In the Vendor management in the Disciplined Agile enterprise blog post, we overviewed a Disciplined Agile (DA) approach to vendor management, including procurement. In this post, we look closer at how to use lean and agile techniques to procure goods and services in complex situations.
Context counts, also in procurement
One of the DA principles is that context counts. This principle is also applicable to the area of vendor management. Table 1 overviews three common types of procurement situations.
Table 1. Common procurement situations
Figure 1 depicts the goal diagram for Vendor management (click here to view a larger version of the diagram) and table 2 maps the situations summarized in table 1 to the choices and strategies from the goal diagram. How we work matters and it has a dramatic impact on the result of our work. Matching our way of working to the context we face is the cornerstone of success at work.
Figure 1. The vendor management goal diagram
Table 2. Mapping common procurement situations to potential procurement strategies
When it comes to developing a complex product or service, we have learned that working in an agile and lean way brings better results faster, more reliably, and with higher quality. The agile and lean way of working (WoW) takes an incremental approach with short feedback loops. The short loops act as learning points where we can adjust to new information and changes that inherently are a part of doing complex work.
It turns out that the same is true for procuring goods and services. When we set out to procure complex goods or services, or are faced with a complex situation, applying agile and lean techniques is more successful than using traditional procurement approaches.
How do you apply agile and lean practices to procurement?
Generically speaking, procurement follows the flow of: Initialize, Analyze & prepare, Select & sign, and Execute & beyond as shown in figure 2.
Figure 2. Generic procurement flow
Lean Agile Procurement (LAP) follows the same flow and takes advantage of agile and lean practices along the way to deliver more successful results in a complex procurement situation. Table 3 summarizes some of the agile and lean techniques that LAP applies in procurement.
Table 3. Lean Agile Procurement Flow Steps
In summary, context counts and the DA tool kit for vendor management guide you in tailoring your WoW (way of working) to better match your situation increasing your chances of success. When faced with a complex procurement situation, Lean Agile Procurement (LAP) is a more successful approach.
The overarching goal of the Disciplined Agile (DA) is to guide organizations on their path to business agility, sometimes called organizational agility. When organizations increase their overall agility, they are able to rapidly adapt to market and environmental changes in productive and cost-effective ways. This enables organizations to deliver more value in a shorter amount of time, predictably, sustainably, and with high quality.
Looking at the Disciplined Agile (DA) tool kit in figure 1, we get an idea of the organizational areas that are involved in pursuing business agility.
Figure 1: The Disciplined Agile (DA) tool kit
The DA tool kit shows us that it is not enough to focus on delivery-level agility represented by the Disciplined DevOps layer. To achieve business agility, the organization must pursue agile and lean ways of working at the Disciplined Agile Enterprise layer; like legal, finance, and vendor management.
In this post, we focus on the role of vendor management and how it can contribute to the overall agility in the DA enterprise.
The mindset of vendor management: partnerships are key
Vendor management is a process blade in the DA tool kit. In other words, it represents a functional area inside the organization that serves a specific purpose. The purpose of vendor management is to help obtain products and services from other organizations.
To do that successfully in a disciplined agile way, vendor management follows a set of philosophies that extend the DA mindset:
Figure 2: A Disciplined Agile mindset for vendor management
1. Value through partnerships. We increase value through partnerships with other organizations.
2. Collaborative partnerships. We seek to build collaborative partnerships with other organizations, even when those organizations are our competitors or competitors to each other.
3. Mutually beneficial partnerships. We seek to build, maintain, and evolve mutually beneficial relationships with our suppliers and partners.
4. We co-create with our partners. We co-create throughout the entire vendor management life cycle, including procurement. This means that we may even have both our own experts and vendor experts actively involved in the procurement process.
5. We are trusted advisors. We are a trusted advisor inside the organization to present and guide both supplier and partnering options.
6. Organizational outcomes come first. We pursue organizational outcomes over local process conveniences, working in an enterprise aware manner.
7. We protect our organization. We have a fiduciary responsibility to protect the organization.
8. We address risk holistically. We address risk in an appropriate, proactive, and holistic manner.
The flow of Vendor management: context counts
One of the DA principles is that "context counts". This principle is also applicable to the area of vendor management. Table 1 lists three different types of procurement situations.
Table 1: Different procurement situations
Each of the situations requires a different flow or approach to successfully find the right partners that can deliver the good or service to the organization.
The practices of vendor management: choice is good
Another DA principle states that “choice is good”. In vendor management, we see this manifested in its goal diagram. Click here to see a larger version of the goal diagram.
Figure 3: Vendor management goal diagram
The diagram covers the key decision points of vendor management: from how to manage intake requests, and how to select a procurement strategy, to ways of governing partnerships. Most of the decision points’ options are non-ordered, meaning they are equally preferrable. It is worth noting the two areas that have ordered options: select procurement strategy, and capture working agreements. The ordered options are called out with an upwards arrow, meaning the choices at the top are more desirable than the choices at the bottom from an agility standpoint.
With the goal diagram, you have access to a suite of options, choices and strategies that are presented in architected way for easy access and navigation. The suite of options, choices and strategies allows you first of all to find your baseline today: what is our existing way of working (WoW) in procurement? Secondly, the suite of options, choices and strategies allows you to find areas where you can improve and tailor your way of procuring to better match the given context.
Let’s look at an example. One of the vendor management decision points is to select potential partners.
Figure 4: Decision point for "select potential partners"
The decision point offers a suite of options, ranging from short-listing potential partners, comparing submitted proposals, and holding a big-room event for multiple vendors.
In our example, you are part of the company’s procurement team. Up until this point, your team has solely been relying on the option of “compare submitted proposals” to select vendors regardless of what you are procuring. That is your baseline way of working (WoW). If your team procures goods or services that less straightforward than, say printer paper and toner, you have likely come across some challenges in finding the right vendor. Taking advantage of the information in the vendor management goal diagram, you can now pick a more tailored WoW depending on your procurement context.
For example, procuring a commodity (new paper and toner for the office printers), a straightforward comparison of submitted proposals will likely be sufficient. In fact, you may even go so far as to automate the buying decision completely, such as with printers placing an order for toner when it runs low. But faced with a more complicated context, such as procuring a new fleet of delivery trucks, you have the option to employ additional strategies to increase your chances of success. These strategies could be: shortlisting potential partners, interviewing potential partners, and then comparing submitted proposals. You may even hold a vendor bake off where the shortlisted vendors demonstrate their vehicles.
In summary, context counts. The DA tool kit guides you in tailoring your WoW for vendor management to better match your context increasing your chances of success.
A Disciplined Agile Enterprise (DAE) is able to sense and respond swiftly to changes in the marketplace. It does this through an organizational culture and structure that facilitates change within the context of the situation that it faces. Such organizations require a learning mindset in the mainstream business and underlying lean and agile processes to drive innovation.
The DAE layer is one of the four layers of the Disciplined Agile (DA) tool kit, overviewed in Figure 1. These layers are: Foundation, Disciplined DevOps, Value Streams, and Disciplined Agile Enterprise (DAE). This blog focuses on the DAE layer.
The Disciplined Agile Enterprise (DAE) layer encompasses the capabilities required to guide your organization, to coordinate the teams/groups within your organization, and to support the value streams offered by it. Figure 2 summarizes the DA tool kit and Figure 3 overviews the process blades that are specific to the DAE layer. Several process blades of the DAE layer - Research & Development, Business Operations, Strategy, Governance, Marketing, Continuous Improvement, and Sales - are shared with the value streams layer. The are "shared" in that the scope of these process blades may focus on both the entire organization and specifically on individual value streams. For example, a financial institution may execute an organization-wide marketing strategy as well as specific strategies for their retail and corporate value streams.
Expanding upon the value streams layer, the DAE layer adds the following blades:
The asset management process blade addresses the purposeful creation (or rescue), management, support, and governance of organizational assets. This includes financial, inventory, contractual, risk management, and strategic decisions of these organizational assets.
The enterprise architecture (EA) process blade overviews how a Disciplined Agile EA team will work. An agile enterprise architecture is flexible, easily extended, and easily evolved collection of structures and processes upon which your organization is built. The act of agile enterprise architecture is the collaborative and evolutionary exploration and potential capture of an organization’s architectural ecosystem in a context-sensitive manner. The implications are that enterprise architects must be willing to work in a collaborative and flexible manner and that delivery teams must be willing to work closely with enterprise architects.
The finance process blade addresses a collection of potentially competing goals, such as ensuring cash flow within your organization, ensuring your money is being spent well, taxes are minimized, spending is properly tracked and recorded, and legal financial reporting is being performed properly. All of this will be performed in a manner that is compliant with applicable financial regulations, such as Financial Accounting Standards Board (FASB) and International Accounting Standards Board (IASB) guidelines.
The information technology (IT) process blade encapsulates the activities required to provide IT capabilities to the rest of the organization. This includes managing information technologies, data resources, applications, and IT infrastructure.
The aim of the Legal process blade is to ensure that your organization works within the parameters of the law of any and all legal territories in which you operate. Your legal team will work closely with your vendor management people on (Agile) contracts; with your people management team to ensure that their strategies reflect the local statutes and to help educate staff in legal concerns; with your marketing team to guide what they’re legally able to promise; with your strategy team to ensure the direction they're taking the organization is legally viable; and with governance to understand the legal implications of applicable regulations.
The aim of the people management process blade is to attract and retain great people who work on awesome teams. People management goes by many names, including human resource (HR) management, human relations (HR) management, talent management, staff management, people operations, and work force management to name a few. This process blade addresses strategies for forming teams; helping people to manage their careers; training, coaching, and educating people; human resource planning within your organization; managing movement of people within your organization; reward structures; and governing people management efforts.
The transformation process blade captures advice for how to redefine, and then reengineer, your organization. This includes understand the current context, identifying the desired future, identifying how to measure the success of the transformation, identifying a likely strategy for moving towards the desired state, and then executing on that strategy. Throughout a transformation you will constantly gauge your progress and the desired target state and adjust according. This process blade leverages the advice of PMI's Brightline Initiative.
The aim of the vendor management process blade, sometimes called supplier management, is to help obtain and then manage offerings (products, services, and intellectual property) from other organizations. To do this your vendor management team will collaborate with other parts of the organization to help them understand their needs (if any), identify potential vendors that can fulfill those needs, work with legal to develop appropriate contracts, address vendor-related risks, help monitor and manage vendors, and eventually close out any contracts.