20 years in Procurement has given me the opportunity to observe the evolution of this industry over the last two decades.
Organizations that once viewed Procurement as tactical, administrative departments are now looking to these same groups to not only reduce spend by way of better negotiation and supplier management but by also increasing efficiency and driving cost savings within their own department.
Some organizations will attempt to do this by centralizing Procurement and moving from transactional purchasing to a more dynamic Strategic Sourcing function, and replacing reactive purchasing agents with category-specific Procurement professionals.
These Strategic Sourcing experts have a deep understanding of their category and can also pre-emptively engage internal business partners to understand the multiple facets of business requirements, including the legal and financial parameters of an acquisition.
However, one thing to keep in mind is that the people in a Procurement organization are only as good as the tools and processes they have to work with. Simply changing one without addressing the other two will create the same problems for new staff.
Case Study: Procurement Transformation Gone Wrong
A few years ago I was asked to assist in a Procurement Transformation initiative for a global corporate entity.
The organization had engaged a consulting firm to identify areas of cost savings and efficiency gains. What the consultants recommended was a complete reorganization of the Procurement department by realigning tactical purchasing roles with new Strategic Sourcing categories such as Software, Hardware, IT Services and Office Supplies.
The categories were to be led by newly hired Strategic Sourcing professionals who would also be asked to reduce staff in order to meet cost savings targets set by the consultants.
Unfortunately the consultants failed to identify the need for new processes that would align with the category Sourcing structure, and the need for new tools to support the new processes.
The real value of a Strategic Sourcing professional is in his or her ability to understand business needs at their inception and help guide an organization from developing requirements, to vendor selection by way of a competitive bid and all the way through to contract negotiation and execution.
My client had invested heavily in the departmental reorganization but purchasing requests were still coming into a single inbox labeled “Purchasing”, and little thought was given to how requests would be triaged and assigned to the correct categories.
Additionally, the corporate culture within this organization (there was no clear policy) regarding procurement was for internal stakeholders to source their own suppliers, negotiate the business terms of an acquisition and then submit a request to Purchasing to finalize the contract and submit a purchase order.
The transformation was a massive failure.
The new Strategic Sourcing professionals, while technically more proficient than the current Purchasing Agents, were unable to achieve efficiency targets because of the inefficient process they were forced to work within.
Tools and Process
In order for an organization to accurately measure cost savings and efficiency gains they must first establish a baseline that not only looks at the proficiency of the staff, but also the tools and processes that are currently in place.
By simply equipping current resources with the proper tools and enabling them with efficient processes will help organizations achieve sustainable cost savings and efficiency gains.
Were you ever part of a Procurement Transformation? How did it impact the tools and processes in your organization?