Saturday 25th May 2019 - Logistics & Supply Chain

Getting a purchase

IBM’s ‘Global CPO Study 2005’, and a European survey earlier this year by Ariba with the London Business School both confirm that procurement, and by implication the wider supply chain function, are now established as key business drivers. Ariba suggests 70 per cent of procurement directors now report directly to the main board and ‘businesses are mandating procurement to bring spending under control’. This is a big change from ten or so years ago when the supply chain was so non-critical to most companies that a supply chain journalist could always get a quote the day before the annual results. Try that now!

Both surveys confirm that procurement is ‘in the spotlight’ and ‘feeling the heat’, to use IBM’s phrases. ‘Budget cuts are common. Deregulation and globalisation are upsetting the competitive equilibrium. Companies are feeling the squeeze from rising material costs and yet find it difficult to raise prices in a zero inflation world.’ And so it goes on.

Unsurprisingly, 64 per cent of IBM’s respondents say procurement savings will be ‘much more important’ over the next few years (most of the rest are already totally focussed). Ariba’s European sample puts numbers on this: ‘Procurement directors are looking to reduce the unit cost of goods and services by 13.1 per cent’ this year. 2005 is ‘the year of the tender… sourcing a new supplier base is seen as the key way in which companies can reduce unit costs and 70 per cent want to reduce their supplier roster’. IBM’s sample ranks ‘global sourcing or direct materials’ and ‘leveraging volumes’ as areas in which they are, and intend to remain, highly effective.

The return of the Rottweiler buyer
So, the return of the Rottweiler buyer? Probably not. CPOs in the IBM survey go on to talk about more sophisticated strategies which don’t have any visceral connection with crude price down policies. They want to ‘become business partners, not just buyers’, focussing on the bigger picture, helping internal customers meet objectives, stakeholder engagement. They plan a ‘mindset shift from price to value, products to solutions, inputs to outcomes’. They want fewer, deeper supply chain relationships (including outsourcing) and, of course, the global search goes on for not just lowcost, but more importantly better-value suppliers, according to IBM respondents.

This is all good Business School stuff, and if the top procurement people in major companies really are seeing life this way (and, more important, implementing it) then a sea change has occurred. However, there are indications that progress towards these broad, sunlit uplands may not be simple. Ariba notes that ‘despite their increased status, gaining visibility of purchasing data to make smarter decisions is the key challenge for one in three’. Spend management polices are increasingly set from the top. Which is great if the board or the CEO actually understands the strategic procurement picture, but if not…

It is a fair assumption that most of the respondents to these surveys are among the first generation of MBAs and similar to have been taught something about strategic procurement. Their problem is that there aren’t, so far, many people like them out there. Even in professional education, in qualifications such as the CILT and CIPS programmes in the UK, this strategic viewpoint is pretty new – and the combined membership of both institutes, even if it were evenly distributed, would give well less than one qualified practitioner per significant economic entity. The challenges facing the supply chain are essentially those of human resources management (boo, hiss!) not of the function itself.

The IBM survey concludes with a paragraph about ‘conducting the ultimate talent search’. There is ‘a fundamental need for new skills and expertise…virtually every avenue that CPOs are counting on to boost procurement performance is pushing their personnel into unfamiliar territory’.

Evidently, this implies a need for greater emphasis on high quality training for both new and existing supply chain personnel. But there is a further element – what the HR people call retention.

Well qualified supply chain people are in critically short supply. Of those, a significant number have the traditional Rottweiler mindset – they can screw any given supplier down for a few pence on the piece-part rate. This gives a short-term victory, whatever the longer term damage to strategic relationships. But with a ‘proven record’ such people will have moved on in a competitive marketplace to wreak similar havoc elsewhere long before the full costs of their actions kick in. I know a number of people like this who are well admired within their peer group but who, strangely, rarely stay in one post for long.

CPOs need to create an environment in which supply chain professionals expect to remain for an extended period. Only then can they see and experience the full consequences of their actions, and pay more than lip service to the strategic view of procurement that they claim to espouse.

Briefing points

  • Procurement and the supply chain are finally genuine boardroom issues – it is even conceded that they might affect the share price.
  • There are still frighteningly few practitioners who have been trained in SCM as a strategic function – their rarity makes them a mobile asset
  • Within that cohort of apparently new age buyers, there are significant numbers still wedded to an older ‘screw the supplier down’ mentality. They tend to move on after the immediate cash benefits are seen but before the long-term results of relationship breakdown become apparent.
  • Organisations that are serious about strategic procurement and supply chain management must devise strategies to retain good people for the longer term.

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