The Technology Procurement Handbook

A Practical Guide to Digital Buying

Sergii Dovgalenko

• Publisher: Kogan Page
• Year: 2020
• ISBN:
  9781789662115
• Edition: 1
• Topic: Betriebswirtschaft
• Subtopic: Operations

With the rise of cloud services and the digitization of all business units, procurement managers need to understand how to buy technology services in order to generate revenue, drive innovation and retain customers. The Technology Procurement Handbook provides a structured and logical view of the digital buying process. It includes invaluable advice on how to manage digital demand, prepare sourcing strategies, analyze the cost and benefits of proposed solutions and negotiate and implement comprehensive agreements. The Technology Procurement Handbook examines the multiple streams of data that feed into the technology procurement process, such as ITIL service lifecycle data, PMI project management and cloud and software contract provisions. The book includes case studies and extensive practical advice based on the authors experience from recent procurement projects. There is also a chapter on modular contracting for the US market, explaining the use of agile contracts for IT projects.

08

Procurement 3.1: Agile, lean, and value delivery today

As we discussed earlier, business continually evolves under the influence of megatrends, and so does procurement. To summarize views as to the path of procurement transformation, we collated the opinions of leading industry analysts. This is how they view the evolution of our profession in 2020–2025:

• Arbiter of risk, reward, and creativity.
• At the nexus of finance, operations, and supply chain.
• Talent-rich.
• Risk forecasters.
• Global supply and demand perspective.
• Idea generators and innovators (Feinberg et al, 2013).

• Value drivers: execution speed and insight.
• Procurement role: sourcing advisor.
• Business role: disciplined sourcing agent.
• Delivery model: hybrid centre of excellence.
• Resources: professional advisory staff and customer-oriented technologies (Gartner, 2019).

• Shift focus from cost to value and ROI.
• Push smart centralization balancing all improvement drivers.
• Approach supplier collaboration and innovation in a different way.
• Embrace digitization to drive, enable, and support this transformation (PwC, 2019).

• Intelligent spend engines.
• Advanced analytics solutions.
• Seamless B2B ordering.
• Zero-based budgeting.
• Financial P&L interlink.
• Agile organization.
• Staying focused on the basics: value capture, measurement, change management (Boulaye et al, 2019).

The above statements should suffice to get a sense of direction – value generation and capture, business partnership and advisory, supplier collaboration, efficient operating model, supply and demand management – all of that based on digital technologies.

We have already covered the relationship and operational model areas. Now we will provide some practical views as to the certain attributes of Procurement 4.0 that could be gradually achieved now or in the near future, with no need to wait for tectonic shifts in the company business model and culture.

The path to procurement agility

‘Agile’ has become a buzzword across many professions. Advisors, analysts and random strangers are telling us what it takes to become agile. Quite expectedly, this hype covers up the lack of generally accepted definitions and standard concepts, so for some advisors ‘agile’ means ‘resilient’, for others – ‘flexible’. Some advisors suggest differentiating ‘agile’ and ‘Agile’ (the adjective vs the one following the Agile Manifesto), but most of them provide explanations along the lines of ‘to be agile… procurement organizations need to have the knowledge and ability to move quickly’ (Thiede, 2017).

At the same time, agility is the number one item on the list of CPO priorities in 2020: ‘While cost savings once again remains the top focus for 2019, agility enters as the key priority for 2020 – showing CPOs intend to shift their focus to more value-adding exercises’ (Procurement Leaders, 2019).

We have already obtained an appropriate theoretical background of the Agile Manifesto – development method, suitable contracts, etc – but this time, we will present what we suggest are the first steps on the path to procurement agility. Making first baby steps in this direction will keep us busy until the powers that be from the Big 4 consulting firms step onto the path of enlightenment and tell us what exactly we need to do to become agile.

Firstly, we need to reiterate – Agile methodology is not a placebo, and it shouldn’t be used everywhere. From an IT perspective, the Agile approach is intended for activities that require significant software design and development. Some IT needs can be met with commercially available off-the-shelf items and commoditized services, such as software licence subscriptions, with little or no development work. Traditional services and COTS platforms can be effectively implemented using the waterfall approach; therefore, we have indicated the tendency to develop bimodal IT operational capabilities (Chapter 4).

Similarly, procurement needs to operate in a bimodal way. We need to be capable of supporting both agile and waterfall projects. However, our mentality should always be agile – streamlined, flexible, less obsessed with governance and documentation, and more – with value and performance. It must be based on trust with suppliers and the support of end users. In this respect, agile is rather an adjective explaining the new procurement mindset.

Factors of resistance

Let us first suggest the possible definition of procurement agility – the shortest sustainable lead time between the business requirement formulation and benefits realization (CA Technologies, 2017). At least, this is what the business expects from Procurement and other support functions. Our efficiency will be measured by the time to market and converted into a joint KPI for IT, Procurement and Finance, and our cross-functional efforts will be subordinate to it.

As a first step, we analysed what current factors resisted our drive for agility and grouped them as follows:

• Planning:
  • Business planning – top-down cycle based on long-term forecasting with waterfall objectives.
  • Budgeting – tailored to fixed-scope waterfall projects (big bucket of funds allocated to the full project upfront based on bulky business cases with questionable long-term assumptions).
  • Project management – PMO used to manage waterfall projects.
  • Capacity planning – resources allocated upfront with no considerations for ongoing changes in the project pipeline.
• Processes:
  • Corporate governance – sequential rigid processes with excessive controls and overwhelming documentation.
  • Operational model – top-down hierarchical structure divided by silos.
  • Recruitment – nightmare cycle times of three to six months, lack of HR processes to deal with short-term labour and freelancers. Onboarding security checks and entrance permits takes months, eating up the chargeable project time.
• Execution:
  • Sourcing – standard RFx process is anti-agile – inflexible, reactive, sequential, waterfall.
  • Contract management – lack of agile templates, standard terms and conditions developed for waterfall projec...