The Fifth Age of Procurement – Wider Value
We weren’t able attend the riskmethods Supply Chain Risk Management Summit last week, but our good friend Peter Smith was there presenting a keynote – here are his key takeaways on that.
I hinted (on Twitter I believe) before the event that I had an “interesting idea” to expose at the Supply Chain Risk Management Summit. It took place in sunny Hamburg last week, and having as promised talked about my idea during my keynote, to what was (I think) a reasonably appreciative audience, I’m pleased to have the chance to discuss it here in a two-part article. Before anyone gets too excited, it’s not black-swan type revolutionary thinking – but it might make some procurement executives look at both risk management and “procurement with purpose” in a somewhat different way.
Let’s start with “procurement with purpose.” In my session, I suggested that we’re moving into a new age of procurement – the fifth age, actually. The last big step for us was a move away from the focus on assuring supply and cost reduction (the two big drivers when I came into the profession 30 years ago, and the “third age” in my time-line) to a wider focus on business value, the fourth age. I know we’re not there yet in every organisation, but most procurement functions do recognise that their overall aim is to contribute value to their organisation in a number of different ways as well as pure in-bound costs, such as supporting revenue growth, risk management, contribution to operational effectiveness and more.
That’s fine, but now we may be moving into the fifth age of what I called “wider value” during my riskmethods session. Issues such as climate change, plastic in the oceans, de-forestation, species extinction, modern slavery, fair taxation, inequality, the refugee crisis (the list seems endless sometimes) are hitting the headlines, and the pressure is on organisations to reflect these challenges in how they behave.
When the Financial Times has regular features on “capitalism in crisis,” a group of big firm CEOs declare that corporations should serve their communities as well as their owners, and the Governor of the Bank of England says that “firms ignoring climate change will go bankrupt,” then you know something significant is going on.
As organisations look at what they need to do in terms of this wider purpose, one factor becomes obvious. Most organisations (both public and private sector) can have more impact by working with and through their supply chains than they can achieve by purely looking internally. A firm can look at its own internal energy efficiency of course, but if it can persuade its key suppliers to take action, that effect is magnified and multiplied. And many actions, for instance around plastics and recycling, or modern slavery, will require work across firms and supply networks; collaboration at industry level will be essential in some of the most critical areas.
So all this external collaboration and focus that is needed gives procurement, as the link between organisations and their suppliers, a great opportunity to take the lead in terms of delivering wider value. Of course there will still be the need to seek more “selfish” competitive advantage for our firms, but increasingly organisations will be judged by customers and regulators on what they do in terms of these big issues.
One of the biggest challenges for procurement and for the whole organisation will be getting the balance right between the different drivers. For instance, in the public sector, how do we take factors such as “social value” offered by suppliers in their bids into account, whilst not forgetting that we’re spending taxpayer money and have to pay regard to more traditional measures of value too? In the private sector, how do we balance different stakeholders? Buying metals or minerals from a new source might save us money but risk supporting a dodgy regime. However, it might also bring good new jobs to desperately poor people – so even the different “purpose-related” elements might be in opposition!
There are many tricky issues like this ahead. But this drive for wider value will I believe be a defining issue for procurement over the coming years. Whether we call it sustainable procurement, procurement with purpose or something else altogether, it will align with our organisation’s wider goals, and give our profession many fascinating opportunities and difficult challenges, I’m sure.
And in part two I’ll discuss what that means in terms of some key enablers for procurement.