03.1 / Procurement is dying… Part I.
Procurement may not be dead, but it is dying!
A few months ago, I tried to answer the following question: “is Procurement dead?” The trigger at that time: several articles and online discussions linked to the death of Procurement.
I concluded that we were living in times of huge changes and that these changes were also impacting Procurement. Procurement was not dying but evolving. An evolutionist view if I can say that.
But, recent news / articles / books (the one mentioned at the beginning was instrumental to my thought process) and personal observations make me now say: Procurement is at risk of dying!
Not because of external changes but because Procurement is killing itself, or, at least shooting itself in the foot!
I may look like I changed my mind but actually, it is more a shift in perspective. I answered the question “Is Procurement dead?” by only considering external pressures. The fact that it is dying, today’s article, is more focused on “internal” reasons.
One of the critical input that opened my eyes is the book Procurement at a crossroads by Jon Hansen and Kelly Barner. But the book is not the only reason…
Procurement, a victim?
How many times have you read / heard CPOs and Procurement practitioners complain about not being seen as an important (I did not use the word “strategic” on purpose…) function in organizations?
The fact that Procurement can be of strategic value is no breaking news, as Hansen and Barner illustrated by quoting Peter Kraljic:
“It is over 30 years ago that I first ran into procurement as a source of strategic value and relevance for the company. … Since then a lot has happened, and I am now convinced more than ever that procurement is critical for enterprise performance enhancement.” — Peter Kraljic
I am not saying that the statement is wrong, I am just saying that there are explanations. The thing is that:
- Procurement has to claim its spot. Not by “talking” but by “doing” as the quote from Procurement at a Crossroads I used at the beginning of this chapter illustrates it,
- Procurement has the spot it deserves.
Being positioned / seen as strategic is not a due! To paraphrase Hansen and Barner: some practices have to stop! And I am not just talking about “technical” practices.
The position of Procurement, chicken or egg?
As Hansen and Barner write, a majority of Procurement organizations are, in a company’s hierarchy, under the CFO’s umbrella. It could also explain why so many Procurement organizations are price-focused which, in turns, explains certain behaviors. Or is it the other way around?
A recent survey by Deloitte of CPO’s priorities confirms that the focus of many organizations is on price reduction:
And this is no breaking news since, from the same source, it has been like that for years:
No wonder then that we have several recent examples (Tesco, Carrefour,…) of harmful practices focusing on financials (discounts or payments). And I do not believe that this is related to a particular branch.
Is Procurement masochistic?
What is very “interesting” is that you have a function (Procurement) that focuses mostly on delivering price reductions (or other financial benefits) to its parent organization (Finance). And, that parent organization… does not believe in it as highlighted by the stats below that Hansen & Barner highlight in their book:
- Less than 20% of CFOs consider the work of CPOs and their staff as having a very positive impact on competitiveness.
- Only 46% of CFOs feel that the procurement team has contributed to entreprise growth.
- Only 57% of CFOs feel that procurement contributes to entreprise profitability.
Of course, Procurement has to “speak the language of Finance”. It has to find the right words, though.. But, it should also speak the language of manufacturing, logistics, quality…
As a recent Spendmatters’ article said it, it is now the “time to rebalance procurement’s ‘cost over value’ philosophy.” Bringing value to the organization requires identifying internal customer’s needs and some intimacy with them. Looking at the chart above, no wonder that the CPO / CMO relationship is so tense.
The above is just one aspect of the many changes that the “generation next procurement”, term coined by Hansen and Barner, has to instill into Procurement. Not only will they bring fresh air, new skills, and new competencies.
But, they will also have to synthesize skills that are, usually, not associated as pairs:
- soft (i.e. people) skills
- analytical skills
As Hansen and Barner put it, “the day of the dinosaurs has come!”
In part II, we will explore some answers to the question “what (not) to do now?”