Years ago, procurement was all about cost performance. Back then, procurement departments had one metric and one metric alone: cost savings. Actually, quite a large number of procurement departments still only have this one key performance indicator. Sadly, there are even quite a few procurement departments out there that don’t use ANY metrics…but I digress.
Today’s advanced procurement departments have a more holistic view of their role. They focus not only on cost performance, but also on supply risk, bringing in innovation from the supply base, partnering for competitive advantage, DFx, and other aspects of an ever-expanding role.
If this evolution wasn’t enough to make procurement professionals uncomfortable, certainly what has happened in our world has.
The last few years have been very challenging for procurement professionals because so many external forces have converged to create obstacles to success. The economic crash whose effects are still being felt to this day…the natural disasters such as the Japanese earthquake/tsunami/nuclear meltdown that have strained supply chains…the rapid advancements in technologies that are turning certain industries into veritable fossilized dinosaurs…these and other forces all have made the procurement role one that is not for the faint of heart. Many procurement professionals have seen suppliers go out of business, or be forced to rapidly change their business models or products, or struggle to maintain continuity of supply, or “over-downsize” as I call it. These events have, in turn, made it more difficult for companies and their procurement departments to keep operations running.
Focusing just on cost, as the profession had before, has not been enough for a procurement department to be deemed to perform well in the environment we’ve faced in the past few years. Procurement departments and their team members have needed to have a broad focus beyond just “reduce cost, reduce cost, reduce cost.”
Actually, when it has come to (a) “keeping the company running” or (b) achieving the absolute, verifiable, lowest possible cost of ownership in this challenging environment, I think that a lot of procurement professionals have had the proverbial gun to their heads to keep their companies running, which isn’t as easy as it was before this storm of simultaneous challenges hit.
The external environment of the past few years has caused many procurement professionals and executives to hear a voice in their heads that whispers “get the right suppliers on board…OR ELSE!” moreso than ever.
Does that mean that classic skills like negotiation are not valuable or in danger of becoming obsolete?
Why is negotiation so strongly valued?
My mind goes straight to corporate measurements. While procurement departments need to have a holistic focus in order to maximize their organizations’ success, I would also bet that there are more companies that measure their procurement departments and team members by cost savings alone compared to those that measure how holistic they are.
Cost performance always will (and should) be a key component of the procurement role. And, despite the e-Negotiation technologies that have emerged and – to a degree – matured, personal negotiation continues to be a key way to improve cost performance. And as supply chain partnerships are likely to become key to paving new paths to corporate growth, the aspects personal negotiation will evolve and become more important in new ways.
Will things settle down in the next four years?
I wouldn’t bet on it.
Be prepared for an interesting ride.