We’re continuing our foray into the top barriers to success that we outlined in our top barriers post that chronicles the barriers that keep coming up over and over again in every Procurement survey in our effort to ensure that you don’t have to read another state of procurement study for the next 5 years. Today we tackle category and market complexity.
A Brief History …
Simply put, the explosion in innovation since the Gilded Age, coupled with the rampant rise in outsourcing since the information age began, has led to continual increases in product complexity, which has, logically, led to continual increases in category complexity. Category complexity combined with a rapid uptick in outsourcing since the internet age began has led to great increases in market complexity as well.
We’ve went from vertically integrated companies at the beginning of the Gilded Age one hundred and fifty (150) years ago, to companies that rely on supply chains of over 10,000 players to produce our extremely complex computing devices. Think about that. As you descend into the deep dark tiers of your supply chain beyond the few thousand tier 1 suppliers you rely on as a large organization, you go from thousands to tens of thousands to hundreds of thousands of suppliers who are all necessary to deliver your products, and if any single one of those produces a singularly unique component, part, or material that can’t be produced by any other supplier in the complex supply ecosystem (that Bob Ferrari and the doctor discussed in Part V of our Direct Sourcing & Supply Chain Series on how Supply Chains have become Ecosystems), it could put an end to an entire category of offerings and significantly impact, and maybe even bankrupt, your business.
That is why categories and markets are now so complex.
The Problem
There’s an old adage that you can’t manage what you don’t understand (and you really can’t, and that’s why we refer to fresh-faced MBAs who’ve never studied anything but business or done any work in the real world and try to run businesses off of spreadsheets Masters of Business Annihilation), and the corollary in Procurement is you can’t buy what you don’t understand. If you don’t fully understand not only what the product needs to do, but what specs it needs to meet for R&D, Manufacturing, or your client, you don’t always know when there are substitutes that these departments aren’t considering and when there aren’t.
In other words, you need to have a deep understanding of the product and department you’re buying for, and that understanding has to be as deep as your understanding of Procurement. There’s a reason that, in the old days, Procurement was the Island of Misfit Toys and consisted of employees who didn’t cut it elsewhere in the business (and couldn’t be fired due to nepotism) and employees nearing retirement in engineering, HR, etc. who were “rewarded” with an easier job. This is because part of purchasing, especially for indirect or cookie-cutter products, was just going through catalogs and negotiating bulk discounts and even the office dunce could do that okay. And the other part required really understanding what the R&D and manufacturing teams needed.
In other words, Procurement wasn’t ready for the complexity, couldn’t predict or deal with the volatility, and definitely couldn’t take advantage of market saturation when it did occur.
The Necessary Realization
Don’t hire graduates specializing in logistics, operations, and or procurement.
Seriously. Don’t! Hire mathematicians, manufacturing floor managers, and engineers and train them in Procurement to support logistics, R&D/Engineering/Manufacturing, and direct Supply Chain Management. Hire commercial lawyers who like to negotiate and train them on Procurement, vs Sales, best practices to support legal and commercial negotiations. For services, hire ex-consultants who used to perform the services. Don’t hire “Procurement” people who only know the theory. Just like it’s much easier to teach a mathematician accounting than to teach an accountant advanced mathematics, it’s much easier to teach Procurement to a highly trained engineer, lawyer, or consultant with real-world on-the-floor experience than to teach a fresh-faced inexperienced grad with no real world business experience on how a business actually operates.
If you bring back the training, which is a topic we’ll discuss in more depth in a future installment of this series, then you can bring in true experts in a category with the ability to manage the complexity, and the category complexity won’t be such a problem.
The Technological Requirements
The technological requirements are considerable and require supply chain aware sourcing and sourcing aware supply chain and expertise from source to sink and back again on both sides.
A reminder that if you want to address the problem once and for all, you need the right technology with the right capabilities that support the right processes. If you want some guidance into what this is, hope that your favourite provider reaches out to Bob Ferrari of Supply Chain Matters or the doctor and enables us to focus on writing the not yet written series (or in-depth e-book) explaining what modern Procurement and Supply Chain Tech needs to look like (and how it needs to be implemented) to address the challenges, reduce the risks, and address the priorities. Since most of it has not yet been written, it’s a big effort that, for now, we will only be able to drip out as free time permits in the future.