Thinking Differently About Procurement: The SCRC Meeting Theme on April 29-30, 2013

Our next SCRC meeting will focus on “The Future of Procurement”, and will be held on April 29-30, at the NC State University Club in Raleigh, NC.  We will be hosting a number of senior executives reflecting on this theme, including Ron Reising from Duke Energy, Pat Murzyn from Caterpillar, Bill Knittle from BP, Jason Schenker from Prestige Economics, and Chris Hitch from the Shelton Center for Leadership at NC State University.

An important theme that will be explored at this meeting is around the role of procurement individuals in the future.  To be able to provide a higher level of value to their stakeholders, forward-looking procurement organizations will need to organize themselves appropriately to facilitate the right level of internal alignment with the business.  The most common form of this is what will be known as the category manager.  This has traditionally meant dividing up spend and targeting higher levels first, based on common specifications or families of parts and services.  However, category management may not be the only way to think about how to organize procurement effectively.

An alternate emerging approach is to organize around internal categories based on characteristics defined by the needs of the organization.  This is first and foremost a technological hierarchy defined on product or service specifications, but mature organizations are not limited to these defining characteristics.  Rather, the advanced category manager consultant will assign their role that provides the most logical and simple interface between the external and internal worlds that they must communicate between.  For example, a procurement manager may be first assigned to a larger supplier that provides multiple products and services to the entire organization.  Or they might be assigned to an emerging technology group that is focused on tracking new innovations that can align with the internal technology product roadmap.  They might be relegated to a largely external role as a cost analyst, understanding the movement of key metals, commodities, and chemicals in supply markets and translating codifying this knowledge into specific impacts.  Or they may serve as a government interface, to influence legal standards, tariffs, or environmental regulations that can dramatically influence the course of procurement.  We are thus much more likely to see a diversity of different procurement roles in the future that are less aligned around category, but more around internal or external business drivers.

This concept was cogently described by several executives I’ve interviewed over the last month.

“We need to think about whether our people are focused on areas where they can add the most value to optimize spend by channel.  We want to limit their time on routine stuff, and get them working right away on the difficult stuff.  For example, we have a lot of major individual buys at our large facilities, with a lot of unique characteristics, geographically disparate, and complex technologies.  This is difficult to manage, but is exactly where we should be spending our time!  We need to think differently on what we focus our attention on in procurement.” 

An even more clear example was made in an observation from a colleague who worked at the Canadian Oil Sands in Alberta.  He observed a procurement manager working for a large company that was operating cranes on the site.  At the time, he was meeting with his senior executive, trying to grind out a program to drive a few thousand dollars in cost savings.  The senior executive, his boss, looked out the window of his office, and asked him “Let’s stop a moment.  How many cranes do you see out there?”  “Twenty”, the procurement executive replied.  “How many of them are working right now?” the stakeholder asked.  “None”, was the reply.

“So if you want to save me some money, get those cranes working, and stop trying to grind me for a quarter!”, exclaimed the executive, and walked out of the room!

Sometimes the sources of value are right in front of us, and we need to be more aware of the obvious, and less focused on cost savings derived from price reductions.  These and other themes will be issues we explore at this meeting in April.

Interested parties should contact Andrea_dudley@ncsu.edu.