The value of procurement after a contract has been signed
To what extent does your organisation tap into its procurement team’s expertise before, during and after tendering for a new recruitment supplier? Does your organisation recognise the importance of procurement in the role of trusted advisor throughout the lifecycle of the contract? And if you work in procurement, do your internal customers see you as adding value and is there anything you can do to ensure they do? Rullion speaks to Sarah-Jayne Aldridge, Category Group Manager for Indirect Procurement at multinational mining company, Anglo American, to get her views on the topic.
Procurement people not only add value once a contract has been signed but they can also ensure that the contract keeps moving forward and aggregate spend over its lifespan, stressed Aldridge.
In recruitment, for example, it is important to continually review and look at the volume and quality of candidates coming through your preferred supplier list, she said. Failure to do this might result in missing an opportunity to drive some of the consumption to the right suppliers, she added.
“And I think, what people forget, is that procurement can help you with that. They assume you’ve put a preferred supplier list in place and it stays there. It doesn’t evolve. It doesn’t develop. You keep it as it is, but you can move it and you can shape it, and procurement can add some impartiality to the process and provide an holistic approach.”
In fact, you can go a step further and actually influence the maturity of the contract from a procurement perspective, she added.
As well as looking for efficiencies, procurement is there to ensure the supplier adheres to the Service Level Agreements stipulated as part of the contract. Procurement can help to manage the contract and ensure that the supplier is keeping to the contract, she said.
“Employees have performance measures, why shouldn’t suppliers,” said Aldridge.
Failure to have such a mechanism in place can result in a well performing supplier starting to do badly or to do its own thing. The supplier may not even know they are doing badly but it may just not be in line with what the company wants because their business needs have changed and they haven’t discussed those changes with the supplier, she said.
“Maybe it was all about cost savings in the beginning and now it’s about adding value, finding the best talent even if it means spending more money, wanting greater diversity and inclusion.”
When you’ve got a good supplier on board, procurement should be able to do the internal and external benchmarking for the organisation throughout the lifecycle of the contract, said Aldridge.
Part of procurement’s role is to keep their eyes and ears open and to give the business the confidence that the supplier their organisation is working with is the best supplier for them, she explained.
“You can only do that if you know the business and you know the supplier.”
An organisation with a mature procurement function recognises that it is less about hard and fast negotiating with suppliers and more about partnering and understanding each other, she said.
“For something like recruitment it’s pretty critical. Let’s be honest, you need the best talent coming into your organisation, you are using market experts to find and retain that talent for you, so why would you not want to invest in that?”
Being part of the process
To do this procurement needs to be part of the supplier meetings. This is why procurement people need to be sitting at the table with the business owners and sponsors when Service Level Agreements are being made, said Aldridge.
The more mature a procurement team is and the more internal customers see procurement as adding value, then the more likely it is for procurement to be part of the ongoing supplier review process.
Even when things are going well between recruitment providers and the business, it is important to keep procurement on board because calling on them when things go wrong is, in the long-term, ineffective use of their skills.
“We don’t know the history, so we could actually have stopped it from going wrong,” she said.
Having procurement involved from the get-go ensures we are actually helping with the conversations and can be that trusted advisor throughout the lifecycle of the contract, said Aldridge.
Aldridge said that people often forget that there is a lot of risk in a really good contract going badly wrong.
These risks are reputational, both internally and externally, she said.
“In recruitment, your internal stakeholders are your clients, and from a business perspective these are all the other business managers.”
It is these internal stakeholders who tell procurement whether or not they are giving a good service; not the supplier, said Aldridge.
As for an organisation’s external reputation, most want to be seen as an organisation of choice, so again how procurement performs as a function and what value its team members bring to the table can bolster or tarnish an organisation’s image to providers, she pointed out.
The importance of external reputation
Aldridge said there was value in being an employer of choice.
“Suppliers wanting to actually work with you is really important to an organisation.”
If suppliers want to work with an organisation they will give a much better service, said Aldridge.
Another benefit is that your organisation will get the best suppliers in the market competing for your business and wanting to fill your roles with the best candidates, she said.
And given it’s a global and any industry talent pool now, not just a local talent pool or a mining talent pool n the case of Anglo American, having the best suppliers working on an organisation’s roles is vital, she added.
The importance of internal reputation
Procurement likes to be seen as trusted advisors by their internal customers and to be brought on board earlier in the process rather than later.
But procurement’s involvement depends on an organisation’s maturity and its drivers, and there is often the misperception that procurement is just there to make savings, said Aldridge.
Where procurement’s focus is solely on quick cost savings, this can become tedious for everyone involved and procurement only succeeds in losing its credibility as a function and the momentum to drive the contract and long term value forward, she said.
“I think that perception needs to change from a procurement perspective. We’re there to help unlock the value of the contract and to put a stamp on the contract that this is actually the best in the marketplace.”
The problem is procurement’s internal visibility is not always good, said Aldridge.
“We don’t market ourselves well. We don’t talk about all the other things we can do like help HR to reduce consumption, undertake market research for them, go and see what other companies are doing and bring some best practice to the table. They don’t think that we should be stepping on their toes in that way, even though we believe we can add value. So there’s a misalignment sometimes.”
Promoting contract longevity
Continually identifying further value throughout the lifecycle of a contract and moving with both the business and the supplier/s’ objectives is an important part of a mature procurement team’s function, said Aldridge.
For example, it is important to let suppliers know if your business is changing significantly, she said.
They cannot be expected to read about it in the media or to have a conversation by-the-by, she added.
“But if you work with a partnership approach, and you understand each other’s business, then you’re more likely to have longevity in your contract.”
To achieve this, organisations’ need to introduce a more formal process. This should be embedded into the contract.
“Every quarter you need to have that formal conversation. Not about service, not about the contract, but about where your business is going, so you can identify any changes that need to be made in the service, in the contract, in the delivery, in the mindset, in the culture.”
The major stakeholders attending these meetings should include the supplier, HR, some hiring managers and procurement.
Issuing a survey beforehand asking all parties if there is anything that needs to be addressed, if there is something procurement needs to investigate, or to simply look for some efficiencies, is a helpful way to ensure the meeting’s conversation is productive, open and honest.
“What you’re looking for is not to increase cost. Instead you want to increase quality at the current cost by potentially making some efficiencies; which would be agreed upfront. You may even have a savings target or a quality target built into the Service Level Agreement.”
By doing this, you can avoid the cost and lengthy process of going out to tender, said Aldridge.
Forging closer relationships with your recruitment partners
Aldridge said organisations need to be thinking a lot more about spending time investing in the relationship with their existing supplier rather than incurring the cost change will involve.
“It’s not just the cost of doing contracts, the cost of doing tenders; it’s the cost to the internal customers.”
In an ideal world you would only go out to tender because things have changed significantly, said Aldridge.
For example, if you’ve got a new service, or you’re bolting lots of things on like new technology, or the market has changed so much that you haven’t evolved, she said.
“But, when you’ve got a good solid contract you should be investing in the backend as well as the frontend. If you’ve made that investment to get that supplier on board, why are you not investing through the lifecycle of the contract? Why are you not identifying cost savings within the lifecycle of the contract? I think that’s more beneficial.”
Taking the tendering process seriously
Aldridge said there are times organisations have to go out to tender simply because the wrong contract was previously put in place or the wrong supplier was selected or the organisational changes have been significant that change is needed.
However, organisations always have to be mindful of why they are tendering and question it, she added.
“I think senior procurement managers should not just say tender it as a solution. They should be saying, ‘right what else have we done to get this back on track or what else have we done to extract some value’. In other words, make sure you’re developing your supplier through the lifecycle of the contract and that you’re giving them information about your business that’s going to be supportive of them being a supplier of choice.”
Sarah-Jayne Aldridge’s EIGHT Top Tips to procurement professionals
- Ensuring procurement is part of the business discussion is really important and not just about the cost savings and the contract. Instead think about how a procurement person is being utilised as that trusted advisor.
- Examine whether you can develop your existing supplier so that you get quicker delivery and build partnerships.
- Building strong internal and supplier relationships is key so you foster that trusted advisor ethos.
- Develop your supplier through the lifecycle of the contract and ensure that you’re giving them information about your business that’s going to be supportive of them being a supplier of choice.
- Procurement professionals need to understand the contract throughout its lifecycle and to stick with it throughout its duration.
- Don’t just look inwards. Ask your sponsors to support you in looking outside your own organisation and think about what other companies are doing differently and how you can potentially add value by listening in to what they are saying.
- To avoid going out to tender work on bringing new ideas to the table, take time out to collaborate with your suppliers and unlocking value through the contract.
- If you’re going out to tender, know why you’re going out to tender.