This post is based on content contained within the following Spend Matters paper: P&G: A Case Study of Supply Management’s “Non-Invisible Hand” in 10 Easy Lessons. The paper is free to download in the Spend Matters Research Library.
Sometimes the best intentions get in the way of constructive outcomes. Such is the case with the coverage behind a Wall Street Journal article on P&G’s recent initiative to extend supplier payment days, as announced by P&G’s Chief Procurement Officer Rick Hughes on their supplier portal. The WSJ article, like many news outlets, merely portrayed this as a story of a Fortune 500 firm stretching its suppliers to hoard cash. The article also said that P&G “is late to this game.”
But the real story is often more nuanced than what shows up in the general business press or trade publications. And in this case, there are several reasons to dig below the surface. I’ve worked with many folks from P&G over the years. When I read Rick's message to suppliers, it made me think of our recent coverage on the invisible hand (à la Adam Smith) and the virtues and perils of that hand becoming increasingly visible in the Internet economy.
It is my view that P&G is trying to create thoughtful value here. I don't come to praise P&G like many P&G disciples, but I also won’t throw them under the bus for their recent efforts. In fact, I thought it would be worth writing down a list – it ended up being ten lessons long – on some of the ways P&G’s working capital programs show how the invisible hand can be used to create a larger pie rather than just changing the size of the slices.
Lesson #1 – No Rest For the Best
As cyclist Greg LeMond said of becoming world-class: “It doesn't get easier – you just go faster.” But back to the subject at hand: P&G is fairly advanced in a lot of areas, and that certainly includes procurement.
For example, I can't think of a procurement organization that does ten-year strategic plans like P&G does. Still, P&G, like every other organization, has internal issues. I have yet to meet a single “award winning” procurement organization that does everything well and has run out of opportunities to pursue. In fact, I always roll my eyes when companies want to find the ultimate world-class procurement organization to learn from. That’s impossible – it’s a search for a purple squirrel. However, if there is a specific capability needing improvement, there are many pacesetters out there in the industry, and hopefully I can distill a few insights from them below.