Aligning KAM with procurement
13th December 2019 | Mark Davies and Richard Vincent
Report from the Cranfield KAM Best Practice Forum 26 September 2019.
Key account managers are always striving to find better ways to cooperate and co-create value with their opposite numbers in purchasing. Similarly, professional purchasing managers are always striving to obtain the best possible deal for their organisations and get away from entirely price-focused negotiations. So the most recent KAM BP meeting concentrated on getting both KAMS and purchasing professionals together in order to answer the question: “What techniques can key account managers adopt to enable mutual value-enhancing business solutions with procurement?”
Future of procurement
The first speaker of the main session was Duncan Brock of CIPS, a UK-based global professional body working for the purchasing and supply professions https://www.cips.org Brock gave an excellent overview of the perspective of professional CPOs and looked at how technology advances and the growing influence of a few very big players such as Amazon, Google, Facebook and Apple might change the landscape and lead to significant changes for procurement.
CIPS have produced a report, The future of Procurement and Supply Management, which looks at two possible scenarios. The first assumes that the concentration of market power in a key few titans such as Amazon, Google, Facebook and Apple continues; the other assumes networked organisations get stronger and pressures such as sustainability and ethical sourcing become more significant, due to pressure from consumers and via legislation. If this second scenario comes true, there will need to be a shift in emphasis towards strategic procurement and stakeholder management. New skills such as data analysis and an understanding of cognitive procurement will come to the fore, and much greater emphasis will be put on risk management.
The drive from legislation and from customer pressure is creating a “burning platform” for the introduction and assurance of ethical and sustainable supply chains which can give consumers confidence that the products or services they are receiving have been created in ethically sound and sustainable ways. See (Figure 1) for some of the ethical issues that are becoming increasingly important.
Brock went on to look at the characteristics of a typical CPO and how they differ from the population as a whole. At the lower levels what was found, not surprisingly, was that the population scored highly for reasoning, working with numbers, objectivity and working with words, but at the higher levels, extraversion and ability to manage stakeholders become much more dominant.
Best practice in the purchasing profession is to categorise suppliers in much the same way as KAMs categorise customers (Figure 2).
Strategic suppliers are those for which you consider the relationships to be the most strategic and important; consequently, the amount of time and effort put into managing them should reflect that. CIPS strongly advocates categorising suppliers rather than products so as to put the emphasis on the relationships rather than individual contracts or transactions. However, there is a general acknowledgement that, while recognising the benefits of using categorisation as a management tool, it is too often compromised in favour of expediency in the face of urgent and short-term priorities.
Brock also showed how many suppliers use an alternative, and less well-publicised form of the Kraljic purchasing model (AKA “the Kraljic matrix”) – not only to classify suppliers according by the nature of the products or services that they are providing, but to classify them as a supplier based on the attractiveness of working with them as an organisation and the value of the business that they are doing with them (Figure 3).
Understanding that your views of the relationships you have with your customers and their views of the same relationships can be very different can provide key insights into how they are thinking and how they will consequently behave.
The pre-session dinner featured an entertaining talk from Steven Foster about “One Golden Nugget”, his current project which has been described as a platform for wisdom and which aims to collect nuggets of wisdom that people all around the world use to guide their lives. Foster himself has had a very exciting and varied life which has seen him build and lose several fortunes along the way. His journey has encompassed many diverse roles, including periods where he has had to work at low-paid jobs such as hospital cleaning in between periods as a multi-millionaire and been both a charting performer and a business entrepreneur.
Foster’s own philosophy is summed up by his attitude to a problem or situations that other people might look at very negatively or by dwelling too much on the “mistakes” that led them into those situation s. “If there’s one thing I have realised over the years it is that with every challenging life situation there is always the seed of opportunity and the hope of brilliance within it. You just have to look for it and be open, which can be difficult when the ‘shit is hitting the fan’ but if you are ever going to be successful you must embrace this skill with open arms.”
It was the roller-coaster nature of Foster’s own life that inspired him to start to go out and collect wisdom from people with experience of life and, once he started that process, it snowballed into Onegoldennuggett.com which is now an ever-growing repository of life advice from an incredibly diverse range of people, both well-known and less so.
For more details, go to https://onegoldennugget.com or look out for the One Golden Nugget book which was released recently.
The main speaker for the afternoon session was Richard Nixon of The Hackett Group (www.thehackettgroup.com), an IP-based strategic consultancy and leading enterprise benchmarking and best practices digital transformation firm based in Miami. Nixon used data collected by Hackett to show that those organisations which are world-class at procurement get a 124% increase in procurement ROI and a 22% reduction in procurement cost versus typical organisations. Moreover, those gaps increase during difficult financial periods. In the best companies, an ROI saving of 10.7 times the operating cost of procurement is seen.
The key areas where procurement needs to improve are:
- Improve analytical capabilities
- Align skills and talent with business needs
- Leverage supplier relationship management (SRM)
- Improve procurement function agility
- Improve customer-centricity
If these are plotted on a graph of “ability to address” against importance, they all fall into the bottom right corner, this critical development zone is known within The Hackett Group as “The Bermuda Triangle of Procurement” (Figure 4).
- The procurement profession is changing rapidly.
- Technology is a major disruptor.
- Procurement roles are evolving to cover supply chain, contract management and supplier management.
- Supplier relationship management is an under-developed skill in procurement professionals.
- Understanding how procurement professionals think and work will make you better KAMs.
Nixon went on to look at the consequences for Key Account Management of the new approaches in procurement – a key outcome from which is “Nixon’s rule”.
Nixon’s rule of procurement (after 30 years of thinking!): “Make it as easy as possible for the supplier to give you their best offer.”
And from the supplier’s point of view, look for purchasers doing this and respond accordingly.
The key learning across the day is that the goals of procurement and the goals of KAMs are very closely aligned when both have the long-term interests of the companies and the relationships at heart. However, that potential synergy is very quickly dissipated when the organisations themselves focus too much on expediency and short-term measure such as price to the exclusion of more important but longer-term measures. This can be caused by overly simplistic measures being used within the organisation, particularly in remuneration and target-setting or because there is deliberate pressure to make the short-term financial measures look good. It behoves both KAMs and procurement professionals to be aware of these situations and raise the visibility of the consequences whenever possible.