Hauling procurement into the sunlight

Hauling procurement into the sunlight

Posted by Ian Burdon in Procurement Process 15 Nov 2012

I don’t think of myself, much, as a grumpy old man but I seem to have spent a lot of time recently reading blogs, LinkedIn, tweets and press releases, scratching my head and wondering “is it just me”?

There is a saying of which my old boss used to be fond: things that are ‘well known’ are rarely known well.  These well known things tend to form our basic day to day operating assumptions. It is sensible to haul these assumptions into the sunlight every so often to give them a good dust down and re-examination.  I am going to mention five of them today:

Purchasing Insight logo1      Procurement is about spend control

2      Procurement is about achieving savings.

To be sure, controlling expenditure and finding savings opportunities are important things, although one hopes employees and managers are doing them anyway, but they are only a part of what procurement actually is.  Nor is procurement

3      a process leading up to putting a contract in place

4      purchase to pay or settling invoices.

No. Procurement is the means by which an organisation secures delivery of the resources it requires to undertake its functions and/or to deliver its desired strategic outcomes.

No doubt an organisation wants to do this in a cost effective manner, but cost effective is not a general synonym for lowest price. In the end it will matter not a jot that you have negotiated really keen prices if your supply chain fails to deliver. That would be a catastrophic outcome in the case of a supplier of strategically important goods or services (which yields the proper meaning of ‘strategic sourcing’).

If your negotiation style is cut-throat in the good times it is likely to be your throat which is exposed when times get harder.

As one of my old tutors put it: in all negotiations you should know what you want, what you’ll ask for and what you’ll settle for. A good outcome is one in which all parties to the agreement are content.

5      Procurement is something that “procurement professionals” do.

This assumption leads to a kind of exceptionalism. It leads to the idea that Procurement is a bounded functional specialism which operates in its own professionalised silo.  This is a tactical and operational view of “Procurement” which, I suspect, underpins a lot of flawed projects (do you really want your projects to be structured by buyers negotiating with salesmen)? It certainly underpins the idea that Procurement can be outsourced.

We should now be looking at Procurement as a core part of any organisation’s strategic activity. I would go further and suggest that it is only in a strategic context that the idea of Sustainable Procurement has any real meaning.

Lest you think that I am tilting at straw men, take an objective look at the torrents of untreated guff flowing through social media channels in the guise of marketing messages from our industry these days. And there’s another thing: social media – don’t get me started….

  • Nexus789 November 17, 2012 at 12:41 am /

    I was taught that procurement is key component of an effective business operation. For instance, today a very high percentage of finished and semi finished components go to make up a final product. Far more so that in the past as the vertically integrated business operation has been replaced by ‘networks’ driven by insource/outsource operations. This means that a company’s margin is driven not only by how effectively it prices and sells its products but more importantly how it reduces its input costs to those products (and services).

    Given the importance of the above it still amuses me that in many companies procurement remains emasculated and the procurement manager remains outside the ‘C’ Level team. These companies also allow multiple ‘budget holders’ across multiple businesses to own the commercial relationship with suppliers/partners. This ensures that there will be fragmented supply market strategies and approaches. This makes it difficult to apply ‘whole of organisation’ supply market strategies that are in the interests of the business as a whole and not the individual silos within a business.

    In enlightened companies procurement management is in the ‘C’ level team and procurement is seen a value add service rather than a cost centre. More importantly procurement contributes to the strategic plan. We now have Web based systems that enable us to distribute purchasing services to anyone across an organisation in a highly controlled way. This means that we can increasingly focus procurement activities on improving sourcing and contracting strategies.

    Similar observations can be applied to Government where each ‘Agency’ is allowed to go off and ‘do their thing’ to the detriment of the ‘community’ of Agencies as a whole. This also impacts taxpayers as all of us pay more for this fragmented approach.

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