Updated: Jul 31, 2019
Our profession has been around for a long time, so why is it then that we feel the need to continuously justify our position and have to fight for a seat at the top table? - When was the last time that the existence of the finance department was questioned and why is there often a disproportionate number of sales staff to purchasing when a good procurement professional will often exceed the level of contribution to the bottom line when compared with their sales colleagues?
Our history goes back a remarkably long time - one of the first books on purchasing was published in 1887 by Marshall M Kirkman (with the snappy title of “The Handling of Railway Supplies – Their Purchase and Disposition”!), and it was during the early 1900’s that purchasing began to be recognised as an independent function. Purchasing was however, up until the First World War, seen mainly as an administrative function although Harvard University offered a course in purchasing as early as 1917. Purchasing as an academic discipline was furthered with the printing of the first college textbook on the subject, authored by Howard T. Lewis, in 1931.
Thankfully some organisations do however understand the importance of effective purchasing and supply chain management and this is shown by the emergence of the CPO function with a seat at the top table and with increasing influence over the organisations direction. With many organisations spending more then half of their turnover with external suppliers the CPO revolution is, in my opinion, fully justified.
As a profession we do however seem to evolve at a very slow pace. It was the Japanese car industry who led the way in identifying that there was a better way of doing business with suppliers than the previous adversarial approach, with the emergence of integrator supplier solutions and sole sourcing agreements which have now became the norm within automotive supply chains. In 1983 Peter Kraljic in the Harvard Business Review stated that “Purchasing must become supply chain management” and his portfolio analysis of supplier relationships has become an integral part of professional purchasing training. There is often however a large degree of purchasing rhetoric and a significant difference between the typical procurement managers’ day to day experience and the image portrayed at many of the procurement conferences.
What is clear though is that effective procurement can add real value to organisations and the intrinsic value of benefits delivered influences not only bottom line profitability, but also the multiple that is often applied in assessing the enterprise value. Studies have shown that effective procurement programmes often deliver between 6 and 10% of influencable spend and that this performance can be maintained over time. With this in mind, many organisations embark on a “Procurement Transformation” in the hope that they can achieve the prize without really understanding what this sort of programme can deliver for them. Sometimes these transformation programmes are managed from within, however often external help is sought in order to provide a trusted “road-map” of activity that will ultimately result in the programme goals being achieved. Some of these transformations work well and deliver significant benefit to the organisation, others however do not. For those that on the face of it work well, success often depends on where you sit within the organisation, and the definition of success is often not clear.
For those transformations that do not live up to expectations, the obvious questions to ask are:- “What is it that makes the difference between good procurement and bad procurement, and how can they be successfully transformed?” – This question is at the heart of this blog.
Over the coming months I will be posting articles that will help to improve procurement and supply chain management and to help to improve the standing of our profession. I welcome content from like minded individuals - Just contact me to see how you can contribute.