ARTICLES | Why do internal clients think poorly of procurement?
July 02 2019 By Andre Basson buying department, buying improvement, buying reporting, CFO, competitive pricing, COO, co-operation, cost breakdown, cost control, cost management, CPO, fit-for-purpose, functional borders , market knowledge , maximising profit, minimising total cost, negotiations, price control, procurement, procurement advice
The most common reaction I get when introducing myself (and explaining my background) to someone senior involved in an organisation's operations, is that they find it a problem that procurement is only concerned with prices. Thirty years ago I would have expected this reaction to have been common. But that it is still so today is alarming.
Why is this still so ubiquitous? There are of course many possible reasons for this, and only the surface is being scratched below.
The first aspect I would look at when faced with this accusation, is the reporting structure. There are still many who feel that procurement should be part of the CFO's structure and the reasons are typically along these lines - from a blog giving advice on procurement:
Or this reaction to a suggestion (by another procurement adviser) that procurement should report to the COO:
Does this (the first quote) imply that procurement, without finance holding its hand, will not be able to comprehend and align to the organisation's "financial performance and priorities"? Or does it imply that senior operations people do not understand and/or support matters related to the organisation's "financial performance and priorities", and that this environment will, therefore, be bad for procurement?
Operations people are probably the ones most affected should there be retrenchments because of the company's poor performance, and senior operations persons have to deal with the consequences. And do many CEOs of organisations not come from operations? Does this mean they would bring with them into their new roles this blind spot associated with operations? Hard to believe.
What is probably true is that many (but definitely not all) financial managers are blind to the concept of the total cost of an operation, and the opportunities that exist or are created by working with operational people, and suppliers, in identifying and implementing actions to bring costs down by ways other than lower prices, or by actions leading to net gains through increasing production with the same or even higher cost. Procurement in a finance function is, therefore, not encouraged to pursue (at best) these options, and operations' requests are not taken seriously.
Lack of respect for procurement can also be the result of having forgotten (or never having realised, or accepted) that its primary purpose is to support operations. (And support does not mean serving from an unassertive, subservient position, but as an equal.) Through the absence of this approach to procurement, the procurement function becomes disconnected from the business, starts doing procurement for the sake of procurement, developing a purpose of its own, focusing on largely irrelevant matters, and chasing the latest "buzzwordry", rather than working with operations. I have come across deskbound procurement staff that would not recognise the items they are procuring when they trip over them, and sometimes couldn't even point to the locations of the operations on a map.
Perhaps another of the major contributing factors is that the procurement practitioners feel, and perhaps are, inadequate when with dealing with senior operations people. Serious cognitive dissonance arises in such a situation: the procurement person feels threatened, on the one hand, by these guys whose knowledge about the subject matter (mostly) far exceeds their own but, on the other hand, knows that "procurement's turf" must be protected and that control of the procurement decision cannot be relinquished. So what happens: withdrawal into the procurement "shell" so blatantly referred to in the quoted section; and operations are left wondering what happened to the initiative. And probably start advocating decentralisation of procurement.
So what to do? Obviously procurement practitioners should be hired with this role (regular interaction and co-operation with senior operational people) in mind, and should have the capabilities, skills and the right level of assertiveness to work in such an environment. My own experience is that operations appreciate procurement taking an interest in their requirements and needs, and mostly very co-operative. Procurement management should lead by example and coach juniors for this role, by accompanying them to such interactions with operations, for as long as necessary.
These are just three of the many possible causes for feeling, and being, unwanted. In particular, the presence or absence of an enabling environment for procurement should also be considered. More on that in another article. AB