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Many believe direct categories are more important, but procurement is directing a lot of resources towards indirects. Is this a good use of resource?
I read with interest this morning on Paul Teague’s recent blog. In it, he looks at the way CPOs can build credibility in the business through concerted stakeholder management. In it, he argues, empathy is a key trait for buyers to secure success. But I wonder: is this a good use of company resources?
In Procurement Leaders’ 2014 Category Planning Guide, we asked buyers as to their stakeholder preferences. These are the pressures to which they are subject when engaged in cross-functional planning.
The principal pressure point for those category managers operating in the direct space relates to risk. Primarily, stakeholders are concerned about price stability and supply continuity.
The requirements for those purchasing indirect materials, however, are substantially more varied. The need for cultural or brand fit becomes more pressing, the reputation of the providers key and their flexibility also important. Given these complex and occasionally competing factors, there is significantly more man-management required here than trading a uniform commodity.
Many of those within procurement are drawn to the judgement that directs are more important to the business. In the inevitable pyramid that hierarchically structures ‘core’ and ‘non-core’ materials, it is always the key categories that are at the bottom, supporting the less essential items at the top.
But this does not reflect where businesses direct resources. This may manifest Parkinson’s law of triviality more than underlining business strategy.
Cyril Northcote Parkinson was a British civil servant and writer on corporate organisation. He was famed through his principle that "work expands to fill the time available for its completion” and criticised the lawlike growth of bureaucracies in government.
His laws on triviality also govern the behaviour of business. Specifically, that committee participants tend to contribute to discussions over matters which they have direct knowledge. Therefore, the less technical the nature of the discussion, the more numerous opinion and therefore the longer the time required to debate. Technical matters, however, are deferred to a small group of experts to manage.
Similarly, within procurement the relatively simpler world of indirects, whose intangible services affects a great body of the staff, require greater resources in stakeholder management. Reflecting the adage that the most important person in procurement is the catering category management. Everyone has an opinion about coffee.
This is not to disparage indirect categories. IT provision is not ‘trivial’, but it may be increasingly subject to the excessive diversions of ‘helpful comments’ and ‘germane feedback’ that requires category managers to spend half their day answering emails. SRM requires a lot of time.
Although this does gain acceptance of procurement outside the function, is this a worthy use of resources of other stakeholders – namely, the shareholders?
Members can access the 2014 Category Planning Guide by clicking here.
Non-members can download an executive summary by clicking here.