Procurement...Business Leaders...&...The Elephant in room.

Most indirect purchasing organizations will admit that they get seen as a transactional partner that runs bids, places & expedites PO’s and gets the paperwork done around deals that the business leaders and vendors might have already reached.

Purchasing also gets seen as an obstacle or check the box formality by the business leaders which naturally gives vendors the reason not to bother building a relationship with purchasing. One could argue the business leaders don’t recognize purchasing’s true worth. But before the blame gets assigned to business leaders – it is interesting to reflect on how purchasing looks at itself.?

Direct purchasing has its own challenges but having no control over the budget is not one of them. Indirect purchasing can’t say the same though. A professional in this space does not own the spend or budget. The skill is to convince these business leaders who know much more about the product or service than a purchasing professional to spend their money wisely. The sheer fact that the spend is not under your direct control, purchasing organizations tend to quickly go into a ‘reactive’ mode. Focus shifts to satisfying business leaders. Their thank you for expediting PO’s and chasing invoices start to define priorities which then limits Purchasing’s real ability to create real value for the business.

Like the famous quote “What you allow is what will continue" - can you really blame business leaders if all they do is ask you questions around PO’s and invoices if most they have seen Purchasing providing is tactical &/or transactional support ?

The?Elephant in the Room:

In many business Leaders’ opinion, Purchasing ‘doesn’t get it’. All they want is to get the cheapest deal and naturally, the bias is what’s cheap it isn’t good. It’s like a business stakeholder seeking a Cadillac and Purchasing ends up buying them a Camry.

Especially when the budgets are owned by business Leaders; there is going to be an expectation that they get what they ‘want'. On the other hand, Purchasing always feels that they need to be ‘the responsible one’ and watch & control how the budget is getting spent. With two parties playing their role to perfection ; relationships are going to be strenuous.

Interestingly, aren’t both sides missing a key point? Is car really the destination or means to get to the destination? Have both parties ‘collectively’ taken enough time to understand, discuss and appreciate the destination they want to reach? Post deciding that, collectively a decision can be made whether a Cadillac is required or a Camry to get to that destination. Then, both parties can decide which dealerships to visit, how to make those dealerships compete against each other and ultimately choose that dealership which gives you the best model, best price, best warranty, best maintenance plan, best customer service, best confidence that the car you are buying will help you to get to your intended destination.

If it is as simple as that, then why is it that both parties don’t spend time in partnering upfront? The simple and obvious reason is because there is lack of appreciation among the parties around each other’s responsibilities and off course nobody wants to address it.

Battle between Topline Focus Vs. Bottomline Focus

Ultimately that’s what it boils down to, doesn’t it? Like Alex Rogo, the protagonist of Eliyahu Goldratt’s ‘The Goal’ ultimately figures out; 'The Goal' of a publicly traded enterprise is (to provide a world class service or product to the customer and) to make money by primarily increasing net profit while simultaneously increasing return on investment and cash flow.?

Now in simplest terms, Profit = Revenue – Costs. Naturally in order to increase your profits you need to increase your revenue and decrease your costs. It is safe to say business leaders’ ‘first instinct’ is to increase revenue while purchasing’s is to cut costs. So what’s the problem since both are right in their own perspectives?

The problem begins when business leaders believe purchasing’s ‘extreme & only focus on cost’ is preventing them from selecting the best vendor and thus optimizing revenue and when Purchasing believes that Business Leaders have absolute disregard to costs and just want to work with a vendor who they are comfortable with. Once again, both parties must appreciate – Making Money and Saving Money both are equally important and ultimately result into improved profits.

It is crucial that Purchasing understands - in addition to making sure that purchasing practices are being followed in a compliant manner and improving bottomline - it can play a huge role in helping business leaders maximize the revenue by competing multiple vendors, selecting the right vendor providing best total value proposition and then holding the selected vendor accountable (quantitatively and qualitatively) through performance based contracts and through measurable, actionable Service Level Agreements (SLAs) and ensuring the vendors provide everything that’s expected out of them and get penalized if otherwise.

It is equally crucial that Business Leaders understand that Purchasing can bring a much needed objectivity while selecting the vendor that they need to respect. After all, they can count on these trained negotiators who can easily see the traps vendors would normally lay out in front of an emotionally invested business leader. Instead of disbelief and skepticism towards purchasing, business leaders can get their purchasing partner trained on nuances of the subject under negotiation so that your negotiator gets you most of what you desire.

Let's Be Friends?

Every purchasing professional would agree that they had thought about almost every idea that an external consultant who focuses on savings/value genration brings to the table. So then why is it that business leaders are always attracted towards external consultants when it comes to value generation?

Well, when was the last time you as purchasing professional sat in front of your business leader and told them you had such brilliant ideas? When was the last time you sat with the them to understand their strategic needs so that you can formulate ideas that can get creative juices flowing? When was the last time you called business leaders to discuss category strategy and present your relevant viewpoint to fine tune it further ? When was the last time when you carried yourself in such a way that the business leader mistook you for a consultant? If such interactions have been happening, chances are your company is not working much with consultants for ‘value generation’ or ‘savings’ reasons (not debating the need of consultants for advisory services on business matters) . If not, chances are they are everywhere inside your four walls.

Purchasing needs to be the internal value generators. If you told the business leaders that you want to play that role, till the time you don’t mess up their transactional support needs most of them would welcome your approach with both hands. In fact, they would appreciate your desire to understand their space, bring ideas to the table and collectively brainstorm ways to improve revenue and reduce costs.

Also, as incremental savings get tougher, you need more spend to influence. The more credibility you earn as ‘value generators’ with your existing business partners, more of those new business partners will be knocking on your door who always frowned upon giving you their spend.

If purchasing doesn’t quickly wrap its head around the fact that their cake is in danger of being eaten away by opportunistic consultants, they will have only themselves to blame for not acting on it.

Vendors - Friends or Foes?

Well it is super obvious purchasing’s job is to save money for their firm and vendors’ is to make money for their respective firm. So obviously the last person a vendor wants in the room is a purchasing professional.

Well – we as purchasing professionals must own up to it. Until recent times, most of us had ‘I am the customer’ mentality and our respective organizations' effort was always about squeezing vendors just on price until they break. Like tit for tat, our respective vendors did exactly opposite. Because they could easily predict all purchasing cared for was price – they started diminishing importance of purchasing by directly partnering with the business leaders who in most cases care more about other things than price.?Visible enemy’s invisible enemy – is your friend, isn’t’ it?

Now consider if your relationship with your business leader is weak or strenuous, who has the upper hand? Off course,Vendor. But what if like I suggested earlier, you and business leader are friends who as a united front invite vendor to the dialogue? If the focus is not just only on price - you will be amazed how much vendors bring to the table. Afterall – in most cases vendors truly own the subject matter expertise, business leaders own the application expertise and Purchasing – well you own relationship of these experts.

It is time that Purchasing organizations crave to become ‘Customer of Choice’. Afterall vendors will see your value more if you truly understand the catgeory, if you are their advocates (even though you truly hold them accountable for their performance) and more importantly they will certainly see it if your business leader gives you the respect that a true partner would give.

"Accountable" Partnership:

Haha, 'accountability' and this picture from movie 'The Hangover' do not really go hand in hand. And just for the record - I do not want to comment, which actors represent purchasing, business leader and vendor – since that will distract us from the intent behind the argument that - It is critical for purchasing to form a tight partnership with business leaders and vendors that heavily emphasizes on Accountability, Performance, Value Generation, Trust & Respect.

Purchasing should embrace that they are truly the bridge between subject matter (vendors) and application (business leaders) experts AND business leaders and vendors need to understand that if they don’t respect the role of this bridge and try to jump on their own; chances of drowning are significantly high.

If everyone plays their part in this accountable partnership, chances are; collectively we will create a much better ecosystem for the firms and its' customers.