… working in huddles, scrums and sprints. There’s much procurement can learn from software development methodology. But are you ready to be flexible?
“We need to be more agile.” Chances are, whatever business or sector you work in, you’ve heard someone express this sentiment in the last couple of years, perhaps also in the same breath as “innovate or die”. As a business buzzword, agile shows no sign of going away – but what does it actually mean?
Technically, agile methodology is a project management technique born out of software development. It’s centred on iteration and transparency. Instead of a typical product where a project manager will follow a set and strict line of procedures and processes, operating in an agile manner means being more open and collaborative, and breaking a product down into smaller, incremental builds. These iterative work sequences are known, in true agile methodology, as sprints.
All this requires a project team to be independent and cross-functional, listening to a customer’s changing needs and requirements and taking on new ideas and technologies as they emerge. Decision-making is quicker, less reliant on approval from those higher up.
The intention is that the overall product will make everyone – from the team who made it to the investor who paid for it and the customer who uses it – happier.
While the concept of agile methodology originated in software development, it is increasingly being used in other sectors. Tesla uses agile production methods for its electric car, as do book publishers, food manufacturers and recruitment companies. Could procurement professionals also benefit from taking an agile approach?
For Tom Lewers, commercial director at Network Rail, the answer is yes. He has first-hand experience of developing agile strategies and in supporting IT teams to procure the latest innovations, and has seen agile procurement lead to greater efficiencies, effectiveness and quicker time to market of new services.
The key differentiator is speed to market, he says: “It is about being first in the market rather than the cheapest.” Mirko Kleiner, agile coach and co-founder of consultancy Flowdays, agrees: “Speed and time to market is becoming the new currency for business and for procurement, particularly with complex sourcing cases.”
David Kershaw, a procurement interim who has deployed agile methodologies on a number of central government projects, goes as far to say doing so can turn around “suffering” programmes.
Empowering the team
In practice, agile procurement means “bringing the right people together within an organisation to decide on sourcing and supplier selection”, Kleiner explains. “That means building up a cross-functional team across stakeholders and the business including customer representatives, procurement, IT, legal or finance. Having all the expertise in one unit means it is not just up to one person when determining what your business and customers need or looking at the quality of the vendors. You have an empowered team that is involved from the business case till value delivery. That has various advantages, such as looking at the issue from very different angles.
“Becoming agile in procurement allows you to create an adaptive partner ecosystem where you adapt to needs and circumstances in a relationship rather than having contractual handcuffs on.”
Kershaw advocates “stand ups”, 15-minute daily meetings with everyone involved on a project – including suppliers and end-users – to discuss “what are we doing today? What are the blockers?” Fortnightly “show and tells” give the opportunity to present and appraise work, as well as set sprints. Involving suppliers and stakeholders on a daily basis promotes “openness, team morale and learning”, he says.
Having a cross-functional team ensures less time is wasted, adds Kleiner, as everyone who needs to provide expertise or approve ideas is already involved. “If we don’t get the wide range of expertise needed to build such a team then we don’t start, as the same old issues will still be there.”
Lewers also believes in creating cross-functional teams who sit together. “It breaks down silos and reduces reliance on just one or two people making procurement decisions, pooling talent and expertise,” he says. “The process encourages procurement to create specifications based on the actual needs of their customers.”
Getting that time and dialogue with the customer is one of the challenges in setting up an agile process: “Some get it right away, others need more dialogue and explanation.” A laser-like focus on customer needs is critical, working harder and smarter to find out what services and products people really want. That means taking a leaf out of how tech firms approach product development, says David Rajakovich, managing partner, R&D, at the Procurement Academy.
“They believe in a minimum viable product,” he explains. “That means they accept the first release of a product won’t have all the bells and whistles, but they get it out quickly. That way consumers test it and give feedback for the second release.”
Achieving this way of working requires a change in culture and a shift in mindset. “Agile is more than just a process,” says Kleiner. “It is about people questioning the status quo, asking why things can’t be done in a different way.” In an anecdote that probably won’t be shocking to many procurement professionals, he alludes to working with organisations where lead times from business case to sourcing new partners are as much as two years. “That’s too much when competitors are doing it within weeks.”
Changing procurement and the business mindset to become more agile is akin to learning a new language, says Lewers. “It means leadership relinquishing some of the control on the procurement function, and people can feel threatened by that,” he adds.
According to Rajakovich, senior leaders must “allow procurement to work in small de-centralised teams to take quick and decisive action”. “It is very hard to be agile if a business has lots of stage gate reviews needed to sign off procurement decisions. For that they need to trust that the procurement team will deliver what the business needs, so CPOs must develop the commercial skills of their people.”
Start as you mean to go on
For procurement teams specifically, agile can also translate into approaches to contract management. Kleiner explains how: “The team works with suppliers at the beginning, on the contract and conditions such as warranty and intellectual property. You can give suppliers a draft contract and ask them which parts of it you really need to discuss at the outset to improve the cooperation and bring it to the level of a partnership. Both parties need to be happy with it before it begins and have to have an understanding of each other’s risks and fears.”
This will put you in the best position to take advantage of cutting-edge supply chain technologies, adds Rajakovich. “If you have closer relationships with your suppliers, less rigid contractual terms, and have chosen them based on their range of capabilities rather than based on unit prices for particular products, you can move rapidly. [Rather than using contracts] to offload risk onto suppliers, the contract should be more about agreeing on who does what. It is no longer about having long processes or highly legalistic contract negotiations.”
Kleiner cites the example of working with Swiss electrical supply group CKW, using lean, agile procurement techniques to reduce time to market from six to 12 months to between one and two months. Core to the process were workshops with customers, helping to define needs rather than wants. A cross-functional team was created, responsible end-to-end for selecting suppliers and creating agile contracts that reduced contractual risks. “The result,” says Kleiner, “is faster time to market, faster customer alignment, faster decision to contracts and increased buyer and supplier satisfaction.”
The problem with “agile” is the popularity of the term. Its use in ‘buzzword bingo’ is undermining its effectiveness, many believe. Too many companies say they are going agile because it sounds edgy and modern, without truly understanding the principles of iteration, cross-functional teams, independent decision-making and close customer interaction.
“It’s not clearly understood,” says Rajakovich. “Some think it is about maintaining standard processes and just telling people to move faster. In reality, it’s about removing waste from the procurement process and focusing only on the steps that add value. It means developing the skills of your procurement people, then building trusting relationships between senior decision-makers, procurement and suppliers.”
“A lot of people think not having a plan or structure in place and being chaotic is agile, but it isn’t,” adds Kleiner. “Agile is very strict and transparent. There is no one single silver bullet. It takes your existing processes, slims them down and frees them up for quicker and more responsive actions.”
If you’re interested in becoming truly agile, he suggests finding like-minded people internally to create a common understanding of what agile means to your company and start spreading this internally. “A lot of companies are already running agile transformations in business development, product development or IT,” he says. “Get connected with these people, find out what it means and how it can be beneficial for procurement.”
When Phil Thomas started as managing director, group head of global sourcing at Barclays, he decided to transform how his team worked, prioritising accelerating time to value. While he says he didn’t set out to be ‘agile’ per se – rather looking at the problem to be solved and fixing it – his methods use themes from agile methodology, such as scrums and huddles. “We do huddles [stand-up meetings] twice a week to understand priorities and challenges.”
He has changed how his team is structured, setting up ‘pods’, made up of a mix of seniorities and procurement expertise. These pods of diverse skills work together on deals, with specialists owning different parts of the process. There are currently 18 pods within Thomas’s 150-strong sourcing team.
“Normally someone would work on a deal start to finish,” says Thomas. “Now we work in a portfolio and use process analysts, sourcing managers and contract experts. One person has overall accountability, but the whole team works on it.”
The pods can work on a number of projects collectively, allowing many moving parts to progress simultaneously. “When a project comes in, the team think about how to approach it,” he explains. “Having that group challenge enhances people’s skills and knowledge. The mix of junior and senior helps with training, coaching and skills development.”
Each pod is measured collectively, rather than as individuals, meaning they succeed or fail together. They must leverage the broad skills within the pod and the shared contract team to be effective. “The teams are almost acting as a family, supporting each other,” Thomas says. “It’s a collaborative team effort acting as one.”