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The Changing Face Of Procurement

August 6, 2012

Close relationships are frequently associated with a lack of rigor. They tend to prevent innovation and act as a barrier to new talent or competition. As a result, pressure builds and change, when it comes, can be violent.

To safeguard this change, the new powers introduce a period of strong controls and create methods to ensure compliance. For example, take this quote: “Trust has been replaced by contracts and the bonds of allegiance by the monitoring of behavior, backed up by the ever present threat of financial penalties”.

This could surely be a description of the last ten years, when the forces of globalization have destroyed many traditional relationships and compliance, control and commoditization have been the watch-words of corporate behavior. loyalty has been sacrificed for the cheapest source of supply. Contracts have become a weapon for financial penalties.

However, this quote comes from a history of the English king Henry VII and reflects his approach to governance in the opening years of the 16th century. It represents his determination to establish a dynasty and to accumulate the material wealth needed to ensure power and influence.  Henry’s reign was disruptive to many established relationships and was followed by an era of apparent collaboration in which his ‘evil counsellors’ were sacrificed. In reality, the new order and many of its methods survived, but the leading people though which it had been established were dismissed (typically through beheading!)

Today, at a meeting in New Zealand, there was broad consensus that the procurement practices of the last few years are reaching an end.  Like many others, these IACCM  members believe that the unrelenting focus on negotiated savings is destroying value. It has had the effect of undermining performance and, in many industries, forced supplier consolidation to a point where there is no longer competition. Hence ‘the new regime’ seeks to be nice to suppliers and is ushering in a new period of cooperative, mutually beneficial behavior. Contracts, negotiations and relationship management practices are being adjusted accordingly.

In this new world, Procurement may be cast as the villain, the ‘evil counsellor’ that misled senior management and caused them to undermine valuable supplier relationships. Some will be sacrificed; others will happily adapt to their new role and deny that they ever agreed with that adversarial, power-based style of supplier management.

 

 

 

One Comment
  1. “these IACCM members believe that the unrelenting focus on negotiated savings is destroying value. ”

    Many businesses get so caught up in the bottom line and cutting costs now that they fail to take into account the long-term impact. What’s that $0.10 saving per X boxes actually costing you in terms of vendor and customer relationships?

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