Greenfield Procurement Function...How to do it?

How to start a greenfield procurement fiunction from scratch, according to the Metro Bank Procurement Team.

Many of our candidates have been employed to start and develop greenfield procurement functions; this article in Supply Management might be of interest to many of you..

Metro Bank is UK’s first new high street bank in more than 100 years; it has experienced huge growth in both its customer base and organisational capability since its launch five years ago. With  increasing spend and an increase in the complexity of supplier relationships, they have quickly realised the need for a dedicated procurement function; to understand the bank’s spend, ensure best value was being achieved and to undertake structured supplier due diligence processes. Reporting to the CFO the small team has an annual spend of circa £50 million a year. Indirect categories managed include IT, facilities and services.

Joe Bakowski, Head of Procurement and Nabeel Irshad, Procurement Manager at Metro Bank identified 12 key activities and approaches any newly appointed procurement function will need to carry out early on in its life. They are discussed in detail in Supply Management.

 

At Metro Bank, data is king. To understand our supplier spend we used a year’s worth of invoices as our baseline and conducted a classic category analysis, segmenting by size and speed of potential opportunity. Understanding our supplier spend was crucial to being able to focus our efforts in terms of cost-saving initiatives, supplier improvement programmes and value analysis.

Understanding your supplier data is only one half of the picture. The other half is meeting your suppliers and learning more about them, their organisations and their objectives. This is time well spent as it can reveal information about what the supplier thinks of you as an organisation, what is important for them in the relationship and where there might be opportunities for improving value (whether through cost savings or service). Developing these relationships can establish your procurement function in the role of gatekeeper when it comesto future sales.

As a new function, it’s important to get known by the business quickly. Inevitably there will be resistance from some quarters, as the new procurement team can be perceived as an impediment to getting things done. Use the quick wins and opportunities identified through the data analysis to get the conversations going and prove procurement’s value. It’s also vital that senior stakeholders, such as those at the executive level, are informed and kept updated about procurement activity; steering committees and management meetings are great forums for this, but regular procurement-focused meetings involving senior stakeholders should also form part of the mix.

It’s vital any new procurement function really understands the business it operates in. Understand the internal processes, how your internal customer teams work, what they do and what their own objectives are. Do not underestimate the value of developing networks in the business – time spent having coffees with people and understanding their role pays dividends in the long run. Have an elevator pitch always at the ready so you can articulate what your procurement function does, why it is important and what value it brings to the business.

Knowing the business in depth also means being able to define and challenge business requirements from an informed perspective. This is perhaps the biggest single impact procurement has made at Metro Bank. We work with the business on all procurements to ensure requirements are well thought through, clear and structured to get the best out of the market. As well as being good practice, the development of clear requirements is arguably the single biggest cost-saving measure you can make as a procurement function.

For credibility with the business (especially senior stakeholders) and to ensure maximum impact in supplier negotiations, it’s vital to know the numbers. The procurement team must be absolutely au fait with financial constructs such as capitalisation, revenue recognition and some elements of taxation. The team must also be highly numerate and have the mental agility to understand what kinds of deals will be in the best interest of the organisation.

Ultimately, cost-saving targets will form some part of the procurement function’s success metrics. We found a good way to do this was to establish a clear methodology that is agreed and understood by the business – in particular the finance team – for common visibility. As benefits are delivered, savings are taken out of cost centre budgets on an ongoing basis to ensure they crystallize. Don’t forget to track cost avoidance as well – although these are not hard savings, they do demonstrate another aspect of procurement’s value to the bottom line.

It’s vital a procurement function puts in place a policy around purchasing activity. Think about how you want your organisation to run tenders, manage suppliers and mitigate supplier risk. A policy document shouldn’t be a dry tomethat sits on a dusty shelf (or in a network folder) only referred to in rare instances. It should be widely circulated, have executive buy-in and be something everyone in the procurement team understands and advocates to others. Effective policy mitigates risk and ensures procurement is undertaken in a way that best supports your organisation’s business objectives.

We take every opportunity to use and build our network to talk about what we’re doing, to seek advice and to learn from others. If you don’t have any networks you can readily tap into, use the CIPS branch networks as a starter, connect to people via LinkedIn, attend conferences and events. Where you have gaps in market knowledge or data, invest in buying it in through subscriptions to analyst houses, reports
or via short-term consultancy.

Equally important to building capability and addressing gaps in knowledge is to recruit and develop great complementary talent. We make sure that addressing knowledge and skills gaps are hard-wired into our annual performance objectives and that we give ourselves time away from the day-job to participate in training programmes. If possible and appropriate, it’s beneficial to have diversity of experience in your procurement teams. Joe has a background in banking operations and business management and Nabeel came from a consultancy and brought
his experience of international procurements.

Over time, we have built an ever-growing library of tools to help us deliver a consistent approach to tender processes and renegotiations. Timesavers such as standard RFx templates, non-disclosure agreements, project plans and vendor activity trackers add a professionalism and common standard for delivery of procurements. It also leaves a relatively small procurement team, such as ours, to concentrate on the most strategically important tenders while running the remainder with a light touch, focusing on the areas – like commercial negotiations – where we can add the greatest value. There are hundreds of templates and examples accessible, both on the CIPS website (bit.ly/cipstemplates) and through general online searches.

Hand-in-glove with building a toolkit and knowledge within your procurement function should be the objective of capturing learning from procurement’s activities and using it to improve the function. Whether it is from suppliers feeding back about competitive tender processes, internal customers on procedures or project teams regarding renegotiation activities, all commentary should be logged, discussed and evaluated. For example, the feedback we’ve received from suppliers over the past 12 months has really helped us improve both the quality and outcomes of competitive tenders.

Building a procurement function from scratch is daunting, exciting, challenging and fun all at the same time. Ultimately, there is no rule book, but we hope our suggestions help the blank piece of paper look a little less intimidating.