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Q: We are implementing the standard model of centre-led procurement, splitting procurement and purchasing into functions with category managers working in procurement. Are we on the right track?
A: Your question is more about differentiating between strategy and tactics than about procurement structures. I note that your procurement and purchasing teams both report to the CPO so I assume you expect procurement to develop acquisition strategies and construct supply chains, while purchasing concentrates on operating them. This increases the likelihood that procurement operates cross-functionally, influencing the behaviours and buying decisions of budget holders and operational managers. It will also emphasise that strategy is the precursor of task.
On the assumption that you are in the early stages of change, it may be appropriate to handle more task at the centre than might eventually be desirable. If so, it will be vital to maintain your distinction between procurement and purchasing so long as this terminology does not confuse others.
This will avoid the centralised procurement trap into which many companies fall, of an over focus on buying tasks handled at headquarters eclipsing the higher role of strategic leadership. There is no virtue in aggregating and centralising the mechanics of buying gold plate while not challenging why gold plate was specified in the first place. Q: My country’s government is implementing procurement transformation across all departments and agencies. We have set up some central contracts. What next?
A: In essence you have said to the agencies: “Give us your money and we will spend it for you.” The next step is to say to them: “Give us your commitment to make procurement a priority.” Support this request by sending them an executive briefing in a question-and-answer format, followed by face-to-face meetings. You will encounter the usual challenges from senior business colleagues not buying in to strategic procurement (I have written before in this column about the psychology and tactics for overcoming resistance).
Assuming you win their commitment, you then make a third request: “Give us the hearts and minds of your people.” In practical terms this means improving the commercial awareness of the agencies and motivating them with the realisation that a shared and “involving” procurement process can enhance their achievement of their business objectives. Q: In Supply Management’s recent Battle of the Buyers you remarked that the teams were exhibiting ‘upscale functional procurement’. What is implied in this?
A: The challenge for the Battling Buyers was to source a precise list of items. The teams superbly applied their talents to core purchasing and supply activities: finding sources; securing deals; and obtaining actual supplies. While such functional excellence might feel good, it does not guarantee best practice: budget holders will still behave like commercially naive prima donnas; supply cartels lurk undisturbed; and reluctant or second-rate suppliers remain unwilling or unable to perform for you at the top of their game. High performance procurement process is about co-operative supply-related business decision-making, risk management and orchestrating interactions with supply markets. The goal is superior ability to organise external assets around the company’s strategic objectives.
CPOs battling their way to the boardroom will get there if they have the professionalism to deliver functional excellence while also knowing that this is a way to change traditional views of the buyer’s role and not an end in itself. Winning wholehearted cross-business involvement for procurement’s strategic role will be a true test of promotion-worthy leadership ability.
Dr Richard Russill (www.russill.com) is a business adviser and writer, specialising in supply, cost and relationship management