Why is procurement so ‘unscientific’?

It’s a bad habit for which we apologise, but we do sometimes start hares running then get distracted and forget to chase them down.  So we wrote a couple of weeks ago about going to see the Uncaged Monkeys, including Ben Goldacre and his ‘bad science’, and how he sparked me into some uncomfortable thoughts. In particular, this one.

Procurement is THE least scientific of all major business disciplines.

And we promised to explain why – which we haven’t done, until now.

There seem to be two factors which work against procurement being ‘scientific’. Firstly, it is the lack of clear and objective understanding of even the key aspects of our profession.

Now some would feel they can define what drives success, and major consulting firms, academics or Professor Cox with his IIAPS capability assessments would no doubt take issue with some of what I’m saying.  But real, empirical proof that this category management methodology really works better than that one?  Or the relative merits, over time, of collaborative supplier strategies versus aggressive leveraged approaches?  And one problem here is that where people do have something that is perhaps scientific, it is protected as valuable intellectual property; that’s true of both consultants and practitioners.

Secondly, and perhaps most importantly, it is the lack of clear metrics that measure the success of procurement.

Savings? Pretty much impossible to measure (although Sievo and others are having a good try), and even then, what if those savings led to a deterioration in business performance?

Strategic contribution to the business?  Far too vague and subjective, with too many other variables to carry out a clear analysis of dependencies and casual factors. And look at RBS for instance – a very highly rated procurement function, but totally unable to stop the firm going (virtually) bust.

Now when we get into two subsets of procurement, things do actually get somewhat better. In manufacturing, there are some objective measures around on-time delivery, quality of goods purchased on and so on. So we can get a bit closer to real measures. But even here, the dependencies and variables are confusing. Retail buying is a different animal again, and here it is much clearer. The buyers play a central role in driving clear measurables such as margin and market share.

So why do I say we are worse off than other business areas? Well, I’ve pointed out before the weakness of our academic base, compared to Marketing, HR and others, although that may be an outcome of these problems rather than a cause.  But I’d also argue that these other functions have better objective measures of success.

Even advertising, which we may think of a little scornfully as soft and fluffy, can measure the  effectiveness of their latest campaign far better than we can measure our latest SRM initiative, I would suggest. Marketeers can measure consumer brand awareness, the % of retailers stocking the product, sales and market share. They CAN tell you, scientifically, whether that new launch has worked or not.  Similarly, HR can measure staff turnover rates, staff satisfaction, the number of responses to a recruitment campaign; as well as having some good measures on the operational side of their work.

We struggle with our equivalents. Can you really give your CEO hard metrics in areas like;

  • Does supplier relationship management work?
  • What are the long term effects of an e-auction strategy?
  • Are long-term contracts better than shorter?
  • When does a Prime Contractor approach work in a spend category?
  • What are the real effects of aggregating spend?

I don’t have any easy answers to this, but it seems to me that procurement will never move to its next level of credibility and power if we can’t show in a more scientific manner that what we do really matters. And we don't seem to have made much progress on measurement in my many years in the profession....

That's all slightly depressing for a new week - but let's look on it as a challenge! How can we get better, get more convincing, get more scientific?

Voices (3)

  1. Guy Strafford:

    An interesting concept Peter. An excerpt from an interview I recently conducted with a CPO from a FTSE 100 Media company brings up the question, should you even worry about becoming more scientific about the numbers you are measuring or brining to the table:

    “Despite the fact that we protest otherwise, it is difficult (particularly with regards to bottom-line impact) to make savings meaningful. We all know there are many different ways of measuring a saving, which can be hard to tie into budgets and all the rest of it, but at the end of the day all we can do is publish a number or variants of numbers, which will give an indication of value.

    But that’s only part of the story, a very blunt almost uni-dimensional value that procurement has added.

    I think there’s a great phrase out there, in which you have to find ways of being useful, don’t over complicate things, just be useful – whatever that means for your customer/stakeholder. This means pushing the boundaries of what procurement is and is not.

    Again we’re back to the old chestnut about procurement only being measured on savings, which you’re going to run out of ideas eventually, because savings will flatten or go into decline, and it will get harder to deliver. If all you’re known for is delivering big numbers you’re going to be in trouble at that point.

    Lots of organisations publish different kinds of dashboards, measures and numbers of suppliers and supplier reductions – which is fabulous but it’s not the most exciting thing in the world. In many ways the problem is from a perception point of view, no matter what we try and publish your Joe average business executive thinks about procurement as delivering saving and I don’t think we’ll ever change that.”*

    So what are you doing to make sure procurement is being seen as useful to your stakeholders?

    *Note: The full interview will be published shortly on the buyingTeam website, be sure to sign-up to our e-newsletter to be notified when it is released – http://info.buyingteam.com/buyingteam-e-newsletter-sample

  2. Guy:

    And just because Marketing can measure share of voice and present data and statisitcs, it doesnt mean they can measure the true impact they can have on the business.

    If you are talking about impact on the organisation, then I think HR and IT and Marketing would have an equally hard time. eg
    – Can you really show the cost benefit of moving to the latest version of outlook?
    – What are the measurable benefit of an appraisal system?
    – The increase in sales due to that latest advertisment in the FT

    etc etc

  3. bitter and twisted:

    Oh Pete no no no no woe and disaster.

    Dont fall into the scientism trap

    Its hard to measure because its hard to measure.

    And its better to measure the right thing vaguely than the wrong thing exactly.

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