The (Mostly) Evil That is Procurement And How To Think About It

I know. There should be some repercussions for starting 2022 with a missive on procurement, but what better way to jump start your mind. One minute you're basking in the time away from work, and the next I'm reminding you of the evil empire that should be the stuff of children's books. "Tommy chose the life of a procurement officer. Lucy is a pediatric brain surgeon. Try to be more like Lucy."

In my defense, though, I've been studying this for six months and I think there are some things that we can clarify together.

First, each of those engagements involves not only two sales processes, but two processes that are completely separate. To the actual client, you are pitching value. To the procurement assholes, you are pitching cost.

I use the asshole pejorative carefully. I want to use a truly accurate word but that would set off the spam defense (which itself was probably bought through the procurement process and thus has no nuance) and so I settled on this. It's not that procurement people serve no purpose; it's more that they should not be applying the basic principles of procurement as currently practiced to buying your services.

Procurement has a long and mixed history. The earliest evidence of it goes back to the construction of the Egyptian pyramids, where dedicated scribes tracked all the supplies and labor and balanced the evolving demands of the project. This became official in 1832 in a book by Charles Babage, where he calls for a "materials man" to select, purchase, and track goods. Many other books followed, extolling the virtues of procurement for the construction of railroads.

It wasn't until the 1960s that procurement took a very evil turn, focusing almost exclusively on cost. This led to competitive bidding on nearly every project, and we played along. We took the supplicant position along with most everyone else, assuming it was the cost of doing business. We held our noses and played the game. (Good historical overview here.)

And that's where we are today: playing the game by someone else's rules. And if you don't think there's power in the procurement process, think about this: in corruption-riddled Russia, business owners pay more to their public procurement officials than the combined national spending on education and healthcare: $90B/year. Source.

Second, whatever the foibles of procurement, its long arm of the law is going to get longer. Crushing the value conversation with a few small creative firms doesn't even register against some larger mandates that are invigorating the procurement space: ethical sourcing, bribe-free level playing fields, monitoring DEI compliance, and just plain wringing the last drop of blood from a stone. Today's procurement is about cost and allocation; they can't even spell "v-a-l-u-e". The troops of procurement are amassed against the young buyer of a $9.98 top from H&M, child labor be damned, and if a few software dev shops are mauled in the process, well, that's the price of progress.

Procurement is not going away. They are the glorious bad guys doing a few really good things with an impossibly blunt tool, but capitalism needs strong counterforces. Buried in a truly excellent treatise on procurement is this statement: "All too often, there is little communication and accountability.... Cost is the only discussion point and data isn’t shared effectively, while risk and CSR assessments can be a ‘tick-box’ exercise, meaning transparency initiatives end up half-baked."

Procurement, as currently comprised, is a 14-lb rusty wrench and you keep screaming that you're a fine mechanical watch. Traditional procurement practices have bigger fish to fry and they aren't out to get you; they just don't "get you".

Third, the only hope of winning this battle is to focus on the small skirmishes. Each of those exercises should start by identifying the mindset of the procurement team on the other side of the table. Are they the traditional procurement types that have ironclad rules, little-man syndrome, and a need to win? Scorch earth 'em, baby, don't invest too much in the sale, and always have other options. But if they are the more enlightened types, view it as a wonderful challenge and sell on value.

"Organisations are increasingly looking beyond their direct employees for new technology skills and expertise in business transformation. Some 42 per cent of workforce spending is on the external workforce, which comprises contingent workers such as contractors, freelancers and temporary staff, and services providers such as marketing agencies, consultancies and law firms." Against that background, “we wanted to identify the true business impact of services providers, since they are now involved in everything from marketing to IT and accounts to customer service." Source.

So just like you'd try to assess the fit of every client, try to assess the fit (i.e., sophistication) of every procurement department, too.

Fourth, traditional procurement is running out of costs to save and their ongoing thriving (maybe even survival) will require a pivot to creating great value rather than a reducing costs even more. According to the Hackett Group, procurement has cherry-picked their areas of influence, and as they wander further afield to conquer larger territories, they are finding it harder to locate the enemy. When they choose the low-hanging fruit (less than 50% of a company's spend), they can manufacture savings of 7.9%. When they try to smother 85% or more of a firm's purchases, their influence drops to 4%.

They are running out of territories to conquer, and I think that's good. I don't think they'll get even more desperate. I think they'll actually revise their approach, moving from cost to value, and here's where you'll find a receptive ear.

The Hackett Group notes that "measuring and managing procurement’s business value is the top priority for procurement executives. However, most have difficulty calculating the function’s value contribution to the achievement of the company’s strategic goals. While procurement is most commonly recognized for its successes in reducing and avoiding purchase costs, top-performing organizations invest more in value-channel activities that track more ways value is created from savings beyond purchase-price reductions alone."

These are your people and they are not the assholes, so don't shoot indiscriminately. The people we often associate with procurement, and rightly so, are the ones I've highlighted with a superimposed #1 on this graph—you should be on the lookout for the #2 group. You cannot change a #1 into a #2. Figure out who your adversary is and then act appropriately with low expectations.

In terms of how these people are currently scored, the same study notes that value is not even measured in 58% of procurement scorecards, while price is measured (to some degree) on 98% of them!

Big firms are noticing the drawback of seeing everything through a procurement lens, and we can only hope that more of them will follow Pepsi's lead in disbanding the team of a dozen people who oversaw marketing spend and leaving the decisions with the people closer to the action.

Finally, you have more in common with procurement than you think. Both of you are clawing and scratching to demonstrate value. The procurement profession itself is at a crossroads. I'm not going to take back the childish name calling I've done, but there are some smart, open-minded people in procurement. Your job is to make your case to those...and try every nasty trick in the book on the others until they get their act together.

Here's my cheat sheet for winning this:

  • Adjust your business strategy so that what you are offering is demonstrably not the same as what everyone else is offering. We are depressingly bad at this as an industry. Without scarcity, there is no exceptional value.
  • Have a massive flywheel of a marketing plan that works, delivering constant opportunity in the top of the funnel so that you have options, making it easier to walk away from settings where your value isn't recognized.
  • Quickly identify the sophistication of the procurement people, confirm your instinct, and then work with them or say bye-bye.
  • Die on this sword or quit whining about it.

Happy New Year! :)

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