Procurement is a maturing profession and cannot be the bottleneck in an organization if it is to be taken seriously. Unlike engineering, medicine, accounting or law, there is no overarching regulatory body that oversees the work of procurement professionals. A buyer doesn’t require a special ring or degree to practice the procurement profession. Companies can also choose not to have a procurement department. Theoretically, you can assign anyone to “buying” tasks in the organization.
Does this mean everyone and anyone should be doing the work of procurement? Of course not. Just as implementing an IT system for thousands of users is completely different than installing a home desktop, buying as a collective is completely different than buying as an individual. That’s why senior buyers and commodity managers are worth their weight in gold in the enterprise context.
What this lack of regulation does mean however, is that even the smallest procurement team should never be a bottleneck. Otherwise, what value is the function providing? It will only be a matter of time before the organization reverts back to doing purchasing instead of procurement. Requesters will clamor for the ability to buy for themselves as they are tired of waiting!
Procurement’s Value Promise and Where It Falls Short
Mainly, procurement professionals can generate value in the enterprise context by:
- Enforcing a procurement policy (internal controls and compliance)
- Identifying segment spend optimization opportunities
- Acting as the translator between business requirements and suppliers during sourcing activities. They leverage deeply specialized commodity market knowledge and expertise to do so.
- Displaying contract negotiation & execution skills. It’s as important to ensure you get the terms negotiated on a transactional basis as it is to negotiate them in the first place.
- Reducing and optimizing purchasing transactional costs (process optimization)
- Influencing inventory management strategies and participating in their execution
- Collaborating with receiving and accounts payable to ensure a fluid, end-to-end purchasing process all the way to payment
- Managing and developing the supplier relationship to augment the realm of the possible (level of collaboration, innovation, quality, price, etc.).
This is great on paper but the biggest impediment to realizing this value in practice is the procurement function’s workload capacity. In trying to achieve all of these objectives, the function usually takes responsibility for the execution of all procurement tasks. Subsequently, in business cycle peaks, it cannot meet the business’ demands and becomes the bottleneck in the process. How can we avoid this situation while delivering on the promise of a strong procurement function? With parallel processes. Let’s use a concrete example to illustrate.
Empowering the Business to Remove the Bottleneck
Imagine your buyers have reached their maximum processing capacity of 5 contract negotiations at a time. Your business also only has single formal contracting process. If a 6th contract negotiation requirement comes in, it has to wait until a previous negotiations finishes to start. That, or another negotiation needs to be put on pause while the new one is started. Procurement is now the bottleneck.
To prevent this from happening, you can define a “procurement-led” process and a similar “business-led” process. This “business-led” variant should only require key oversight touch points to ensure the process is compliant. If the additional negotiation is time sensitive, this enables buyers to delegate the execution to the business. Either that, or if it is strategically important, an existing “procurement-led” negotiation can be delegated. The buyer can then focus his skills and energy on the most important negotiation. “Important” should be pre-defined based on internal criteria mandating strategic buyer involvement (contract clip level, commodity criticality, etc.).
In short, you should design your processes with the assumption that demands on procurement will sometimes exceed capacity. Design your supporting tools with this in mind as well. Lack of regulation constraints affords you more creativity in finding the optimal process. This is how you can ensure procurement is always generating value instead of hindering business operations.
Conclusion
It seems counter-intuitive that having procurement do less procurement work would generate more value for the business. However, the truth is that speed is often a critical factor shaping perceived value for the internal customer. Therefore, when unable to field all business’ demand, procurement should focus its efforts on high impact, high complexity sourcing activities. For the remainder, the focus shifts to providing a structured way for the business to execute independently.
If you can clearly define the rules of the game and empower the business to be the player, you will also elevate the value of procurement to the organization. Set the rules, monitor the game and coach the players as necessary. By adopting this parallel process guiding principle while designing your procurement organization, you’ll minimize the occurrences of procurement being a bottleneck.
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What other strategies do you see for removing bottlenecks from the Procurement processes? How have you managed to achieve this in your procurement organizations? Are the potential pitfalls of delegation worth the benefits? Let me know in the comments
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Last Updated on January 7, 2021 by Joël Collin-Demers
