I have been following procurement activities and landscape of the local organizations here in the Middle East region for the past 10 years. Much has changed during this period, in terms of developing the function. We have seen high caliber professionals come to manage and drive procurement efforts, tools and processes have been developed and certificates been awarded to best performing procurement teams. All in all, things are definitely going to the right direction, yet we are a long long way from the level of our colleagues in Europe and US.
Getting the clear picture of “what procurement should be and what it can do to the organization” demands for great internal sales efforts towards the top management of local organizations in the ME region. In way too many organizations procurement is seen as ad-hoc firefighting “we needed this yesterday”, transactional “call the corner shop, ask for best price and send the order”, admin function “designed to clean up and file the contracts negotiated by the stakeholders with no involvement of procurement”.
Procurement could be so much more valuable, especially for the top management and owners than this. And as said, it is moving to the right direction, change does take time!
As with all change, it won’t happen without the understanding of “Why to change? What’s the gain?”.
The mindset of how procurement function is perceived is influenced by the results it has delivered and will deliver in the future. I challenge you to take the leap, change and invest! If you continue to manage procurement with “the way we have always done it” with procurement teams, that too often have no or very little experience, and managers who have not experienced what procurement really may deliver; you tend to get results that focus on the day-to-day firefighting of clearing purchase order backlogs and explaining stakeholders why suppliers are delivering wrong products, delayed.
Surely, there are region specific challenges in implementing procurement 2.0/3.0 or whatever we want to call it. Still, there has to be a target level and understanding of benefits for the organizations. If done right, these benefits can be significant. Really significant. This needs strong leadership and vision from YOU, the top management to make this change. With falling oil prices and constant turmoil in the markets, we all need to be on our toes and ready to make changes, sacrifices and trust the vision.
Changing mindsets starts from a vision and creating results step by step. Transforming procurement from tactical daily best price deals quoting to a function that is fully integrated into the core business targets takes time and planning.
Lack of planning is one of the key challenges, I found out. Coordination and communication between key stakeholders and procurement is not functioning the right way. Then again, with the mindset that procurement just punches in PO’s and checks prices, what benefits would the stakeholders see in having procurement involved in long term planning of their business? I’ve seen what they can be and will continue being the spokesperson on every platform I am able to reach.
So here’s the advice: Stop thinking about today’s quick wins and start thinking in terms of long term benefits. The long term wins will laugh at today’s short term quick wins. Automate tactical purchasing and make it easy to use. There are great new tools that can reduce manual work and firefighting. Invest in real strategic sourcing. Invest in category expertise.
Some forward thinking organizations here in the region (i.e. Emirates NBD, Majid al Futtaim, Emirates Airlines, Mubadala), the ones who have seen the potential benefits, have already taken the steps into investing in strategic Sourcing and Purchasing. They are surely starting to see the value. Rest will follow, and the early leaders will benefit from competitive edge and bottom line benefits that possibly outpace sales growth benefits.
Text by Joonas Jantunen, CEO at Truespend
Joonas is the Founder and CEO of Truespend JLT. A Spend Management company that makes your organization more valuable. Delivering increased efficiency, transparency and profitability by executing Procurement as a Service Projects.
The Future of Procurement in Emerging Markets
Procurement & Strategic sourcing have become increasingly important in the growth of organizations. Gone are the days when procurement was just a necessary function within an organization where the “underperforming” members of staff from other departments were deployed to ‘move things along’ without proper training or expertise to adequately perform their duties and ensure that the organization obtains value for money on goods and services procured to run the business.
Regional organizations in the emerging market are understandably several years behind their counterparts in developed countries. And with increased competition from more established companies with wider reach on a global scale, organizations in the emerging markets have begun to focus on employing state of the art procurement tools & processes. Bearing in mind that the cost of acquiring these processes are high i.e. cost of trained & experienced “procurement”/”sourcing”/”category management” staff together with the cost of procurement & sourcing software, companies need to strike a balance without negatively affecting the bottom line.
In light of increasing competition, technologies and increased investments in the emerging markets, senior level managers in emerging markets have begun to realize that their companies cannot continue to grow at an exponential rate. There is now an increased focus on the cost of acquiring goods and services to run the business. The focus on cost is what is driving many of these organizations to look into their procurement processes and employ more advanced tools and techniques in order to drive down costs and improve efficiency.
As a result of this, many procurement tools have been developed to enable procurement professionals reduce processing time of purchase orders, identify and develop effective category management and/or sourcing strategies, effectively manage future spend and also identify significant savings opportunities for their organization.
Due to increasing awareness and demand for these tools, many of these tools have become increasingly expensive and many organizations are discouraged and tend to baulk at the idea of investing significant resources to obtain these tools.
It is important to understand that there is a variety of tools in the market depending on organization requirements e.g. spend analysis, P2P, contract management, supply base management, e-sourcing etc.
Asides from the traditional ERP systems i.e. SAP, JDE, Ariba, other players like Zycus, Sievo, IASTA, GEP, Open windows, Avotus, Pool4Tool, have emerged with tools tailored towards effective procurement solutions. Within these tool providers, some have carved niches while a few more have further tailored their solutions to cater for SMEs in emerging markets i.e. Procurics (www.procurics.com) a UAE based procurement tool company.
While several traditional consulting firms offer procurement advisory services, a significant number of these firms hardly take the next step to actually implement proposed projects; hence many organizations find themselves purchasing expensive tools as well as procurement advisory services and have very little support during the implementation phase. Eventually, they are stuck with a thick booklet of suggestions on how to manage company spend and organize the entire procurement team and minimal tactical support during implementation.
All these scenarios have created the need in emerging markets for Procurement Advisory firms that can analyze spend history using the most appropriate tools (taking into consideration cost of tool, spend size of company and complexity of goods and services procured), draw up category management & sourcing plans for the company and also provide all the required resources to implement these plans to enable their clients achieve transparency, improved efficiency and ultimately generate savings and this is where Truespend found its’ niche.
Truespend wishes everyone a Happy 43rd UAE National Day!
During the past weeks, the media has been awash with speculation over a possible merger between Halliburton and Baker Hughes with Baker Hughes CEO going as far as to make emails to Halliburton CEO public.
A deal of approx. $35B was made and all members of both boards of directors unanimously agreed to the sale. Lets not forget that of the entire sum, Halliburton can boast off with $2B in cash with the rest to be financed by financial institutions and divesting some of their non core businesses. How will this affect the Oil & Gas industry?
First of all, both parties have issued statements that the merger will bring consolidation and thereby increase efficiency, let’s not forget that it puts them in a better position to compete with the largest Oilfield service company in the world: Schlumberger.
Eventually the Big 4 (Schlumberger, Halliburton, Baker Hughes & Weatherford) in the Oil servicing industry is reduced to the Big 2 (Schlumberger & Halliburton or whatever the new entity will be named). Big 2 because there are grim times ahead for Weatherford and I am not sure Weatherford will be able to compete with these 2 behemoths in the coming years.
Weatherford is valued at $12B, compared to Schlumberger ($118B), Halliburton ($ 55B) and Baker (somewhere between $19B – $29B depending on which literature you believe) post merger Halliburton will be worth about $79B – a long way to go from Schlumberger but much closer than before. Synergies of this merger are expected to generate $2B annually which should be a significant source for fueling further growth.
Now, Operating/Producing companies need to revisit existing procurement and category management strategies as options for quality, robust and financially strong service providers in the in industry reduce. This implies that the control on the cost of oilfield services will weaken and more than ever, are effective vendor management strategies and category strategies highly important, in order to ensure that the Big 2 will not charge the oil producing companies in excess of premium for services rendered.
Both parties have cited increased competition, efficiency, consolidation and economies of scale as primary reasons behind the merger but we need to ask the question: “Will this merger actually benefit their clients?”
As I mentioned above, control on cost of oilfield services will weaken and oil producing companies will struggle to obtain reasonable costs for services.
In terms of competition, Weatherford being the only viable candidate to truly compete with the 2 mega companies, might need to go along with the trend and perhaps start discussing a possible merger with other players in the industry, or figure out plans to ensure competitiveness or growth to stay in the game.
This deal of course is not finalized until the US antitrust agency ratifies the merger though Halliburton advisers are confident of pushing the deal through. If this deal eventually goes through there will be some sort of shift in the power dynamics of the relationship between the services industry and production sector to the advantage of the oil service companies.
Oil&Gas Procurement Lead