What is agile procurement?
Agile procurement is a way of purchasing solutions according to the outcomes you seek, rather than a product specification. It’s about being flexible, you don’t begin by looking for a particular solution, but rather discuss your needs with potential providers and become aware of what solutions exist.
Agility is often considered to involve taking a proactive, diverse and adaptable approach. But what does it really mean for purchasing departments? How is agility possible when well-established rules and processes are already in place?
The Agile Manifesto values customer collaboration over contract negotiation. This sets an important tone for procurement relationships on agile projects. Valuing customer collaboration more than contract negotiation doesn’t mean that agile projects have no contracts: Contracts and negotiation are critical to business relationships. However, the Agile Manifesto sets forth the idea that a buyer and seller should work together to create products, and that the relationship between the two is more important than quibbling over ill-informed details and checking off contract items that may or may not ultimately be valuable to customers.
Benefits Of An Agile Approach
High quality service offering. A solution that is aligned with the buyer’s business requirements and developed through multiple iterations and vast interaction with suppliers.
Short lead time. A shorter and more efficient transactions process, enabling the buyer to reap the benefits of the new outsourcing contract earlier compared to the traditional approach.
Stronger collaboration. Agile outsourcing builds stronger collaboration within the buyer and the supplier ecosystem. Rather than having to compete with each other, suppliers can jointly work together to solve buyers’ issues and reap rewards for the work put in.
Focus on business outcomes. Outsourcing is evolving from the conventional procurement transaction to an accelerated and collaborative partnership, leading to an outcome-focused transaction that benefits all parties.
Faster time to market. Be it responding to volatile demand, spinning up infrastructure, or simply driving results from the get-go, agile outsourcing makes the most of dynamic market offerings and helps organizations respond faster to change.
3 ways to develop procurement agility
Re-skill the procurement function
Deloitte CPO Survey emphasized acquisition and developing and retaining talent within organizations. According to the report over 60 per cent of CPOs feel that their teams do not have the skills needed to perform their roles. Another factor which is worth mentioning is that the report suggests that these CPOs are not looking to change their teams, but to develop them. Other studies such as the one by Ardent partners concluded that the procurement profession needs new, more adaptive strategies and approaches to propel it to the next level of performance. All of these studies confirm that procurement agility can be developed through corporate training.
World-class procurement organizations have shifted to a complete digital experience for their business users. This consists of a paperless environment and the ability to work from anywhere on any device. A wider use of new technologies and software advances is now defining the procurement functions. For instance: cloud-based infrastructure, virtual business and technology networks are rapidly shaping various organizations. A research by The Hackett group found that world-class organizations spend 23 per cent more on technology per person. The investment yields real productivity gains, including 71 per cent lower cost per order than typical companies.
Agility does not only consist of the operational side of a brand. Procurement is also driven by consumers – what they need, what they want and how they interact with your brand. Technology and the digital functionality of your company are important elements to determine the data that drives your decision-making, particularly when looking at fluctuations in the market and forecasting. The customer must be the focal point of all key activities and functions within procurement. With this approach, services are designed based on users’ wants and needs, rather than forcing them to change their behavior to accommodate procurement’s internal processes.
Procurement Management with Agile Approaches
The self-managing development team plays a larger part in identifying items needing procurement. The scrum master facilitates the acquisition of needed items for the development team. Contracts for agile projects are based on the evaluation of working functionality at the end of each sprint, not on fixed deliverables and documentation that may or may not contribute to delivering quality products. Agile project teams focus on keeping a positive, cooperative relationship between buyers and sellers from the start of the procurement process. Vendors provide completed, working functionality at the end of each sprint. If vendors change mid-project, the new vendor can immediately start developing requirements for the next sprint, avoiding a long, costly transition.
Two concrete examples of agile procurement
Procurement Leaders suggests two good practices to enable purchasing departments to improve their agility:
Negotiate the contract during the sourcing process
When purchasing departments are selecting their suppliers, they can discuss the terms and conditions of any potential contracts in advance. This allows them to anticipate any requirements and avoid any unwanted surprises or delays.
Eliminate anything that will not affect the outcome
Every step of each procurement process needs to be reassessed to focus on the essentials. Agility requires common sense and a level of context sensitivity. Less is more! Both speed and the lean method are more in-line with agility than standardised or comprehensive processes.