We need to change the essence of procurement such that its impact on company financials is seen as more than annual piece-price reductions, and to ensure that procurement leaders earn a seat at the table.
My most recent blog concluded with the suggestion that the next couple of entries could prove very interesting, particularly to purchasing professionals who have a primary mission of delivering piece-price reductions. Since I believe that this piece-price directive covers just about everyone working in supply management today, I’d like to see this and subsequent blog entries receive as wide as possible reading. For that reason I hope that if you have procurement colleagues who have yet to tune in to what I’ve been writing, you’ll forward them the link.
Why? Because this being the fifth entry to this blog we’re at a point I can reveal the over-riding motive I had in deciding to become an IndustryWeek blogger. Not that the previous four entries weren’t (in my mind, anyway!) important and spot on. Rather, they were written to lay the groundwork for discussion of a subject that should be at the forefront of the minds of everyone who cares about the advancement of the procurement profession: specifically, supply management having “a seat at the table.”
What does this phrase imply? To answer that I’d ask you whether at your company the procurement function has a voice in decisions regarding strategic direction, financial goals, and how those directions and goals should be pursued. If the answer is yes, then congratulations. At your company, supply management does have a seat at the table.
On the other hand, maybe procurement at your company is relegated primarily to delivering the piece-price reductions needed to support the business plans designed by the leaders of the other functional areas, i.e., those who do have a seat at the table? I imagine that at least for some of you, the posing of this question will be a bit awkward since you’ll end up concluding that in your company the procurement function is not considered part of the “A-Team” but rather is considered secondary and tactical.
Let me relate an example that will illustrate what I’m getting at.
A colleague of mine worked at a company where procurement reported up through product design. He was once at a company social gathering when he overheard the vice-president of product design say to another product design executive:
“You know, when you get down to it, all you really have to do if you are in purchasing is figure out where you can get the best price. That shouldn’t be so hard. My wife does that every time she goes shopping.”
You may think that this comment reflects one “outlier” perspective. Having worked in industry for almost four decades I can assure you that this sentiment is fairly prevalent among executives. In the minds of many of our colleagues from other functional areas, the role of purchasing is simply to “go shopping” for the lowest price. This attitude is particularly common, I’ve found, among accountants.
You might ask: “How can this be? Don’t these people understand the financial impact above and beyond piece-price that procurement can deliver to an organization’s bottom line?”
Unfortunately, the answer to this is usually a resounding “No!” And even more distressing, you’ll likely find that many procurement professionals are also not aware of these other potential procurement-related financial impacts.
Why? Because they see themselves strictly as buyers and have allowed themselves to become boxed-in by the prevailing attitude that procurement only delivers financial impact through piece-price reduction. Consequently, to “hit their numbers,” these procurement professionals often focus their every effort in pursuit of a solitary objective of getting “cost downs,” not open to considering and advocating complementary/supplementary strategies within their organization. This is may be okay for a person actually holding down a buyer position—personally, I don’t believe this but can understand someone taking this position—but it certainly is not okay for a person in a position of supply management authority. Particularly if, as I do, you care about the advancement of the profession.
To get out of this box the procurement profession needs to “drive a stake in the ground” and say:
From here on out, we will contribute to the company’s bottom line through a balance between piece-price reduction and other strategies, and—just as importantly—we will be recognized for this increased contribution.
In other words, the procurement function will expand its focus such that it earns a seat at the table.
Part of driving that stake in the ground is applying a different label for what we do, hence, the coining of the phrase Next Generation Supply Management. It is agreed that over the last couple of generations the essence of business has changed substantially. Over the coming years it will be up to the people and leaders in our profession to change the essence of procurement such that its impact on company financials is seen as more than annual piece-price reductions.
In the preceding blog posts leading up to this entry I have hinted at the various ways that this can be done. In my next post I will lay out in detail how it was accomplished at one division of one company.