Jason Busch on the nightmare scenario for Procurement, eaten alive by Finance

We’ve featured Jason Busch and his four previous “scenarios for procurement” over the last few weeks. He’s now published his fifth, here , and it is, as he says, “certainly the most dismal on our list. Simply put, this scenario posits that Core Procurement is Absorbed”.

He sees signs that already procurement is losing influence:

Consider, for example, core procurement's absorption in such areas as corporate Six Sigma or operations functions taking on supplier quality and development initiatives. Or look at how IT is often increasingly controlling larger amounts of spend that go beyond just software and hardware (e.g., broader BPO, call centers, etc.) These examples, alone, suggest that procurement is already having less and less of a role in core quality, buying and category management areas in certain organizations”.

Or look at supply chain risk – often it is Finance or Operations who are taking the lead on that. And I agree with him that it is likely to be Finance who  have the biggest interest in moving into “our” turf.

 There are numerous reasons one could argue for finance to take responsibility for the function, starting with savings implementation vs. identification. In general, most companies have done a lousy job at implementing all of the hard-fought savings that procurement has battled to identify. But who is better than finance, which controls budgeting, to take a leadership role in driving implemented results?

Finance could also be interested in how procurement can provide greater visibility to forecasting earnings and cash flow based on receivables and other balance sheet impacting items.

But most of all, Jason thinks that it is procurement’s own failings that could lead to Finance – or indeed other areas – dominating procurement..

But perhaps the biggest reason procurement will be absorbed by other areas of the business (especially finance) is that it has proven itself inadequate in speaking the language of business. Indeed, how often do you hear procurement refer to the margin, gross profit, EBITDA or OIBDA impact of their initiatives?

Now remember, these are long-term, 10-year scenarios that he’s talking about. And I don’t personally think procurement is going to disappear or be “absorbed”. But I do share some of his concerns that we could lose some of our influence ond relative positioning. Luckily, however, much of what Jason identifies can be remedied – which gives me a great idea for a series of blogs! Look out for those in the not too distant future... and in the meantime, do read his piece in full and indeed the others in the series.

Part 1 (intro)
Part 2
Part 3
Part 4-A
Part 4-B

Voices (2)

  1. bitter and twisted:

    Why does it matter what the name of the department is?

    1. RJ:

      It’s not the name of the department that matters at all. It’s the objectives and principles that you’re working towards. Other than in those rare organisations where Procurement has a completely separate reporting line we’re inevitably driven by the needs of the directorate we report into, e.g.if it’s Finance we might be driven towards driving in-year budget reductions rather than long-term benefits or total cost analysis, if Quality or Six Sigma then cost might go out of the window if there’s any risk of reducing the gold-plating, if Operations/Manufacturing then lead time might be the driving force.

      That being said, I’m not sure how Jason’s point differs from the above battles that have been around for years, other than that the procurement role itself might effectively disappear as a separate discipline which gives rise to concerns regarding corporate checks and balances etc.

      Haven’t read the other 4 scenarios yet, though, so I may be missing something.

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