Procurement 2.0: Moving beyond data and process
Jan 26, 2015 9:07:00 AM
Getting your processes right is one of the axioms of the industrial (and now digital) economy. People don’t scale well – and if you come up with a great way of working, you need to codify it. If it’s reliant on people, it’s vulnerable. If you have good process, people are (to quote former US Secretary of Defence Donald Rumsfeld) “fungible”.
So it’s not surprising that 25% of CFOs in a recent survey cited “outdated and manual processes” as the top challenge facing their finance department in 2015. But hang on: that wasn’t the biggest concern. The biggest challenge for 31% of CFOs is… “people”.
Specifically, the CFOs said “running too lean” or a need for training were the big issues for their teams. And this highlights an important factor that is all too often felt in procurement functions too.
Both finance and procurement are seen by outsiders as “data” functions. There’s a mechanistic relationship with the operating parts of the business. In finance’s case, numbers get squirted into the ERP system and processed as accounts; with procurement, it’s orders for the things the operating departments’ systems say they need.
The reality is that even just to get the processes working smoothly, you need people. (Let’s be clear: in both cases, process is critical.) It’s smart, informed and creative people with specialist skills who design and, crucially, modify process to deliver the efficiency demanded by the business.
More importantly, the connections between functions like finance and procurement and the rest of the business are not limited to the APIs (application program interfaces) of the ERP system. In both cases, the functional experts need to learn the foibles and cultural quirks of their internal customers; and tailor their own systems, processes and policies to deliver the optimum performance for those customers.
Equally, procurement that rests solely on process will have sterile and low-value relationships with external suppliers. They might appreciate a really low-friction, automatic ordering system. But if you want to be the “customer of choice”, there needs to be more flexibility and creativity than most strict processes allow.
And if you’re hoping to make those supplier relationships more strategic – either to capitalize on supplier innovation or to be able to spot pivot-points enabling revolutionary approaches - you need outstanding, versatile people on the case.
Further, successful modern procurement hinges on your ability to build, and more importantly, maintain relationships with suppliers to enable the above. It’s something that process-led in-house functions struggle with (because of limited capacity and capability due to resource constraints). And most external providers certainly don’t do (because they're not being measured or paid on this metric).
As companies become more virtual and supply chains become more layered and specialized, these smart people become more, not less, important. (We looked at this in our recent webinar on the procurement team of the future).
It’s tempting to “run lean” in a business support function. But if you can’t hire smart procurement folk – or, if you don’t have the time and money to invest in your own people, work with third parties capable of bringing that strategic dimension to your supply chain – you run the risk of being choked by process, not leveraging it.