Mr. Smith is right. Procurement is dead. It was doomed, entombed, marooned on a desert island, and passed away peacefully in the night long after everyone had forgotten about it. It’s dead and buried. (See: “procurious big ideas video peter smith and the death of procurement” in Spend Matters) And you should thankful that the Romans closed the door on the Egyptian Empire’s burial chamber or you would have been buried with it.

And, as we explained in painful detail in Part II, there is no more need for a purchaser. Like video killed the radio star, the internet killed the purchaser. And good riddance too. The innovations that led to the purchaser’s demise are far superior than even the John Henry of purchasing could ever be.

Procurement is Dead!

But with the death of every monarch, a new monarch is appointed.

Long Live Procurement!

A new age is coming, and Procurement will lead this new age. But it won’t be the Purchasing of old where catalog buyers sat in dark rooms ordering widgets and sprockets, processing mountains of paper, sending requests by fax, and comparing results in lotus 1-2-3 spreadsheets on MS DOS.

It will be the Procurement of new where senior analysts equipped with actionable intelligence make decisions that not only reduce costs, but increase quality and reliability across product and service lines and, moreover, increase the value with each decision made.

These senior analysts will amalgamate market intelligence from raw material and commodity markets (food stuffs, metals, petroleum, etc.), credit and risk providers (Dunn & Bradstreet, Bureau van Dijk, CreditSafe), CSR providers (Ecovadis and Sedex Global), third party auditors, and so on; integrate this data into extensive cost and risk models; and then compare them across suppliers to determine the real cost of each product and supplier from an organizational perspective now, 12 months ago, and with reasonable certainty, what it will likely be in 12 months. They will be able to make decisions that balance cost, risk, and quality, and also take supplier innovation into account.

But this is just one thing that these senior analysts will do. Because they will also have deep insight into best practices and processes across the supply chain, they will also have deep insight into best practices and processes that can help each organizational unit. Not only will they have insight into buying office supplies, and sending out RFPs for custom manufactured products, but they will have deep insight into best practices for

• Marketing Spend Management
  their insight into production can be levied into managing both print runs and media production
• Human Resources
  as their insight into services management can be extended into managing temporary labour
• Legal
  discovery services, standard contracts, and market intelligence are similar to specialized HR services, other market intelligence services, and standard publication acquisition
• Warehousing
  as their total cost modelling capability will be just as applicable to modeling the operating cost breakdown of a warehouse as it is to modelling the production cost breakdown of a super widget
• etc.

These analysts will do more than just send out simple RFQs and make simple purchasing decisions. They will define category, supplier, and even supply chain strategies and execute them strategically — starting with spend and value-based analysis, continuing with the collection of the right supplier and product information, followed by the right bidding and award strategy for the situation at hand (be it multi-Round RFX, e-Auction, re-negotiation with incumbent, etc.), which could even include a supply chain redesign, and concluding with a contract-based award to one or more suppliers that will be managed through the lifecycle of the contract. No more set it and forget it. Milestones for certificates, certifications, and reviews will be set and completed. Purchase orders will be regularly reviewed for completeness, correctness, and appropriate responses. Performance will be monitored and, if necessary, corrective action plans put in place and executed. Supplier Relationship Management (SRM) with strategic suppliers will take a front seat. Tactical processes and data collection will be automated as much as possible so that only exceptions will be addressed as needed and more time will be available for education, best practice improvements, supplier, and Procurement development and improvement.

Procurement will listen to the needs of the key stakeholders, synthesize them into a cohesive whole, and insure they align with the goals of the business to make sure that the right purchase — not the lowest cost or most readily available — is made every time. They will be strategic leaders that lead the way vs. tactical soldiers that just execute last year’s market plan. And they will generate more value than was ever generated simply by taking 5% (or 10%) off the top.

And we will continue to describe the tools, technologies, methodologies, and innovations that Procurement will use to form a new Procurement to replace the purchasing that has finally been entombed like the pharaohs of old.

Procurement is dead! Long Live Procurement!

In Part II we left of noting that not only is Mr. Smith right and Procurement really dead, having passed away peacefully in the night long after everyone had forgotten about it, it’s dead and buried with the radio star (because Video Killed the Radio Star) 6 feet under.  (see: “procurious big ideas video peter smith and the death of procurement” on Spend Matters) The internet has killed the purchaser just like the industrial revolution laid waste to the armorer, blacksmith, glassblower, and dozens of other occupations.

But I’m sure you’re all shocked that in yesterday’s argument we left out the most important fact of all about the purchaser:

He could process a mountain of paperwork that instills fear and loathing in even the most die-hard career AP clerk.

Paper? Who cares! The only paper (not counting the unnecessary printing of e-mails by managers who can’t read on the screen) any organization with a modern platform needs is the signed contract in jurisdictions that still need ink on the page to recognize a contract. Modern platforms take requisitions from anyone in the organization, allow a buyer to flip them into a purchase order to the under-contract or awarded supplier, allow the suppliers to flip them into invoices when the goods have been issued, queue the invoices for processing upon goods receipt from the warehouse, auto-match the invoice to the goods receipt and the PO, and if everything matches (or is within pre-defined parameters), send it to AP for (pre) approved payment (who make an ACH to your bank account). No paper required.

And while we recognize that, historically, up to 15% of invoices will come in with errors and the exceptions need to be processed even in e-form, the reality is that modern rules-based workflow driven cloud-based m-way match system will auto-detect (and sometimes auto-correct) the discrepancies, flip them back to the supplier for correction (or acceptance), and then, when they are correct (or at least within pre-defined tolerances), send them to AP for (pre-approved) (automated) payment. Since most suppliers will correct an (honest) error, and since most omissions (PO Number, address, routing number, etc.) can be filled in with corresponding documents, at the end of the day, less than 2% of invoices will need to be manually processed.

When you look at all of the innovations the internet has given us, not only is there no need for a purchaser, there’s no desire for his resurrection either. After all, it’s so much better to be able to find any product you could ever need with a single search at any time and have it within one business day then it was to have to wait. In the old days, if you discovered at 6 pm on a Friday you needed a part Monday, and the purchaser had already left for the weekend, what could you do? Typically nothing. Today, you do an internet search, place an order, request expedited same-day shipping, it ships out first thing Monday morning, and you have it late Monday afternoon. Maybe you are a day late in delivery, but if you had to wait for the purchaser to return, get his attention, maybe he gets the order in Tuesday and maybe you have the part Wednesday. And today, if you really have to have it now, you can order it Friday night, request special courier shipping on Saturday, finish the product on Sunday, and still make the Monday morning deadline. (It will cost more, but it can be done.)

And who would give up the automated m-way matching? It used to be that a large organization needed a roomful of AP clerks to process the 20K to 40K invoices it got a month, and even then it could only verify 10% of them 100%, leading to an average overspend (on overpayments, duplicate payments, and fraudulent payments) of 1.5% to 3%. Today, all invoices are processed 100% in real time, missing data is automatically appended, and erroneous invoices are flipped back to the supplier (with explanations of errors and acceptable corrections) … leaving less than 2% to be manually processed by a junior clerk who can get through all of them.

The purchaser is no longer needed.

Procurement is Dead!

But with Procurement’s death, we have a new beginning.

Long Live Procurement!

To Be Continued.

Mr. Smith is right. Procurement is dead. It was doomed, entombed, marooned on a desert island, and passed away peacefully in the night long after everyone had forgotten about it. It’s dead and buried. (See: “procurious big ideas video peter smith and the death of procurement” on Spend Matters.) And you should thankful that the Romans closed the door on the Egyptian Empire’s burial chamber or you would have been buried with it.

Just like the industrial revolution laid waste to the armorer, blacksmith, glassblower, and dozens of other occupations (and just like Video Killed the Radio Star), the internet has killed the purchaser. (May he rest in peace with the radio star.)

Let’s face it. Why would a modern organization need a purchaser anymore? What did a purchaser do?

He could find the one product you needed in a wall of catalogs in a minute and have it expedited to you the next day.

But with Amazon for Business, Alibaba, and about a dozen vendors offering integrated and federated catalog search capability that will allow the organization to integrate the third party catalogs of all of their suppliers into a single interface, who needs a paper catalog? Who needs to even remember the supplier or the name of the product? Today’s catalogues are heavily laden with meta-data with full search capability and anyone, anywhere, and at any time can use them to find exactly what they need, order it, and get it. No catalog expert needed.

Create and fax 3 copies of the RFP to the top 3 organizational suppliers in that category and ensure there were timely responses.

Today’s RFX programs, which support not only RFX templates for supplier information, proposals, and bids, but also support mail-merge template capability for creation and electronic distribution, e-Fax, and portal access, allow a buyer to send the same RFP to 30 potential suppliers in the same amount of time as it takes to send to 3. Plus, since everything is online, all of the data is automatically collected into the same online spreadsheet for instant apples-to-apples comparison, and if offline is needed, formatted spreadsheet output is instantly available. No data (re) entry required.

He could shave 5% off a hard-nosed supplier’s bid with hard-nosed negotiating tactics.

With today’s supply market intelligence, cost modelling applications, and in-depth (predictive) analytics applications that can plot trends across different component and raw material factors across regions and timelines, even a junior buyer has a good idea of how much a product from a supplier should cost and knows when the supplier is quoting a 15% margin (when the industry standard is 10%) and when a simple explanation of facts will be enough to convince a supplier to get in line. Plus, with e-Auctions, open book costing, process analysis, and joint inventory and innovation initiatives, costs can be reduced without any negotiation at all. Who needs a hard-nosed negotiator who only knows the carrot-and-stick method (and always eats the carrot before going into the negotiation)?

Procurement is Dead!

To be continued …