Engaging Purchasing

Stakeholders: A Framework that

Works
By Paulo Moretti

July 26, 2018 at 9:35 AM

The recent Deloitte Global CPO survey 2018 contained several surprising
results. Foremost among them for me was the low level of purchasing
engagement between businesses and functions, that is, the purchasing
stakeholders.

Purchasing stakeholders, by my definition, are the people in businesses or

functions who are affected – either positively or negatively – by purchasing
actions and decisions. Therefore, if the stakeholders are affected, it is
imperative that you, the purchasing professional should actively engage with
them.

The CPO Survey revealed that only “22% of procurement leaders are excellent
business partners contributing significant strategic value.” It was also found
that only one-third have “good transparency” at levels below the Tier 1
suppliers.

This same survey further revealed that 76% of procurement leaders use only
one approach to understand stakeholder requirements: the procurement
team members who are embedded in cross-functional teams. In my view, this
reactive approach is harmful to the purchasing function. Instead, we need a
more proactive framework to define stakeholder engagement.

In the discussion below, we will identify stakeholders, justify engagement,

and provide notes on a framework, approach, and governance.
Who are the stakeholders?

First, we need to identify the primary stakeholder in each commodity.

Organization designs for purchasing may vary, but most of them are divided
into Direct and Indirect spend. Raw Materials and Packaging (RM & Pack)
are commonly seen as part of Direct spend; Indirect spend typically includes
Maintenance, Repair, Operation (MRO), Capital Expenditure (CAPEX), and
Corporate Services. Logistics is divided between Direct (with freight costs
from Truck, Rail, or Marine in RM & Pack) and Indirect (when freight is
related to the sell side).

For RM & Pack, the primary stakeholders are the Business Director or
Marketing Director. These are the people accountable for the profitability of
the business when RM & Pack are the main input affecting the profitability.

For MRO/CAPEX, the primary stakeholders are maintenance leaders,

engineering leaders, and ultimately the Plant Director. For Corporate
Services, the primary stakeholders are the function leaders where we have a
significant spend in IT, HR, Legal, Marketing, EH&S, Travel, and others.
Finally, for Logistics, the stakeholders are supply chain leaders.

A more traditional way to find the stakeholders has been to wait for
something to go wrong in purchasing and notice whom to point fingers at.
This failed approach underscores the importance of proactivity in stakeholder
engagement.

Why stakeholder engagement?

Since stakeholders are affected by your decisions and actions, it is essential to

engage with them. As I see it, there are four primary objectives in stakeholder
engagement related to the actions and decisions made by purchasing.

Assure strategic alignment between purchasing and stakeholders

Engage stakeholders in sourcing and project management
 Engage stakeholders in selection and supplier management
Engage stakeholders in target setting and performance management

Following are five common concerns related to engagement (or the lack
thereof).

Is purchasing aware of strategic business moves that can affect the

supply chain?
Is purchasing informed about demand growth so that needed materials
can be acquired on time?
Are stakeholders informed about supply market insights and price
movements?
Are stakeholders aware of supplier performance?
Are stakeholders informed when their main product is being sourced?

Framework

Our framework is a simple, structured mechanism that is not time consuming

for stakeholders. The model below can be used with any commodity with two
levels of engagement. The higher level is the Steering Team, composed of the
VP of Purchasing, the Purchasing Director, and the Business Unit President
(or function head). The lower level, the Sourcing Council, is where most of
action will take place.

Approach
Purchasing leadership should identify potential Sourcing Councils according
to three criteria: significant spend, observed misalignments, and strategic
impact on the organization. For accountability purposes, purchasing
leadership should name one person to each Sourcing Council who is most
knowledgeable about that area’s main products or services.

The selected person will prepare a presentation that includes objectives of

engagement, engagement model, scope with defined purposes, and potential
Sourcing Council dashboard to be used. That person will then set up one
meeting with stakeholders to make the proposal to create the Sourcing
Council.

If a stakeholder decides to not engage in this model, the purchasing

professional will at least have done his/her part in proposing the engagement,
with the knowledge that the purchasing stakeholders have been properly
advised. On the other hand, if the stakeholder decides to engage, then
quarterly meetings can be defined and stakeholders can decide what belongs
in the dashboard (see example below).

Governance
In order to track the progress of the sourcing councils, the Steering Team
should create a quarterly mechanism to capture major implementation
milestones. These would include when the proposal was done, when the first
meeting happened, and when the dashboard became operational (as shown in
the example below for one specific quarter).

By using this tracking system, the Steering Team will know how much spend
is possible according to Sourcing Councils, and then by each quarter, the
degree of completion for proposals, first meetings, and dashboard
operationality. Once the Sourcing Councils are operational, the Steering
Team is only advised when a Sourcing Council has critical matters to report.

Take-away
It is clear from the CPO Survey 2018 that there is a lack of engagement
between purchasing and stakeholders. In order to change this picture, we
need to be proactive and create a structured mechanism that aligns with
stakeholder strategies, provides market insights, and has stakeholders
participating in the sourcing activities, so that both sides can enhance the
value delivered to the organization.

Tags: purchasing stakeholders purchasing framework purchasing

teamwork

Category: Blog Post

Paulo Moretti

Paulo Moretti is Principal at PM2Consult.com, a boutique consulting

company focused on excellence in the purchasing function for manufacturing
industries and market analysis of Chemicals & Plastics industries.

Prior to becoming Principal, he was Senior Consultant at Vantage Partners,

and worked 35 years at The Dow Chemical Company, where he developed
experience in such diverse areas as Manufacturing, R&D, Sales, Marketing,
Finance, Strategic Planning, e-Business, and Purchasing.

A native of Brazil now based in the U.S., Moretti holds a Bachelor’s degree in
Chemistry and Chemical Engineering, with Master’s degrees in Industrial
Management and in Business and executive course certifications from
Kellogg, Wharton, and MIT Sloan.