Shorter & readable Contracts - Disruption or just faster horses?

UK government lawyers have created a shorter, more user-friendly public sector contract to encourage smaller businesses (SMEs) to bid for £12m worth more easily. Is this really a disruption or just faster horses? 

As reported in the supply management news 2 days ago the Government Legal Department (GLD) said Chris Stanley, a lawyer from its commercial law group, spent the past year reducing around 50,000 words of the existing Crown Commercial Service (CCS) contract terms to produce the new slimline public sector contract (20 pages long). Furthermore they

• made the contracts readable, even if you’re no lawyer could understand it
• like to become a benchmark for good business ethics by integrating some new corporate social responsibility obligations. 

A lot of companies stopped bidding in public sector

Motivation of this was to encourage encourage smaller businesses (SMEs) to bid again for £12m worth more easily. From my own experience (compare with the blog post the facts about RfP) I can say, that a lot of companies stopped bidding in public sector as of too much effort/costs through a too complex bid process and contracting.

Is this a useful evolution or don't we need a revolution?

However, looking at this changes by the UK government with an outside perspective it’s looks to me like Henry Ford used to say. 

“If I’d asked people what they wanted, they would have said faster horses.”

— Henry Ford

Don’t get me wrong. They had definitely the right intention and got a really good achievement from a legal point of view. However, I believe if we ask just the lawyers to simplify "there“ part we won’t get the full potential and just get faster horses instead of e.g. a „self-driving car".

The right people have to answer the right questions

For a real disruption we’ve to bring together all stakeholders of the whole value chain (customers, government, procurement, sales, lawyer, etc). Together we have to answer the „real“ questions, such as:

• why do we need a contract at all?
• how could we increase trust even before we’ve started cooperation?
• what can we do to increase time-to-market and so deliver business value to our customers earlier?

While development of lean-agile procurement we’ve asked this questions e.g. "what if we have to decide in one day?“ and together we've found applicable answers.

Learn more under Approach, we’re keen on your feedback.

Author

3D-Printed Aircraft Engine - Is your Procurement as agile?

This week GE released this great GIF of its 1,300-horsepower advanced turboprop (ATP) engine in which more than one-third of the components have been built through additive manufacturing, or 3D printing. The company is showing off its creation in real life at this week's big air show in Oshkosh, WI. In other words hardware development is getting more and more agile, is your procurement as agile?

View fullsize

Background

Already in 2016 GE reported the first 3D printed jet engine. They made a simple 3D-printed mini jet engine that roared at 33,000 rotations per minute.

In contrast to traditional machining methods that typically cut parts out of larger pieces to get to a finished shape, additive manufacturing uses lasers to fuse thin layers of metal on top of each other to build parts from the ground up. This advanced technique means less material waste and more complex parts that can be built precisely to optimize how they work inside a machine.

View fullsize

“This is not a matter of simply replacing one production method with another, but of reinventing the way aviation engines are conceived and designed”

— Giorgio Abrate, engineering lead at Avio Aero, the GE subsidiary that developed the ATP.

View fullsize

"There are really a lot of benefits to building things through additive,” says Matt Benvie, spokesman for GE Aviation. “You get speed because there’s less need for tooling and you go right from a model or idea to making a part. You can also get geometries that just can’t be made any other way.“

As Joe Justice, creator of Scrum@Hardware, Scrum Inc. recently mentioned: „Thanks to the new technics it’s no problem any more in hardware development to build an engine (working increment) within one iteration!“. One iteration is by definition of scrum less than 4 weeks, modern teams usually use 1-week sprints. 

Conclusions

If hardware development is getting that fast and flexible procurement has to adapt too. It’s predictable, that we will change our partners in a much more adaptive way as we'll do with the production method depending at the current customer needs. In other words we need to close the gab regarding speed (DAYS instead of MONTHS) and become as innovative in sourcing a new partner as the product development is.

Read more about how you could do that with lean-agile procurement

Sources:

http://www.ge.com/reports/reengineering-elevators-transform-21st-century-cities/
http://www.ge.com/reports/treat-avgeeks-inside-look-ges-3d-printed-aircraft-engine/
GE Made a Real 3D-Printed Plane Engine and Here's a Gorgeous Look at It

Does the RfP Process need a MAJOR Upgrade - Episode 3: RfP 3.0 'Request for Participation'

Looking back in the history of the RfI/RfP process we see, that it’s source was developed in another time at the end of the 19th century. Of course the new channels like phone, email, web, etc. allowed new possibilities and increased efficiency. However the core of the process stayed nearly the same. Do we may be need a major upgrade after almost 120 years?

Lets have a look at the RfP 3.0, the request for participation and how this improves competitive advantage of buyers and suppliers.

<< Previous blog post: Does the RfP Process need a major Upgrade? - Episode 2: The Facts

Please note: This blog posts is focusing just on the RfP process. We are aware of the fact that modern procurement is much more than this. We hope you enjoy another perspective!

“Lean-agile procurement reduces and distributes risk through incremental and value-added funding for improved business outcomes.”

— Pete Behrens, Board Member of Scrum Alliance

In previous blog post we’ve learned, that the RfP 2.0  doesn’t work with complex tenders . What we all assumed is underlined with facts. We can’t predict, nor estimate the unknown and so we can’t specify the scope without creating waste. We would need so much time for investigation, that we already could start probing iteratively. Furthermore, we’ve learned to focus to the end user/customer needs, constantly validate those and look for a future-proof partner instead of a predefined solution. If we don’t reinvent RfP 2.0 fundamentally we might loose more and more  potential partners interest and with that we’ll also loose opportunity for unexpected innovations and so a potential competitive advantage.

All this leads us to the conclusion, that we need a major upgrade of the RfP, the RfP 3.0!-An upgrade, that  fosters collaboration and innovation. We call it „Request for Participation“. But how does it look like?

The thing with trust

The fundament of a partnership is trust and transparency. Have you noticed?-We’ve said partnership instead of relationship, that’s the first fine but big change with RfP3.0. In an ideal world we would just choose a partner and  start probing iteratively. Unfortunately, our current culture and believes are not yet there. So we need something in between. The funny thing with trust is, it works in both ways. This often gets forgotten. In other words we need to establish trust and reduce risks for both sides (buyer and partner) at the same time. Therefor we can create sophisticated agile contracts, that describe and handle collaboration, scope, timing, budget, quality, warranty, etc. Personally, I don’t believe in that way and I’m more with Marco Zoppi.

“If the customer is starting to quote from the contract the cooperation has just found it’s end”

— Marco Zoppi  († 2015), CEO youngculture

Sure, we have to manage the basics in a contract, no doubt. But I’m a strong believer in the good idea of men (theory Y, source 1) and we should not punish the majority, because of some few bad theory X cases from the past. By the way, Niels Pflägin said: "There are NO X-er by default, the system / organisation makes them behave like X-er". 

View fullsize

Source: Douglas McGregor, Theory X/Y

Instead we should find lean and agile cooperation models and -contracts, that are fair and foster trust by e.g. 

• risk share
• bonus / money for nothing, if we achieve the goal/s earlier
• work / fund just stages, with the option of an early exit at any time
• partnering / open books / joint venture
• etc.

So that the partnership stays adaptive instead of fixed.  In my opinion, that’s true agile contracting!-But that’s another story.

Paradigm changes

Currently agile is the only approach we know, to deal with complexity. Its built in approach of build <> measure <> learn brings us iteratively towards the right solution. For the RfP 3.0 this means, that in complex tenders for innovation, business services, ICT, etc. it makes no sense any more to think off solutions (features / functions) or wants in advance. Instead we need to focus on the customer needs and with whom we could solve them best. All this is a creative development, that we only could achieve in a participative approach. The potential partner and all stakeholders from both sides (business, executives, lawyer, buyer, customer / user, developer, etc) need to be involved at once. YES, that means we do this all together in ONE room. This allows both sides to align with the customer needs, but also check if the partner is future proof, if we have a culture-/technical match (soft-/hard skills), etc. Only with this participative, creative development we will create real innovation and get first validations with the stakeholders available. Further advantage of this approach is speed (Time-to-Market). If we get all stakeholders in one room we can immediately decide and achieve results in DAYS instead of Months. We see this from other examples, like e.g. Design Thinking, Hackathons, etc. where time-to-market was improved with such a participative approach dramatically.

Acceptance of uncertainty

But how can we cope with this uncertainty of an „unknown“ solution (scope gets variable)?-Well, there are other disciplines out there, that face a similar challenge. If we think about business development they’ve used to write big business plans and switched over to the business model canvas (a structured page that describes a business model, source 2) and lean startup (an agile approach for early validation of the hypotheses with the customer, source 3). 

The general advantages of a canvas are:

• it’s just one page and we have to focus to what really matters
• it’s a good overview / summary, that makes the essence transparent
• it makes things comparable
• it keeps us aware, that everything is connected and influences each other
• it’s a tool, that fosters collaboration and we could use every day to update our validations with customers /users

Source: Lean Procurement Canvas, Version 1.22 by Mirko Kleiner

What if we use the business model canvas for ideation and overtake the concept for procurement with RfP3.0?-We’ve created the lean procurement Canvas, that has basically 3 areas: 

1. Focus - Strategic themes / goals (WHY we need this partnership)
2. Customer facing - Customer needs, timing, conditions, etc  (WHAT we’d like to solve with this partnership)
3. Partner facing -  Capabilities, USPs, etc. (HOW we’d might solve the customer needs)

After  ideation with the business model canvas it’s very easy to overtake the strategy (WHY) and the customer needs (WHAT) and add the timing (WHEN), the people (WHO) and the conditions (WHERIN) within hours. With this we have the basic informations to start a participative event with one, or multiple potential partners. On this joint event we workout, whatever is valuable for us to decide starting an adaptive partnership. We could work out together more concrete customer needs and appropriate solutions, an agile roadmap of the next stage, etc. Basically we complete together the procurement canvas and decide.

“The lean Procurement Canvas is an agile Contract”

— Ursula Sury, Lawyer lic. iur, Vice Director Lucerne University of Applied Sciences & Arts

Start early, validate often

What counts for a business model and in more details for the customer needs counts also for a partnership. Instead of loosing time in non-valuable work we start as early as possible and constantly validate the joint achievements stage by stage and so the partnership. Therefor the lean procurement canvas becomes the tool for management of your adaptive partner ecosystem.

Conclusion

It turned out, that the lean procurement canvas can be used in all areas and industries, that have to overcome complex tenders, adaptive partnerships, etc. We get increased business value with RfP3.0 (increased time to market, reduced and distributed risk, incremental and value-added funding, improved business outcomes, etc). But for us most important, with the participative approach of RfP3.0 we’ve seen returning fun in the faces of all stakeholders!

Want to know more?

If you’ve got infected by the approach RfP 3.0 ‚Request for Participation‘ feel free to share your opinion and/or similar cases with us. More detailed information about the approach, success stories, the community, upcoming workshops and talks, etc. you’ll find under http://www.lean-agile-procurement.com - Stay tuned!

Author
 

Sources:

1. Idea of men (Theorie x/y) by Douglas McGregor
2. Business model canvas, by Alexander Osterwalder
3. Lean startup, by Eric Ries
4. Title image source: pinimg.com

Does the RfP Process need a major Upgrade? - Episode 2: The Facts

Looking back in the history of the RfI/RfP process we see, that it’s source was developed in another time at the end of the 19th century. Of course the new channels like phone, email, web, etc. allowed new possibilities and increased efficiency. However the core of the process stayed nearly the same. Do we may be need a major upgrade after almost 120 years?

Lets have a look at some interesting facts and experiences  from the field handling complex tenders with the classic RfP process.

<< Previous blog post: Does the RfP Process need a major Upgrade? - Episode 1: The History

Please note: This blog posts is focusing just on the RfP process. We are aware of the fact that modern procurement is much more than this. We hope you enjoy another perspective!

“It’s funny how hiring practices have changed dramatically over the years, but pitching remains comparatively stagnant”

— Avi Dan , Marketeer & Author at Forbes.com

In the previous blog post we’ve learned, that the RfP 1.0 was initially developed at the end of 19th Century and one of it’s main purpose was to overcome the distance between buyer and supplier. Furthermore it worked good for simple until complicated tenders, where experts could exactly define and estimate the scope. In this blog post we wanna focus to complex tenders handled with the RfP 2.0. An example for a complex tender could be the evaluation of a new software product and -provider or a new marketing agency. 

Just 20% of all features shipped are really used by customers

No matter of how we’ve evaluated and/or built a product, or a service it's important to understand, that just 20% of all features shipped are often used by our customers (Source 2). 

Do you e.g. remember this fancy, but useless paper-clip assistant in ms office?-We need to accept, that we are guessing for the useful features during specification and we are again guessing in interpretation of these specs while creating an offer. That means the RfP 2.0 allows no real validation with the end user and creates a distance between buyer and supplier. 

Engineers love the solution, this prevents innovation

In software projects we usually have engineers, that support the tender, on both sides (buyer/supplier). Engineers love engineering solutions and so specs are often describing already the solution (features and functions). In my practice I saw RfPs with hundreds of lines with functional specs. Nobody could tell us any more, who requested what and why. 

“The observer influences the system and the system influences the observer”

— quantum theory

This results in prevention of creativity, so that suppliers just delivered the requested solution.  

KCOM reports in his analyses, that 70% of RFPs for consumer-focused projects forget or didn't require suppliers to explain how the IT project would improve the experience for customers. (Source 3)

Estimation of a complex Problem doesn't work

As a next important thing we have to consider, that we all are extremely bad in absolute estimation of a complex problem (Absolute estimation means the time to resolve a problem in hours). NASA reported, that absolute estimation of a complex problem can vary by 400% in both directions (Source 6). Beside this fact we should accept, that while solving complex problems the scope gets variable, while on the other hand we could fix ressouces/costs, time and quality.

“scope = f(time, quality, ressources)”

— Mirko Kleiner, flowdays, former VP Delivery of a Nearshoring Company

Let me tell you a story about. Once we’ve got an RfI with just 5-10 rough bullets. The buyer asked us for a first guess. We roughly estimated based at our experience and the expected team size/cost per month multiplied by time and got CHF 1.7 Mio. As our engineers went through all the detailed specifications of the RfP 2.0 the total estimation was CHF 1.75 Mio. This happened a lot to us and we got the feeling, that we’ve lost 3 more months again. In this time we couldn’t deliver value towards the customer and may be lost the window of opportunity.

RfP 2.0 is expensive

Going through a complex tender is expensive for buyer and supplier. I know from my own experience, that we’ve invested e.g. in complex e-commerce tenders with a spent volume of several millions 5-6 FTE’s over a period of 2-3 months. This is equal to CHF 150-250k investment for a single pitch, expenses not included.

“Complex tenders e.g. in IT usually takes us 3-6 months and a lot of effort in the procurement as well as in the business”

— CPO of a German private Bank

Talking with several CPOs and procurement organizations we’ve found out, that preparation and execution of a complex tender needs a similar effort at buyer side. The thing is this costs and the even higher costs-of-delay usually  are not calculated in TCO. But this is another story. 

Are we hiring an agency’s past or future? 

Forbes wrote about the RfP2.0 in context of hiring marketing agencies, that it might give a rough idea of an agency’s past accomplishments, and these can inform somewhat of what’s ahead. However, we’re not hiring an agency’s past, we’re hiring its future. And that future is more likely to be a reflection of an agency leadership’s vision, the people it hires, and their willingness to embrace what’s coming rather than preserve what’s been. (Source 4)

“You’re hiring for the future, you’d want to know that they are prepared for it.”

— Avi Dan, Marketeer & Author at Forbes.com

We’d want to know if they have a clear sense of the new consumer, and the technologies and platforms that make listening more important than talking. A forward thinking leadership should have a pretty good point of view about how social media, technology, and the migration away from interruptive messages are changing communications.

About that topic KCM’s report showed, that a fifth (21%) of RFPs were for projects to update restrictive, non-compliant or even failing legacy technology, but only half of these sought innovation from potential suppliers and only 17% requested a future-proof proposition (Source 3).

Do you participate in RfP’s, the agency perspective

From my own experience and the investment a RfP 2.0 needed we’ve rarely chosen where to pitch. In majority of the cases we declined as we didn’t saw chances to win, had no connections to the customer, or any other USP.

“We totally omitted public tenders, that have to follow RfP 2.0 and only looked for the lowest price by law.”

— Mirko Kleiner, flowdays, former VP Delivery of a Nearshoring Company

“Brands are not hiring agencies to create perfect RFP responses that dazzle the brand managers. Rather, brands (should) want to hire an agency that will create unique communications that dazzle audiences. So, judging an agency by its ability to fill out an RFP is testing for the wrong talent. 5)”

— KIRK CHEYFITZ, Chief Content Officer Magazine / Content Marketing Agencies

“We rarely participate in agency-search RFPs. We’re against spec pitches but might respond to a request for information about Velocity. Our process depends on a lot of pretty intensive input. Pitches that ask for our ideas based on very little information are unlikely to generate great work. And they take a lot of time and effort that our current clients are essentially paying for. 5)”

— Doug Kessler, Founder, Velocity Partners

If you’d google RfP you’ll find much more similar statements like this. We believe it’s a pity, that a process prevents us from more innovation and good partnership.

Conclusion

Applying RfP 2.0 for complex tenders doesn’t work. We can’t predict the unknown and so we can’t specify the scope without creating waste. We would need so much time for investigation that we already could start probing iteratively. If we don’t accept this we will loose a lot of time, effort and loose may be the window of oppertiunity. This extra costs we need to balance with the more trust we get and add this costs to our calculations of TCO. In complex tenders we should focus to the end user/customer needs and look for a future-proof partner instead of the solution only. This can only happen if we include all stakeholders like e.g. the end customer, the business and the potential partner and bring them together. If the process fosters collaboration and innovation more suppliers might get interested to participate in competition again.

All this leads us to the conclusion, that we need a major upgrade of the RfP, the RfP 3.0!

In the next Episode

Stay tuned, in the next blog post we present you a summary how the RfP 3.0 -the Request-for-Participation- could look like!

>> Next Blog Post: Does the RfP need a MAJOR Upgrade - Episode 3: RfP 3.0 -the Request-for-Participation

Author

Sources:

1. Title Image source: Cat
2. Standish Group, 2013
3. KCOM, a communications and IT services provider, has carried out a detailed examination of RFPs it received over the past 18 months for strategic IT projects. 
4. Forbes.com
5. 6 New Reasons to Kill the RFP: Find Innovators, Not Commodities
6. Cone of uncertainty, NASA's Software Engineering Lab 1990
7. Image Source paper-clip
8. Huffington Post - is the RfP Dead? 
9. The suppliers perspective

Does the RfP Process need a major Upgrade? - Episode 1: The History

Looking back in the history of the RfI/RfP process we see, that it’s source was developed in another time at the end of the 19th century. Of course the new channels like phone, email, web, etc. allowed new possibilities and increased efficiency. However the core of the process stayed nearly the same and struggles with increased demands of complex orders. Do we may be need a major upgrade after almost 120 years?

Lets first look back in history, how it come to the todays RfP Process.

Please note: This blog posts is focusing just on the RfP process. We are aware of the fact that modern procurement is much more than this. We hope you enjoy another perspective!

History

Despite that people have been trading since ancient times procurement is a relatively new discipline and was unknown before 1800. One of the first mentions is from 1832 in Charles Babage’s Book On the Economy of Machinery and Manufactures. He points to the need for a ‘materials man’ in the mining sector, who selects, purchases and tracks goods and services required. Before, there were just local markets with low competition. Everybody knew each other and came e.g. to the local blacksmith and made his order for a new pick in person. The products were highly individual and hand made.

During the Industrial Revolution, procurement solidified its importance. Marshall Kirkman’s 1887 book The Handling of Railway Supplies - Their Purchase and Disposition, detailed procurement’s strategic contributions to the railroad industry, specifically in acquiring goods from developed parts of the country and bringing them south and west. In other words the markets developed further across a country, there were some first bigger players, but still low competition. Focus of the industry was on standardization and mass production of simple to complicated products. The suppliers were not known any more in person, so that the tenders were published in news papers (Request for information) and the suppliers sent there proposals by post. The RfI/RfP process was born (let's call this the RfP Version 1.0, or short RfP 1.0). 

View fullsize

Grafic about historic development of procurement inspired by the graphic Komplexitoden from Nils Pflägin, 2017

Today, in the age of information, new technologies continuously evolve procurement. The digital revolution started with the internet, email and the web in the late 20th Century. This development was continued with E-procurement solutions, reverse-auctions, etc. to this day. Everything underlies the goal to make the RfP process more and more efficient and lean (RfP 2.0). This is necessary, then in the mean while the markets got globalized, the competitors are in a high competition and the customer demands got highly complex. 

Conclusion

RfP 1.0 was developed in a time without internet, where the buyer and the supplier didn’t know each other and a direct collaboration was hard, or too expensive. It worked fine for simple and complicated orders. As those requirements could be described, understood and estimated by an expert. With RfP 2.0 we still follow the same basic approach from the 19th century to this day. We just applied modern, digital tools to it and got more efficient. However complex tenders, like e.g. in IT, are still taking us months and with RfP2.0 we loose the opportunity for creative solutions and innovation. 

Is the sole focus on efficiency enough to cope with the current and future complexity of market and customer requirements?

In the next Episode

Stay tuned, in the next blog post we'll present you some facts. We will talk about some statistics and experiences from the field handling complex customer requirements with the classic RfP process.

>> Next blog post: Does the RfP Process need a major Upgrade? - Episode 2: The Facts

Author

Sources:

• Historie summarized from blog post by Mike Nolan | SourceSuite.com
• Grafic about historic development in from Komplexitoden by Nils Pflägin
• Cat image Image source: https://awritersden.files.wordpress.com/

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

Public sector in the Nordics is showing us what's possible with agile@procurement

The agile procurement conference in Stockholm, organized by members of crisp.se, is a unique format with a unique audience. It proofs what would be possible in the public sector and purchasing using agile. This blog post is about my personal summary about the version 2017 from February the 22nd. I really can recommend it, meet you there next year!

The agile procurement conference brings together the agile community and it’s modern approaches with the governance authority, professional procurement managers, lawyers, customers and vendors from the public sector. Generally it was a very good mix of talks, networking and active learning. I was surprised how interested the audience followed all the talks, no matter if it was about a success story of a project (done different),  frame conditions by the law (tipps and tricks to use those right) and agile practices (to improve classic behaviors).

Talks were held by (summary translated from http://agilakontrakt.se):

Lars Nilsson - how they procured and built Karlstad Hospital, an awarded project with a budget of about €1'000 million. --> Read the interview with Lars Nilsson

x-functional working groups split by customer need

• Results: Effective health care, centered on the patient, on time and with 300Mkr of the Värmland County Council. 
• The most important lessons: The importance of the target work, prototyping and to remove short-term economic incentives so that all participants put 100% of their focus on building the right solutions. Those turned out more cost/time-effective in implementation and later on in usage and maintenance

Rikke Halland - On the digitized Danish Company Agency using 5 suppliers and agile contracts. A 600Mkr applications containing 29 sub-projects. 

Customer & user benefits

• Results: 100 & projects delivered 100% of the budget, 80% of the time. Number of support calls / application has decreased by 40% and the average time an employee spends on each case has fallen by 69%. 
• The most important lessons: The importance of shared vision, shared risk, and building a culture of learning that builds trust between the customer and the supplier was essential building blocks. 

Bjorn Bergström lawyer at Ramberg, the possibilities of using Agile contracts under the LOU. Bjorn pointed to the most common pitfall for attorneys, focusing on legal definitions and details, and thus missed to create the conditions for the business objective.
 

Tomer Shalit client expert from Crisp how they Sussagruppen (several counties) found a moderate level when ordering healthcare solutions. The trick is to identify the needs (instead of the requirements) and create a visual overview of the content using the User Transaction Flow.

Mirko Kleiner creator of lean agile procurement from flowdays.net how a more lean and agile approach for procurement could disrupt and reduce classic procurement (Examples in Energy-/Insurance Sector) to days instead of months. The trick is to focus to customer needs (using the lean Procurement Canvas) and allow collaboration of all stakeholders at one time.

Agile Contracting stockholm-lean-agile-evaluation-2017-02-23 from waioblue

Common building blocks for these projects are:

• Clear outcome targets (and the importance of anchoring the target image of all participating parties)
• An active customer and partner
• Choosing partner of maturity and demonstrated ability (rather than promises and lowest price)
• To build the solution with partial deliveries and prototyping. (Lars showed eg. How prototypade develop new operating room before they were built)
• Visual planning and joint overview
• Collaboration and co-location

Special Thanks to Mia and her Team, it was a pleasure meeting you in person!

Find out more about the agile procurement conference visiting  https://agila-upphandlingar-inom-lou.confetti.events and the organizers website http://agilakontrakt.se.

1st Survey: State of Agile Procurement

It's my pleasure to present the 1st survey "State of Agile Procurement" summarized and translated from the German, Source: Komus : Kurzstudie Agiler Einkauf (2017). My key learning of the survey is that lean-agile procurement is leading edge and might become the option to disrupt the procurement industry. Nevertheless the transformation is still at the very beginning.

Prof. Dr. Ayelt Komus published a representing survey about the state of procurement and it's application to agile in Germany. In this blog post I've summarized and translated the survey and the conclusions from the German. Find below the visualized summary. Feel free to share it!

Conclusions

Reading the results of the survey might create more uncertainty for classic procurement managers, as every change does. In his blog post Prof. Dr. Ayelt Komus concluded with the following 9 recommendations. Please find below the answers that lean-agile procurement offers you. Btw. I personally agree to all of his recommendations!

Conclusions

Answers by LAP

---

1. Provide basics

Every employee in the team should understand how fundamental the change is, that the business will profit from that and that the implications of these developments imply both opportunities and risks.

LAP is easy to understand, learn and to implement. It's promising improvements reduce through-put time, costs, increase transparence, cooperation with all stakeholders and so LAP meets the current market demands of agility.

---

→ Provide basic information on agile methods, digital transformation and, if necessary, industry 4.0!

---

2. Understand the specific situation

Determine with the various stakeholders how and where the agile / digital transformation makes sense and the purchasing has to be adopted.

LAP is a flexible approach, based on agile and lean principles. It could be adapted to specific situations, negotiations and even per procurement case.

---

→ Be clear about the specific situation in your company!

---

3. Appropriate differentiation

Basic variants of the purchasing process and procurement strategies should, among other things, take into account, in addition to the goods / services to be procured, your actual purchasing power, interdependent dependencies with the supplier, as well as the complexity and suitability of the trade union / service for the description.

LAP doesn't claim to be the one solution for everything. It's perfect for complex sourcing cases e.g. if the solution is not yet that clear and will be developed agile. On the other hand it could make totally sense to stick on classic procurement approaches for sourcing e.g. simple goods.

---

→ Ensure that the differentiation in purchasing processes and strategies is practiced appropriately!

---

4. Working closely together

Agile methods live from small steps, critical testing and learning curves. This applies to all areas: products, methods, techniques and technologies. All this is based on a tight and short-clocked interaction. You should also take this into account when focusing on this new topic. Look for a suitable path for your organization / projects.

One of the key aspects of LAP is improving the social integration and collaboration of all stakeholders during the whole procurement process. So that everybody needed, e.g. legal, business stakeholders, etc are involved from the beginning till the decision.

---

→ Work closely together - especially with the department and the legal department!

---

5. Develop skills and contract framework

With agile methods, the meaning of certain skills changes in negotiation, contract conclusion and accompaniment. New contract framework and procedures have to be developed. Even if any agile activity is unique. Develop solutions. You practice. Watch. Learn.

LAP is based on the same agile leadership principles, so that implementing LAP will support you in learning those and the change in paradigm. Furthermore the lean procurement canvas is an agile contract, so that you already have an important component of your new contract framework. Furthermore LAP transforms the role of the purchasing manager into an enabler, coach, moderator that facilitates all stakeholders during procurement in a much more efficient way. As a servant leader you'll become the main contact if it comes to procurement.

---

→ Develop appropriate skills and contract framework!

---

6. Make processes fit for agile shopping

Agile methods and industry 4.0 are faster and more value-oriented than traditional methods. Agile processes change the role and the typical focus of purchasing from a one-time purchasing activity before the service delivery to a sustainable accompaniment also during the service provision. Ensure that your processes can keep pace with procurement. Provide the basis for the implementation of the advantages of agile methods in the process of purchasing the implementation, control security and transparency.

LAP is fokusing to the users and customer needs instead of their wants.  On the same time LAP is looking for building an oekosystem of sustainable partners instead of just finding the one-time, most cheap vendor. This ensures the maximum business value and the needed flexibility for innovation. Note: The lean procurement canvas is also a tool for partner management.

---

→ Make your processes fit for agile purchasing!

---

7. Reflect the profiles of the employees

Consider what new requirements mean the new agile processes and success factors of purchasing. In many places, changed skills and tendencies will gain in importance. Against this background, you should reflect the current profiles of your employees and colleagues. Check the personnel development options and selection / promotion criteria.

LAP requires a deep understanding in agile principles, better an agile mindset. The employees in procurement will find out hands-on in the CLAP workshop if there fitting the new requirements.

---

→ Reflect the personality traits, abilities and tendencies of your employees!

---

8. Use Agile methods

Agile methods have been so widely used already. Even innovative legal and purchasing departments  already use the opportunities of agile methods and principles. In the best possible way, you can only support procurement in an agile context if you also take advantage of agile methods.

LAP is the first pure agile approach for procurement. All it's elements are agile, so that the implementation of LAP will be agile too.

---

→ Use agile methods also in your processes!

---

9. Start today!

Agile methods mean continuous development, continuous improvement. So there is no reason not to start today and start the learning process. Avoid paralysis through analysis - especially in an agile context.

LAP and the lean procurement canvas are ease to understand on the first view. However, the lean procurement canvas and the moderation of a big room planning session with 20 and more people is never easy.  Hands-on exercises, real cases and our agile coaches will help you to understand LAP more deeply. 
Register for the next certified lean-agile procurement workshop today and become a wanted expert, that has a promising option to transform the world of procurement into agile!

---

→ Start today!

---

Download

Download Visualization

Download Visualization of Survey

Download the visual summary for FREE and join the lean-agile procurement community

Thank you!

A big thank you to Prof. Dr. Ayelt Komus and the University of Applied Science Koblenz, Germany for sharing the results of their survey.

More informations and original survey (Details in German)

1st purchaser of the book: lean-agile procurement

It feels awesome, the book is in a very early state and the first purchaser decided to buy the book. Thanks a lot!-This motivates us to continue our journey

US Department of Defense (DoD) embracing Agile contracts

Under the direction of Jeff Sutherland (Co-Creator of Scrum) the US Department of Defense has  begun to embrace Agile contracts for procurement.

Read a summary of the " Greater Accountability and Faster Delivery Through Modular Contracting "

Their solution is called "modular approach", where the core is incremental delivery and that the specification can be rewritten after each delivery. A typical contract shall contain at least 3 deliveries per year. Read about their procurement guidelines and order " Contracting Guidance to Support Modular Development ".

Thanks to http://agilakontrakt.se for the summary.