Procurement and Value – Plus a Bit About Dinosaurs

There was an amusing Twitter exchange last week, following Malcolm Harrison’s remarks at the CIPS (Chartered Institute of Purchasing and Supply) conference last week.

Katie Jacobs, Editor of Supply Management, tweeted; “The perception that procurement is only there to control spend is one that should have gone out with the dinosaurs, says CEO Malcolm Harrison. It's about value, collaboration, innovation, leadership, risk management, business partnering etc .”

We’ll come back to that comment in a moment, but the tweet drew an instant reply from our friend Andy Davies, newly installed as procurement head for the Natural History Museum in London.  “Hey, don’t knock dinosaurs! #theypaymywages!”

At that point, I added this. “Dinosaurs were dominant life-forms on earth for 130 million years. CIPS members have been a minor life form on earth for what, 60 years? Let's make CIPS members more like dinosaurs, I say, striking fear, awe and admiration into hearts of other minor species!”

Anyway, joking aside, of course Malcolm is right, procurement goes way beyond spend control or cost reduction. Which gives us an excuse to remind you of the briefing paper and webinar we did with Coupa recently. If you missed the webinar, titled Procurement Delivers Value in Eight Ways – Savings Is Only One of them! you can still access it here, free on registration. Or you can read the paper, titled Procurement Value – It’s Not All About Savings which can be downloaded here, free on registration.

We wrote the paper in part because while everyone in procurement knows that value is key, we are not always very good at explaining what we mean by that. So, the analysis in our paper and webinar as an attempt to dig into exactly how value is delivered in terms of end results that are direct benefits to our organisations.

To be pedantic, while we know of course what Malcolm Harrison means, looking at the list on the first tweet above (“value, collaboration, innovation, leadership, risk management, business partnering”), then business partnering, or “collaboration” do not bring value in themselves. They are worthwhile or perhaps essential means to an end, but it is what collaboration can lead to that matters – new products, increased revenues, higher margins and so on.

Some of our eight procurement value sources are pretty obvious, but to finish today here is a brief extract from the paper outlining one of the less common (number 7 on our list) – it does not apply in every organisation, but when it does, it can be significant.

 

Promote monopoly positioning – access to scarce resources

Our two final procurement activity groups or goals are the least commonly discussed and cover issues that many people will never consider. However, both relate to valuable contributions procurement can make, and do not overlap with the other points in our list.

This type of activity is not significant in many organisations, but where it is, it can provide a major benefit. Securing supply of scarce materials, components or even services, and perhaps even tying up the supply market to deny competitors supply, has been key in state-of-the-art technology products. It is certainly something high on the priority list for Apple’s supply chain function, given the huge quantities of rare metals and high-tech components that the firm needs.

Effective sourcing like this can obviously help profit margin, but can also drive revenue, as in the case of many high-tech products, and as in the example below, it can have an impact on “reputation” too. Scarce resource issues are not just about rare metals, either. In many sectors of the labour market, from skilled IT security specialists to drivers of heavy vehicles, supply is tight, so spend areas such as contingent labour or recruitment are as much about finding and attracting the best people as they are about cost reduction.

CASE STUDY - CNBC reported this year that “Apple is looking to procure cobalt, an essential component in smartphone batteries, directly from mining companies” because of concerns about potential supply shortages of this vital metal. Not only will Apple’s supply chain executives look to secure supply, but the report suggests that visibility and risk management are also issues, as Apple is mindful of the reputational issues (see point 6 above) around human rights in countries such as the Democratic Republic of the Congo, the largest global producer of cobalt”.

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