DevelopmentInnovationsProcurement
April 7, 2017

More Than Tactical Procurement: Commodity Management as a New Strategic Tool

Agile practitioners have demonstrated that procurement and material management can effectively influence business, drive full integration of the supply chain, and optimize the cost of ownership for the Crown.

Commodity Management (the official term for life-cycle asset management of goods and services) presents an opportunity to amplify the value of government purchases. This can be achieved via the Procurement and Material Management (MM) functions of any department. A strategic, enterprise-wide approach to Commodity Management would enable coordinated asset management decisions, which would result in decreased costs and the creation of competitive advantage.

Current State

It is easy to understand the importance of total life-cycle asset management, including the cost of ownership and disposal. However, in reality, public service commodity management focuses singularly on basic procurement outcomes. Its strategies include bulk buys of mandatory commodities, and depend on the presumed efficiencies of competition-based procurement methods.

Viewed as a tactical, back-office function, commodity management looks like a static activity. In a classic model, an organizational need will activate the procurement team. In turn, the team undertakes an isolated purchase, and then passes on the asset to the operators. When the life cycle of the product reaches an end, the procurement team is engaged again. While the product is in use, there is little or no input from key stakeholders or from the procurement officer. Procurements are completed in isolation, outside the consideration of any government-wide specialists in that category of commodity.

Opportunity

To leverage fully all that the procurement and MM functions have to offer, commodity management must be viewed as a strategic tool, capable of enabling achievement of organizational objectives. The efforts must be dynamic and responsive: a comprehensive examination of the requirements, investments, usage and eventual disposal of a specific category of goods or services (regardless of the commodity).

Agile practitioners have demonstrated that procurement and material management can effectively influence business, drive full integration of the supply chain, and optimize the cost of ownership for the Crown. Together, the capabilities of procurement and MM teams, and the untapped potential of commodity management implementation, provide a unique opportunity for efficiency and results. They can deliver additional insight on demand, and inform strategic decisions, while at the same time ensure day-to-day execution that is rigorously efficient and transparent. Procurement and MM groups have demonstrated that they can combine to form interdisciplinary teams that can drive comprehensive, intelligent, strategic business decisions in support of organizational goals.

Next Generation: Strategic Commodity Management

So how can these practices be realized? Strategic commodity management is about intelligent sourcing and procurement planning, along with material management focus on the life-cycle of a commodity, from acquisition, through usage, to disposal. Beyond these predictable definitions, it must be understood as comprehensive ownership of one commodity across all facets of the organization. Procurement and material management-led cross-functional teams must proactively engage stakeholders to understand business needs, drivers and challenges and ensure commodities are planned and adequately captured and managed.

This strategic view of commodity management harmonizes business intelligence and expertise to support organizational goals. Fully leveraged commodity management must include:

  • historical use of the commodity;
  • organizational mandate;
  • entity investments (current and upcoming);
  • industry trends;
  • global awareness of factors affecting business; and
  • various supply issues (such as procurement, current and planned inventory, storage and warehousing, shipping, and disposal issues).

All stakeholders must have an intimate knowledge of the organization’s business and of the multiple ways in which a specific commodity is linked to goals and business needs.

Also key is access to required information: the right people getting the right information at the right time. Liaising horizontally across business lines and synthesizing information into a cohesive rationale upon which to formulate evidence-based decisions is critical to successful strategic commodity management.

 

Strategic Commodity
Management at the CBSA

Strategic Commodity Management is an active practice at the Canada Border Services Agency (CBSA). For security reasons, the following example describes the process undertaken without identifying specifics.

The Strategic Procurement and Material Management Division (SPMMD) took the lead on enabling the design, implementation and execution of a strategy to manage one specific commodity. The result was a procurement and material management-led cross-functional team of experts able to address subjects such as:

  • material management considerations (from acquisition to disposal);
  • operational needs;
  • policy guidelines;
  • infrastructure considerations;
  • security and technical requirements; and
  • strategic procurement options to acquire the goods once the exact need is determined.

 

SPMMD employees dedicated to this file became intimately familiar with the commodity requirements and were empowered to make strategic decisions based on stakeholder inputs as well as CBSA’s goals and priorities. All stakeholders were able to make real, tangible contributions and enable efficiencies. No procurement action for this commodity was taken without their input. This strategic commodity management marked a revolutionary change in strategic procurement and MM, allowing it to use its capacities to their full potential.

SPMMD demonstrated that Procurement and MM groups were core services supporting entire organizations. Their overall understanding of the required supply chain, business investments, financial implications, risk and opportunities, as well as strengths and weaknesses, enabled them to influence corporate outcomes. Commodity management proved to be a continual, multi-cycle planning exercise, building on lessons learned to capture and interpret true cost of ownership data. The strategy was kept evergreen with ongoing dialogue between various business owners and continuous commodity management renewal. This led to a “smarter” planning cycle, returning real, tangible results to Canadians.

 

Real Life Application of Strategic Commodity
Management

The benefits of applying strategic commodity management can be more easily gauged in light of an organization’s need for printers, scanners, and/or multi-functional devices (MFDs). An enterprise-wide view of this group of goods would include strategic planning and sourcing; consideration of all aspects of the life-cycle, including acquisition, usage and eventual disposal; and analysis of the commodity group’s implication in business needs and organizational goals.

The first step comprises the analysis of the current state, including comparison of location of planned use (for example, downtown offices versus potentially remote settings); organization-wide investigation of need and definition of ‘must have’ requirements (for example, separate printers and scanners, versus the all-in-one MFD option); and other dependencies (for example, required certifications, or limited number of qualified suppliers).

One would consider the financial situation, including present and planned investments, as well as available capital, and funds for ongoing maintenance. Initial financial analysis would determine the feasibility of acquisition options and inform the decision of lease versus buy. Overall strategy direction would factor in benefits of leasing, such as the administrative ease of paying one fee per month, inclusive of toner, parts and maintenance, as well as forfeiting responsibility for unforeseen repairs, balanced against ownership of the asset throughout the lifecycle, sans continual lease renewal. Furthermore, one would ascertain that MFDs, whether leased or bought, are advantageous, as these machines consolidate the need for printers and scanners, and reduce overall costs.

Information gathered would be gathered organization wide, including inventory and age of current assets; compliance with overall strategy regarding location and numbers of MFDs (for example, one per floor, or one per 100 employees, etc.); infrastructure requirements (i.e. appropriate floor space and wiring); and security specifications (certification requirements may limit which products can be procured and connected to existing networks). A plan would be created to detail how strategic commodity management would be rolled out, including estimated costs and timelines, as well as provisions for support to existing printers and scanners, while the larger MFD strategy is implemented.

Consideration would be given to external influences, such as plans to create government-wide programs to address the same needs tackled in this commodity management exercise, but on a bigger scale. The organization would plan in the interim, while remaining aware of the changes such external actions would bring, and aligning their strategies to future proposals.

Strategic commodity management of MFDs allows the organization to consolidate procurement needs. Administrative efficiencies are gained, which could be further amplified with centralized funding, eliminating the need to process multiple invoices across the organization. Strategic commodity management would also facilitate universal understanding of the entity’s MFD requirements, allowing for consolidated asset planning, tied soundly to investment planning.

Any organization applying SCM would capture the costs of the entire process and document lessons learned, to leverage the experience and knowledge gained from the process for the next strategic commodity management exercise, thereby providing an even greater return on investment.

 

Jessica Sultan is the Executive Director, Strategic Procurement and Material Management Division, Canada Border Services Agency.

 

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