Most poor-performing Procurement departments don’t start out bad. They start out with the intentions of doing a good job, at least as good as any other department in the organization (although not necessarily a better one), but somewhere along the way, they stumble, and sometimes fall. And since there are not enough best-in-class Procurement organizations, (8% is a small number), and since there are theoretically more good people out there, we have to ask: why does good Procurement go bad?

Yesterday we covered two major reasons good Procurement departments go bad: strategic blinders (like Excel, where nothing good happens) and efficiency over effectiveness (where process is adopted for process sake and no other reason). Today we’re going to cover two additional reasons.

Relationship Blinders

Sometimes a good Procurement department will start by segmenting spend into strategic and non-strategic, do the right thing and start negotiating the strategic, and then treat those suppliers as strategic suppliers. When the suppliers deliver a more consistent, somewhat higher quality product, at a lower price than was delivered before, those suppliers will be looked upon as partners and, as the relationship cements, the relationship will not be questioned over time. Contracts will auto-renew at annual increases to cover “inflation”, but sometimes the “inflation” will also cover “margin inflation” and the quality of the product will not increase.

Even strategic relationships need to be reviewed and the suppliers subjected to a (360-degree) scorecard. The supplier might still be the best choice, but needs to know that the relationship is being monitored and the goal is that both parties continue to benefit, not just the supplier.

Plus, if a customer never goes back to market, it will never know if new suppliers with production capabilities and innovation capacity hit the market and if some of the award should be shifted to a new supplier to help them become a strategic supplier for the organization’s next generation of products down the road.

Values become Dogma

Values are good things. They should be respected, adopted, and implemented. But they should never become dogma. For example:

Relationships first
is a great idea, especially with strategic suppliers. But, as per above

Relationships above all else.
can blind an organization to faltering performance or better alternatives. Similarly:

Value-add
is great to get in every negotiation and can be a differentiator but

Value-over-customer-desire
can simply increase cost. If the customer is buying a “disposable” product that they plan to replace in a year, they may not want a two-year warranty, and focussing on “value” that the customer doesn’t want just increases cost.

There are other examples, but you get the point. Just like an organization can go process-crazy, they can also go dogma-crazy. Too much becomes as ineffective as too little.

For a Procurement organization to get good, and stay good, it has to reevaluate its processes on a regular basis and not get blinded by its own good intentions.

Most poor-performing Procurement departments don’t start out bad. They start out with the intentions of doing a good job, at least as good as any other department in the organization (although not necessarily a better one), but somewhere along the way, they stumble, and sometimes fall. And since there are not enough best-in-class Procurement organizations, (8% is a small number), and since there are theoretically more good people out there, we have to ask: why does good Procurement go bad?

Strategic Blinders

The first thing a new(ly formed) or re-staffed Procurement organization does is try to get organized. As they have not yet acquired a Procurement tool, been given budget for a Procurement tool, or even know the right tool exists, they turn to the tool they know — the spreadsheet. Spreadsheets really limit a Procurement professional’s view of what can be done with modern technology — how efficient Procurement can be, how effective they can be in their negotiations with correct and properly weighted bid and survey data, and how complete they can be in their supplier evaluations (as they don’t have to rely on one size tis all surveys for each supplier, which easy supplies different products and services). Spreadsheets are a Technological Damnation, often result in 20 Million in the scrap-heap, and sometimes cost you billions. There’s no such thing as good spreadsheets. The strategic technology choice to get started is often the technology choice that ends it all.

Efficiency over Effectiveness

Process is good, often very good. It increases efficiency, creates operational standards, and provides a repeatable baseline for junior buyers to follow. And no organization should be without processes. But sometimes, in their haste to be the best, Procurement departments wanting to do as much as they can as fast as they can often rush to get as many processes as they can in place to be as efficient as possible. But not all processes, even best-practice processes, are right for the organization. Adopting the wrong process and running with it can hinder Procurement’s effectiveness beyond no process at all. Having a process that all spend between 20K and 200K goes to an auction, while efficient, will be very ineffective if the wrong categories are put to auction.

Another process that blinds Procurement departments trying to get spend under control is the classic 3-bids and a buy. It is better than no bids at all, but there right number of bids is not always 3. For some events it’s 30 — as many supplier who can supply satisfactory non strategic products. For some events it’s two — because the strategic nature of the custom-manufactured nature means that only a couple of suppliers are up to snuff to start producing today.

And even if the process was good in the beginning, a process that goes unchanged for years and becomes an unquestioned routine can miss new opportunities. Gathering the same old, same old intelligence from the same old, same old sources can miss new intelligence from new sources that could identify new, innovative suppliers and products that could be game changers.

These are just a few reasons good Procurement goes bad, but not the only reasons. In Part II, we will explore more.