Game Changing Procurement and Supply Management

Speech delivered at the CIPS Pan African Conference on 29th July 2014 at Intercontinental Hotel, Lusaka, Zambia

Good afternoon Distinguished Ladies and Gentlemen,

It is a great pleasure to be here today in Lusaka.

This is my first time in Zambia, the warm heart of Africa, the land of Victoria Falls, and Zambezi River, and I must say that it has been an exciting experience so far, especially in the midst of many old and new friends and colleagues.

Let me also appreciate the organizers for putting this conference together. It is indeed pleasing to witness the pace the Africa chapter has been moving forward since its inauguration in South Africa, and also the progress on the ambition to grow the footprint from about 18,000 members in 2013 to 50,000 members by 2017.

The conference theme; ‘Game-changing procurement and supply management’ is quite appropriate at this period when procurement and supply accounts for 15%- 30% of the annual GDP of most countries and when Africa has been identified as the next frontier.

I am therefore pleased to be asked to share my thoughts at such a conference and time.

Our Royal Charter defines our objectives

Firstly, permit me to walk you down some memory lanes on our profession.

The procurement and supply profession is perhaps not the oldest, but it can be traced in Africa to the Egyptians. Back in 3000 BC, pyramid-building Egyptians tracked the supply of building materials and workers on papyrus rolls. Scribes would write down the orders and track their fulfillment. With the industrial revolution, Procurement further gained more importance, with the handling of railway construction supplies.

Approaches such as pooling appeared in the 80s but it was not until the mid-90s that supplier relationship and strategic commodity management emerged. Today, Procurement is positioning and measuring itself as a significant value contributor in any entity. However, the golden age is still to come, which will take Procurement to another level, especially with innovations, technology, etc

Herein then lay the objectives of CIPS. The intent of the CIPS charter formalized in 1992, is to encourage the promotion and development of improved methods of purchasing and supplies for the benefit of the public. It is a charter every member of the CIPS must hold very dear, not only for compliance but as a clear driver to deliver for the good of society.

Global development

The profession is undoubtedly growing, especially with the developments in technology particularly with the internet, telecommunication, and efficient logistics. These enablers will remain the fulcrum over the next decades in resolving the challenges of the world. The Internet, for example, enabled the lowering of costs by more than 30% and added value to businesses including online vendor catalogs to order directly, tracking the status of shipments, resolving customer problems 24/7, electronic bids, invoices, payment, etc

Different industries and governments are at varying levels in the usage of technology and herein lay one of the opportunities for the next generation of Procurement and supply professionals. Another opportunity for this generation of procurement and supply professionals and the next will be the need to ensure public good and address current global challenges. In a world with a population closer to 9 billion people, half in poverty, a world with increasing energy demand, with an effect on climate change, making a positive impact on these issues will be key for society.

The world has also become a global village with economies now interconnected and as seen during the recent recession, the activities in one part of the world can affect the economies of all nations, to a level never experienced in the past.

Societal Expectations of Government

Infrastructure has played a significant role in economic turnaround across the world and will play a great role for the Procurement and Supply profession to have a meaningful impact, and also for the profession to deliver the infrastructures required in a cost-effective way.

There is no gainsaying that Africa has the greatest infrastructure deficiency. Simulations suggest that if all African countries were to catch up with say Mauritius or Korea in infrastructure, per capita economic growth in the region could increase by up to 2.6 percent per year.  In most developing countries, infrastructure is a major constraint on doing business and is found to depress firm productivity by around 40 percent.

Asides from the deficiencies in broader transport, information, and communication infrastructure, the largest infrastructure deficit is in the power sector where the 48 countries of Sub-Saharan Africa (800 million people) generate roughly the same amount of power as Spain (45 million people).

The current realities now are that 70% of the countries have a GDP of less than $20k. Societies demand equitable growth and development by Governments, using the inherent natural and human resources for the benefit of the public; an objective consistent with the CIPS’s.

Societal expectations of organizations

There is no doubt that companies are set up to maximize shareholder values and profits. However for an organization to be sustainable it would have to also meet societal demands. Organizations are for example expected to contribute to employment, and human rights, facilitate the emergence and growth of small and medium businesses, and prevent environmental degradation. Society invariably benefits from thriving businesses paying taxes and as such society expects organizations to have governance to sustain growth, good labor practice, respect for human rights and the environment, address consumer issues and contribute to social development. These are objectives consistent with CIPS Royal Charter

A seat at the Table

Therefore the next few decades will see massive efforts toward bridging the vast infrastructural deficit in Africa, and this underscores the need for African countries to perfect and empower the procurement and supply profession.

In the public sector, the growing importance of the Office of government commerce/public procurement bureau is underscored by several governments now creating this office. In the 32 OECD countries, in addition to having bureaus to handle public procurement, they have advanced to varying stages in e-portals to bring transparency, fairness, and drive value.

This is the direction to go and in Africa, many countries are in the process of setting up and empowering the bureaus to maintain the sanctity and governance required.

In the private sector, we are also increasingly seeing the prominence of the profession in both public and private sectors. According to recent research by Ardent Partners (2014), there is now an average of 1 in 5 Chief Procurement Officers reporting to the CEOs, due to the impact of procurement in supporting business strategy and the impact it has on the bottom line.

Examples include Heinz, IBM, Rio Tinto, GE, Procter & Gamble, Walmart, ABB, B&Q, Carlsberg, DHL, Woolworths, BT, Bombardier, Citizens Bank (USA), Johnson and Johnson, Novartis, Petrocanada, etc.  These are companies that have brought their Procurement and Supply Chain Leaders directly into the fray and are driving productivity on a global scale.

I am delighted that in my organization, Nigeria LNG Limited, a $ 10 billion a year revenue company and the largest industrial complex in Sub-Sahara Africa, we have also put in place that direct reporting line and am confident of the value it will bring, 

A seat at the table for what – Public sector

Is it enough to have a seat at the table? My candid answer is no. There are many objectives procurement and supply professionals must deliver when seated at the public table:

1.   Value for money for every dollar spent in public procurement and pursuing the lowest “whole of life” cost. Transparency and accountability are key despite that public procurement can be more complex because specifications can sometimes be difficult to define, competition can be restricted and political interference is a risk. 

2.      Timely delivery of projects and goods: Despite procurement and supply needing to follow a standard sequence of actions to ensure transparency and value for money, it still needs to be effectively managed to realize the time objective. Technology and improved logistic chains now provide a much better platform for efficient deliveries.

3.      Ethics: Public procurement contracts are big business, especially in infrastructure projects such as power stations and roads. In some countries this accounts for not less than 20% of the GDP and as such a hotbed for corruption. According to OECD (2007), many countries have not been able to tackle integrity issues in public procurement. Many African countries have put forward a code of conduct and I am glad that the CIPS recently introduced the ethics certification for its members,

4.      Professionalism: The recognition that procurement is a profession that requires trained and qualified staff is leading to professional procurement cadres in the public sector.  Regulations are therefore key to delivering equitable public procurement and call for high standards in both the quality of procedures and implementing entities.

5.      Waste reduction: The biggest waste of public resources probably comes from irregularities in procurement practices and excesses in specifications and dimensions. More upfront challenges and quality controls are thus apt.

A seat at the table for what? – Private sector

Whether big or small, corporations are striving for better margins to maximize Shareholders’ returns. Improving an organization’s procurement brings benefits far beyond saving money, timely deliveries, or raising product quality. It can dramatically improve the shareholders’ value and returns by bringing change and innovation.  At a time when many companies are facing tough times, procurement is becoming recognized as an essential component of corporate strategy for leading organizations.

Thus, procurement and supply professionals in the private sector need to do more with seats at the table.

1.    Backward integration: Organizations are increasingly focusing on bigger projects. However, with a dearth of competent and financially liquid local vendors, especially in African countries, and with the challenge of longer and protracted supply chains from Western world supplies, the development of the local capacity of suppliers, by driving partnerships between local entrepreneurs and foreign OEMs for manufacturing, stocking, etc provides huge values for organizations.

2.  Sustainable developments:  In addition to value for money, project deliveries, and innovation; standardisation is increasingly providing value. Standardization of equipment and projects provides huge life cycle value. The speed of replication and also the lowering of cost from standardization are important value drivers.

3.     Forward integration: Increasingly firms are driving for more value further down the chain. Procurement can play a leading and proactive role in such integration and complement the need for surplus management and reuse of elements of company products (packaging, bottles, etc) rather than becoming environmental waste.

4.   Capacity development: The type of professionals flourishing in key roles is changing as more and more organizations acknowledge the increasing strategic importance of the profession. It is therefore important we grow the capacity not only in core procurement skills but also in soft skills of networking, stakeholder management, etc.

In Africa, there is a lot of work to be done to develop leadership in the profession. The role of a procurement leader is to deliver higher value to the organization and for public benefit, by way of strong strategic management, through smart sourcing, value chain optimization, and innovation. 

Let me, therefore, introduce the concept of “Business and Social Entrepreneur thinking” as a game changer for procurement and supply. This will be the bridge to resolving organization and societal challenges in an integrated manner, especially in Africa, and will unleash the innovative potential of individuals, and move Africa into a developed continent status.

The business aspect thinks of performance in profit and loss terms, whilst the social aspect thinks from a return to society perspective, to create and sustain social value.

There are a few innate characteristics of an entrepreneur. Permit me to mention a few that would also be relevant to our profession in changing the game.

·       Innovative and technologically savvy.

·       Transformational in pursuit of goals, be they developmental or organizational

·       Thinking and going beyond the norm and current frontiers in adding value.

·       Practical approach, often using market principles and business methods.

·       High standards for data, both quantitative and qualitative.

·       Continuous feedback and improvement approach. 

·       Zeal and courage to overcome traditional practices.

·       Dogged determination and seeing possibility where others see problems.

Some examples of social entrepreneurs include:  

1.     Vikram Akula, of SKS Microfinance in India. Although this venture is for profit, it has initiated a sharp social change amongst poor women from villages.

2.      Tom Skazy dropped out of Princeton to create Terracycle, which sells fertilizer and over 250 products made from 60 waste streams.

3.      Margaret Sanger – Founder of Planned Parenthood Federation, She led the movement for family planning globally with procurement and supply of various contraceptives.

4.      Sam Goldman and Ned Tozun, of D.Light Design, manufacture inexpensive lamps and sell them in communities that don’t have reliable electricity in Africa.

5.      Muhammad Yunus, of Grameen Bank established the micro-credit revolution, through a bank for profit, but also helping millions of people access small loans. 

So, what am I saying here? We need to drive similar passion into the profession, embed similar characteristics, and use procurement and supply to not just deliver value and profits to organizations, but also ensure societal needs are met for the public benefit; this is what the CIPS Royal Charter demands of us all.

As Procurement and supply professionals, on the leadership tables within organizations and governments, we must transform, innovate and proactively deliver value, both for the shareholders and society and have the zeal to measure and monitor our impact on both.

In conclusion, the role of procurement and supply is quite considerable as it will continue to account for a significant proportion of the demand for goods and services in every country or organization. Procurement will increasingly be an attractive instrument for solving many of the global challenges including poverty, human rights, child labor, climate change, infrastructure development, GDP growth,, etc. This is consistent with the foundation of CIPS as articulated in the Royal Charter and therefore getting Procurement right will be essential to delivering desired value to the society. In all these, it is the people (you and me) who will make the difference by being business and social entrepreneurs, driving value for our organizations as well as for society,    

Without a doubt, Good procurement is good for organizations and society and is good for people.

Distinguished ladies and gentlemen, once again, I thank you all for listening and do hope we can inspire the next generation of leaders in the profession to be the game changers in delivering societal economic growth in Africa and considering the strategic value that we can add to society, I look forward to a time in Africa, and the world when a member of the CIPS profession will become the President of a nation, it could happen in our lifetime.

Babs Omotowa

Managing Director/CEO, Nigeria LNG Limited

Vice President of Bonny Gas Transport Limited