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Procurement Is Too Often A Value Inhibitor

June 8, 2010

In today’s markets, organizations depend more than ever on the performance of their suppliers. Many people recognize this growing inter-dependency and they realise that it demands more collaboration, where cost competition is balanced by the potential for relationship value.

Yet it seems the only way many organizations achieve that value is by working around their Procurement group.  Special teams are created in areas such as outsourcing, IT procurement and Supplier Relationship Management, either to eliminate Procurement’s involvement, or to neutralize its effect.

A few companies are following this approach as part of a strategic plan to eliminate the traditional buyer / purchasing function. They believe that a combination of automation and outsourcing will result in the steady erosion of commodity buyers and, in parallel, they are developing the more highly skilled professionals of the future.

But in many cases, there doesn’t appear to be a plan. New groups are emerging, often with some rivalry to Procurement, and without the remit or the resources to ensure broader organizational learning and improvement. Supplier Relationship Management is currently a great example of this. It is often created to manage just a handful of suppliers, its goals unclear and its message to the outside world confused.

Procurement executives regularly have compelling presentations that suggest they are on top of the challenges and changes demanded by a global economy. Perhaps they convince top management; and in a few isolated cases it may be true. But in most, it clearly is not.

Supplier relationships really are of critical importance and management should be devoting far more attention to this topic. It offers potential for deep sources of competitive advantage, but only if there is an integrated strategy. Procurement must be remissioned so that its behaviours and skills rapidly alter and enable the value that can be generated from collaborative trading relationships.

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