Friday Rant: Upstream and Downstream Without a Paddle

I'm not sure exactly when, but around a few years ago, terminology began to appear in the procurement technology provider community that labeled transactional purchase-to-pay (P2P) processes as “downstream” – meaning post-contract processes – and strategic sourcing processes as “upstream.” It has become a convenient shorthand naming convention – and also seemingly harmless.

But, recently, I saw a provider trying to create some thought leadership about upstream value creation and downstream value capture and decided it was time to say something. Or a few things…

Value Comes During Multiple Stages of the Contract

First, value is not just created prior to a contract. In fact, you can argue that no value is created until purchase execution, when lower prices are paid, consumption is reduced and more business utility is derived from that external spend. This is why I always argue that category management is not over after the contract and that category managers must factor in how the categories will actually be bought and paid for – the execution system – in a way that aligns with the unique natures of the category.

A fair amount of value can also be created after the contract. First of all, supplier measurement and management might be downstream in terms of process sequencing, but it’s overtaking strategic sourcing as the new source for strategic value creation at more mature organizations. And if you want to put supplier management in the upstream bucket, you’ve violated the whole naming convention in the first place. Which leads me to the next point…

The Problem with ‘Upstream’

Upstream can have a time dimension to it and represent earlier processes, but it can also have a supply chain connotation and represent multiple tiers farther upstream in the inbound supply chain – working back to raw commodities. So, it’s confusing in that regard in terms of time vs. space.

My biggest issue with the term, though, is it puts the signature of the contract artifact as the singularity of the procurement universe – sort of like using B.C. and A.D. to define world history to non-Christians. It sort of connotes that the contract is not just the moment of truth but also the raison d’être of procurement. In a time when procurement works so hard to get integrated into the lifecycle of so many stakeholder specific processes for product development, project and program management, budget management, asset management, event management, sales and operations planning, customer lifecycle management and so on, it just seems that erecting a giant dam between a linear, drive-by-sourcing process that throws a contract over the dam to the downstream procure-to-pay (P2P) river isn’t a good mental model and naming convention.

But, I hate complaining about something without having a solution. Perhaps just “strategic procurement” apps versus “transactional apps” might be better? Or maybe just sourcing and supplier management versus P2P? OK, perhaps this is not exactly the biggest issue out there, but I did want to share my opinion on the matter and would very much welcome yours as well.

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First Voice

  1. Debbie Kirkwood:

    Well written and amusing!! The upstream and downstream terminology came about when procurement as a general business process was far less mature than it is today… and yes – the (paper-based) contract signature was the fulcrum of the end-to-end process. It’s a bad naming habit that needs to be shaken. I like the idea of calling the processes exactly as they are – sourcing, P2P, supplier management, etc – and leaving ‘transactional’ and ‘strategic’ out of it…since the end to end process has both transactional and strategic elements all the way through. I also thoroughly agree with your comments around Supplier Management – traditionally an undervalued business process – which has so much to offer organisations in the current climate where social and environmental responsibility is in the spotlight.

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