Procurement: Getting Back to the Basics
I’ve been speaking to a number of procurement executives lately, leading to some interesting discussions around risk, category management, shared services, and a lot of other high level concepts that are no doubt important. There are also a lot of websites and presentations at conferences around the “next big thing” in procurement. One of these was around “negoti–auctions”…..or something like that which is incredibly non-notable.
But I’ve also been hearing another message. Procurement needs to become a more reliable, consistent function that people can depend on. This is important for four reasons.
For one thing, there is still a huge amount of money on INDIRECT SPEND in most companies that is not a small number, and that is not being managed effectively. How much rigor is being dedicated to these types of categories, and have they at a minimum been market tested? There is a need for procurement to bring rigor to tactial buying of indirect spend items, and this is an area that few people talk about, yet will become more important. Don’t overlook the tremendous value to be gained by a well-executed procurement process for non-strategic purchases.
The second piece is around driving CONSISTENCY in the procurement process. That is, is the procurement function providing the same level of quality and expertise inclusive of category management, decision support, and approaches to the marketplace across all sectors internally, as well as with our suppliers? If we aren’t doing this – than there is work to be done.
The third element is is around CONTRACTING for global sourcing. As companies go into low cost countries, they need to be more aware of the fact that contracts in these regions are VERY different from what they have come to expect in the United States or Europe. Don’t assume that all of the standard covenants of the Uniform Commercial Code (UCC) apply. And pay attention to details in the small print in contracts, and pay attention to the basics, especially around how liquidated damanges are incorporated into the contract. Understand where the title transfers. Get up to speed on INCO terms like FOB job site and others. These will become very important later on once the contract begins….if you have to ask why, then you need to read more about what this language means!
Finally, companies need to think more about the BUSINESS PARTNER. That is, the poor schmuck who is on the receiving end of your supplier’s product or service, and who is not getting the basic level of performance that they need to get their job done! Late deliveries, substandard quality, safety incidents, damaged shipments, and multiple other problems do not alleviate the benefits of a lower price, as many logisticians and planners will tell you. Pay attention to what these folks need FIRST, not as an afterthought.
By paying attention to these basics, you can add a lot to your organization….and avoid a lot of problems and hassles as well!
