How PROCUREMENT Can Become More AGILE
Procurement people performed miracles during the height of the pandemic crisis, and stakeholders liked what they saw – a more responsive procurement process in tune with urgent business needs. However, post-crisis stakeholder demands for a procurement service that is better, faster, cheaper and more responsive may now be overwhelming.
So, could AGILE PROCUREMENT be the answer that Procurement needs post-Covid-19? Jonathan Dutton FCIPS explains the potential for SUPPLY CLUSTERS members…
Problems with procurement today…
The problems that procurement endure are long-standing. Stakeholders often see long-winded processes, a myopia on cost, endless tenders, supplier bashing and a growing focus on compliance and sustainability. Less focus, perhaps, on the business and its core needs?
Yet suddenly, during the early stages of the pandemic crisis, stakeholders saw real responsiveness from Procurement, a sense of urgency, business problem solving and far less process demands. Joy.
The risk for procurement is that stakeholders will now want this level of service all the time, not just during a crisis. So, how to deliver it? Can ‘agile procurement’ help play this role?
The history of agile procurement
Only a few years ago, a handful of professional Agile Coaches, working on a large ERP project in Europe, noticed just how process heavy and ripe for disruption that Procurement looked. Their lean agile procurement (LAP) alliance was founded and was led by Mirko Kleiner at Flowdays in Zurich. Mirko was instrumental in developing the IP for agile procurement and subsequently developing the LAP1 training course, successfully delivered several times in Australia & New Zealand through local franchisees PASA.
The history of AGILE
Agile is a business philosophy – and not a process. It is not new in itself, in fact around twenty years old. It follows in the tradition of concepts like TQM (total quality management), CI (continuous improvement), JIT (just in time) and even Six-Sigma. It is a management methodology really. It was developed in the IT software development industry to speed up sclerotic IT projects during the 1990s that were often accused of making what they could rather than what was truly needed. Daily SCRUMS, stand-up meetings, two-week development sprints, and big room workshops speeded everything up, kept focus and delivered. Today, many firms offer formal AGILE training. And videos on YOU TUBE can explain quite a bit about the Agile approach.
The principles of AGILE
Yet AGILE is not a process, it is a mindset. The agile philosophy works universally across functions, with Procurement being no different. The FOUR values and the 12 principles of agile construct ‘The Agile Manifesto’ (pictured below) which guide agile practitioners in their thinking and their approach to their agile project:
In practice, especially in procurement work, agile teams work to certain clear practices or conditions:
Agile work groups…
AGILE ways of working include very polite teams, hands-up voting, stern SCRUM-MASTERS, daily 15 minute stand-up meetings at 9am, two-week mini-project sprints, Roadmaps, rules of engagement, an awful lot of post-it notes, neat hand-drawn flip-chart diagrams and BIG ROOM workshops built around a detailed PLAN/PREPARE/DO approach. Fun and team-spirit is also part of the agile culture.
The benefits of an agile procurement approach
The assumed benefit of an agile approach is speed. And, yes, an agile procurement approach can save vast swaths of time. It can run a live RFP or tender in a BIG ROOM workshop in two days and cut a market sourcing exercise from months to weeks. Famously, the Flowdays team bought a large IT system in just two-days for their client – CKW in Germany. The project won a bagful of procurement awards.
Yet, the benefits on the CKW project went far beyond just speed and cutting sourcing time from 6 months to 6 weeks. They also used under half the internal resources they normally would in a sourcing exercise, sourcing four times faster than normal and exceeded budgeted objectives by 20%. Importantly, the time saved brought real business benefit – PLUS the benefits normally lost to the business whilst decisions were made over months. They also got to “try and buy” the chosen vendor by working more collaboratively in the sourcing process. And more transparently too.
When to use agile procurement
The way to best view agile procurement is that it is one more tool in the procurement toolbox. To be utilised for the right projects at the right time. It is not a universal solution. No need to buy stationery supplies in an agile way. No need really to purchase complicated services or solutions with clear outcomes using agile methodology.
In fact, it works best to unravel complexity. Where uncertain outcomes are prevalent, but certain inputs all too clear. Where collaboration pre-contract not just post-award can resolve this complexity up front and better solutions co-designed at the outset, not mid-delivery and in semi-crisis mode.
Yet agile procurement cannot over-reach. Where both ultimate inputs and outputs are unclear and a chaotic project possible, then gain/pain share deals, alliance contracting, risk-sharing and JVs might work better. Agile procurement works well for the right project, not every procurement task.
The cross functional team
This is partly why a cross-functional team works so well in an agile context. A team of peers and equals from each function. One product owner (the executive producer), one SCRUM-Master, sprint captains and one procurement manager to facilitate the engagement. Perhaps with one external agile coach and one specialist agile procurement consultant to help guide the programme.
Crucially, this team must have delegated authority to decide. Within limits for sure – budget, time, scope, conditions – but also the ability to move quickly, decide and implement.
In fact, this empowerment is the greatest savings of am agile approach. Today, often, When a project is underway, corporate functionaries start sending e-mails to each other. And await replies. Then reply themselves. Then ask someone else. Then arrange a meeting. Except that boss is away that week, travelling another week. Months go by. Condensing this activity into a tight two-day stakeholder workshop, with all the key decision makers in the room, effectively “defrags” the project runway. Bringing all this disparate effort into a concentrated two-dayer.
Many people attracted to AGILE see this as the greatest challenge – getting a dozen busy egos of different seniorities into a single room all at once. It is a test. If it cannot be done, fine, the project is not important enough to them, clearly. We can spend some months deciding what we want – the usual way. Then another six going to market, maybe. This approach with stakeholders works well to get a mandate. And works just as well with hungry vendors – to see which of them is truly best to win the gig.
The BIG ROOM workshop with the suppliers
Putting the cross-functional buying team into a large room with ‘THREE’ vendor sales teams for two-days is the sexy bit of the process. The pressure bit. What one of the most successful football managers of all time famously called, “squeaky bum time.”
It can take much work to set up a BIG ROOM workshop. But it is also the central element of your sourcing project and can completely obviate your RFP or tender. It can save months of time and effort. But it has to be set up properly as a ‘PLAN-PREPARE-DO’ exercise by the cross functional team. And the essential ‘PREPARE’ bit should not be skimped on.
The vendors are briefed a relatively short time before the BIG ROOM two-dayer. And their brief is brief. It covers the rules, the Agile approach, outlines the likely topics and the potential prize or outcome of the BIG ROOM – often a Letter of Intent (LoI). Vendors sometimes need early persuasion to play, but jump on-board as soon as they realise that the entire RFP process is truncated, cost-of-sale is slashed and the buyer genuinely hopes to place an order quickly (at least with someone). They trade the pressure of the process for the alacrity, and the chance to win early.
The two-day BIG ROOM programme itself is often best led by the external agile procurement consultant as MC (or ‘referee’ perceptibly) with the support of the Agile coach and their Agile bag-of-tricks. It illustrates even-handedness. Each team (usually three vendors, plus the one buying team) gets a large table each. Often a central area with a screen, projector and chairs is an open-theatre. Around the outside white-boards, flip charts & the score-sheet on the wall. Bountiful stationery supplies help – especially of POST-IT notes.
Each presenting round throughout the two-days is presented by the MC or agile coach, and sets a task for the sellers each to complete. They all have a short prep time, when open discussions with the buyers are permitted, then each vendor has to ‘pitch’ in turn on one aspect of their bid in short presentations – say company intro, technical solution, commercial terms, innovations, compliance, delivery process, and so on; one topic per round. And presenting in front of everyone in the room – including their competitors. Yet, any sensitive information (always price + sometimes I.P. or innovation + USPs) is passed confidentially in a coloured envelope to the buyer’s team – each seller has their own colour.
Importantly, the decision-makers for each team (including the buying team) are in the room. Or have delegated sufficient empowerment for the team to act in real-time – without checking back. Also, any probity advisers are included in the buying team. They often enjoy the transparency of the BIG ROOM process. The scores for each round go up on the scoreboard for each vendor. Everyone sees how they are going after each round. Weighting scores is quite possible, yet can complicate things.
The collaborative element of any Agile process is served in the room. Buyers and sellers discussing bi-lateral options and solutions, forging better and better pathways forward. But ultimately shared by all. This drives innovation and helps buyers ‘win’ the benefits of working with all vendors up to a point. Crucially, it also gives buyers a “Try-before-U-Buy” experience. Who do they work well with? Who gets them? Who understands the need best?
Whilst the ‘BIG ROOM workshop’ is the focal point for many buyers, the hard work is done beforehand. Setting up the two-days, managing the SPRINTS to define needs and conditions, finishing the business case, planning the rounds, winning a mandate for decision-making, securing budget, selecting & preparing the BUY team, shortlisting the vendors (usually through and EoI like process) and then briefing the shortlisted vendors equally.
Procurement’s role in AGILE
In an Agile process, procurement are the facilitators. They manage the interface with vendors, they project manage the programme for the Product Owner, they often become SCRUM-Masters they shortlist vendors, ‘negotiate’ and manage the commercial side. But it is not their project. They serve the project, which is owned by the client department and their ‘Product Owner’ on behalf of the end customer.
Agile is not so much about speed, as many people often think. Nor is it a short-cut, as many people assume – cutting red-tape, compliance, process and due-diligence to save time.
Simply, it fuses the principles of ‘AGILE’ with the procurement process. It brings the key players together for one-time. It defines needs much more closely through collaboration. It concentrates effort and then iterates solutions cross-functionally. It is genuinely customer focused. It ‘tries ‘n’ buys vendors. It works transparently. It decides openly and quickly. And captures early business benefits for doing so.
In this way, AGILE PROCUREMENT is, in fact, a new way to maximise responsiveness to your organisation’s true needs, and how they frequently change, and to react to them in real-time. And, in this way, has the potential to address those long-standing procurement problems – just not on every project; only the the right ones.