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Focus: Sourcing/Procurement
Feature Article from Our Sourcing and Procurement Subject Area - See All |
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From SCDigest's On-Target e-Magazine
- Sept. 18, 2013 -
Supply Chain News: Still Something Wrong with Procurement?
Is the Fact that Salespeople are Trained to Get Past Procurement a Sign Something is Still Wrong?
SDigest Editorial Staff
Remko van Hoek, a global procurement director at PricewaterhouseCoopers, recently made a rather salient point in blog post on the Harvard Business Review's website: despite all the gains in procurement as a field in recent years and the continued growth of the amount of corporate spend managed through the procurement organization, most salespeople are still trained to find some way/any way to bypass procurement and get to functional/business managers.
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"No wonder suppliers don't want to spend time with these folks," van Hoek writes. |
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What Do You Say?
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And quite often they are in fact successful in those strategies.
That is a sign that both salespersons and maybe even some company functional managers are not taking the procurement seriously, van Hoek suggests. And that comes 30 years after Peter Kralijc's seminal Harvard Business Review article that called for the procurement function to take on a larger and more strategic role in managing the supply chain (Purchasing Must Become Supply Management, Sept. 1983).
Is something still not right with procurement?
Yes, and it may be the behavior of procurement managers themselves that is the root cause.
Based on a survey of some 200 procurement professionals, "We found pretty conclusively that procurement managers are their own worst enemy, both with external suppliers and within the company, with internal customers and other stakeholders."
As the chart below from the survey data shows, only about a third of managers are actually bringing any supplier intelligence into their organizations by advocating for suppliers and facilitating new connections for them.
Just 20% claim to be communicating business insights shared by those customers and only 17% could even tell us in what segment their supplier put their company.
"No wonder suppliers don't want to spend time with these folks," van Hoek writes.
SCDigest believes this is a very interesting and overlooked insight. Let's say for example a salesperson achieved an appointment with a distribution manager relative to a new, innovative piece of material handling equipment.
Even if there was no immediate project or program for that system, might not the manager pass on information about the innovation to colleagues, for future reference and maybe even to see if this new approach spurred some interest?
Not always, but certainly a high percentage of the time. If a salesperson called on a procurement manager who handled logistics spend, with no program, budget or active procurement cycle, would information about the innovation also be passed on to functional managers? In our view, rarely.
(Sourcing and Procurement Article Continues Below)
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CATEGORY SPONSOR: SOFTEON |
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There are also issues with how procurement managers communicate value to their internal partners.
Many procurement managers are trying to demonstrate internally that they have strategic value, gathering intelligence systematically about the company's stakeholders and communicating their successes, van Hoek notes.
"But it isn't getting much further than that," he says. "Less than 30% of the time do we see procurement managers customizing value propositions for internal customers and stakeholders, tracking satisfaction levels and setting targets for satisfaction." (See chart below.)
Van Hoek than offers some tough words for the profession: "If this sample is representative, then we can hardly be surprised if many c-suiters think that procurement is a backwater. And we can hardly expect young high-flyers in most industries to see it as a career path of choice."
SCDigest editor Dan Gilmore offered some related thoughts.
"There was a trend in the early 2000s for some companies to turn over supply chain software acquisition from the users to the procurement organization," he said. "I can tell you from firsthand experience that software companies didn't like it, because it added lots of extra work and seemed highly bureaucratic, but the funny thing was, generally the software companies actually achieved a higher price working with procurement than they did negotiating with logistics managers."
The bottom line: SCDigest agrees that if salespeople continue to see procurement as the enemy or a barrier to effective communications, something is in fact wrong with the profession."
Is something still wrong with procurement? What are your thoughts about salesperson still being trained to bypass procurement? Let us know your thoughts at the Feedback section below.
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Recent Feedback |
There are many interesting and highly topical angles to this post and to Remko's initial HBR blog post. I'm not alone in my slight exhaustion regarding 'Procurement's opportunity to 'step up'/ move from 'back-office to front office' etc. Indeed, there are many procurement functions that apply, as per the research, a truly tactical approach to the management of suppliers. This comes from a lack of education, training and resources with the necessary commercial and relationship management skills to proactively manage suppliers and ultimately adopt supplier innovation successfully with the support of internal stakeholders. However, from my recent involvement in various industry think tanks and CPO forums, there are many strong exceptions to this rule - the automotive industry, while apparently reaching a peak in SRM value creation, is not alone in demonstrating value - pharmaceutical, aerospace, defense, ICT and financial services are sample industries where Supplier Management is gaining genuine C-level sponsorship and support, where true alignment between supplier segmentation and customer preferencing is progressing and where value beyond cost savings is being generated for customers and suppliers. Happy to share more with those that are interested - I'm at declan@360supplierview.com.
Declan Kearney
Founder
360° Supplier View
Sep, 19 2013
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The main reason sales people are trained to avoid procurement may not be related to information flow, but the fact that negotiation is still taught as a win-lose proposition. Since Procurement professionals are trained in negotiation skills, the sales people are trained to avoid them and negotiate with managers who are lacking those skills.
If negotiation was truly taught as a win-win scenario; a process whereby two differing view points are able to reach consensus, then two people trained with similar skills would reach common ground faster.
Instead, we are trained to play games with interests and positions, needs and wants, always keeping our BATNA secret but trying to make the other party reveal something about theirs. We are trained to use power and recognize when others try to use it against us.
It is only natural for salespeople to want to avoid that situation and speak directly to someone they can influence to create a purchase scenario.
Something may be wrong with procurement but this observation does not necessarily draw that conclusion. It is certainly worth exploring further.
Rick Cleveland
Director of Education and Acccreditation
Supply Chain Management Association
Sep, 20 2013
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A different perspective on procurement function and the professionals who work there. This article is saying the issue is procurement is its worst enemy because it doesn't bring market and supplier intelligence, and value propositions to their customers. That I agree. Having worked in a global ERP tech company, I witnessed those things from my colleagues. However, to the defense of my colleagues, they were measured on cost savings, and they didn't have the right process and tools to support them. What gets measured gets done!
The trouble with measuring bringing in intelligence and offering value proprositions is that they're hard to quantify in terms of dollars. Cost savings are obviously much easier and more immediate in terms of generating tangible value for the CFO. "I saved you X% or Y millions this year, and they go straight to the bottom line." So consider adding a metric or two on generating intelligence and value propositions for the business.
Finally, in terms of tools, there're a number of supplier relationship management tools and supplier intelligence tools out there that can be used to "keep track" of the value suppliers are bringing to the table. My personal experience is that the strategic groups in procurement are looking into them as part of a new process to better manage relationships with suppliers.
One more note, I`ve a different experience with procurement negotiating software contracts than what was stated in the article by Dan. The software team I worked with consistently generated savings if it was given full authority to negotiate and contract with the software vendors. The team I worked with were very well qualified in software negotiation.
Just my two cents. Your thoughts?
Kevin Cheng
Manager
EY Advisory
Sep, 20 2013
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From my experience I can say that whatever is wrong with procurement is also wrong with Salesforce and even with plant management. The problem lies in the KPI framework of the organizations. The plant management has an incentive to run the plant at maximum efficiency. They are not much bothered about supply chain planning or actual demand from the salesforce. The warehouse management has an incentive to keep the inventory at the minimum level. The Salesforce wants all types of products to be readily available at the warehouse to suffice any order; They are least bothered about inventory. The financials of all the departments are driven by inventory as that is the term which comes in the financial statement. There is a need to include some other performance parameters in order to drive collaborative planning.
In a typical scenario plant managers run production in large batch size instead of smaller batches to increase the utilization rate. Warehouse does not readily accept the extra amount in order to maintain lower inventory levels. The excess finished goods occupy trailer and empty space in the plant which in some way affects the operations of the plant. The sales managers sometimes bypass the warehouse and bulk customers orders get direclty fetched from the plant. The procurement gets the hit from all these distrubuted incentivized thinking. The disruptions at the supply side add to the complexity. Ideally the objective of procurement is to meet the needs of all of them viz. plant, warehouse, sales. But the direct internal customer is the manufacturing plant. There is a need to collaborate forecasting (dependent demand) and sourcing by involving internal stakeholders and supplier on a single platform after MRP and MPR2 plans are generated. Consensus on the plans should be generated in a collaborative manner and a timely update of consensus plans should be done.
Vipul Agarwal
Senior Consultant
Capgemini
Sep, 25 2013
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Base on my own opinion, as a procurement director for more that 30 years working for multi-national companies, I feel it is perfectly ok for sales people to see the end user directly to discuss the needs of the organization. After all the end user is the one who knows best what they need, and at the same time is going to carry the "baby" after the purchase.
In order to add value to the organization, different departments have their strengths and weaknesses. I feel that the requesting department should state what type of specification is needed and the type of machine/equipment that best suits the organization and pass on this information to procurement to source.
Procurement should then source for the various manufacturers and indicate all specifications, service backup, spares and etc,. on the comparison list and call for a joint meeting with various departments like production, engineering, QA, Facilities, and Finance.
Every department will have an opportunity to voice their opinion. Procurement should analyze based on a point rated system to ensure every input is considered in order to purchase the right equipment/machine.
Once a decision is made, it is the Team decision for the organization and not only user or procurement. In this way we can avoided sales people blaming procurement. Procurement knows best on the commercial terms and conditions in the market.
Francis Seow
Vice President
Malaysian Institute of Purchasing/Reclaimtek Malaysia
Sep, 25 2013
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I believe that we in procurement are talking the blame for the dark side of humanity.
We have always been pushed to "squeeze" the suppliers, and I recall the conversation I had once with my boss who was the CFO of the company I worked for.
Me: Our sales people segment our customers into A, B, C. Do you think our suppliers are doing the same on us?
CFO: Probably yes.
Me: And where do you think we are situated?
CFO: Probably the end of their list.
This was a real converation, the sad truth people can easily find out, but no one want to change. It's always a piece of cake to find a new supplier (as long as you procurement people are doing your easy job!) so who cares how our suppliers segment us...
Have YOU ever had this kind of thought about this topic?
Don X
Procurement D
EEG
Nov, 26 2013
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