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Procurement (Versus?) The Business

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At a recent dinner I was joined by a Senior Leader in Local Government, a CEO of a SME and a VP of HR for an icon global company. The subject of the Procurement Dept. arose and their individual response were quite concerning … “Don’t get me going!”, What is the value they are meant to bring?” and “I’m fed up with them meddling in my business!

If Procurements value is meant to be for these leaders of industry, their response indicates something is going terribly wrong.

Customer first
One of the most common complaints I hear about procurement is it does not listen to its customers. This is typically in response to Procurement selecting a different supplier than the one the business unit desired.

If we review the typical scenario it looks like this: The business unit has an existing relationship with a supplier, trust is established and a strong work ethic of collaboration is prominent. The contract is ending and the business unit is required (because of policy) to involve procurement in the re-tender. Procurement undertake its own evaluation of the market and based on savings, awards to an alternative supplier.

Business Units View of the situation:
The budget is coming from the business unit, they know who they want to work with and yet Procurement decided to ignore this. We now need to re-built trust and establish relationships which takes time and effort that we cannot afford. We know money is important but so is taking the bigger picture into consideration.

Business Units View of the situation:
Procurements raison d’être is to save money, the tender delivered a supplier who can deliver the requirement at a lower cost.

The Impasse:
Depending on your point of view both parties are correct, yet this is far from where it should be. There is little/no relationship between Procurement and the business leaders, a situation all too common in most organisations.

Those of you within Public Sector procurement may feel this is not your issue, as you are dealing with public funds and have to follow Public Sector procurement rules e.g. the Most Economically Advantageous Tender (MEAT). My advice would be to read on, consider the message within the article and apply it as appropriate.

An Alternative Outcome for both Procurement and the Business:
The business unit knows the supplier they would prefer yet Procurement still take on the tendering, as before. At the end of the tendering exercise the Procurement team return to the business unit and explain the business unit’s options:

  1. A new supplier has been identified who could undertake the contract, with potential savings.
  2. Utilise the existing supplier, accepting the associated costs
  3. Procurements recommendation: (Option 1 or 2)

It is then up to the business to select the option they desire. If the CFO has an issue then it’s up to the Business unit and the CFO to have that discussion. The business unit feels procurement is supporting their needs, listening to their requirements whilst also providing advice and guidance. Procurement is still undertaking the tender, optomising savings whilst supporting the businesses ongoing success.

Summary
This scenario was to demonstrate how something so simple can go so terribly wrong without anyone being at fault. The alternative outcome was just a demonstration of what happens when attitudes change, not a statement of procurement process.

Over the years Procurement has become out of touch with its customers, resulting in a focus on price above all others. Now that procurement is trying to find ways to rebuild its relationships with the business, it is struggling. There are calls for procurement to become more responsive and flexible which may add a degree of value, but until procurement supports its customers it may struggle to gain business support.

It’s time for a change in strategy, Procurement needs to acknowledge its value is in supporting and guiding the business not dictating business strategy. To move up the stack from being just a process towards adding value, means reconnecting with your customer’s needs. Ask any procurement person if they believe they are doing a great job and you will get a positive result, now ask the business units if they believe procurement is doing a great job, their response talks for itself.

Procurement has a fantastic opportunity to become a critical element of any company’s ongoing success, if you want to be that person then maybe it’s time to
re-evaluate who are procurements customers and what procurements value really is!

Author: Mike Robertson
Mike works with Procurement teams in transforming the value procurement delivers into their organisation.