ABSTRACT:
This paper discusses the case of Procurement Transformation Project of the
We demonstrate through the case study how knowledge within business processes and the supply chain for procurement can be identified, explicated, and made valuable, through devolving decisions to those at the frontline of the decision-making process. Through utilising local knowledge, and developing competences and learning, with a change in organisational structure and management style, significant savings in procurement were made.
Keywords: Knowledge
management, Procurement management, Supply chain management
1. Introduction
This paper describes how knowledge management was established as one of the
key elements of success for the Procurement Transformation Project (PTP) of the
The PTP was designed to support and empower frontline business units to undertake routine local transactional and operational procurement. The PTP focussed on increasing knowledge and value within the procurement community and its stakeholders, through using Sveiby’s (2001) Ten Knowledge Strategy Issues to support the business requirements.
In this paper we discuss how procurement changes are linked to Sveiby’s KM Strategy and also how the use of knowledge can change the nature of the work within a supply chain so that it creates value and it integrates and extends beyond the traditional organisational boundaries. We then discuss the background to the PTP and demonstrate its outcomes and organisational benefits. Finally we view the project through a sociotechnical lens. We emphasise the synergy between sociotechnical theory and knowledge management and demonstrate how this lens can add value to our understanding of the processes involved.
2. Procurement
Activities And Knowledge Management
The concept of connecting specifically organisational
eProcurement (eP)
activities with knowledge management (KM) has not been explored in the
literature to any depth. Indeed,
eSourcing,
Whilst it could be argued that these knowledge spirals activities occurred in the case described in this paper, we would argue that the Sveiby knowledge strategy activitivies more closely follows the project’s implementation.
3. Sveiby And Knowledge Strategy
In 2001, Sveiby wrote a paper where he identified ten issues or questions that should be asked to guide strategy formulation in the firm. These ten questions are:
Ø How can we improve the transfer of competence between people in our organisation?
Ø How can we transfer some of our competence to customers, suppliers and other stakeholders?
Ø How can our people learn more from customers, suppliers and other stakeholders?
Ø How can we support our customers’ conversations with their customers, or host communities?
Ø How can we use competence from customers and suppliers to add value to our systems, processes? Services, practices and products?
Ø How can our customers and suppliers learn by accessing our systems, processes, services, practices and products?
Ø How do we integrate systems, tools, processes and practices effectively internally?
Ø How can we convert individually held competence to systems, tools and templates?
Ø How can we improve individual’s competence by using systems, tools and templates?
Ø Strategic Purpose: how can the value of creation capacity of the whole system be maximised?
In this seminal paper, Sveiby states that a knowledge based strategy should begin with the ‘primary intangible resource - the competence of people’. People create value in the organisation by using their competence to transfer knowledge either externally or internally to their organisation. External knowledge transfer not only delivers goods and money but also creates customer (or supplier) relationships, reputation and experiences. This relationship translates into the Value Network as described by Allee (2000) where the role and relationship interactions within the supply chain create intangible as well as (money) tangible value. In a Value Network the intangible value grows every time a knowledge transfer takes place - the knowledge is multiplied up as it is shared.
4. Knowledge
Management In Procurement And Business Processes For
Government Organisations
Procurement in Government organisations is traditionally an area that has been looked at many times for ways to cut costs and to streamline the business processes and workflow to increase efficiency (Hsieh et al, 2002). To support business requirements procurement there needs to be a time-scheduled sequence comprised of the materials and components (Bowersox et al, 2002). ICT (Information Communication Technology) has long been involved in ways of stream-lining this process and numerous systems have been designed to improve the workflow. However, like so many ICT systems, there has been a steady failure rate. Hsieh et al (2002) attribute these failures to diverse internal cultures (within the business units involved in the process); technical issues relating to the technology and systems; and human=computer interface issues.
Procurement is an essential component of an organisation’s supply chain. It connects internal business units with external suppliers and is typically complex with, according to Hsieh et al (ibid) upwards of 15 different processes involved. Associated with these processes are numerous documents and activities and a variety of decision points for action along the supply chain. Many ICT systems pass the procurement decisions to the suppliers and thus organisations are reliant on their suppliers’ knowledge and understanding of the business situation rather than using an internal understanding of the situation. This has caused significant problems for some organisations when the suppliers make the wrong decisions (see Solectron Corp as discussed in Engardio, 2001).
Procurement is about connecting up the diverse elements of the supply chain across unit and organisational boundaries and cultures and human understandings of the situation. Thus utilising and sharing knowledge across the procurement process will assist in helping with issues such as determining the optimal mix of order size and suppliers; controlling the timing of ordering and order delivery; managing product quality; and improving the management of cash-flows.
Best practices in utilising knowledge management (to assist in procurement) have been put forward by the APQC (as described in Wimmer, 2005). These include creating a team approach; focusing efforts on business objectives and measuring tangible outcomes; and using a blend of knowledge-sharing approaches that incorporates people, processes, content and technology - the classis sociotechnical approach. Wimmer also points out that that learning cultures are not prevalent in governmental organisations and knowledge management has to be introduced in such a way that it can be seen to p[provide an immediate benefit. Knowledge management that preserve the organisation’s Intellectual Capital she says, will not only cover the initial investment but will also add additional future value.
The intention of including knowledge in a procurement supply chain must be to lift the chain management from the ‘ad hoc’ level (Lackamy & McCormack, 2004) through to a higher level such as (initially) ‘linked’ but essentially up to ‘integrated’ and finally ‘extended’. An integrated chain is where vendors and suppliers cooperate in the process and collaborative forecasting is performed. The extended chain has supply chain competition, and collaboration is through multi-firm teams with common processes, goals and a broad authority.
Seeley (2002) argues that effective knowledge management comes from connecting knowledge activities to processes that create value. Merely capturing, stockpiling, and transferring knowledge does not automatically lead to organisational performance enhancement (Swan, 2003). Successful processes indeed are (frequently) knowledge enabled (Smith & McKeen, 2004); yet to date this is not well developed in organisations. Successful processes will also link informal tacit knowledge into these activities and will be built within an organisational context and culture that supports (Marchand et al, 2000). An understanding of the context may also improve the process outcomes and execution (El Sawy & Josefek, 2003) and may elucidate the issues surrounding problems and uncertainties in the process.
The case study we describe below shows how the building of knowledge in the Money Tree Project attempted to answer Sveiby’s ten questions and also set out to link in this tacit knowledge that was held in the Immigration Service so that it was built into the processes and thus answered Smith and McKeen’s current criticisms.
5. The Procurement Transformation Project
5.1. Background
This project was carried out between January 2005 and April 2006 for the UK Immigration and Nationality Directorate (IND) within the Home Office.
The primary objective of the Procurement Transformation Project (known internally as the Money Tree Project) was to empower and support the frontline business units to undertake routine local transactional and operational procurement. The core PTP objective emanated from IND strategic business drivers which were to deliver the recommendations of the Government White Papers by Gershon (2004) and Lyons (2004) which related to the utilisation of assets, through releasing resources for the frontline units within the Home Office, and lowering the cost of resources needed to provide public services.
In particular the project set out to:
Ø Assist the organizational objectives by designing effective corporate governance to enable local procurement;
Ø Develop suitably trained staff;
Ø Increase the capacity of the central procurement unit to undertake and sustain local and operational buying at the frontline and high value strategic procurement at the centre;
Ø
Enhance
5.2. The
Approach
The project was undertaken in a controlled environment based on a formal project management methodology A Project Board was appointed to review progress at critical stages and reference to peer sounding boards was used throughout the project as and when needed.
Commencing with formal approval, the project completed a critical analysis of procurement activity and existing procurement skills through a gap analysis of skills, competences, information and technology. A formal Benefit Management tracking process was prepared at the commencement of the project and updated throughout the project. The analysis stage informed the proposed future structure of procurement within the hubs and the potential benefits arising. A review at the conclusion of this stage was undertaken to ensure buy-in of relevant key stakeholders, to consider the benefits and to confirm the continuance of the project.
A knowledge management strategy was developed from the “10 Knowledge Strategy Issues” and the “Knowledge based theory of the Firm” created by Karl-Erik Sveiby (2001).
The KM strategy for the project focused on increasing the knowledge and value within the procurement community and relevant stakeholders, and subsequently the 10 Sveiby strategies were developed to support the business requirements to effectively and efficiently procure goods and services.
As a result of the project analysis, minimal procurement competences and knowledge were identified in “frontline” business units and was identified that a recently implemented ERP system was not delivering its planned efficiencies. The ERP system was a powerful tool but the users were not fully aware of how it could be used and were unaware of its role in the supply chain and the totality of the system. As a result the first phase of the KM implementation focused on 5 of the Sveiby strategies and “individual competence” by:
Ø Improving the transfer of competence between people in the organization;
Ø Transferring competences to customers, suppliers and other stakeholders;
Ø Learning more from customers, suppliers and other stakeholders;
Ø Converting individually held competence to systems, tools and templates; and
Ø Improving individuals competence by using systems, tools and templates.
5.3. Outcome and Benefits
The project delivered both tangible and intangible benefits as the business units were receptive and open towards learning and a consensual style of organisation - these benefits were:
Tangible
Ø Management reports for cross business procurement activity were derived from the ERP system;
Ø Procurement awareness workshops and material were developed and implemented;
Ø Procurement organizational design was undertaken;
Ø Buyer job specifications were developed and implemented;
Ø Salary savings were made as a result of the role scope changes;
Ø Some £700,000 plus savings were also made through local training which enable a wider usage of the GPC (???what is this), and the local decision-making and buying competences developed;
Ø A benefit tracking document was developed.
Intangible
Ø Local staff understanding of relationship between system activity and procurement practice was developed;
Ø An improved relationship with suppliers developed;
Ø Greater leverage in procurement negotiations occurred;
Ø An increase in the social network occurred and informal sharing of procurement practices happened;
Ø There was knowledge sharing for system improvement;
Ø Enhanced system training was undertaken;
Ø Supply chain awareness was developed.
If we look again at Nonaka and Takeuchi’s (1995) knowledge spiral, we see that six main activities occur as it applies in the procurement environment:
Ø external explicit knowledge is located and acquired;
Ø this explicit knowledge is communicated to others;
Ø the ‘others’ internalise the communicated knowledge through contextualisation;
Ø sharing of contextualised knowledge amongst (all) ‘others’ is performed through socialised communication;
Ø further explicit (external) knowledge is required as the process of utilising the internalised knowledge progresses through its actions; finally, the explicit knowledge is externalised and stored appropriately.
In addition, as well as applying a knowledge creation and management framework to this particular project, we can also view the PTP through a sociotechnical lens, and demonstrate how this vision enabled a clearer understanding of why a successful outcome was achieved.
Sociotechnical thinking has a long history dating
back to the 19th century in its origins but becoming most well known
after the Second World War with the work of the Tavistock
Institute in the
6. Conclusions
As John Ruskin said c1888:
It is unwise
to pay too much, but it is worse to pay too little. When you pay too much, you lose a little
money. When you pay too little, you
sometimes lose everything.
Procurement is about providing the end users of the item procured with what they need, when they need it and at the best value to the organisation. Procurement is a very complex task that is achieved through matching the multiple supplier offerings through competition with the multiple requirements of the purchasing organisation. Procurement has legal, ethical, specification, and supplier appraisal aspects. In all of these there are business processes that need to be undertaken and matched and integrated with each other. In each business process there will be found sticky knowledge (Coakes et al, 2004) which is related to tacit knowledge that will need to be considered and transferred. As argued above this is little yet done within the supply chain and procurement process.
To manage knowledge we need to see a climate in which participation and sharing of skills and understanding take place and this is also a sociotechnical outcome of a change management programme. In the PTP we see that barriers to knowledge sharing were minimised through adapting the organisational structure, decision-making was devolved to those who undertook the tasks and key stakeholders participation in the process and system design.
We demonstrate through a case study of a
7. References:
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Wimmer S.J., (2005) For
Contact the Authors:
Dr. Elayne Coakes, Senior Lecturer, Westminster Business School, 35 Marleybone Road, London NW1 5LS; Tel: +44 (0)20 7911 5000 ext 3338; Email: coakese@wmin.ac.uk