarters building, a new maintenance or service provider, or an improved contract for office supplies; the specification you approve establishes your expectation of what is acceptable.  As such it warrants diligence and serious consideration.  You may consider the specification to be the floor against which you will evaluate options, whereas providers may consider it the ceiling as well.  This is an important distinction and demands clear articulation in the resulting specification.  Further, the specification process should include in collaboration and consensus among the full range of stakeholders for any important product or service.

Market assessments inform acquisition strategies.  Consider the assessment as your opportunity to understand the full breadth of requirement fulfillment options.  A formal and standardized assessment will yield market forecasts for any product or service, including relative competitive alignment among providers, their strengths and weaknesses, and how well their offerings align with your needs.  Do not under appreciate cultural alignment as a learning outcome of this effort, especially if the products or services you will procure from them are of strategic importance.  It is often valuable for the internal team that has conducted the assessment to come together at the back end and share individual learnings and questions.  What can we do different than we normally do?  What is now possible that we didn’t realize when we started this process?  These are important questions that should be answered and provide feedback to the requirements and specifications processes.
Investigation should include analysis of metrics that predict likelihood of instability.  This type of investigation looks at performance quantification in areas that highlight unstable operations or high risk potential.  Think of this as identifying and then quantifying Key Performance Indicators (KPI’s) for a provider’s overall business.  If dealing with a commodities contract for example, one might evaluate the supplier’s performance against their production plan, the number of delayed shipments, the volume of product returns, how often the supplier must be expedited, and how accurate their marketing forecast is.  This information will tell you how accurate their internal business processes are and where there may be hidden stress in their systems.  If the contract you are considering is of high strategic importance to your own operations then these information points are especially important.  These are not the kinds of questions FM’s normally ask in a sourcing exercise but they can be illuminating, revealing hidden risks that no marketing department or account representative is going to share.
FM’s spend a lot of money, one reason why the function was traditionally thought of primarily as an expense line item in the purest form.  The profession has increased its sophistication and strategic visibility largely because it is now recognized as a valuable contributor to corporate direction and health. Attention to detail has always been a hallmark of the FM activity and that is not changing as the profession elevates its profile.  It is, in fact, because we have been successful in marrying the boiler room with the board room that we have been able to achieve this.  Both elements are critical in our evolution.  The kind of diligence and rigor toward the purchasing activity so important to the FM and suggested here is the same diligence that drives our increasing recognition as a value add function. 

Strategy and goals are one thing, execution is everything.

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