Supplier Management – making it central to procurement thinking

I wrote a paper recently that was very much for a particular organisation and its members, so we haven’t made it available here in our library. However, it may be of interest to readers, we suspect, so we can direct you to the OFS Portal website (the organisation that commissioned it), where you can download it.

A word of background first. OFS Portal works primarily in the upstream oil and gas industry and “is a group of diverse, worldwide suppliers working together with a non-profit objective to facilitate e-Commerce by guiding trading partners in best practices and to provide standardized electronic price sheets to B2B trading partners.  OFS Portal works with global standards organizations and trading partners to develop and improve open and royalty free e-Commerce data and business process standards in order to reduce costs to all participants in a technologically neutral manner”.

So they are a good example of industry players deciding to collaborate rather than compete in a certain area – not unlike the shared industry qualification databases we see in several sectors. OFS also promote general supply chain best practice amongst their members, hence the publication of occasional Papers to educate and inform on relevant issues.

Why Supplier Management should  be central to your procurement thinking” is the title of our paper and as well as aiming to convince readers of that, we look at a bit of history and then explain why perhaps supplier management has not gained the focus it should. Some of that, we suggest, is down to technology, which has been developed over the years very much around the purchase to pay cycle on the one hand, and the sourcing process on the other. Supplier management cuts across both and has not generally seen solutions specifically designed to support it.

Anyway, for today’s excerpt from the paper, something a little different - here is a sample from our procurement  history lesson! (And you can download the whole paper here from the OFS Portal website).

 

“The first procurement was probably mainly concerned with the basic supply of materials to keep the institution running successfully, or to construct physical entities – Samuel Pepys, the famous 16th century English diarist, was involved in buying both provisions for the English Navy’s operations and the construction of new ships, for example. As construction and manufacturing developed through and post industrial revolution, supplying those growing businesses became a key function - the Chicago and Northwestern Railroad’s comptroller wrote the first book exclusively about the purchasing function, The Handling of Railway Supplies—Their Purchase and Disposition, in 1887.

From the 1920s, the codification and growth of bureaucracy as a method of running organisations, as defined by German sociologist Max Weber, grew rapidly and the whole idea of recording and accounting for goods and services used by the organisation became more central to the procurement task. The beginnings of spend analytics can be traced back to this period.

During the early part of the 20th century, the legal contract also became more important as a focus for procurement, as the historical handshake gave way to more formal means of recording the agreement, and the legal profession and law firms grew dramatically. Then, in the 1970s and 80s, the emergence and exponential growth of computerisation led to a much stronger focus on the procurement process. We started seeing terms such as P2P (purchase to pay) and ERP (enterprise resource planning) in regular use.

Around 20 years ago, a new idea hit the procurement world and took off rapidly. Category management brought a rigorous and ‘scientific’ approach to procurement, leading to benefits for early adopters and a professionalizing of the procurement role. Organizations categorised their spending and allocated resources who would become expert in different areas; perhaps one procurement manager for software, one for a specific type of drilling equipment or service, one for transportation and so on.

Should we now be looking ahead to another change of focus? That may well be the case, and this paper will explore whether the stage is set for supplier management to move towards the heart of procurement focus, thinking and management”.

 

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