Is this a good time to be in procurement? I've lost count of the number of times I've heard this question asked (and then swiftly answered in the affirmative) in recent months. The latest occasion was the Ariba Live event in London this week, where around 150 practitioners gathered at the posh Landmark Hotel opposite Marylebone train station to get an update on the tech company's latest offerings and exchange "war stories", as one speaker described them.
Kevin Costello, Ariba's president, kicked off his keynote with a bold statement about procurement: "I don't think you'll ever see another time like this to help make your organisations successful." With cost reduction and working capital at the top of businesses' agendas and commodity prices well down on a year ago, it was "the best sourcing environment we have seen for decades", he declared.
If only the Forbes Global 2000 firms were able to do a better job of procurement, Costello claimed, they could collectively save themselves £411 billion (a devilishly satisfying $666 billion). Naturally, Ariba's customers in this group were doing way better than the rest, he added. Their profits in 2008 had risen by 30%, whereas those of their peers had plunged by 31%.
"It's a great time to be a procurement professional and to accelerate your career," he concluded. "Get your piece of the £411 billion!"
Now, I don't dispute that CPOs are under immense pressure to reduce costs at the moment (indeed, a survey of 133 of them by CPO Agenda that's just closed found that 93% were). Nor would I dispute Costello's view that the need to deliver savings faster than before is an imperative and that smart use of the latest technology - whether from Ariba or other vendors - is essential. However, I'm less convinced that the things many procurement groups are doing today are going to improve the function's status and value contribution longer term.
Why do I say that? Well, to be blunt, if all you are pursuing is tactical and aggressive margin transfer in the form of price cuts, then that simply isn't sustainable, particularly if (as many are now predicting) deflation turns to inflation in the next 12-18 months. And if prices rise and supply becomes more constrained as a result of increased demand and reduced capacity, which customers do you think suppliers will prioritise - those that tried to shaft them or those that were tough but fair? Equally, the people inside your business who are clamouring for your help at the moment (because, let's face it, they don't have much choice) are likely to disappear as quickly as they came once the financial screws are relaxed if they regard procurement as little more than "supplier bashers".
As in the past, there's a real danger that the spotlight that's currently on the function will move elsewhere as the business agenda refocuses on growth and innovation. So the question I would pose is not "Is this a good time to be in procurement?" but rather "What are you doing to impress people so they are inclined to let procurement do more interesting things than save money when the recession passes?"
To me, managing supply costs and the process by which suppliers are selected, reviewed and incentivised to perform effectively is the bottom line. And it's something that few companies have fully mastered yet. But, in the future, true competitive advantage is going to come less from having a tight cost base (although that will always be necessary) and more from the strength and depth of a company's collaborative relationships in global supply networks.
The best CPOs, of course, don't need me to tell them this. They instinctively know it. However, many others in business don't yet fully understand or appreciate the value that can be derived from a different way of working with (an admittedly small number of) strategic suppliers. It's up to procurement's leaders to educate and convince them, and to use the current opportunity to build both credibility and the personal relationships that will serve them well going forward.
As Tim Cummins, CEO of the IACCM, put it so well at Ariba Live: procurement organisations can't hope to collaborate externally unless they are also able to collaborate internally.
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