Procurement in the Pandemic — The goods/services debate takes a new turn

We are pleased to feature another post from Peter Smith, procurement expert and author.

Is supply chain swallowing up procurement? That was the attention-grabbing headline that popped up on one of my media feeds the other day. The sub-heading expanded on that. “The pandemic thrust supply chain management and risk mitigation into the limelight. What happens to the procurement folks?”

On looking more closely, I saw that it was published back in October last year, on the Supply Chain Dive website, and written by Rich Weissman. He is an alumnus of the US Institute of Supply Management and an experienced procurement practitioner and now academic. He asks whether pandemic-related disruptions to supply chains (think of the personal protective equipment issues, for instance) has pushed that “once relatively obscure work into the limelight.”  Well, the answer is clearly “yes.”

Weissman goes on to say that this expanded universe of supply chain management, often with new dynamic leadership, is “swallowing up the somewhat independent procurement function. Rather than actively driving the supply side of the business, the (procurement) function may again be relegated into a subservient support role.”

So we need to do our jobs very well, he says, and “teach others about the nuances of supply management.” He gives half a dozen good examples of how we can do that and concludes that “the procurement function is only diminished if you think it is,” which is a good point to remember. But the article got me thinking more broadly, beyond the pandemic.

When I started in procurement, way back in the 1980s, the primary focus for the profession was on buying goods for manufacturing, energy and construction industries. My first firm, Mars, was an innovator, as procurement in the firm started getting involved in marketing expenditure in the 1980s. That was not at all usual in those days.

But over the next 30-something years, procurement became more and more interested in buying services — not just marketing, but professional services, facilities management, everything technology- and telecommunications-related, outsourced services, HR services. The list goes on. Even for a manufacturing business such as Mars, these categories moved up the priority list considerably. And for most of the public sector, as well as whole industries where procurement now had a foothold, such as financial services, buying services was really where it was at for procurement.

And much of the procurement of goods for manufacturing and related industries became more and more automated and commoditized. We aggregated spend, reduced supplier numbers, put in place just-in-time systems and automated ordering processes, and then took it for granted that the truck or container or tanker full of “stuff” arrived at our plant every week, day or hour as was needed to keep production going.

Much of the procurement and supply chain work around that became somewhat routine and perhaps (if I dare suggest this) somewhat de-skilled. It was far more challenging and sexier to be negotiating a global marketing agency deal or a contract to outsource half the finance function than to be buying skimmed milk powder or gearboxes. Services certainly bring particular issues; specifying a complex software development product, or carrying out a “should be” cost exercise on a global marketing services contract are more challenging, I’d argue, than doing the same for more tangibly physical purchases!

So maybe what we have seen in recent months is something of a welcome re-balancing in terms of the goods-versus-services argument. We have realized that our supply chains, particularly for materials or goods that come from distant countries, were not quite as resilient as we thought, and risk has shot up the agenda. CEOs have realized that if their marketing agency stopped supply for a few weeks, life and the company would go on quite happily, but the same was not true for suppliers of raw materials. Spend categories that had been firmly placed in the “leverage” or “non-critical” boxes on the Kraljic matrix have been hastily re-allocated to “bottleneck” and “strategic.” Or in the case of PPE, a new box, titled “literally a matter of life and death for thousands of people.”

As the Weissman article says, this has brought supply chain issues right up to the top table in many organizations. But this should not be seen as a threat to procurement — I suspect in most successful organizations, procurement and supply chain are pretty well integrated anyway. They certainly should be. But if some complacency around buying goods, as opposed to services, has developed over time, then recent months have surely changed that.

Peter’s latest book “Bad Buying: How organisations waste billions through failures, frauds and f*ck-ups” is available to buy at Penguin.