Is Procurement too obsessed with “savings”? Proxima think so

I’m in recovering from Olympics day out mode so I’ll keep this brief.  Basically, you should read this piece by Tom Lawrence, one of the founders and a Director of Proxima (the buyingTeam as was).

In it, he questions whether procurement’s fixation on “savings” is healthy. (I’ll give you a clue – he doesn’t think it is).

“In short, there needs to be a paradigm shift in how procurement is perceived, away from delivering savings to where it should be – a customer centric function that strives for value for money from the cost base….

I’d be interested to hear other’s perspectives on this. Personally, I think the service that procurement provides to business is going to be held back until this paradigm shift occurs. It’s got so much more to offer. And until we can help senior leaders understand this, procurement is never going to realize its true potential”.

I’m with him pretty much all of the way on the content of his article – in fact, it’s a topic I’ve been mulling over with the intention of some serious writing on it after the summer hiatus. Indeed, some of that mulling came about after discussions with Lawrence and his colleagues a few weeks ago. It’s fair to say that they’ve been thinking about the nature and future of procurement more deeply than virtually any other senior “solution provider” team in our industry that I’ve come across.

So, more on that to look forward to, but Lawrence’s piece is a good and thought provoking contribution to the argument!

Voices (16)

  1. Rob:

    Having read Proxima’s article, it is fairly evident that they are trying to draw a (perceived) distinction between their ‘service offering’ – “we treat them as customers and it seems to work” – and one provided by an in-house procurement function. I sense that it’s a sales pitch attempting to amplify a perceived differentiator.

    I’m thinking that if Proxima don’t treat folk as customers, a senior stakeholder might say “what are we paying them for” and push to terminate the contract, whereas it’s slightly more problematic with an internal team (though I acknowledge one could sack and replace them, which has happened…).

    I can’t help but agree with Jon. Similar to ‘value’, I once witnessed four senior MDs explore how the ‘firm’ could be ‘more innovative’ with their clients. After nearly two hours (and after a light bulb moment), I posed the question “how have you defined innovation?”. After a long pause (their way of acknowledging that they hadn’t), they set about trying to define it, and, after another hour of debate, they agreed to reconvene on the basis that they couldn’t agree upon a common definition. As each MD ran a major business line, it was clear that ‘innovation’ meant something different to each of them.

    Perhaps they would have perceived words like ‘value’ and ‘customer’ to be quite different too.

  2. Tom Lawrence:

    Thanks for positive write up Peter – it’s good to hear that others have a similar concern/ frustration around this issue. I particularly liked Alison Smith’s point above that the identity of procurement is defined by the metric we use – it’s an interesting concept to consider what would you do if this was a person, rather than a function. After all, much of procurement is about dealing with people.

    And Nick Dobney and Ian Heptinstall’s comments articulate well the need for procurement to think from a business perspective – not just a procurement perspective.

    We need, however, to engage finance folk in this debate, as we’re in danger of preaching to the converted.

  3. Ian Heptinstall:

    Why do we talk about business colleagues as “customers”? The business is the whole system, and optimising a system is not the same as trying to optimise each element. As Jon points out, a narrow focus on each function’s needs often highlights just how conflicted the organisation is.

    Another function, be it operations, planning, finance, etc, is no more “the business” than we are in procurement. Yes there is a role to support other functions in achieving their local objectives, and this can add some value. However if we want to add strategic value to an organisation we have to focus on our impact on the overall system.

    This was drilled into me by a wise director of engineering in ICI several decades ago when I was a young project manager. Our job, he would tell us, is not to do what others ask of us, but to do what is right for the overall business. They are very different things.

    I dont know any (good) business that wouldnt pay a supplier more if this helped win more sales, and make more money. Paying an appropriate amount is a hygiene factor, not a differentiator. Once we have mastered that we need to move on from savings and measure how our suppliers help us get more out of our system, whether this be widget sales, or making poorly people better.

    1. bitter and twisted:

      Good point.

      ‘Customer’ is a useful metaphor to attack a silo mentality – its an improvement on ‘those ****s in Operations’ – but we can get stuck at this stage. Satisfying Customers is easier than Strategic Thought.

      1. Dan:

        But who determines the strategy? Senior Management, who are the customer

        1. bitter and twisted:

          Not theyre not. There are two customers: the customer, and the owners. Senior management are just cogs like you, albeit fatter with a bigger office.

          1. Dan:

            Clearly you haven’t met our chief executive…

  4. Nick Dobney:

    Procurement activities, like any other activities in a business, are there to deliver business objectives as determined by the businesses owners. So ask the businesses owners what they want from procurement and you have your answer. And as a far as I know business owners don’t all have the same objectives. In fact Michael Porter set out three different types of generic business objectives. So there must be at least three different types of objectives for a procurement function. Seek and you will find procurement functions for whom savings isn’t the be all and end all.

  5. Final Furlong:

    I despair. (Full stop)

  6. bitter and twisted:

    I can cut costs by 50%. I just throw all even numbered requisitions in the bin.

    1. Sam Unkim:

      I like, it as does my Director of Finance

      But why the evens.
      Have you done some kind of “Fuzzy” analysis to predict these to be least likely to be for important items.
      Maybe involved a Psychologist and some random number theory.

      Perhaps by taking this further (to 9/10) we could induce some kind of Stockholm syndrome/Pavlovian response of joy from the “Lucky” requisitioner

  7. Dan:

    A ‘customer-centric’ is primarily about giving your customers what they want – and usually this is cost savings, especially in the current economic climate.

  8. Jon Hughes:

    I remember once chairing a high-powered conference full of CPOs. I purloined a large aerosol and when I introduced the speakers I mentioned that if there was an overdose of jargon I would give them a spray of the “Colonel Willoughby’s Bulls**t Repellant”. The can was empty by coffee break.
    I suspect that Proxima’s clients would do the same if they heard too much about customer-centric functions blah blah. Let’s just use common language and view everything from what our particular organisation needs at any particular time.
    Great procurement is all about delivering high levels of value at lowest sustainable cost. The problem with the definition that you quoted, Peter, is that there are huge conflicts between the range of so-called “customers”, so I’m not quite sure what you’re supposed to centre on. Secondly very few organisations have any meaningful definitions of value. And thirdly, the cost savings debate often falls at the first hurdle because procurement rarely has any mechanism at all for credibly identifying, delivering and tracking validated financial contribution in whatever terms are relevant for the organisation.
    So Proxima may be floating a great aspiration even though it comes over as piffle. Concluding comment – I’ve always liked the withering criticism of Marxism: “Great theory, wrong species.” A lot of debate in procurement comes into this category.

  9. Alison Smith:

    From speaking to many non purchasing professionals over recent months I realise we’ve failed to convey what it is we do. I agree with Tom we need different metrics yet for me thats not the issue. Somehow our identity is now defined by the metric we use. I’m not sure that’s true for other functions and if I was coaching someone whose identified was defined similarly I’d realise we had some work to do.

  10. David Atkinson:

    Well said B&T.

    There’s a piece of research to be done to find out more about the relationship between which function Procurement reports to, the range and quality of its practices, and its influence/status within the organisation.

  11. bitter and twisted:

    Escape the clutches of Finance.

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