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Thinking value, not just cost

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James Tucker, managing director of 1st Executive, discusses how procurement should think when it comes to adding value

 

There is no doubt procurement is evolving. I was listening with interest to a presentation recently by a procurement adviser who was talking about how the function can elevate its role and stay relevant in today’s business landscape. He said the traditional focus on value of spend and cost savings needed to evolve and procurement must redefine value. He also talked about the function becoming the enabler of innovation within an organisation – becoming a trusted adviser – and about becoming increasingly agile.

 

While I agree with all of these things, the unfortunate truth is that some procurement functions still focus on the wrong measurements and a process-driven, transactional approach rather than a strategic, relationship-driven approach.

 

Let me give you an example. The commodity that we supply as a procurement and supply chain recruitment specialist, is talent. We are a niche specialist and have developed a network of procurement professionals over many years. Having submitted a tender recently for the supply of talent and having not been selected to the preferred supplier list, I asked for feedback. I was told that there were no marks allocated for being a specialist. This seemed completely counterintuitive. Doesn’t the hiring of the right talent require a relationship-driven approach so the right supplier with the right experience and the right network can deliver the right service and, consequently, the best value to the business? Choosing a supplier through a ‘black box’, process-driven approach that takes no account of a specialist track record surely shows a fundamental lack of strategy and a poor understanding of what is being bought.

 

We are now operating in a business environment in which elements other than cost and spend have to be given a value by procurement. Take social and ethical value, for instance. The UK’s Social Value Act requires those who commission public services to think about how they can also secure wider social, economic and environmental benefits, so how does procurement measure this? Similarly, in the private sector, we live in an era in which a company’s value is no longer determined solely by how well it does financially, but also by its social and ethical credentials, or lack thereof. As such, transparency in the supply chain in terms of suppliers’ ethical and social practices is also key, but how is this measured?

 

This is about the capability of measuring different types of value and if procurement teams do not know how to measure these nonfinancial elements they will struggle to bring real value to the business. My example may seem a little trite against a backdrop of ethics and social value, but the principle is the same. If procurement wants to rid itself of being seen as a process-driven, uncreative function then it should be looking at how it delivers real intrinsic value – not just the lowest price.

 

As Chris Cliffe, procurement director of CJC said recent interview: “If you have the right people talking to the right people, the right team from the supplier- the right team from the buyer – all talking about the right things, the chances of success are far greater”. I couldn’t agree more.

 

James Tucker is managing director of 1st Executive, the global procurement and supply chain recruitment specialist

 

This contributed article has been written by a guest writer at the invitation of Procurement Leaders. Procurement Leaders received no payment directly connected with the publishing of this content.

 

James Tucker
Posted by James Tucker

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