is a persistent, macho and life-threatening tendency to promote procurement's
importance in terms of the money it spends (the bigger the better!) and its impact
by citing cost savings. Really! This is the mindset of a function determined to
drive itself into extinction. Clearly cost is an issue
however not as a
negative aspect of business to be minimised, but more in terms of the positive
value created by 'investing' costs in supply markets. Assuming that a reliable
operating process exists (from sources, through internal operations and out to
customers), then sustained profit comes from getting supply costs, internal costs
and sales income all into the same equation and creating a net positive outcome.
The late Lord Weinstock of hugely-successful GEC knew this. He understood how to synchronise internal and external relationships. Quote "The secret is to see what the market will pay for a product. You then see if you can manufacture at that price. You then work out what you can get off the costs by squeezing a discount out of the suppliers and that is your profit." OK, maybe this is too price-oriented for fancy modern thinking but it reflects the reality of the firm: "we buy, we transform and we sell."
But cost saving is a two-edged sword. I understand why the initial emphasis of 'change' is on savings but, in 12 -18 month's from starting to generate them, the quick wins dry up. So it's important, during this time, to shift the management reporting spotlight away from savings and on to whether or not the procurement process is ensuring that the company's externally-supplied life-giving resources are being successfully acquired at the cost required by the financial plan. So long as the financial plan is challenging and strategically inspired, then performance versus these real-time targets is the credible way to measure progress, not chasing isolated cost savings which may or may not find their way to the bottom line. And if we then strive for supplier-led innovation to be channelled preferentially to us then we secure further value in the form of competitive advantage and contributions to the top line, but that's another story.