Procurement Optimization Has Changed - Has Your Company?
By Harry Gorden

"Inadequate sourcing competencies are costing mid-size firms more than $134 billion in missed supply savings opportunities annually" says the independent research firm Aberdeen Group.  Hidden behind marketing spin, fear enticing sales pitches and entertainments to buyers is the fact that sourcing raw materials and services today  is a non core competency that leveraging only your spend puts you at a severe disadvantage in costs to your organizational bottom line.

Examples of poor/risk averse purchasing practices:  Decentralized buyers...sounds good for empowerment but no volume leverage and very susceptible to personal gain versus employer need decision making.  Bids/online auctions...results can only be best of a mediocre bunch as limited participation of providers to your limited spend leverage.  Renegotiations give a false sense of holding the line on increases in the name of justifying business with the devil you know and managing supplier

Even with all the competitive pressures to control costs, the old practices on both sides of the desk are still in play.  Procurement, not being an integral part of the company strategy, is a reflection of the lack of respect senior management has of procurement processes and the people managing them.  Though few willing to admit, the reality is that raw materials, office supplies and transportation services are commodities.  Until recent technology developments and new business models, procurement decision making has been often influenced by advertising, relationships and entertainments...not the lowest price, much less best value.

Procurement is not a core competency for the majority of companies...even those who perform better than most still leave significant dollars on the table due to lack of technology/integration, purchasing not having a strategic position, fuzzy risk measurement, questionable conduct/processes and most importantly a lack of spend leverage.  These issues prevent attracting the right talent, have little chance of gaining internal interdepartmental respect and poor information/inventory visibility becomes expected.

Only the largest companies seem to have procurement being an integral part of their strategic plans.  They have the resources to buy expensive software, hire experienced procurement talent, have the senior clout to centralize purchasing to maximize leverage...yet even these companies leave dollars on the table due to using bids, renegotiations and have difficulty keeping up with internal needs versus leveraging marketplace options.

Efforts at transformation has been allusive as changing organizational structures, standardizing procedures, aligning information systems, maintaining talent, managing risk, compliance and supplier development, have proven to be too daunting.

The trend in procurement in recent years for manufacturers/distributors has clearly been to admit purchasing is not a core competency and to maximize their spend leverage they must align themselves with a business process outsource provider (BPO).  Whether buying plant supplies, raw materials or transportation services, a business can not effectively or afford to manage procurement on their own.

A great example is transportation services.  A very fractionalized industry, labor intensive, low tech, a myriad of choices by provider, mode, lane and service level makes for a true commodity...only real time technology can sort through for optimizing value and costs which the top BPO's in transportation have conquered.  These BPO's also leverage their incredible buying power gaining costs improvements other businesses can only dream of obtaining.  The BPO's then dedicate seasoned personnel to their clients to manage any exceptions and keep the real time customized information flowing to internal users.  This new breed of procurement providers view all transit options with an unbiased eye, giving the commoditized asset providers value in shipments to the volume and lanes desired, with all back room processes handled electronically.  The client gets the best technology, visibility across all internal users, spend leveraged to like size companies for best in class rates and a dedicated support team to manage to tier one providers across all modes in one command dashboard.  The control issue is customized to the degree the customer desires.  The best transportation BPO's do not charge for their services and guarantee bottom line results.

Resistance to the new breed of procurement companies is of course in current purchasing personnel but surprisingly with senior management as well...it is hard to let go as they fear loss of control and/or the effort to vet new alternatives.  In fact there is no control for these companies today and only through aligning themselves with leading edge technologies that cost them nothing, greater spend leverage and making their supply chain seamless with their core competencies, will true bottom line savings occur.  Thousands of companies are turning to business process outsourcing, yet many still hold fast to old processes.

Procurement optimization has changed:  When are you going to catch up?

Harry Gorden, President, Transportation Management Services, Inc, a transportation management agency with over 35 years sales experience, providing consulting to the equity, capital management and supply chain communities as well as no cost referrals for manufacturers/distributors seeking the right fit transportation management support. Inquiries welcome at:  [mailto: This e-mail address is being protected from spam bots, you need JavaScript enabled to view it ] This e-mail address is being protected from spam bots, you need JavaScript enabled to view it .

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