Member Article

Procurement’s sacred cows: dealing with no-go areas

Some areas of spend are traditionally off-limits to procurement, but they are opening up and with the right approach need not be sacred cows any longer, says James Jenkinson, vice president of procurement consultants Efficio.

Some categories of spend are easier for procurement professionals to tackle than others. However, there are certain categories that, traditionally, have been out of bounds entirely or where procurement has simply feared to tread.

Experience has shown there are three traditional “no-go” areas which stand out as far more difficult for procurement to penetrate as any others: IT, Marketing and Capex spend. For various reasons, these are the three sacred cows of procurement that have only ever been revered from a distance.

Now, as many typical categories have already been repeatedly sourced, companies are beginning to tackle these important areas of spend and finding the results of their efforts very rewarding. However, each of these no-go categories presents its own particular set of challenges.

For IT, the challenge is two-fold. First, it is a specialised area for which technical knowledge is crucial. Secondly, IT managers often have well- established relationships with IT outsourcing providers which have been built over long periods which can often mean that there has been little market testing.

Marketing is similarly specialised and relationship dependent. Marketing tends to be budget-driven with a focus on extracting the best “value” out of suppliers rather than driving savings and reducing spend. Developing meaningful baselines has been notoriously difficult to develop and this inability has been the primary reason why procurement has not been able to work in this area.

CAPEX presents a different challenge. This area of spend typically involves infrastructure projects such as construction, usually in the form of large, high-cost projects, each of which is seen as unique. However, seasoned procurement professionals will recognise that most projects will have significant cost elements in common and in reality are not at all.

In each of these areas there is a huge amount of value to be locked up: 10- 20% of savings are feasible given the right approach.

So what’s the problem? The first barrier to overcome is psychological. Understanding that these categories are not unique and can be tackled in much the same way as the more standard categories is crucial. Each has its own characteristics and demands, but in essence they are similar to other areas of spend.

Second, when these categories are being tackled for the first time, it is essential to conquer the fear of failure. There is no reason why a well- managed procurement initiative should not be entirely successful in these categories as in any other. It is a matter of trusting the process and adhering to the following key success factors:

• Speak the language. In IT, Marketing and CAPEX there are concepts and approaches that demonstrate knowledge and understanding which is critical to stakeholder buy-in. Without this, breaking down the barriers will be very challenging and most likely to slow down the project
• Having the right experience. Previous experience of a category will reassure the stakeholder and maximise credibility. Building trust and earning respect will assist greatly in becoming a valued partner in the initiative
• Take time to engage key stakeholders. Take time to get to know the people before commencing the sourcing process. You need to be perceived as a credible partner who can communicate effectively and with understanding for their concerns. Only then will they feel like they have been heard and would therefore support the initiative.

Having established a good relationship it will be possible to carry out the normal procurement process and the results will soon become visible. The most obvious is the reduction in costs but there are other, less tangible benefits.

A professional approach to procurement will yield greater transparency to buyers. They will have a much clearer idea of what they are buying, who they are paying and a greater chance of getting what they actually need. Suppliers will respect the greater sense of clarity too.

People in IT, Marketing and CAPEX can also have a much more positive relationship with their suppliers when it is clear what is expected on either side. This is clearly desirable and procurement can make it happen. Approached in the right way these once off limit categories need not remain sacred cows any longer.

This was posted in Bdaily's Members' News section by Georgina Golding .