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Shock news: Procurement doesn’t add value!

July 17, 2017

In a press release published in Supply Management, we learn that ‘a majority of Procurement models are failing to add value’. According to a study by Ayming, a business performance consulting company, less than 20% of executives feel that “their organization has driven significant value from procurement in recent years”.

This news is unlikely to surprise many members of IACCM, since they have voted with their feet and recognized the need to make a fundamental transition in what they do and how they do it. In making that decision, they mirror the two-thirds of survey respondents who see a need for new organizational stuctures and models (though more than half of those respondents have no plan to do anything about it).

What I find shocking is how long it is taking most procurement groups to adjust to the realities of the business and market environment. The scale of dependency on supply networks is certainly not new, nor is the extent of the shift from direct to indirect spend. Complaints that Procurement is detached from the broader business and pursuing objectives that often destroy value have been rampant for years – the ‘better, faster, cheaper’ ethos of traditional purchasing was discredited last century, yet continues to be espoused in the training and measurement systems promoted by most procurement professional bodies. Surely they should be ashamed of the fact that 84% of research respondents see a need for training and upskilling of existing staff – and this after the millions that have been spent in gaining ‘professional’ qualifications from the traditional providers.

Technology is another area where many are failing. They continue to institute systems that were designed for a world of commodities and which are incapable of delivering value through relationships. In most cases, they also have little or no capability to oversee and report on supply networks or ecosystems. The report makes the observation that increased value delivery “means making sure communications between internal and external stakeholders are as seamless as possible and that there is enough flexibility built into the system to accommodate new technologies, such as blockchain.”

I am proud of the vision that IACCM has developed and is successfully helping many of its members to implement. The focus on delivering sustainable benefit through high quality, integrated trading relationships is exciting. In the process, we are successfully challenging and changing many old assumptions and established ways of working. Organizational barriers are breaking down; technologies that enable meaningful reporting and collaboration are being implemented; the role and purpose of the contracting process is becoming understood; and contracts themselves are on the verge of revolutionary change, from instruments of battle and delay to instruments of consensus and efficient operations.

The doorway to value is wide open and increasing numbers are walking through it, escaping the constraints of their past. In the words of General Stanley McChrystal in his excellent book, ‘Team of Teams’: “Accelerating speed and interdependence in today’s world have created levels of complexity that confound even the most superbly efficient industrial age establishment …… Understanding and adapting is not optional; it will be what differentiates success from failure in the years ahead”.

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