What Can Finance Geeks Teach Us About Procurement?

I always laugh when I see someone affiliated with Wharton -- or in a Wharton publication -- talking about procurement. Come on -- Wharton is a school for finance geeks, not people who like to get dirt under their fingernails (I say this in part in jest, but with the exception of Morris Cohen, founder of MCA Solutions, it's not exactly an operations geeks academic heaven). I still remember an undergraduate recruiting event at Penn when AT Kearney tried to convince a hundred other potential employees like me over canapés and smoked salmon that we'd get to work on strategy. There was not one mention of even a sourcing or operations practice (despite the fact that the area is such an important part to the firm). But I digress. What got me thinking about my Penn days was a recent Knowledge at Wharton article/interview on procurement.

In this piece, the editors interview Hal Sirkin, a partner with BCG, to get his thoughts on how the profession is evolving. Most of the interview is higher level stuff for folks who are not on the Spend Management frontlines. Still, it's good to see our corner of the corporate universe getting attention in finance and strategy circles, not to mention the fact that they're a few good global sourcing anecdotes and facts in the piece worth remembering. For example, we would all do well to consider how "the absolute lowest direct cost is not always the best thing to do ... if you're thinking about bringing something to China, you'll also probably -- if you're in the U.S. -- want to consider Mexico. Or if you're in Western Europe, you'll want to consider Eastern Europe because you may have a much better balance there [even though the direct cost may be higher] of avoiding supply chain problems, such as large variability and inventories, and the hidden costs of other things. In the U.S., with increasing port constraints, we may be seeing delays over time. And Mexico, which of course does not require importing through ports, may be a good alternative."

What's the upshot of global sourcing? "So, get it right [and] you can see a lot of savings. Get it wrong and your costs actually go up." Let's hope that CFOs and business unit heads reading this understand the need for procurement organizatiosn to build out not only local IPOs to focus on supplier identification and unit cost savings, but also quality, performance and the bigger issue of total global supply chain costs.

- Jason Busch

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