Category Management. Risk Management. Contract Management. Supplier Relationship Management. All are part of the Supply Management vernacular in 2017. They represent best practices. Those who have mastered these competencies are sought by companies wanting to take their Supply Management to the next level and beyond. Yet, step back and look at the big picture: How many Supply Management professionals have the time, the skill or the support to pursue these best practices?
Continuing to look at the big picture, let’s apply the 80/20 principle to this question. Considering all the spend of all companies – large, medium and small – it’s reasonable to believe that 20% of the professionals in Supply Management are managing 80% of spend. (This number may be even more acute based on bench-marking articles found elsewhere at My Purchasing Center.) Bigger companies have more spend and are more likely to have invested in their organization as led by a Chief Procurement Officer. The professionals in these organizations are expected to be proficient in these higher-end responsibilities – the Managements (Category, Contract, Risk, Sourcing, Supplier Relationship, etc.). These professionals can practice and hone their competencies daily. This is a good thing. This means that in many ways the profession has taken the lead set by the Peter Kraljic “Purchasing Must Become Supply Management” article found in the September 1983 issue of the Harvard Business Review.
Flipping the principle would make it fair to believe that 80% of Supply Management professionals are handling 20% of the spend. Here’s the challenging part: It is likely that these are the same professionals who are handling 80% of the purchasing churn – dealing with requisitions, purchase orders out the door, tracking delivery, invoice reconciliation, etc. The result is they don’t have the same opportunity to apply best practices like their counterparts in bigger companies. Not because they don’t want to. They simply don’t have the time. Or, more frustratingly, the ability. But, seeing the articles and blogs – all the attention given to “the Managements” they want to do the same.
While the terms Purchasing and Procurement tend to be used interchangeably, there is a big difference; moreover, the responsibilities of a Purchasing and Procurement professional are not the same. Purchasing is operational – process driven – ordering, receiving and paying for goods or services. Procurement is more tactical, more purposeful. Procurement calls for establishing requirements, performing market research, evaluating/selecting suppliers, and negotiating contracts or purchase orders. (Yes, POs can be negotiated.) For the purpose of the remainder of this article Purchasing is used as the title for the group that handles buying, procurement and, in some cases, sourcing.
It’s understood that technology is automating many of these routine functions. It’s agreed that that the developers of these systems are doing their best to “democratize” the technology – making it available, applicable and affordable to all companies – regardless of size. While the technologies are making inroads, there’s still a long way to go. And, when we get there one of two things will happen – positions will be eliminated or, companies will direct their Purchasing professionals to become more Procurement-like. Hopefully, it will be the latter.
Do we need to wait until technologies and automation address operational needs to free up the time for (paraphrasing Kraljic) Purchasing to become Procurement? The answer is “no.” Good Procurement – efficient and effective – for the foreseeable future, is a people matter.
Before offering any recommendations, we first must recognize the realities. Purchasing, in many cases, is still viewed as “getting the lowest price.” This perception impacts relationships internally with business units and externally with suppliers. It creates a misunderstanding of purpose. The Purchasing professional is relegated to coordination of buying activities instead of having the opportunity to collaborate with internal clients, and suppliers, to produce value.
If we go back to the 80/20 rule the negative perceptions of Purchasing are conceivably based on the interaction of internal business groups and suppliers with the 80% group. They are the majority population and they drive a perception that Purchasing “gets in the way” rather than adds value. Again, flipping the numbers, 80% of the expectations for Purchasing come from what senior leadership reads or hears about the state-of-the-art techniques that the (upper) 20% apply to the “Managements.” The result is that many businesses think their Purchasing group is not effective.
Research shows that staff and talent constraints inhibit Purchasing professionals from being all they can be and, more important, all they want to be. The abilities of these professionals are, and may continue to be, underdeveloped. But, there is an opportunity to build on what they already know and have experienced. We can reinforce what they know and make them comfortable with the basics and then introduce them to the “Managements.”
As Purchasing becomes more sophisticated, as business becomes more demanding and as the global marketplace changes exponentially, the need for both personal and professional development becomes proportionately as important. Let’s accept that not all the next generation of Purchasing professionals will come with MBAs from universities with Supply Management programs.
So, now that the problem has been stated, what’s the solution? Keeping it simple – consider the following:
Here’s the good news: There are companies that already recognize this need and are making the commitment to invest in their people. But, there must be more – many more. Quoting Eleanor Roosevelt – “Nothing has been achieved by the person who says, ‘It can’t be done.’”