Winning with procurement in Asia with Bain and Company (part 2)

So in part 1 yesterday we featured the Bain and Company report, “Winning with procurement in Asia”, and explained that whilst it definitely makes some interesting points, it is also a frustrating read. The survey results themselves raise interesting points about the state of procurement in Asia, but the Bain analysis around the survey is limited, and their general content around procurement best practice and how companies should address the topic has some serious weaknesses.

A real problem with the report is a schizophrenic  approach to the core purpose of procurement. In one breath, it highlights the wider added value aspects of procurement – good stuff.  Then in the next, it all comes back to cost reduction as the fundamental driver for the function. Their invention of ‘4th Generation’ procurement is fine as a label, if a little clichéd perhaps, and their chart which shows a development route for procurement with 4th generation as “value chain integration – procurement provides a competitive advantage with a revenue uptick” is promising, relating procurement to revenue generation, not just cost reduction.

But then the main text in the report says 4th generation procurement is about “using the procurement function as a way to add value to the business year after year, shoring up the bottom line by keeping costs from mounting”.

‘Keeping costs from mounting’ – sorry, but that is 1st generation procurement, not 4th by anyone’s reckoning.  That is the most basic role we can imagine, surely.  Of course it can be one of the vital roles of the function, but it is not exactly pushing procurement forward strategically. There is even one paragraph that is headed “Going beyond savings delivery” – promising again, I thought. But then the whole section below the heading simply talks about cost reduction and savings.

Then we really take issue with the suggestion that becoming best in class is easy.

“Even companies that are woefully behind can quickly build capabilities to manage procurement, with processes and systems that match the maturity of global leaders”.

With the best will in the world, and with the greatest respect (which writers always say before a real hatchet job), that is nonsense.  I’ve spoken to enough CPOs over 30 years or so, including those from organisations truly considered ‘world class’ in procurement terms, to know that you don’t go from being average to ‘matching the maturity of global leaders’  in 6,12 or even 18 months. It is a difficult and challenging journey, and anyone who isn’t thinking about years rather than months is deluded, particularly if you are ‘woefully behind’ to start.  I’m afraid that element of the report smacks of consultants looking to sell their wares.

Then we come onto the tricky issue of savings. “We’ve seen companies repeatedly achieve 3% to 4% savings year over year, following initial savings of 8% to 12%”, Bain say.

Now maybe that is feasible in some industries where prices are in natural decline (the cost of some computer and electronic components maybe, which has been in long term decline due to Moores Law). But across any large organisation, with a mix of spend categories, and if we are talking about real, tangible, auditable savings, these are again VERY challenging numbers. Not impossible, but presenting them here in such a blasé manner is another black mark for the report.

Finally, we have the LG Electronics case study. I think we will save that for part 3 tomorrow.

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