Creating value beyond cost savings

How did you get your start in procurement?  

Lars: It was actually a complete coincidence. I studied Supply Chain Management in business school but my first job was in a research company carrying out customer satisfaction surveys. I quickly discovered that my interest lay elsewhere and found a job as a procurement analyst at Wolseley, the world’s largest distributor of plumbing articles.

 

“As long as procurement is viewed strictly as a cost saving function, it will never be perceived as a strategic function.”

Working in the procurement department at Wolseley was exciting and fast paced. I loved working in big business. I had the opportunity to work on fantastic and challenging projects with internal stakeholders and external suppliers. From there I was offered a job as Supply Chain Manager then Procurement Manager and then became Head of Procurement in Wolseley Central Europe covering five countries.

Tell us about a time you really felt a supplier relationship ran smoothly. What made the difference?  

Lars: As Head of Procurement I was involved in an innovative project with the world’s biggest faucet manufacturer. They had just introduced a great product- a faucet that delivers boiling water and sparkling water on demand. We discovered it was perfect for offices.

The challenge was who to target. As a wholesale business we would normally target plumbers rather than the end users- but the nature of the product required a different approach. We developed a plan, together with the supplier, to reach the right audiences and drive sales of the faucet – making a procurement project a sales project.

It was the right mix of a great supplier, an innovative product and the right teams to pull it all together and create value.  

What frustrations did you experience in your role?  

Lars: The hassle around data collection and gathering feedback. Procurement should be based on informed decision-making but often we have limited access to facts. We are used to gathering data about cost and logistics, but the rest of the supplier performance picture is incomplete.

What you measure is what you focus on and traditionally that is the financial side. The soft feedback from stakeholders was not readily available. For instance, you might have a supplier that was great on paper but was actually difficult to deal with on the centralized and decentralized level. That’s a big value destroyer. On the other hand, if you have a supplier that consistently delivers great products or service and works with you to solve problems, that is a big value creator.

Learning how internal stakeholders on the frontlines, warehouse staff for example, interact with suppliers can help you make better decisions for the business.  

What do you think are the immediate challenges facing procurement teams?  

Lars: Each company will have their own unique challenges. However, I think the questions of how to become more strategic and increase visibility within a company, and get on the CEO agenda, are important.

The way we define and measure value creation in procurement at the moment is too narrow. As long as procurement is viewed strictly as a cost saving function, it will never be perceived as a strategic function.  

How can procurement add value beyond cost reduction?  

Lars: Cost savings are not a true reflection of value creation in procurement. Again, it depends on the company; a wholesale producer is very different from a manufacturer for example. However, one of the biggest areas that suppliers can add value is through product development, flexibility and service.

It’s not just about finding the lowest price, it’s about identifying the supplier who will come up with the next big innovation or help you in any challenge you face. Innovative, value-creating companies and procurement teams are beginning to see that.

What made you take the leap into enterprise software development?  

Lars: It’s not something that came to me all at once. It started because I was frustrated with the very limited access my procurement teams had to basic data about the relationship with each supplier and how the suppliers performed. We struggled and spent too much time trying to find out basic information to help us make better decisions. I had heard about procurement software tools and contacted different companies to find out what they could provide and the cost.

Long story short, they wanted to sell me huge IT systems that were not fit for purpose and the costs were astronomical. I really felt that the salespeople didn’t understand my needs.

At the same time, the company I worked for was in the process of selecting a new customer relationship management (CRM) tool for the sales team. It really got me thinking how great it would be to have a similar tool to manage supplier relationships.

I began talking with friends about developing a SRM tool for procurement teams. I got a lot of encouragement and positive feedback and began writing things down. From there I developed a business plan and approached investors. There was a lot of interest and I felt it was the time to let my boss know that I was developing the project. About a week later I had a meeting with our current investor and we made a deal. That’s when LeanLinking became a reality.

What’s next for the company?  

Lars: The next step is to take the UK by storm! We are getting a great response from UK businesses and are looking to expand further. LeanLinking’s unique functionality really resonates with companies we are working with. The social aspect (sharing feedback directly with suppliers) is a particular feature that draws a lot of interest.

We are also exploring the possibility of hosting LeanLinking conferences to share best practice and discuss wider issues and challenges in procurement. SRM is on the radar in more academic arenas. However, bringing the SRM approach to actual business practice requires a new agenda.