Over the last few years I’ve had the opportunity to talk to hundreds of procurement leaders, and in those conversations I always like to ask about the major challenges leaders in our field are faced with in their organizations. One common theme I have found across many of the procurement executives I talk to is the concern that there is a skills gap in our profession. In short, what is expected from category managers and strategic sourcing professionals by stakeholders and their leadership, generally speaking, does not match the output they generate.
If you are in the profession, the concerns these procurement leaders have raised shouldn’t be a surprise to you. The value of procurement is an often talked about subject, with many bloggers, including myself, championing what we believe is a function that can generate a true competitive advantage to the organizations they support. Still, we are an evolving function – and the tactical role we have played in the past still rears its (ugly) head, more often than many care to admit.
It seems to me that one reason their continues to be a strong disconnect between the role procurement should fill and the role they are able to fill has a lot to do with the tried and true “basics” for procurement, or the processes and procedures that many have decided are a foundational component of the function. What do I mean by procurement basics? It’s the tactics that most procurement people take to heart, things they consider best practices. I’d like to take a stab at breaking down a few of these alleged best practices in an effort to demonstrate what procurement should be focusing on.
“Best” Practice: 3 Bids
Traditional procurement departments utilize a 3 bid process for tendering RFP’s. This means down selecting to 3 suppliers (and no more than 3!) that will receive the RFP. In the past, this process was used to ensure that you are getting a range of market pricing and a good understanding of the high/low/average costs for the product or service being produced. However, this process originated when the process of identifying suppliers was cumbersome (remember the old Thomas Publishing green books) and snail mail made the tendering process very slow.
Today, the diversity of suppliers in the market for most goods and services really mandates that in most cases, more than 3 suppliers should be engaged, and obviously technology has made the process of supplier identification quite a bit easier. Yet many of the less mature sourcing organizations I meet with maintain the “three bid and a buy” mentality, which minimizes competition and only ensures market average pricing.
“Best” Practice: Rules-Based RFP Structure
Did you ever receive an RFP and think, based on the bid instructions alone, that the RFP writer must have had a career in the military? Rigid RFP instructions, typically letting bidders know what they can and cannot do as part of the RFP process (do not contact anyone at the issuing company, do not ask any questions, here is a timeline but do not expect us to follow it), seem to be used to fill up pages in lieu of clear scope definition. Generic high level questions, requests for financials that are almost never reviewed, and “acceptance of MSA’s without redlines”, even MSA’s that have no relevancy to the product or service being requested, are all elements of a broken procurement process, yet many organizations point to these outdated and cumbersome procedures as “comprehensive” and “thorough”. Better still, companies struggling to get access to the internal data and requirements needed to properly scope an engagement will tell the suppliers that their “Market Expertise” should be used to determine what the buyer wants – in other words – tell us what we should buy.
A rigid and inflexible RFP process is a dead giveaway of a procurement organization that is running the old school purchasing playbook. The reality is the purpose of an RFP is to get strong engagement from the supplier community, give them a clear understanding of what you want to buy (so all suppliers bid apples to apples) and to give the supplier the desire to win the business through competition. This creates much more leverage and an opportunity to reduce costs than a formal negotiation at the end of a process once a supplier is already selected.
Ship Up or Shape Out
There are dozens of other outdated procurement techniques that I could write about, so many in fact it may take a book to get through them all. Keep in mind I haven’t even touched on negotiations yet! Most of these techniques can be categorized into three buckets: time wasters, process makers, and things that make people feel important.
The fact of the matter is, there is a substantial skills gap in our industry. We pay 6 figure salaries to category managers that have no clue how to manage supplier relationships. Some can’t even explain the sourcing process, and if they can, they don’t understand why that process exists or what their roles and responsibilities are in managing it. When things go wrong, they blame the stakeholders and say that their company doesn’t value procurement. Very few are introspective about the situation they are in.
So what’s the solution? How do we fix the skills gap? One way is to create a baseline for qualified sourcing professionals. Think about this - would you hire someone without an accounting degree to do your accounting? Probably not, but very few procurement professionals have a degree in supply chain/sourcing/procurement, and there is no industry standard certification (similar to a CPA) required for procurement professionals to do their job. Right now, very few colleges and universities don’t have formal programs for supply management. The good news is, more and more schools are developing supply chain programs, and I’m hopeful this will bring a new set of college educated grads to the professional with a baseline set of supply management skills.
In the early 2000’s, a lot of us talked about the vision for 2020, and where procurement would be at that time. I think it’s fair to say that even our modest hopes and dreams for the industry will still be a work in progress. But the right training, education and formalization of the function will help us get there, and the faster the better!