I was recently involved in an exchange on the subject of a reorganisation of Procurement at a service-industry client. Being proposed was that the role of the buyer would be split into two: an operational buyer responsible for managing the P2P process and providing support to local stakeholders on day-to-day operational issues; and a strategic buyer responsible for developing sourcing/category strategies, framework agreements, and delivering savings and other value improvements to the organisation. Typically, strategic buyers would hand-off category strategy implementation to the operational buyer. The premise was that, in splitting the roles, the organisation would gain in releasing capacity for certain people to carry-out strategy work, unencumbered by operational ‘noise’.
I’d come across this debate on several occasions during my procurement career and was far from convinced but, it’s not an unusual move by procurement leaders and it’s worthy of further consideration.
On the face of it, it’s quite a compelling proposition for procurement leaders looking to transform their performance: strategy work that otherwise would remain undone would get completed, and the organisation should then enjoy greater value capture from the supply chain. And it’s true that many organisations struggle with insufficient bandwidth to undertake high-quality strategy work, with category strategies frequently under-cooked and decisions rushed. In the apparently symmetrical world of split roles, operational buyers can focus on implementing the pre-negotiated contracts, calling-off from framework agreements and strategic buyers can be released to do the ‘sexy’ sourcing and negotiation part of the job. Everyone lives happy ever after…. Well, maybe not.
Those familiar with systems thinking will have come across the concept of ‘failure demand’. This is where extra work has to be dealt with as a consequence of a failure to do the job ‘right first time’. A popular modern example is that of the contact (call) centre inundated with customer enquiries, forced to increase manpower to deal with those calls and lumping all this call demand under the heading ‘work’. In fact, there is a stark difference between the calls that were designed to happen (e.g. enquiries that generate new business) and those that were not (e.g. complaints or repeat calls). It has been estimated that up to 40% of calls to a typical call centre could be classified as ‘failure demand’, and those are the calls that get through (see ‘HMRC’). The challenge for businesses operating contact centres is that they need to design their service delivery to eliminate this failure demand before it occurs.
Now let’s step into the world of Procurement where strategic and operational buyer roles have been separated. In all likelihood, both groups sit in different locations (operational buyers close to operations or service users, strategic buyers centrally), and they report to different managers. In the initial setting-up of this structure, at first things appear fine. There are role boundaries and hand-offs designed-in, and everyone appears to know what they’re responsible and accountable for. But wait….what happens when the supplier fails to perform; to meet delivery dates or key milestones? Was it because the demand on the supplier was within the agreed lead-time (usually within the operational buyer domain of responsibility) or was the delay due to the supplier failing to apply the appropriate resources onto the job because they were unhappy with the commercial terms negotiated by the strategic buyer/category manager? It’s not always clear, and besides, we still need the product or service delivered, don’t we? Add in failures of product or service quality and the number of incidents (and those people involved in resolving them) increase exponentially. This is ‘failure demand’, and it can be incredibly wasteful and costly.
Some time ago, I was responsible for a procurement organisation where these sorts of issues were a daily occurrence. At the outset, at least 20-25% of team activity could be classified as internal disputes between the strategic and operational teams, and the management team were forever stepping-in to arbitrate; in other words, ‘failure demand’ that affected everyone in the Procurement team. Indeed, all this extra work this was in addition to the issues separately caused by a supply chain breakdown (itself another source of failure demand). The amount of fire-fighting, and that requiring management attention was overwhelming.
The solution was to co-locate strategic and operational buyers, alongside process improvement/quality management team members into what we termed ‘QCD’ (quality, cost, delivery) teams. Each of these integrated teams were given the tools to undertake the tasks assigned to them; from release of customer demand, through to customer fulfilment; and they were largely left to get on with the job. Once the co-located QCD teams were put in place, although supply chain challenges remained, the ‘failure demand’ work within the team all but disappeared. Category and relationship strategies were developed with the full participation of the whole team and day-to-day operational issues were resolved without recourse to email, shouting-matches or escalation to management. What appeared to be a simple structural change had a dramatic impact of the performance of the QCD-based organisation: in three years; 20+% in cost savings, 25% reduction in operating budget, a 10x improvement in supplier delivery performance, and product-quality incident reduction of 75%.
In fact, the above approach to an office-based procurement operation echoes that of the lean approach to cellular-manufacturing systems; co-located groups of machines and multi-skilled people, provided with all the tools they need to manage the flow of work through the cell, solving problems as they go – as a team.
I believe in the not-too-distant future of Procurement, the P2P processes we know today will be managed, not by buyers as we’ve come to know them, but by suitably-trained service and product users, supported by user-friendly procurement systems. This will leave ‘professional’ Procurement to undertake the strategic and ‘trusted commercial advisor’ work most aspire to doing but will, most likely, result in significantly smaller Procurement teams.
In the meantime, my advice to Procurement leaders is to resist any temptation to initiate an organisational quick-fix by splitting the buyer role and instead focus on accelerating the devolvement of day-to-day activity to stakeholders. Then concentrate on the strategic work, whilst remaining ever mindful of any resultant failure demand (and its causes) between Procurement and its stakeholders.
Seamless working within and between Procurement and the business; it’s the future.
by David Atkinson