Written by: Donna Kirk – The Pro Forum Community of Practice

MIA – the missing steps in procurement

Toshihiro Nishiguchi, defined the key steps to continuous strategic sourcing as:

  1. Assessment of a company’s current spending (what is bought, where, at what prices?).
  2. Assessment of the supply market (who offers what?).
  3. Total cost analysis (how much does it cost to provide those goods or services?).
  4. Identification of suitable suppliers.
  5. Development of a sourcing strategy (where to purchase, consideration of supply and demand, while minimizing risk and costs).
  6. Negotiation with suppliers (products, service levels, prices, geographical coverage, Payment Terms, etc.).
  7. Implementation of new supply structure.
  8. Track results and restart assessment.

So, what is missing?

Brett Lyndon, Senior Procurement & Contracting Trainer at Pro Leaders Academy, suggests that strategic sourcing is not as straight-forward as Toshihiro Nishiguchi claims.  There are factors that needs to be considered that has not be identified in Toshihiro’s steps, and he highlights:

  • There is no alignment with the organisational strategy or goals.
  • A lack of focus on end of life contained with the Total Cost analysis.
  • Risk & Opportunity analysis may not have been considered.
  • Stakeholder engagement is not a step.

Recent discussions on Modern Slavery and subsequent government Legislation in Australia, with NZ currently considering, are forcing organisations to take a more strategic view of procurement.

#1 – Aligning with the organisational strategy.

Without aligning the strategic approach with the organisation’s strategy, the approach is pointless. What are the board, the executive, or the community’s expectations of what will be delivered? Is there a focus on being agile or leading a specific industry? Is there a focus on supporting the local community?

Are we continuing to look to cut costs at the expense of local businesses, where in fact we need to adjust our weighting approach in the tender evaluation process to determine the value for money?

#2 – Total Cost analysis extension.

We have a requirement to consider a range of global discussions such as climate change, environmental impact and resource management when sourcing products or services. Can products be repurposed, disposed of safely, and without a negative impact on the environment? Can the market respond to our need to address these issues?

#3- Risk & Opportunity

What is the outcome if we don’t proceed with this procurement? What is the opportunity if we do? Are we using the concept of risk to stop us from taking action?

When the word ‘Risk’ is used, it is generally in relation to a negative aspect of a task or activity. Many current risk frameworks and management approaches are focused on avoidance and mitigation that are negative in their approach. Viewing risk in the context of an opportunity can provide a positive outlook – such as asking, “what are the opportunities we can leverage from the risk?’

#4 – Stakeholder engagement

Regardless of the emergence of artificial intelligence and automated systems, the ability to connect, to communicate, and to work together is fundamentally a human skill set. Algorithms and predictive analytics have their place, however experience and intuition can often trump technology. Sitting in the boardroom or in a director’s meeting and sharing ideas and experience can shape the decisions being made. Having the ability to communicate and articulate clearly and concisely so others understand and can deliver is vital to achieve the true purpose.

The missing steps, perhaps not as vital when Toshihiro Nishiguchi cast his pen over the fundamentals of procurement, have fast become vital to our ability to be more agile, more current, and more outwardly focused as procurement professionals – which begs the question, what else will be missing in the future?

NOTE: The content of this article is intended to provide a general guide to the subject matter, and specialist advice should be sought about your specific circumstances. The content must not be relied upon as legal, technical, financial or other professional advice.