Good Practice in procurement of business Services & Results of the Performance Excellence Study 2016

The conference about good practice in procurement of business services in Bern, organized by procure.ch and University of St. Gallen (UNISG) Research Institute for Logistics Management brought together an amazing group of pan-european/-industry procurement experts. The UNISG presented their Results of the Performance Excellence Study 2016 and the top performer an open and honest insight about their current state in procurement. I really hope this kind of event will be continued!

After a short introduction and presentation of the results of the performance excellency study 2016 by Erik Hofmann and Martin Händel (both UNISG) the stage was given to the top performers of the study. They shared there good practices, there current challenges and believes about trends and upcoming practices. As the presenters of the top performers were cross-industries and cross-functions it gave a very good overview of the current status of procurement of business services. To be continued!

The following a summary about the most impressive talks held and my personal view on most important lessions:

Introduction

-- Prof. Dr. Erik Hofmann, Director University of St. Gallen (UNISG) Research Institute for Logistics Management

• Results: in 2015, more than 73% of Swiss workers were employed in the service sector. Depending on the branch, a share of up to 80% of the total purchasing volume is possible. A complexity driver is the individual tailored business service. Although the importance of business services has been noticed, the majority of purchasing managers still struggle with a consistent procurement of services in comparison to goods purchasing.
• The most important lessons: There is a lack of specific evaluation tool and approaches for purchasing business services, outcome. It’s quality depends not only from partner/supplior, but also on customer itself. Good practices to measure success of business services delivered are not yet well established. Focusing more to customer/user feedback over budget/cost will become more important in the future.

Results of the Performance Excellence Study 2016

-- Martin Händel, Project Manager UNISG

• Results (just a subset): There was no representative study in area of procuring of business services available yet. In other words this seems to be a undefined field. Focus of the study was set to 3 business areas „Marketing“-, „Logistics“- and "ICT“-services. It turned out that depending at the business service area the most relevant evaluation criterias are different, even within one area depending at service evaluated. Because of complexity  there are no specific business service evaluation tool available yet. External factors and trends like digitalization, industry 4.0 will increase complexity even more. While area of logistics was the best of the three, area of Marketing has biggest potential for improvement. The interviewed companies showed, that there is room for improvement in area of partner collaboration, transparency, monitoring and outlook. It's fact that the customer and user needs are often insufficient known. This is valid for external as well as for internal customer/partner relationships. 
• The most important lessons: Services will increasingly be procured together with products (hybrid services) and because of that complexity and the need to increase knowhow in procurement and products will increase more and more. This can’t be handled by procurement alone in the future. This will become more of a team effort, or even an empowerment and enablement of the experts that are the nearest to the customer need. Furthermore the service provider will have to tightly integrate with the customers value stream. Most important learning was that the researcher found is no pattern to procure business services nor a tool yet, that supports it.

Order the Performance Excellence Study 2016 via procure.ch

Insights by the top performers of the Performance Excellence Study 2016

Value-based Procurement at Munich Re

-- Bernhard Bundlechner, Global Head of Category Management, Munich Reinsurance AG

• Results: Till 2001 money was no issue at Munich Re. These days situation and market has changed. Munich Re is more and more an investor in start-ups as well. It has it own innovation scouts, labs, ideation events and corporate partnering (ecosystem). Therefor it’s for them more valuable to find the right service partner than the cheapest. That’s why they’ve introduced for more than 80% of the procurement requests digital solutions. Unfortunately these cover just 2% of the order volume. For more complex procurement Munich RE often uses value based procurement. The example shown was about the outsourcing of the whole facility services in a value based approach. This partnership lead to much less management overhead (just 5 invoices), more innovation (e.g. is partner motivated to introduce new facility to save maintenance costs), increasing quality of the service (by an overall bonus system), more loyalty and motivated employees (as they were empowered and got incentivized as a team depending on the whole success) and a good partnership (as risk was shared and margins were defined long-therm). 
• The most important lessons: Partnering or value-based procurement needs a lot of trust and is depending at the given company culture of both customer and supplier. Building this trust by e.g. having open books is not possible in every case and there is a trade-off between having a sustainable partnership and a locked-in situation. However, looking with an agile mindset at this cooperation model it seems to be the most fair and promising approach for procurement of business services. Nevertheless trust and transparency needs a honest communication, monitoring, feedback loop, continuous improvement

Connecting Differently! Service Procurement@Deutsche Post DHL Group

-- Dennis Böing, Head of Global Sourcing Goods & Services Deutsche Post DHL

• Results: With roughly 500k employees Deutsche Post DHL is a global player and one of the biggest employer in the world. The major challenges in area of global goods and services are the raising labor costs and total costs of ownership (TCO). As well as the increasing complexity (>100k Suppliers and >12 sites) and the adherence to (stricter) laws, policies, rules & guidelines. Because of the incredible amount of transactions every minute DHL had no other choice as to focus to automatization and big data/analytics from early days on. With the strategy 2020 focus.connect.grow DHL went on the journey from a unsatisfying supplier experience (complex organization to deal with, primary focus on squeezing costs, not enough sharing of strategic planning) to an aspiration for the future (a joint learning curve toward strategic partnerships, right balance between quality/costs, optimization of process on both sides). The challenges in procurement are approached by connecting differently with internal stakeholders, external (strategic providers), the markets trough a service portfolio and engagement model. 
• The most important lessons: Nevertheless DHL has 470 FTE in procurement it’s impossible to handle all 100k suppliers manually. That lead them to categorize and connect differently. In other words they've set focus. In these highly valuable collaboration they’re also in progress changing the culture of cooperation. Fairness, sustainability, leadership and other words were told several times and as those are part of the strategy they become more and more important for procurement as well. This investment is done similar to other top performers not just externally, but internally as well. Changing the mindset and development of the employers skills becomes more and more an obvious pattern for procurement

Corporate Procurement@Commerzbank AG: A competent business enabler

-- Petra Eberlein-Kemper, Head of Corporate Procurement Commerzbank AG

• Results: The Commerzbank has a big order volume in business services and a big leverage while becoming more effective. With the strategy CSP 2018 were already good results achieved. E.g.standardization of proposals, such as Internal and external definition of fields of competences/roles and seniority levels, lead to more transparent competition and savings. Classification of suppliers, paired with empowerment/selfservice per area lead to faster decisions and improved time-to-market. 
  Banks, as Mrs. Eberlein-Kemper told, are just before difficult, unpredicted times triggered by disruption trough digitalization (e.g. blockchain). That’s why the Commerzbank is investing already in a lot of start-ups. Procurement of start-ups, or business services of start-ups, is challenging. On one hand time-to-market is the major KPI, otherwise window-of-oppertiunity gets closed, on the other hand the startups are unknown and classic evaluation approaches are impossible. New disruptive approaches for procurement are needed too!
• The most important lessons: Empowerment and fast decisions seems to become an unique selling proposition for the future. Looking at procurement of startups  other factors than the price like similar culture, innovative capacity and time-to-market come to the fore. What does this means for future of procurement?-It has to evolve to the same values, become an innovation partner and that means agility will becomes the central asset of successful organizations.

“become agile, or die”

— Steve Denning

Success criterias in procurement of business services

-- Markus Wenecsek, Head of General Procurement Alliance of Austrian railways (ÖBB)

• Results:  The ÖBB is facing a lot of the current challenges with missing standardization, the complexity and measurement of service quality. This is solved by empowerment and digitalization of all possiblities for procurement. E.g. simple products and services below €5k are mostly automized from request till monitoring. In area of procurement of business- or more complex services the success criterias are standardization (e.g. of roles), x-functional teams, transparency, communication, measurability and development. So has the ÖBB developed and establish an internal academy and a support organization for anyone involved in procurement. That’s why procurement is now well known in the organization and introduced in more complex procurements much earlier. That leads to a more professional, more innovative, more quality and faster contracting with more savings.
• The most important lessons: By empowerment of people that are the nearest to the customer problem and so delegation of more simpler procurement tasks majority of load could be handled via digital tools fast and compliant. Complexity in procurement of business services is approached by standardization where possible and x-functional teams. Impressive was the investment and success of development and supporting employees.

Common building blocks of all talks 

 procurement of business services ...

• is complex
• is hard to standardize and is lacking of specific evaluation tools or approaches
• and quality of outcome depends on customer too 
• has not yet well established good practices to measure success (Customer feedback/business value over budget/costs)
• will increasingly become more complex in the future (hybrid services) and so need to increase knowhow in procurement and products. This can’t be handled by procurement alone in the future. This will become more of a team effort
• Investment in training, support and collaboration is valuable for the whole organization. 
• needs more of collaboration, feedback andcontinuous improvement of customer and partner
• Modern company culture (Empowerment) and fast decisions (time-to-market) will become an asset. 
• Partnering, or value-based procurement seems to be the most promising approach for procurement of business services

Special Thanks to Erik Hoffmann and the Team of procure.ch, it was a pleasure meeting you in person!

Sources (Content & Images):

• Presentation and Performance Excellence Study 2016 of UNISG
• Presentations of the top performers ÖBB, MunichRE, Deutsche Post DHL, Schindler Management AG, Commerzbank AG