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The disappearing world of Procurement

May 20, 2015

Too many procurement groups are on a path to nowhere. They are missing the golden opportunities being created by today’s dynamic markets.

That is the conclusion I have to draw from the many conversations I have with practitioners, consultants, executive search firms and business executives. In a fast-changing world, the possibilities for growth are numerous. But in many cases, procurement professionals and their leaders are simply ignoring them because they do not fit existing paradigms, or they are too busy to pay attention to the warning signs.

For years, supply chain consultants and professional associations have been hammering on issues like compliance, category management, control – all based on the assumption that commoditization is the route to sustainable savings. This has led procurement into increasing isolation, making them masters of process, but disconnecting them from meaningful relationships with other business functions or suppliers. Indeed, many seem to glory in this isolation, feeling that it somehow confirms their objectivity and superiority as moral guardians of the business. They talk about key issues such as commercial skills and then delude themselves into thinking they are masters of these skills.

In reality, nothing could be further from the truth. Suppliers continue to see procurement as ‘the enemy’. Internal functions see them as an obstacle to good, balanced decisions. And markets are adjusting, to move beyond the pernicious effects of modern procurement practices. Suppliers have consolidated, eliminating competition in many industries. They are moving away from products towards services and solutions. They are shifting from unit prices to payment for results. These – and many other trends – are transforming the world of supply management and calling for skills that support integration, collaboration, overseeing outcomes and exercising judgment – attributes that are largely alien to the world that procurement leaders have created.

One would hope that professional leadership organizations would be assisting their members to change, providing a vision for the future. But instead, they often seem wedded to the past, calling for official status as ‘Licensed procurers’ or promoting even more draconian steps that would drive ‘savings’ or simply proclaiming the illusion that it’s only a matter of time before they ascend to the top table.

As enterprises disaggregate, needing ever more flexible and creative supply networks, this should be a golden age for those charged with selecting, forming and managing trading relationships. But as with every craft or trade of the past, relevance depends on the readiness to adapt. Right now, most procurement organizations are following a path that leads to more and more attrition as automation fulfills the roles that they perform and others step into the shoes they could be filling.

Those with vision are grasping that the future lies in the strength of relationships, in research and innovation, in creative ideas and insights – the attributes that machines find hard to replicate. It’s a world that excites IACCM and its members; its a world we must embrace, rather than retreat into the comfort of the past or find excuses to avoid.

If you are in Procurement, it’s time to rise up, to demand more, to assert your abilities and potential. The function is in desperate need of true leaders who act as drivers of change and creators of value. But to do that, you must challenge the status quo, the current mantras of control and compliance, and instead become enablers of transformation in trading relationships.

5 Comments
  1. Marc permalink

    Your assessment is spot on. I have been in many planning meetings where Procurement was the key topic. However, even in these meetings profitability, growth, quality, sustainability and other topics managed to take center stage. (Purchasing) the topic which made up 60-80% of Total Cost was usually relegated to second tier status.
    Unless you are manufacturing $100 Million Airplanes, or building Billion Dollar Nuclear Plants; a 5% Materials Cost Reduction usually produces a better return than a 5% Increase in Production Output.
    Procurement, like our health, should hold a higher status, and should be ignored at our peril.

  2. Well said TIm, the hijacking of what good procurement practice should be about (improving business) by those looking for quick but unsustainable cost reductions has to stop.

    It reminds me of what Hamel & Prahalad called “denominator managers”. They pointed out that to improve ROA it is always easiest in the short term to cut rather than take the more complicated, but ultimately more sustainable route of increasing total returns. Suppliers of course can help by getting price “right”, but that is only step 1.

    We’re not only talking about managing 60-80% of the cost base – it is in effect the largest part of most organisations, with more people and thinking potential than the “employees”. Treating the supply base as just a cost is a shocking waste of this potential.

  3. Spot on. If procurement leaders are not “…leaders who act as drivers of change and creators of value”, companies are missing huge opportunities to realize long term benefits from not only improved commercial savings, but increases in technical and operational value across the enterprise.

  4. Reblogged this on Southerncal Supply Chain and commented:
    Here’s a great article by another procurement expert. Thanks Tim for the great insight.

  5. Silvana Hayes permalink

    It’s so refreshing to read this, Tim. It is quite concerning to see so many accredited procurement professionals who have no idea of commercial risks handling millions of dollars for organisations and with limited capabilities in creating strong supplier relationships. Innovation has not been part of the so called procurement professional body, hence why they are losing support rapidly.

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