The recently published DHL Research Brief entitled “The Supply Chain Talent Shortage” outlined a supply chain human resource crisis where “demand for supply chain professionals exceeds supply by a ratio of six to one”.  DHL surveyed 350 Logistics and Supply Chain professionals globally and discovered that changing job requirements is one of the main reasons that there is a lack of people to perform procurement, logistics and supply roles.  This was further explained as too few people with the right balance of professional / leadership skills and technical skills.

The Importance of Balanced Leadership and Technical Skills

ADR’s perspective fully supports this conclusion, based on our experience and research as an international procurement consulting firm.  Using ADR’s Procurement Skills Assessment Tool, Development Needs Analysis (ADR DNA), we can demonstrate the gap between technical and professional capability today.

ADR DNA has been in use since 2003.  Since then, over 20,000 capability assessments have been completed by procurement and supply chain professionals globally.

One of our main findings is a sharp division in the capability strengths for technical skills versus professional / leadership skills.  Typically, technical skills score higher, as this table illustrates.


Table 1:  Average Technical and Leadership Skills Results (2010-2017)

Average Technical Skills Assessment Results (%)* Average Leadership Skills Assessment Results (%)*
Entry Level Roles 48 32
Procurement and Supply Professional Roles 65 47
Management Roles 76 62

(*100% represents best practice exemplar in the capability group.)


Organizations that take part in the ADR DNA skills assessment survey set their own aspirations for the percentage score for each capability (“target”). These targets are typically a minimum of 40% for entry-level roles, 60% for professional roles and 80% for management roles. The data trend therefore shows a significant shortfall in the expected results for leadership skills.  The exact leadership capabilities that are surveyed vary, because ADR DNA is a customized survey for each organization.  But the most popular topics surveyed are shown in table 2.


Table 2:  Top Skills Surveyed in ADR’s Development Needs Analysis (ADR DNA) Skills Assessment Tool

Top Technical Skills Surveyed Top Leadership Skills Surveyed
  • Negotation
  • Cost Management
  • Contracting
  • Managing Competitive Tenders
  • Contract Management
  • Analytical Skills
  • Influence and Communication
  • Strategic Thinking
  • Problem Solving Skills
  • Creativity and Change Management


Clearly, there is work to be done to ensure that the leadership skills in procurement and supply are as good as, if not better, than the technical skills.  The symptoms of this unbalanced skills mix are:

  • Procurement and Supply professionals ineffective in influencing business stakeholders and executives
  • Stalled career pathways, because individuals do not have the right skills to lead
  • Poor supplier management approaches, resulting in unmotivated suppliers and low value delivered back to the business

The first two points are evidenced by the DHL survey.  DHL found that nearly 70 percent of survey respondents listed “perceived lack of opportunity for career growth” and “perceived status of supply chain as a professional” as reasons that staff failed to stay in the procurement, supply and logistics profession over the long term.

As for supplier management, many organizations are currently putting a strong focus on this skill, recognizing that being a customer of choice for your suppliers is a source of competitive advantage.

The balance of leadership skills and technical skills is key to supplier management success.  For example, Coventry Building Society, a UK-based financial services firm, recently won a Princess Royal Training Award for its Supplier Management Training Program that integrated both skill sets for learners in procurement and functional roles.  The outcomes are robust business continuity planning using common commercial skills.  These skills include technical frameworks as well as leadership skills such as relationship-building and influence.

Procurement and Supply Chain Talent Enablers

Given this skills landscape for the procurement and supply chain profession, the next section outlines the 3 enablers that help organizations to boost both technical and leadership skills in their teams:

  1. A Procurement and Supply Chain competency framework
  2. An organizational accreditation program or external certification
  3. Integration of the technical and leadership skills in the learning program.

One must-have enabler of talent management is a procurement and supply chain competency framework.  This is a definition of the required competencies, how they can be evidenced and what proficiency level is expected for every role in the department.  This should have clear linkages back to the business needs, so the organization understands why these are the critical skills and skills targets.

As BCG state in their 2015 article “The Global Leadership and Talent Index”, organizations “need to put in place a leadership model that clearly articulates the competencies that their leaders should demonstrate”.  And for those “talent laggards” who still have a journey to becoming best in class at people development, they should “embed the desired leadership competencies into recruiting, performance management, and reward systems and establish structured training and development programs to develop those competencies”.

A second key enabler of talent management is a learning pathway that offers value and progression to the learner.  An organizational accreditation program or external certification typically involves the learner taking progressing through assessed formal and informal learning that is closely related to their job role.  In ADR’s experience, these yield the best results when line managers are fully involved in coaching and monitoring the on-the-job learning element, with structured tools to help guide their staff members’ efforts.

A third essential element of procurement and supply talent management is the integration of the technical and leadership skills in the learning program.  Organizations that recognize that the procurement and supply skillset is a holistic blend of all capabilities offer training that links the two.  For example, technical skills training that incorporate experiential elements such as role play and creative thinking that is relevant to current job challenges.


Procurement and supply continues to have a challenge when it comes to how it is perceived by suppliers, business stakeholders and prospective recruits.  This is further exacerbated by the fear that artificial intelligence may make the job defunct.  Now is the time for procurement and supply leaders to address the talent crisis and demonstrate the value that human skills bring to the role, such as empathy, mediation and facilitating creative solutions.

Supplier performance measures are a tool to determine whether your supplier is doing their work as expected. What is expected of the supplier should be as described in the supply contract or statement of work, specification, service level agreement or KPIs – or a mixture of some of these.

There are many tools to assist in measurement of supplier performance. Some are paper-based checklists, many are digitally enabled. Electronic performance measurement helps to set consistent measures for suppliers in similar categories or projects. This article will explore the benefits and disadvantages of standardized measures across different suppliers.

Before exploring this, we will provide an overview of supplier performance measures and their purpose.

Measurements for suppliers of goods and services

Supplier performance measures may have different considerations depending on whether we are buying goods or services. However, they typically address similar areas, which are important for the performance of the overall organization and its stakeholders. The table below includes some examples.


Table 1: Examples of measures of supplier performance

Measurement Are Goods Services
Timeliness On time delivery of goods or other information Work completed or response time at or within a specified time period
Completeness Delivery in full Service completed for the expected duration or with the expected outcome
Quality Low defect rate or unplanned failure Low re-work, errors or complaints
Productivity Yield, output, process efficiency Utilization, process efficiency, learning curve
Regulatory Compliance Working within legal standards, health and safety protocols or organizational guidelines
Social Responsibility Sustainability, diversity or community initiatives
Innovation Continuous improvement resulting in improved outcomes


How should supplier performance measures be created?

Each measurement area is influenced by the business needs.  These needs reflect the requirements of the stakeholder / end user, or address specific project requirements.  In addition, the measurement area should also address the needs of the organization (for example, there may be an organization-wide requirement to improve working capital or corporate and social responsibility performance.

It is important that supplier performance measures are SMART:

  • Specific
  • Measurable
  • Achievable
  • Realistic
  • Time-based

In addition, supplier performance measures should:

  • be few in number (perhaps 4 or 5 critical-to-quality areas)
  • not require excessive resource to manage
  • motivate the supplier to meet and exceed targets


Table 2:  Examples of how supplier performance measures are created

Business Need Example Supplier Performance Measure Example SMART Metric
Improved Quality Product reliability improvement
  • 5% reduction in customer warranty claims within 12 months
Better Service Customer experience improvement
  • 10% higher satisfaction rating from external customers or users
Reduced Cost Specification change resulting in lower operating cost
  • 2% price reduction each contract year resulting from approved vendor-initiated reengineering activities


How are supplier performance measures monitored on a daily basis?

It could be the responsibility of the supplier, the buying organization’s Procurement Department or their business stakeholders to monitor how suppliers are performing against these goals.  Often, it is a joint effort because there may be commercial consequences of the supplier performing well or poorly.  For example:

  • Good supplier performance may trigger a bonus, or increased workload or a recognition incentive.
  • Poor supplier performance may result in application of contractual remedies such as liquidated damages or other sanctions such as the supplier not being considered for additional projects for a period of time.

Often, periodic reviews of performance take place quarterly or annually, in addition to more routine corrective action planning.  This helps to track trends and decide if targets should be adjusted or stretched based on previous performance or changing business needs.

Should supplier performance measurement be standardized?

Having consistent measures across similar suppliers / categories or across a project has advantages and disadvantages:

The advantages of standardized supplier performance measures:

  • It enables performance standard measures, but supplier-specific targets
  • It helps to compare suppliers against each other, creates aspirations and cross-fertilization of good practice
  • It helps to compare performance against supplier price, cost and external benchmarks
  • Suppliers may perceive this consistency as equitable
  • Ease of reporting within organizational systems or tools

The disadvantages of standardized supplier performance measures:

  • You may wish any incentives or sanctions to be targeted to what motivates that particular supplier
    – For example, where you have flexibility to adjust payment terms to reward a small or medium-sized business or provide an award to an organization that relies on public relations successes to win new work
  • Suppliers may be more committed to targets if they can contribute to the design of the performance measures or incentive scheme
    – For example, you might wish to become a customer of choice for some important vendors and want them to feel empowered to strive for goals that help them too
  • The measures and targets may be specific to your supplier development goals for specific vendors, to reflect their specific capabilities
    – For example, you may wish a supplier to grow their capability or capacity to match your own organization’s requirements if they have the resources and aspiration to support you

Where the organization is utilizing digital tools to help gain a universal picture of supplier performance across a wide range of categories, projects or geographies, it can certainly be helpful to provide decision-makers with the facts they need to inform category, supplier and business strategies.  However, having some flexibility within that regime is helpful to demonstrate to suppliers, customers and stakeholders that measurement is driven by their interests primarily rather than reporting for its own sake.

Most supplier relationships start with good intentions on all sides for a productive engagement that will deliver good outcomes. Yet some supplier relationships, whether contracted formally or not, do not proceed successfully. Difficulties regarding performance, commercial or other issues, can start before the work has even begun.  Or they may emerge after many years of effective partnership.

Occasionally, the buying organization does not wish to work with some suppliers any more, even when they have strategic importance to their organization.

At ADR International, our global team has noticed that increasingly organizations are assigning a “do not use” status to certain suppliers.  In some cases this is a “word of mouth” recommendation and in others it’s a formal “blacklisted” or “banned” classification in organizational systems, such as supplier information portals.  This depends on the reason for the classification.

Typical reasons suppliers get banned from future use by buying organizations:

  • Severe financial instability of the supplier
  • Chronic poor performance of the supplier
  • Failure to meet the buying organization’s corporate and social responsibility standards or misaligned business practices (especially in terms of values or ethics)
  • Association with the supplier exposes the buying organization to risk of profit reduction or reputational damage
  • Formal supplier rationalization program

Before deciding on such a “ban”, there is often an extended consultation between the buying organization’s end users, budget holders, specification-owners and other stakeholders who are involved in the supplier relationship.

Before a “supplier ban”, the following conditions often exist:

  • The concerns are felt universally by internal stakeholders or by key opinion leaders
  • There is evidence of a violation of organizational standards
  • The situation is considered unresolvable

However, even when such conditions prevail, there may be reasons why the buying organization decides against a supplier “ban” even when the relationship is troubled.

Reasons to avoid a “blacklisted” supplier classification in some challenging relationships:

  • Reciprocal relationships (the supplier is also an important customer to the organization)
  • Customer direction (the supplier has been nominated by the end customer of the organization)
  • The supplier is a government monopoly
  • Market, capacity or capability constraints restrict the buying organization from switching source(s) or will limit future competition
  • Intellectual property constraints restrict the buying organization from switching source(s).
  • High expense or risk of switching source(s)

Therefore, is it pragmatic to apply a “banned” status to suppliers?  Certainly it’s a decision that should carry health warning and requires objective and balanced judgement rather than being the result of an emotional outburst.

A good practice checklist to consider before assigning a “banned” status to a supplier:

  1. The first action, as always, is to check the portfolio position of the supplier and / or category / commodity.Where the supply market difficulty is “high”, the effort and time taken to resolve the challenge would typically be greater. This is because it is likely to be challenging to find a credible alternative source.
  2. Ensure all important stakeholders have had the opportunity to input on the definition, impact and severity of the concern with the supplier.
  3. Involve legal colleagues to determine the contractual implications and / or apply contractual remedies.
  4. Check that the impact of the concern has been measured and objectively assessed. For example, is there evidence of increased claims from end customers, or an impact on quality, or impact on health and safety?
  5. Document concerns using organizational tools such as a risks / issues register, corrective action planning, corporate security involvement and management escalation.
  6. Evidence repeated attempts to improve the situation to show that the supplier has consistently failed to engage or improve within the agreed timescales.
  7. Identify whether the relationship can and / or should be terminated, and the costs / risks involved.
  8. Check that supplier senior management have been engaged and had the opportunity to provide a “their shoes” perspective.
  9. Agree a business continuity plan with stakeholders, including an immediate back-up plan in the event of unexpected supply failure.
  10. Apply the organizational guidelines regarding current and / or future use of suppliers.

Organizational guidelines may not stipulate a definitive communication that a supplier is now “banned”. But any supplier relationship that exposes the organization and its stakeholders to harm should be assessed immediately, regardless of the decision about how to classify the supplier.

As part of a recent consulting assignment, ADR were reviewing the average length of the supplier relationships with our client’s organization.  The organization had recently introduced a supplier relationship management (SRM) program.  The program used a governance framework that detailed the type and frequency of review meetings and performance evaluation based on supplier criticality.

Relationship length information was gathered through interviews with supplier relationship managers, spend analysis and the organization’s contracts database.

A summary is in the diagram below.

Duration (in years) of supplier relationships


Less than 3 years 3 to 5 years 5 to 10 years 10 to 15 years Over 15 years
60% 17% 12% 6% 5%


There was a good deal of one-off, transactional and off-contract spend, which is represented by the high proportion of short-term relationships (less than 3 years).

What was interesting to discover was that that the relationship group least likely to have a formal contract in place were the long-terms supplier relationships (over 15 years).  Any written agreements were often on suppliers’ terms, or simply a memorandum of understanding.

The remaining groups had more use of contract types including framework agreements and standard purchase terms and conditions.  Why were these key suppliers not operating under the typical contractual arrangements?

Several reasons were mentioned for these long-term suppliers not necessarily having long term (or any) contracts:

  • The purchase was for a leverage-type good or service, where any interruption in supply could be easily resolved by seeking a new supplier at short notice.
  • The supplier lacked the necessary infrastructure to commit to an agreement (perhaps a lack of IT tools or inadequate compliance to the required insurances or quality controls).
  • The purchase was relatively low value and not considered a priority for procurement attention.

But for many of these suppliers, long-term relationships had been chosen because the nature of the purchase was critical to the business, or there was a high risk / cost in switching sources.  This would support the importance of a legal agreement.

Some of the long-term supplier relationships had some similar characteristics:

  • Specifications were often co-developed with suppliers.
  • Co-developed specifications meant that business users expected to make full use of the solution before seeking alternative ideas.
  • Suppliers reluctant to agree to the buyer’s terms, often after lengthy negotiations where delivery of the work had commenced prior to conclusion.

However, for some suppliers in this group, the low churn was attributed to other factors – preference by stakeholders, fear of change and a culture of long service in other supplier relationships.

The data indicated that the longer a relationship with a supplier was, the less likely that a formal agreement was in place.  This appears counter-intuitive, as you would imagine that these suppliers had been supporting the business for a long time because they were valued (and therefore a buyer might wish to secure them).

“What is the right length for a supplier relationship?” one stakeholder queried.

The answer to this question could be “It depends on when supplier relationship management was established”.

Why?  The evidence showed that many of the supplier relationships that were over 15 years in length were either consistently performing to the expectation (although seldom any better), or were chronically failing, but replacing the supplier involved pain and cost.  Long-term relationships were not a great source of additional value or innovation in this organization.

This was often attributable to the way in which the relationship had been previously managed.  None of these suppliers previously had any governance framework that allocated roles and tasks for supplier management such as regular performance reviews and target setting.  Where the supplier was non-critical, this made sense; any investment in supplier relationship management was unlikely to yield much benefit here.  But it did not make sense for those strategic or critical suppliers where the supply markets were difficult.  Here, it is essential to have a business continuity plan in the event of supplier performance failure.

In the new SRM environment, legacy suppliers were reluctant to engage in what was perceived as “unpaid work”, such as attendance at corporate supplier days.

As a contrast, the supplier relationships that had been more recently established and were also under contract had been actively managed since their inception.  These typically displayed predictable performance patterns and swift corrective actions where lapses had occurred.  Suppliers had been set clear performance expectations in terms of service delivery and relationship controls such as review meetings.

In this organization, at least, the message was clear:  The length of the relationship may be influenced by a range of factors including intellectual property management, market conditions and business continuity requirements.  However, relationships left to drift often leak value over their lifetime and set a precedent of neglect that can be challenging to redress.

Therefore, the right length for a supplier relationship is dependent on market conditions and business criticality.  But the right time to introduce SRM to the organization is now.

Before embarking on supplier relationship initiatives, most organizations try to segment their key suppliers. This helps to understand the type of relationships that currently exist, and what relationships would be most effective in delivering value.

During our training courses, we use ADR’s Portfolio Analysis model to support this analysis. We like this tool because rather than assigning suppliers a relationship classification based solely on spend value, it considers the (sometimes volatile) market conditions of the suppliers’ industry.

ADR’s Portfolio Analysis Model:

For IT contract managers, suppliers are often positioned in the “critical” or “strategic” quadrants, where the market can be challenging. This area is characterized by suppliers who have higher power relative to their customers, which they may or may not exploit for commercial advantage.  The “critical” or “strategic” positioning is due to the nature of technology hardware, software and services purchases, where (in the event of performance failure of the incumbent), supply choices after supplier selection can be greatly reduced, compared to the original sourcing options.

It may seem unusual to label suppliers as “critical” or “strategic” when there is a choice of suppliers that display competitive behavior.  The reason is that the effort and cost of switching suppliers can be considerable, due to the high investment required for the technology infrastructure.  Therefore, performance challenges are best resolved through problem-solving with the incumbent supplier, instead of replacing them.  There are advantages to long-term relationships with IT vendors, for example:

  • After suppliers recover the cost of selling to their customers, they can invest an agreed sum into innovations that benefit the buyer (if the relationship is contract managed in this way).
  • The suppliers learn much about the needs and constraints of their key customers.  This helps them to plan their product roadmap.
  • Where the IT contract manager has agreed continuous improvement targets and rewards with the supplier, there is adequate time to implement such initiatives fully.

When ADR are working with procurement professionals, many IT managers report difficulties in the communicating effectively with IT vendors.  Such relationships are described in various ways during our training and consulting discussions.  Sometimes they are called one-sided (because of a perceived balance of power in favor of the supplier).  Often they are called acrimonious (often due to the long contracting process of complex IT agreements).  Usually, they are described as over-complicated (because of the “many to many” relationships between the customer’s IT project managers and supplier’s technical teams).  The most common IT contract manager complaint we hear at ADR is a lack of visibility of the historic and planned expenditure and total cost implications for the organization.

But the market landscape is shifting.  Typically, IT teams relied on technology or solutions requiring a fixed infrastructure.  Now, more organizations are moving to the cloud for their IT solutions, making use of the Software-as-a-Service (SaaS) model.  This means that the underlying technologies and platforms that support the software are not rigidly tied to the customer’s organization.  In the former model, there was high dependency on a few suppliers.  Customers often perceived the suppliers as complacent.  In the cloud environment, the stakeholder is theoretically free to switch solutions where another option would yield better value.  In practice, there could still be challenges in switching source (for example, changing processes, practices and messages to the user).  But the IT vendor recognizes that a “take it or leave it” attitude is ineffective, and this opens up a constructive dialogue with their customers.

The impact of cloud computing on the IT contract manager can be summarized in this SWOT analysis:

SWOT analysis of the impact of cloud computing for IT contract managers:


  • A more flexible, lean, dynamic IT environment.
  • Greater commercial leverage with a wider choice of vendors.
  • Greater scope for performance-based contracting.


  • End users could individually buy technology solutions through a low-value order process that goes undetected by corporate buyers.
  • Risk of poor IT spend / project visibility and planning.
  • Risk of a growth in the number of approved IT vendors in the organization.


  • Suppliers may be more willing to invest in emerging and experimental technology projects. This helps them to demonstrate capability and secure commitment from current and prospective customers.
  • Software solutions can be customized by Systems Integrators or the customer’s IT developers, whichever is optimal.


  • The vendor may be less willing to design their product roadmap to fit important customers’ needs. The software is “generic” by design.
  • Privacy laws in some countries may limit the ability to use cloud computing because of location / storage concerns.


So how could the IT contract manager respond to this environment, to optimize the current and planned IT spend in their organization? These tips may help:

  • Understand the global relationship with each vendor in terms of spend, stakeholders, projects and their associated lifetime costs.  Then, ensure there is an IT contract manager responsible for coordinating the management of the master services agreement, project bids, approvals and performance across the organization.
  • Determine the gaps to an effective working relationship.  ADR’s Supplier Relationship Needs Analysis tool is a 360 degree feedback model for supplier evaluation, addressing factors like trust and attitude.  Such tools avoid a subjective assessment approach.
  • Link suppliers’ likelihood of winning new projects to measured success in current assignments.  This will keep suppliers constantly motivated to perform, innovate and learn about your needs.
  • Don’t neglect the sustainability agenda.  Even with the Software-as-a-Service (SaaS) model, there are still physical purchases and movements in the supply chain.  The customer should consider how their buying behavior is contributing to the reduction and re-use of waste.
  • Make a conscious effort to understand relationship style and whether it is helping or hindering the motivation of the supplier to perform well for you as a customer.  ADR’s supplier relationship style quiz is used during our training courses, and is good place to start assessing the most suitable style.

Cloud computing brings opportunities to improve both supplier competitiveness and the dynamics of existing supplier relationships.  This should prompt IT contract managers to re-evaluate their desired relationship outcomes with current IT suppliers.  A subsequent change of expectation, performance measures or relationship style could alter the agenda and style of the next supplier performance review meeting.  Most importantly, it could reenergize the relationship and bring all parties together to explore how it could yield greater value.

During the start of the year, corporate teams often approach ADR to plan their training program for the year. Our initial discussions are typically around the objectives, in terms of what the organization hopes to achieve after the learning has been applied.

This can sometimes leave learners asking “why are we here?”. They don’t understand why they have been extracted from a busy work schedule to attend an event they see as separate from their daily work.

Organizations organise training for a variety of reasons, most often:

  1. They are training to communicate something to people (a new process or policy).
  2. They want people to do things differently, and get improved outcomes as a result.
  3. They have a training budget that needs to be spent.

These reasons may all stem from good intentions, but the learner must be personally engaged in order to change their thinking, practices and behaviour.

The American adult education expert Malcolm Knowles explored the theory of effective adult learning in the late 20th century, and developed it further in the 2015 book “The Adult Learner: The definitive classic in adult education and human resource development”. His concepts remain core to corporate functional training. They can be summarised as follows:

  • Learners must be able to understand their learning needs
    • “why do I need to learn this?”
  • Learners must be able to help design their learning to suit their own styles
    • “let me direct my own learning”
  • Learners must learn through experience
    • “I learn from sharing stories with people who had similar experiences”
  • Learners must be ready to learn
    • “this is suitable to my skill level”
  • Learners must see the relevance of the learning to their daily work
    • “this will help me do my job better”
  • Learners must be motivated to learn
    • “this is fun and will do good things for me”

Training managers can help learners to not only understand why they are attending training, but also be motivated to apply the learning for powerful results. For example:

  • Help students to identify their own learning needs, using a tool such as ADR’s Development Needs Analysis. It is useful to discuss the outcomes with a line manager, reviewing strengths and personal goals.
  • Foster a supportive learning environment. For example, in the training invitation, tell learners that training is a place for open ideas exchange, not a passive “lecture” environment.
  • Help the learners use their full capacity to benefit themselves, as well as the organization. To bring this to life, you could use post-course evaluations forms to ask learners how can they use the learning in the work place and beyond, for example through better influencing and mediation skills at home.

The field of learning and development has many options for learning types and content to excite and enthuse learners. But the key decision making criteria for the training manager should be how the learning inspires the adult learner to learn for their own growth and satisfaction.

There is much talk currently of circular procurement as an important element of the circular economy. The circular economy is a resource productivity concept. Manufacturers and consumers aim to keep materials useful at the end of their life, for example through repair and re-use in new products. Circular procurement supports this. It is relevant to production purchases, where the whole-life of the product is planned during the early design process. In particular, circular procurement ensures that component parts may be repaired, re-purposed or recycled at the end of their useful life. The benefits to the economy and the environment are clear. With a global population demanding greater resources in terms of infrastructure, goods and food, the approach makes sense.

Circular procurement typically requires a change in procurement mind-set, so that sustainable procurement is the primary focus of the category requirements. So, is it possible for circular procurement to work alongside category management? This table summarizes the features of each:


Circular procurement Category management
Sustainable procurement is the primary focus of category needs. Sustainable procurement is one the category concerns, alongside availability, quality, service, cost, innovation and regulatory (AQSCIR) needs.
Supported by collaborative, long-term relationships with suppliers. Supported by a variety of different relationships, to suit the market conditions, supplier relationship and criticality of the purchase.
Outcomes are defined in waste minimization. Outcomes are defined in terms of value to the customer, the organization and the organization’s stakeholders.
Disposal is described in terms of re-use or recycling, because waste is seen as a resource. Disposal could result in items going to landfill.


The procurement profession can move towards circular procurement practices by adapting their total cost of ownership (TCO) analyses for goods, materials and consumables purchases. The typical focus of such analysis is whole life cost, which means how much it will cost to acquire, transport, store, use, maintain and dispose of the products. Procurement people can extend TCO assessment into waste minimization, which explores familiar topics like consumption and demand management and environmentally responsible sourcing. Products are also used to support services purchases, such as IT equipment, office supplies or printed / packaging items. A circular procurement evaluation would consider how suppliers manage the end of life of such associated goods, even if they are not part of the actual purchase.

The Ellen MacArthur Foundation, working together with McKinsey, has championed the circular economy concept. This is shaping government debate and has a clear impact on procurement. The Foundation’s publication “Towards a Circular Economy: Business Rationale For An Accelerated Transition (2015) states that “prices…should reflect real costs. In a circular economy, prices act as messages, and therefore need to reflect full costs in order to be effective”. Some organizations like Google and Philips are leading the way in defining their procurement activities around this way of working. They are members of The Circular Economy 100, a group of enterprises, governments and special interest groups committed to the Ellen MacArthur Foundation’s principles.

Using the best in class examples of these procurement teams is a useful first step in understanding the gap to achieving circular procurement. This requires a new approach to measuring the effectiveness of procurement. For example, savings metrics where cost is a sub-element of sustainable supply chains rather than the other way around.

Christmas is a time to do something for other people. Maybe you are looking in on an elderly neighbour or volunteering at a homeless shelter. Individual giving is worthy, as are collective efforts by organizations (and the procurement people that represent them).

Instead of just donating or raffling our suppliers’ Christmas gifts for charity, what if Procurement professionals took a more proactive approach to generate good throughout our supply chains and the communities that are impacted by them? This is pro-social procurement.

Pro-social procurement considers the positive impact of sourcing decisions on the organization, on society, the economy and the environment.

The UK public sector implemented the Social Value Act into its procurement practices in 2010. This tasks commissioners with thinking about the wider social, economic and environmental benefits of their procurement activity. Social Value Awards give recognition to government agencies who have demonstrated best in class performance.
The private sector also has good practice in this area, for example:

  • Tesco offers 14 days payment for suppliers receiving less than £100,000 income from the retailer, so that small organisations can thrive without cash flow concerns.
  • KPMG has a long history of providing wide access for professionals coming into their industry, working with government to support applicants from low income families and other disadvantaged groups.
  • Sovereign Housing Associations supports careers fairs for their social housing residents, enabling them to access work place opportunities within and outside the organisation, in their local community.

Procurement professionals from industry can give a sustainable gift this year by influencing Procurement leaders to adopt at least one pro-social procurement practice for 2017. Here are some ideas:

  • Incorporate social value into your category business needs. For each sub-category where the stakeholder has defined their requirements against availability, quality, service, cost, innovation and regulatory (AQSCIR) needs, encourage them to think about how suppliers in the market could also contribute to the communities they recruit from and the environment they work in.
  • Build cost models alongside small business suppliers, who may welcome coaching in how to establish a sustainable, long term agreement with a reliable corporate customer.
  • Evaluate prospective suppliers based on their evidenced pro-social efforts. For example, how do suppliers support the community, economy and environment through their recruitment, learning, career support and staff charity days.

Pro-social procurement is not about driving suppliers to invest even more cost in order to win or keep your business. It is about building a socially responsible framework around our existing procurement practices so that we do not neglect pro-social elements in our supplier selection, contracting, contract management and performance evaluation.

In this two part article Peter Hunt describes Demand Management as a source of value improvement.  In part 1 we cover the background, context and foundation for Demand Management and in part two we will consider the catalysts and key tools.

Part 1 – Background

Demand Management is not a new concept.  Its origins lie in fiscal management and economic theory wherein demand and supply can be influenced by the level of interest, taxation, the availability of credit etc.

From the late 1970s demand management became increasingly used across many sectors in an effort to balance customer requirements (demand) with the capability and capacity of the supply chain (supply) through forecasting demand and synching with marketing, production, procurement and distribution.

By getting this right the supply chain was able to deliver efficient consumer response and achieve reductions in working capital (inventory), wastage and obsolescence, whilst improving asset utilization and productivity.

More recently the scope of demand management has extended from a focus on volume alone, to incorporate other value levers including specification, (the level or pattern of) consumption, service level, quality, delivery and packaging requirements and the total cost of acquisition and ownership.

One of the foundations for this extended scope of demand management is an objective challenge of the buying organizations’ business needs, i.e. a challenge of their desired or target outcomes in an effort to balance these with the associated value levers to ensure a ‘right-sized’ solution.

It’s this more recent scope of demand management that we will focus on as a source of value improvement.

ADR has worked with many private and public sector clients to design and embed category management processes through coaching and experiential learning.  See example in Figure 1.

Understanding an organizations’ business needs is an essential step early in the process.  This provides important insight to develop the category strategy, define the supplier(s) capability needs and thereafter to manage their performance.  Further, given that business requirements will be influenced by the business climate, stakeholder and consumer direction, technology, commodity markets etc. it follows that redefinition or refresh of the business needs is equally essential during the ongoing management phase to help manage and optimize the life-cycle of the category strategy.

Hence business needs analysis is a prerequisite in strategy development, sourcing and supplier relationship management.


The specification and / or a scope of work will form part of the business needs, but in addition we must understand:

  1. The associated needs in relation to e.g. assurance of supply and delivery, quality, service, cost, innovation, risk, regulatory and environmental issues etc., and
  2. Why?

The ‘Why?’ is of critical importance because it leads us to understand the relative priority as well as the desired business outcomes, i.e. what we are trying to achieve from the procurement and what’s driving the demand.  If you were to ask these questions to a cross functional team the likelihood is that you’d receive different responses.

For example, consider cookie tins in the food supply chain.  The cookie manufacturing operations team may prefer standardization of size and shape to optimize plant utilization and efficiency.  Procurement and the supply chain may support this to enable aggregation and scalability benefits and to buffer forecasting and reduce shortage risk.

Marketing on the other hand, may prefer unique shapes, innovative designs and high quality finishes because it regards the tin as advertising collateral – a conduit to strengthen the brand and brand recognition through retention and future use of the tin.

Challenging and unifying these perspectives will create a set of fit for purpose business needs which, together with the other steps in the process, will inform the category strategy.

This concept of challenge using different stakeholder perspectives and desired outcomes and demand drivers lies at the heart of demand management.  At its ultimate conclusion, it allows an organization to place a ‘value’ on individual features or components of a product or elements of a service or process, i.e. to challenge the cost of provision or the benefits derived and, indeed, whether the intended benefits are in fact being achieved.  Consider the examples in Figure 2 to amplify this.

Accepting that the route to clearly and optimally defining desired outcomes requires perspectives from the right stakeholders it follows that engagement / formation of a cross-functional category team is critical.  This is critical both early in the category strategy development (pre-sourcing) phase as well as in the ongoing category management phase, when the focus will be on supplier relationship and performance management and continuous improvement.

In part two of the article on Demand Management, Peter Hunt will discuss the catalysts and some of the key tools to support Demand Management.

In part two of the article on Demand Management, Peter Hunt will discuss the catalysts and some of the key tools to support Demand Management.


This will depend on the stage of the process as well as the organizations’ business environment / priorities.

During the analysis and planning phase of the process, options analysis and challenge is
intended as a step for a cross-functional category team to generate and evaluate options for sourcing, contracting and the future supplier relationship(s).  In relation to ‘sourcing’ options, as well as e.g. the number of suppliers, stage in the supply chain, insourcing, outsourcing etc., it’s important to consider and challenge also the business needs (specification or scope of work and the associated value levers), against the desired outcomes.

A cross-functional category team needs to provide the creative tension that will result from differing functional perspectives and the category lead would typically be responsible for creating the environment to enable this.  Useful tools and techniques include structured or unstructured brainstorming, process mapping, target costing or setting an aspirational or provocative goal to concentrate the teams’ focus on to a common end.

A challenge that can occur at this stage of the process is that a category team may not have been mobilized early enough to effectively inform the specification or scope.  Despite this, there is a significant risk in skipping or post-rationalizing this step and if the category and / or spend is significant enough the category lead needs the business authority to mandate it, even if it means revisiting previous decisions.

The ‘ongoing category management’ phase of the process provides a relevant and more natural environment for demand management.

Stakeholder(s) / business partner(s) are likely to be more actively involved in this phase of the process as relationship managers or performance managers and as such they are more naturally placed to challenge and refresh business needs / outcomes and the associated value levers and to contrast this with the total costs of acquisition and ownership.  At first hand they can place a sense of worth on a product feature, service level, performance or quality standard and make an informed judgement about its associated value for money.

It’s not uncommon for them to have a leadership role but certainly stakeholders / business partners will be a critical component in the process.  Consider for example local authorities with budget cuts being imposed while demand for services remains constant or increasing.

Responsibility for repositioning service provider scope of work (i.e. challenging demand) with reduced contract values has largely fallen on Heads of Service (budget holders) rather than a procurement team.

Indeed, public sector bodies have excelled and accelerated in the area of demand management both in terms of service provision by suppliers and by internal staff, simply because they have needed to balance income and outgoings.  Some examples are included in Figure 3.

The key catalyst in the public sector in recent years is that the Heads of Service have RAA (Responsibility, Authority and Accountability) to manage within budget, i.e. managing a reduced and reducing budget is a fundamental aspect of their job.

This has parallels in the private sector too where there is a sectoral and / or cultural expectation of continuous improvement, e.g. in the information technology and automotive sectors.  In both there exists infrastructure which is in place with dedicated and specialist
resource targeted to deliver continuous improvement, comprising internal staff and supplier (often technical) expertise.  Again, these teams have RAA.

In addition to skilled resource and business support and the tools identified in the early category management phase, there are a number of additional tools which have proven to be useful catalysts in demand management to either avoid, prevent, reduce or change demand in the ongoing management phase:

  • Root cause analysis (RCA) – also known as ‘5 why’s analysis’ or ‘Fishbone analysis’.

Having identified and defined a problem or undesired event or simply a high cost to the business, root cause analysis is used to determine the most probable underlying causes with the aim of formulating and agreeing corrective actions to mitigate or eliminate those causes.

  • Value analysis – also known as ‘value engineering’.

Analysis to identify and select the best value alternatives for designs, materials, processes and systems.  Key question: Can the cost of this item or step or feature be reduced or eliminated, without diminishing the effectiveness, quality, customer satisfaction etc. (i.e. the desired outcome)?  The objectives are:

  1. To distinguish between the incurred costs (actual use of resources) and the inherent costs (locked in costs) in a particular design or solution (and which determine the incurred costs), and
  2. To minimize the locked-in costs.

In summary, while strict formality is not a pre-requisite, there is certainty that the effectiveness of demand management to deliver improvement outcomes will be proportional to the quality and quantity of resource and business support invested – by both the company and its supply chain.  Therefore addressing ongoing improvement in the contracting and selection process with suppliers will provide a necessary foundation.

In an effort then to create momentum and share insights, celebrating and promoting successes is essential.  The scope to deliver value improvement through demand management, especially in the ongoing / supplier relationship management phase of the category management process is significant and often is more effective than simply
re-competing or resourcing.