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"When I grow up, I’m going to work in indirect procurement!"

grown up indirect procurement
June 19th, 2018
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At the beginning of May, we organised a "conference-debate" on purchasing in Rotterdam (NL), at which the Chief Procurement Officer of one of the largest Dutch construction companies took a malicious pleasure in sharing the humorous video When I grow up, I’m going to work in procurement. "We need to stop playing second fiddle," she added, ardently. We couldn't agree more: it’s time to put procurement centre stage.

Our speaker, Professor Arjan van Weele, pointed out that "Thanks to technology, today's consumers can get everything they want quickly, easily and efficiently, so why, despite all these new technologies, do we, as employees, still have to put up with an internal customer experience that is often so dreadful?" And he answered his own question: "In most organisations, 70% of the costs are managed by just 1% of the workforce. Just looking at that statistic, you get the feeling it’s time for procurement departments to step up to the plate. Moreover, 75% of organisations still lag behind in terms of digitising procurement."

Procurement – the "final frontier"

An improvement in procurement of just a few points can double the profits of most organizations and create much better experiences for internal customers. Despite this, the company's various departments often have precious little consideration for procurement professionals, especially when it comes to indirect procurement.

Procurement departments are often short-staffed, but they are expected to produce an immediate ROI. And so the most commonly used method with suppliers still tends to be the "lemon squeezer". And as everyone knows, you can squeeze a lemon once, maybe twice, but that's about as far it goes.

To break out of this vicious circle, suppliers prefer to talk about partnerships, but it soon begins to look like they are really trying to steer conversation away from the question of prices!

And yet… unless it’s about purchasing strategic products or services, the hardest part isn't negotiating a discount; the hardest part is making sure that the contract, once signed, is actually used by the internal customers and that all of the processes, from order taking to invoicing, are optimised.

So as well as being a negotiator, the buyer must be an expert in communication and cooperation!

Communication and cooperation: key procurement skills?

During the roundtable session, Professor van Weele presented a case study on an international supplier of products and solutions for the glass industry. After millions were invested in a new electronic procurement platform and a pretty successful launch, the expected profits stayed flat for the following year, as did the use of the platform.

The cause? The internal customers didn't show any real enthusiasm for the new system. For one thing, not all of the internal stakeholders were sufficiently involved in the initial phase of the project, leading up to the new platform. For another, the employees didn't really understand the benefits to be gained from supplier contracts.

Things began to move when migrating to new suppliers was made part of the bonus calculation!

All in all, this case study during the roundtable was very revealing. Best practice suggests that:

  • 80% of time is devoted to ensuring effective use of a supplier contract by the internal customer (and 20% to choosing the supplier and negotiating the contract)
  • It is essential to create a common interest with the internal customer in advance, and to closely involve the supplier in the solution itself and in its implementation
  • Price is not the most important criterion when choosing a supplier. However, there are still plenty of opportunities to take a true "Total Cost of Ownership" (TCO) approach.

Influencing management, winning over internal users and forging a new type of alliance with suppliers… these call for an upgrade of the departments, for which strong communication skills and an ability to develop relationships are essential.

Blockchain, artificial intelligence, quantum computing, etc.

According to Prof. van Weele, the time has come for Buyer 3.0 (version 2.0 is already out of date): the buyer who knows that the spearhead of procurement combines the deployment of technology with the active participation of all involved (management teams, internal users and suppliers). Of course, it also requires suppliers to leave their "comfort zone" (although I prefer to call it the "discomfort zone" because I think it’s not very pleasant to be constantly squeezed). They must also position themselves as partners and specialists.

To end on a positive note: one of the roundtable guests (who works for a renowned international recruitment agency) sees a clear change in the buyer profiles that his clients are looking for: they have gradually shifted from wanting a negotiating expert to seeking an expert in TCO.

"Buyer 3.0: here I come!"

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