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Does Procurement Have A Future?

October 29, 2009

What exactly is the future of Procurement?

I believe this to be one of the big questions right now. For years we have heard that Procurement is becoming ‘strategic’ and that CPOs are ‘at the top table’. Yet the very fact that this is still so often stated reveals how far it is from the truth. In most companies, Procurement remains highly tactical and its role is largely about achieving low cost, reliable sources of supply. Its performance metrics reflect this.

These are important tasks  – and arguably have become more so with the advent of outsourcing and the move towards solutions and services.  But it is precisely these trends that raise fundamental questions over the role of Procurement. Acquiring and managing solutions and services requires very different approaches from the acquisition of products and supplies, and traditional Procurement functions are largely struggling to adapt. 

It is becoming steadily more clear that concepts such as commoditization frequently damage business results. It is also the case that modern technologies can replace traditional purchasing roles and empower business units to undertake many tasks without the need for dedicated ‘professionals’.  Yet many groups seem trapped in these activities and unable to break into the higher value areas that demand focused attention.

The areas that are strategic and have become critical relate to more complex make / buy decisions based on analysis of costs over time (e.g. insource versus outsource; offshore versus nearshore etc); more sophisticated negotiation and risk management techniques; and on-going contract and relationship management, including especially the management of change.

These are areas in which many Procurement groups are struggling to gain traction. In some cases it is a failure of leadership, or because of an absence of necessary skills, and in others it is simply that executives do not trust Procurement to do the job or do not want to risk diverting them from traditional cost-cutting. As a result, there is often fragmentation of roles – for example, specialist groups spring up to handle IT contracting, or outsourcing, or sub-contracts; others are developed to handle post-award contract management and Supplier Relationship Management. While some of these specialists come from the ranks of traditional procurement, many do not. And frequently there seems to be a real lack of cooperation and respect between these groups – indeed, they behave as rivals. 

The overall picture is therefore one of real uncertainty. Threatened by technology in the performance of its traditional role and threatened by new, specialist groups in the roles of the future, is Procurement in fact in danger of being squeezed into steady and continuing decline?

  1. My response is somewhat tongue-in-cheek but carries a grain of truth…

    A number of commentators on the future of Procurement compare Procurement to HR or IT. Each of these functions touch on the core competencies of business managers. If you are going to run a substantial business, you need to be able to manage people (HR), you need to be able to manage information (IT) and you need to be able to buy stuff (Procurement).

    Yet HR and IT commonly sit ‘at the head table’ and procurement does not. Why? In my view, it’s because everyone loves to shop; business managers don’t want to lose that part of their role. This places Procurement in a very different position than that faced by HR or IT.

    Compare your company to your family:

    If an HR person came along and said he’d sort out the petty day-to-day disputes of your children, you’d say “Go for it!”. Likewise if an IT person came along and said she’d program your VCR (does anyone still have a VCR?) or wind forward your clocks each spring, you’d happily accept. If a procurement guy came along and said he’d do the weekly grocery shopping, you’d readily agree.

    Over time, you’d let the role of the HR person expand and he would take your children to school, reprimand them when they misbehave, handle the allowances etc. You’d let the IT person set your alarms and adjust the timing belt on your car (do cars still have timing belts?) But you’d not let the procurement guy buy your new LCD TV, your new car, or anything else you love to buy because, well, you love to buy that stuff. It’s fun! And no one is going to take that part of your job off you without a fight.

    • Doug, thanks for your comments. I think the comparison you make is useful, especially if it makes us think about what the users of our services really value. Certainly it is good to have someone else perform tasks – but only if you feel they are responsive to the things you value. Hence the focus of any service provider must be on whether they are achieving the outcomes desired by their customers – and that is perhaps where Procurement is often struggling today.

  2. Thanks for your post here, I did read it a few weeks ago and I have to say it left me thinking. Our role as a BPO Provider is to free Procurement departments to focus on the more Strategic elements of Procurement. While Source to Contract BPO is emerging as a business model, the real challenge is for the retained organisation to step up and join the Board Room Table.

    The callenge for the Organisation is to ensure they re-structure their retained team, ensuring they have the skills required to manage complex Outsourcing agreements and Make v Buy decisions. These skill sets are few and far between and may not reside in the current retained team.

    The role of technology will really start to impact the Procurement function, allot of what we do in BPO will get digitalized in the coming years. This will impact teams both retained and outsourced. The Challenge is on!!

    Many Thanks for your blog! I enjoy it very much….PS

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