The Guide on Procurement Collaboration
Unlocking benefits of collaborative procurement
Just recently, we touched upon the overall importance of supply chain collaboration.
This post intends to unlock one of its essential subtopics and become the most comprehensive guide to procurement collaboration's theory, methods, and tools.
"Collaboration between organizations will be a recurring theme. Supply managers will lead co-buying and other collaborative initiatives… This will reduce overall transaction costs by sharing consultation and sourcing costs and provide lower prices through economies of scale and market leverage."
This post intends to unlock one of its essential subtopics and become the most comprehensive guide to procurement collaboration's theory, methods, and tools.
The benefits of procurement collaboration
This topic contributes to the agenda of Procurement 4.0 and forms the critical transformational aspect of our profession for many years ahead. Let's quote the CIPS visionary work "The Future of Procurement and Supply Management.""Collaboration between organizations will be a recurring theme. Supply managers will lead co-buying and other collaborative initiatives… This will reduce overall transaction costs by sharing consultation and sourcing costs and provide lower prices through economies of scale and market leverage."
Besides economies of scale, procurement partnerships unlock the treasure of residual benefits, e.g.,
- diverse collaboration tools to deliver extra value,
- competitive consumer pricing due to improved commercial leverage of procurement alliances,
- access of smaller firms to the biggest corporate customers via procurement partnerships and B2B platforms,
- resources, knowledge, skills, and technology sharing,
- developing transparency and trust, leading to improved supply chain resilience and risk management,
- new revenue generation,
- rapid technology development to support booming B2B supply platforms.
Procurement collaboration tools alert global suppliers.
Let's refer to the following fragment of the 2020 Annual Report of Nokia.
"Service providers are increasingly entering into network sharing arrangements, as well as joint procurement agreements, which may reduce their investments and the number of networks available for us to service.
Furthermore, procurement organizations of certain large service providers sell consulting services to enhance the negotiating position of small operators with their vendors. As a result of these trends and the intense competition in the industry, we may be required to agree to increasingly less favorable terms to remain competitive."
This statement amazingly resonates with the above prediction by CIPS. Perhaps, this would make us realize that the future is here and now.
The collaboration between procurement leaders became visible and alarming for global vendors and their shareholders. Their tools - resource sharing, data exchange, cost, and negotiation advisory - prove effective.
Our colleagues enable revenue streams with their category intelligence. The value creation by collaboration toolset happens well beyond the traditional remits of price reduction encounters.
The following counter-arguments from the partners-to-be will be raised in random combinations:
Our colleagues enable revenue streams with their category intelligence. The value creation by collaboration toolset happens well beyond the traditional remits of price reduction encounters.
Perceived disadvantages of collaborative procurement
Those who think the benefits of procurement collaboration are apparent to everyone and eagerly supported would be unpleasantly surprised by the intensity of internal resistance.The following counter-arguments from the partners-to-be will be raised in random combinations:
- "We do better" - of course, why would you accept that the other guys could be more efficient in anything.
- "They got different processes" - everything they do is complicated and will slow us down.
- "We don't have time for that" - this is not in my job description; I'm already overworked and underpaid, so why would I take this on.
- "They only mind their own interest" - we're custodians of our company's best interest, as much as they are, so everyone will want to take advantage.
You know how hard it is to manage your internal stakeholders, respond to ever-changing market conditions, fine-tune the governance framework, and follow the corporate strategy weathercock.
Now multiply these challenges by the number of partners and flavor with cultural differences and business model disparities to create the feeling of a collaborative procurement environment in the stage of execution.
The theory of strategic alliances
Procurement alliances are no different from others; they all follow the same evolutionary process.
In the early stages of cooperation, partners are busy designing their alliances' operational and commercial models and installing appropriate governance. Importantly, all of that is done by the smaller executives, who share (or pretend to) the code and the spirit of collaboration.
In the post-formation stage, middle management and regular workers become exposed to the partnership agenda, which most of them are completely misaligned.
As the theory and experience tell, alliances in their post-formation need to be managed through coordination, relationship development, and conflict resolution.
Sounds simple? Let's see what models and tools are available out there to create a fully functional regiment from the random bunch of demotivated recruits.
4 types of collaborative procurement
High-level coordination can be enabled by using an appropriate operating model out of the following four.
Coordination model
This is the usual suspect most procurement alliances are starting with. It seems easily achievable that procurement departments get together and buy some stuff to enjoy bundled discounts.
In practice, this is the most challenging model since specifications aren't aligned, contracts mature at different times, source-2-pay process governance differs from one company to another, and the list goes on.
Lead-buyer model
This model is easy to plan but hard to realize since it is based on collective trust in lead buyer capabilities.
Would you agree that the other guys are the center of excellence for the given category (i.e., they know the Business better than yourselves), and a deal they made is the best one possible across the alliance?
Like in everyday relationships, you would need to gradually build your own or ingest the trust in others - don't expect that to be available from day one of the alliance.
Center-led model
Arguably, this one should be a first-choice option.
Its flipside is convincing the alliance management to allocate budgets and resources to build the integrated team.
Consequently, this model requires dedicated financial planning, governance, and reporting. A little bit harder at the beginning but much more effective in the longer run.
Procurement company
This is paramount to collaboration maturity, a genuine commitment to synergize on solid commercial grounds.
Such a model works best when alliance members are prepared to divest their procurement resources into a separate entity, which will change the service fee for handling sourcing requests.
Eventually, these guys start selling their services to third parties, as they have the volume to leverage in global negotiations, the best resources from across the alliance, and the freedom to think and act independently.
They are the ones Nokia was complaining about.
Procurement collaboration methods and tools
In the alliance management study by Kale and Singh we referred to above, there were suggested three methods to facilitate the coordination between members, i.e.,
- programming - developing clear guidelines on what specific tasks need to be carried out by each partner, who exactly is accountable for each job, and a timetable for implementing them;
- hierarchy - the creation of a formal role or structure with authority and decision-making ability to oversee ongoing interactions between partners and to facilitate information and resource sharing;
- feedback - joint teams and collocation are helpful to quickly process pertinent information and mobilize resources accordingly.
We will now suggest some practical ways to implement those coordination mechanisms.
Coordination platform for procurement collaboration
The alliance may install a cross-functional platform to ensure higher-level alignment with all business stakeholders.
This model ensures the broader stakeholder alignment and awareness of the procurement workstream of the corporate strategy and cross-business initiatives and challenges.
The Business should come first to synergize. Procurement knows how to monetize synergies, but not before Business people agree on specifications, branding, and customer experience.
Otherwise, procurement needs to have a bulletproof mandate to align with the alliance's cheapest option.
Procurement alliances may adopt the Scrum of Scrums cross-functional platform principle for that purpose.
Each category working group will work as a Scrum team with all members dedicated to the standard category goals.
Joint vision and strategy
Procurement collaboration needs to be articulated by Executives and reflected in the vision and strategy of the alliance. The loosely coordinated vocational initiative simply won't work.
Shared KPIs
To operationalize the joint strategy, the alliance leadership needs to define a small set of KPIs (savings, efficiencies, etc.) reported to every partner's management and embedded into individual performance metrics of all participants.
Operational efficiencies through collaboration
Collaboration should ease lives.
Joint tendering saves time and effort instead to a multitude of individual tenders.
Collaborative procurement strategy shapes local category strategies.
The practical operational model makes the best people in the alliance work for the benefit of every participant.
Standardized collaboration tools
The procurement alliance will have to standardize processes, metrics, and documents – as simple as KPI definition or as complex as category trees.
Joint tenders need to be unified for recognition by each partner's governance bodies.
Once alliance members approach the same preferred supplier with their contracts, these would be better standardized.
Communication within the alliance
Partners must communicate often, so establish community channels (e.g., Microsoft Teams, SharePoint, project collaboration tools, etc.).
Daily communication needs to be well-organized and structured; otherwise, emails from myriads of stakeholders of different alliance members would quickly pile up.
Communicate extensively, create awareness, slow adoption, and convert adopters into change champions. Remember, if you want to be successful, you'll have to manage the transition.
Open doors approach to encourage collaboration.
Don't shut your doors to those who didn't want to participate initially. Let them know there's always a chance to join. They will watch and sooner or later decide to catch up as soon as they find it useful.
More information on this and other exciting topics can be found in "The Technology Procurement Handbook." It represents 23 years of experience, billions of dollars worth of successful sourcing projects, and 1000s of hours spent on research, analysis, and content creation for the most demanding professional readers.
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