Procurement vs procurement

Thanks, Jason, for your recent links and the extra traffic that has come my way as a result. I hope some of you new readers stick around and weigh in via the comments.

I haven’t posted for a while and I hope this posting goes some way to make up for the absence. I’ll be back to posting about e-auctions next week, but in the meantime here are seven strands, weaving between IT and Procurement. In my view, two very similar departments/functions/processes. I’d be interested to hear your views on how the strands pull together.

Strand One: A quick glance at the recent history of the IT department

My background before ending up in Procurement/Sourcing/Purchasing/SCM (whatever you want to call it) was in the IT space. 20 or 30 years ago, I am told, the IT department was a musty backwater. Then, with things like ERP systems and the Internet boom, IT became more important, more “strategic”. You heard more talk about IT being a strategic asset and not a support function. You heard more about CIOs (Chief Information Officers) and CTOs (Chief Technology Officers) and whether they should be on the board.

Then the wave of excitement began to recede. IT started began to lose its mystique. Some companies started even eliminating their CIO/IT Director roles. Some companies even pushed out responsibility for IT equipment directly to end users. And now, insofar as people talk about CIOs or CTOs, they are clear that the role is as much a business role as it is a technical role.

Strand Two: Procurement becomes more strategic

Claire Brabec-Lagrange , vice-president, purchasing, at Thales, quoted in CPO Agenda’s Autumn 2007 executive debate.

As well as our two to three-year operational plan, we also have a strategic business plan for the next five to 10 years. In the past, purchasing was not part of this exercise, which mainly involved sales and strategy, operations and technology. Now we are part of this strategic exercise and this has made a huge change because it has led purchasing to get closer to sales and strategy in order to understand where the business wants to go and what will be the requirements in sourcing. What are the core technologies that we need to have in-house? What are the key enablers we need to source outside? Who are the key competitors out there and are they our suppliers? Do we have to go to Asia because the business in aeronautics is moving to Asia? How are we going to source locally for local needs? By being involved at this stage we are recognised as being business partners to the sales people, to the technology people and globally to the strategy.
It is the first year we’ve been integrated in this strategic plan and three divisions have been through this exercise. I convinced the business that if we are a strategic function we need to be involved in this strategic plan, otherwise we are just executing purchasing orders.

Strand Three: Procurement have proved they can source goods and services. What about becoming the organisation’s recruiters?

Some quotes from Supply Management magazine 28 Feb 2008 in a news article entitled: Buyers: the new recruiters?

Chrisk Sawchuck (Hackett): “Other functions are trying to work out how to source talent. Why can’t procurement take a leadership role in that? It is the business process of sourcing.”

and

Christina Langley (Langley Search & Selection): “The best purchasers are good at building relationships. They often make good recruiters in today’s tight markets for staff as it is important that companies build strong relationships … Buyers are able to make the jump from sourcing goods and services to sourcing people.”

Strand Four: Hell, Procurement can do anything at all

Genentech’s CPO, Clive Heal, interviewed in CPO Agenda in summer 2006.

One of the initiatives we ran last year was focused not only on the cost elements, but also how we could improve the business process to make it faster and much more efficient. I believe there are opportunities for procurement to support revenue generation – not from suppliers, but helping the business to grow at the top end. That moves us beyond the term “procurement”, which in itself is a constraint and will need to change.

Strand Five: Hang on, sourcing isn’t as simple as that. You need special understandings to do procurement in different areas

A recent post from Deal Architect talking about the complexities of sourcing IT services.

I know I am being critical of my own clients in saying so, but like I wrote here , I wish more procurement folks would treat IT spend, not just IT services, as very different from MRO or other direct spend, not just try to find homogeneous “solutions” .

Strand Six: So do you really need a procurement department to negotiate supplier contracts?

I’ve just been reading an interview with the new Chief Executive of CIPS (the UK version of ISM) in Supply Management 28th Feb 2008. His background is not procurement though in his previous role he

… brought together six associations. One of the first jobs we did was to renegotiate their contract with the outsourced supplier … So on behalf of 55 clients I was responsible for a team that negotiated a new commercial contract, compliant with regulations, requirements and complete with service level agreements … I now recognise that many of the issues we wrestled with … as procurement issues … Should we provide these services in-house, or in collaboration with our competitors, or through an outsource provider? How do we create a relationship … which works well for both sides [buyer and supplier] and reflects the reality that each depends on the other? And against that background some hard negotiators trying to get a better deal.

Asked whether any procurement professionals were involved, his answer is instructive:

I wasn’t aware of the label [procurement] then so it never occurred to me to ask my negotiating team. I think they were probably chief operating officers, who would be responsible for back office functions and negotiating such an outsourced contract.

Strand Seven: Procurement is a process, not a department

Pierre Mitchell’s excellent comments likening procurement with Six Sigma.

“Procurement is a set of processes, not a department … Procurement doesn’t have to own it, but it should continually be expanding its circle of influence to influence the process more deeply and make sure that the organization does it – regardless of where the reporting lines are … think about Six Sigma – it’s not a professional quality function that does it, but rather a mass deployment of the best practices to the masses.”

Pulling the strands together

The Procurement department has been following a similar trajectory to the IT department. But half a decade or a decade behind. We are now at the point where CPOs are making their mark on corporations and even moving onto the board. Claire Brabac-Legrange and Clive Heal are ambitious enough to try to drive procurement to greater heights in their organisations – or even to transcend the moniker “procurement” for good.

But how to take procurement (or Procurement) to the next level?

Just because good buyers are good at building relationships does not mean that other people are not good at this. It doesn’t follow that recruitment should come under the control of buyers. It’s worth contrasting the Sawchuck quote with the Langley quote. Sawchuck argues that Procurement should take a lead in sourcing people. Langley goes further and says that buyers themselves make great recruiters. Sawchuck sees procurement as a process, with its practitioners taking the lead in sourcing stuff. Langley sees Procurement as the buyers themselves doing the buying – as a department.

Particular categories require particular expertise to source effectively. They cannot simply be subsumed into a monolithic procurement process. This is the case for the IT services Vinnie Marchandi describes; it certainly is the case for recruitment. And no less than the current Chief Executive of CIPS, in his previous role, was able to consolidate spend and negotiate with suppliers without formal Procurement people involved. procurement is a process after all. Every function needs to procure.

Back to IT for a moment. As IT became all pervasive, companies actually started relying less and less on the IT department. The same is bound to happen in procurement. As the process of procurement  (little p) becomes better understood and takes centre stage the role of the Procurement department (big P) itself will become less important.

Or is the future you envisage one in which the Procurement department becomes the mirror image of the Sales function, handling all the inputs to the business?

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One thought on “Procurement vs procurement

  1. Awesome analysis, Alan. What a great contribution your blog is to the conversation about “procurement”.

    I had some recent conversations with leaders of a procurement organization in a large Fortune 100 company. They were very focused on organizational structure, centralization, and policy. Frankly, that’s not the right conversation.

    The real conversation, as you’ve pointed out, is making procurement a strategic function – a part of the planning process. From that planning process, the procurement team can develop a schedule of activities that deliver on the goals identified in the strategic plan. The results are simple: procurement has a seat at the table and the nightmarish reactive contracting with suppliers ends. A side effect is that the pockets of rogue psuedo-purchasing that draw the ire of every procurement professional of eventually becomes a conversation point because of those pockets don’t have the linkages to the strategic plan.

    More importantly, this positions the suppliers in the best manner, too. After all, the goal of a procurement team is to find the best source of product or service. By facilitating the process of giving suppliers the best opportunity to contribute to the company, procurement can go beyond “strategic sourcing” and move into value engineering deals in collaboration with their internal teams.

    Alan, keep up the great work.

    Tony
    http://360vendormanagement.com/

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