Fads that destroy value
“Supplier relationship management is about people, not technology” is the title of a short article by Professor Rob Handfield. He was citing a recent presentation by former CPO Lowell Hoffman, which had tracked the various trends impacting procurement over the last 25 years.
While the precise timings may be open to question, the core point being made by Mr Hoffman was that the world of ‘purchasing agents’ has been transformed. They have been on a journey that embraced transaction pricing, supplier segmentation, strategic sourcing, e-procurement and global low-cost markets. Along the way, they have steadily destroyed people-based relationships and become driven by technology and process. Today, having awakened to the issue of supply chain risk management, ‘relationships’ are back on the table. I would add to that the fact that the pit of potential ‘savings’ is not bottomless and suddenly Procurement finds itself facing questions over what exact value or purpose it fulfils. After all, if it is all about technology and process, why does a company need the Procurement function at all?
I think this story offers all of us a salutary lesson. Perhaps more than any other business function, it seems to me that Procurement has been driven by the latest mantra from consultants and analysts. Each new idea has been rapidly grasped and adopted, without real thought to its consequence. Now, many in Procurement find themselves struggling to build good relationships either internally or external. As Mr Hoffman points out, the skill-set simply is not there.
Executive management has been complicit in this development. They have tended to see suppliers as interchangeable and largely dispensable. Such inconsistent behaviour and rapid adoption of trends could never occur on the sales side of the business, because management would understand the cost of alienating customers.
The consequences of innovation are never easy to forecast, but that is why it is important to analyse, to test, to run pilot schemes. And it is also important to seek the views of relevant stakeholders and listen to their reactions and concerns. My feeling is that Procurement embarked on this journey without really caring about supplier opinions or warnings; their input was dismissed as self-serving. Of course, to some extent that was true, but surely a role of leaders is to evaluate advice and extract meaning from it, not just to ignore it and hope for the best.
So what can we expect the next fad to be?