2010 – Crystal Balls and all that – three key procurement puzzles

I was going to review 2009 in detail, but decided that looking backwards is pretty pointless really, unless it helps us look forward.  But one observation.  We might have expected the tough economic conditions to be good news for procurement.  But I have to say that for every organisation where procurement has moved up the agenda this year, I can think of another where it moved the other way.  And often not because of under performance by the CPO; quite the opposite in some cases, where the CPO was ahead of the curve of what the organisation would accept in terms of procurement discipline or complexity.  In another firm, the Procurement Director role was merged with that of the Chief Legal Adviser (who got the new job!)  And in the UK public sector, a whole raft of activities – and staff - are now being defined as ‘commissioning’ rather than ‘procurement’.  The issues look pretty similar to me, but as a profession we are in danger of missing out here just as we did with the Private Finance boom; another basically ‘procurement’ activity that could have been delivered by ‘procurement’ but was gobbled up by hordes of accountants, lawyers and bankers instead.

So I’m not gloomy, but neither should we assume that everything is set fair for growth of the procurement profession over the next 10 years to match that of the last 10.

Anyway, let’s get the crystal ball out and consider what 2010 may have in store.  Sunderland will have an amazing 18-game unbeaten run to take the last Champions League place.   The Tories will be elected with a 30 seat majority.  And the scale of public sector spending cuts will become apparent and will cause far more pain than 99.99% of people have yet realised, with public sector strikes by next winter.

Closer to home, I’ve focused here on three themes here that I believe will be important for many of us in the procurement business over the next 12 months.

1. Technology sorts the sheep from the goats....

I remember when eProcurement was invented. Yes, I am that old....And I remember thinking that it was a bit disappointing in the sense that all this interest was going into the transactional side of procurement; not the real ‘value added’ activities.  It made people think we were all about order placing and invoices.

Then the second technology wave came along – basic eSourcing, auctions and related stuff.  Better, but auctions tended to re-inforce the view that our role was to beat the suppliers round the head until they reduced the price. And eSourcing is great, but it was pretty basic process automation really, at least initially.

Now we are getting into exciting areas with what we might call technology wave 3. We are seeing tools that help organisations in the strategic heartland of procurement and supply chain management.  Multi-attribute decision and optimization processes for supplier selection, complex auctions; supply chain risk analysis and management; organisation-wide spend visibility; contract management tools; and all available without huge investment through on-demand or managed service options.

I have to say I am not an expert in all of these areas (unlike our friends at Spend Matters).  But there are two huge immediate consequences that strike me.  Firstly, this is going to accentuate the difference between the top procurement performers and the middle of the pack (let alone the laggards). Use this technology successfully and you can really steal an advantage over competitors who don’t.  And in the public sector, if organisations don’t get to grips with this, the pressure to outsource to people who do understand it will grow.

Secondly, it raises some interesting questions about the role of the procurement function; with better technology, how much activity can be easily executed by line managers rather then handing it off to a separate procurement function?  If you give me as a budget holder some on-line catalogues, some simple sourcing tools, and access to good spend and contract data, do I  really need anything much from the procurement function? More of this under the next heading.

2.  The CEO says, “I get the concept, I don’t need the people...”

This one has been bugging me for a while.  What is the role of the CPO / procurement / purchasing director?  Is it to manage the function or the activities?  Is ‘manage’ the right word anyway? We have put a lot of effort over the years into reducing maverick spend and gaining ‘control’ from budget holders, but I wonder whether the next step is actually to give back some of that control, but in return for the CPO taking on the role of driving and embedding increased procurement (commercial) capability more widely across the organisation.

It seems to me that over the last 20 years, we have as a profession won the argument that managing third party spend effectively is very important to pretty much every organisation.  Not many would disagree.  But we haven’t universally won the argument that making this happen is best achieved by having large numbers of ‘procurement professionals’ sitting in a procurement department.  In fact, as described above, technology is making it easier for non-specialists (budget holders, specialists in other functions) to execute quite complex procurement processes.  So should we fight to retain control, or do we carve out a new role for a smaller and more strategic procurement function; perhaps with a focus on being the experts on relevant tools and technology, strategic supplier relationship management, and educating colleagues to be good procurement people for the 10% of their time that they engage in those activities?   Something to think about in 2010.

3. Justify your existence...

Measuring procurement benefits is not a new issue. I remember years ago starting a new job, and meeting the CFO (my new boss).  “Your predecessors total ‘savings’ over the last 5 years have apparently saved us more than the entire third party spend of the organisation” he said wearily. “But somehow we are actually spending 50% more than we did 5 years ago”.

We still haven’t cracked this whole issue of measuring and reporting benefits that are meaningful, credible and can translate into genuine advantage to the organisation.  The latest evidence of the difficult issues came just before Christmas, in UK National Audit Office reports that queried the solidity of some declared procurement savings in major government Departments.  But it is not just a public sector issue; I’ve seen ridiculous savings numbers produced in the private sector; and does anyone ever question the ‘merger and integration procurement savings’ that now form an obligatory part of every takeover bid?

If we assume economic conditions will remain tough in 2010, more procurement functions and leaders will be under increasing pressure to deliver benefits – and really measure that delivery in a credible manner.  And it will be hard, ‘cashable’ savings that are of most interest to CFOs, politicians and shareholders. Other measurement tools such as benchmarking of performance will also see increased focus, but above all, we need to be able to show the tangible benefits (and that is mainly cash ) we are delivering day by day, week after week, month after month.

We’ll come back to this subject on the blog; no magic solutions, but some ideas at least.

Happy New Year!

Peter Smith

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Voices (3)

  1. eprocureman:

    Point 2 reminds me of the basic development policy of the (eprocurement software) company I worked for: Do not try to check and approve every little thing. Slacken the reins, an you will get a very more efficient (because less labour intensive) process. Which then might give you the ability to widen your activities.

    Especially for German companies that policy is difficult to accept ;o)

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