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Business imbalance: Procurement has more to offer

Summary:

Has the time come for procurement and HR to come together under the banner of “sourcing”?

Content:

With the advent of the New Year, it’s time for fresh thoughts.  In a recession new ideas are more welcome and more likely to be acted upon if they help an organisation add value either to the bottom line or frontline services.  As a procurement specialist of 20 years I am never surprised, when I go into a new organisation, to find so much untapped potential for suppliers to add value. This is a good time to reassess the staus quo.  Never before has the market offered so many exciting ways of doing business.  Let’s be radical -- after all, it is the New Year!


A business is designed to either make a profit or deliver an effective and efficient service.  It’s a straight line activity: buy-in goods and services (including labour), undertake core processes, and deliver to the location needed; usually under a fanfare of branding, sales and marketing.  In doing so, delivery and after sales service are crucial to social and economic acceptance of that organisation being able to undertake its business.  Typically, branding, marketing and sales are well funded, organised and co-ordinated.

If an organisation survives in the marketplace and is delivering its business strategy, then consider how much more value could be achieved if the inputs to the business were to receive the same executive attention, strategic thinking, and funding, as the outward facing functions?  Many who work in procurement, and HR for that matter, have been feeling like the poor relation, although they have significant influence on the inputs and costs to a business; depending upon profit and tax, as much as 60% or more of turnover! You might justly accuse executives of an imbalance of interest when comparing business inputs (procurement) and outputs (branding and marketing).


How, then, do procurement professionals secure the attention of their executives?  More importantly, how, in this world of flexible labour and creative sourcing contracts (outsourcing, off-shoring, near-sourcing, shared services, joint venturing etc.), can the right strategic buying decision for goods, services and labour be made?  Perhaps the time has come for procurement and HR to come together under the banner of “sourcing”.  HR moves beyond overseeing personal development plans and procurement breaks away from the accounting and reporting finance function.  The benefit of a sourcing function would be, in collaboration with the wider business, to facilitate strategic and tactical decisions about how to optimise, and then secure, the greatest value-adding inputs to the core business.  In doing so, the tactical and strategic choice to undertake an activity, whether ‘in-house’ or ‘buying in’, could be objectively evaluated.  If it is to be ‘bought in’, then go ahead and identify which commercial arrangement would bring the greatest business advantage.  A sourcing function would continue to undertake the procurement and HR activities we are all familiar with; in addition however, it would be scanning the market to identify creative and value-adding goods and services, working with the wider business to bring about change, and then securing those enhanced business inputs, appropriately delivered into the core business.


Let us not deny many supplier contracts and employment terms are well written and managed at a tactical level within a localised context.  The globalised world of trade has created new possibilities.  The method and manner for securing business inputs has changed.  Many sourcing options now exist, which did not exist before.  Procurement decisions simply cannot be made under the skirts of a finance function anymore.  Sourcing has to be accountable not only for cost, but also for sustainability, effectiveness and efficiency.  Which CEO would not want to strengthen their core business, optimise input advantage and deliver value to all stakeholders?  2011: let’s make it the year for re-balancing executive interest in how inputs to the business are sourced!

This blog was commissioned by SSON and can be found at http://www.ssonetwork.com/topic_detail.aspx?id=10426&ekfrm=6.