Excerpt from "Understanding Procurement"
 

Introduction

Initially, I did not set out to draft a book about procurement. I wanted to start a Procurement Consulting company and was doing research. However, after 30 years in the profession, I realized I had amassed much knowledge. Then, someone sent me a book on self-publishing, which started me on this path. I figured I would collect and put what I have learned in one place. The best value is to do light reading and refer to each chapter when encountering a comparable situation.

My target audience for this project is procurement folks, senior management, those aspiring to get into the profession, and those simply curious about what we do. More specifically:

Newbies: These are new to the profession or on a rotation in the department, if they are interns and might consider it a profession. This can give them a clue as to what they might expect in the future and whether it is the right path for them, should they choose to pursue it.

Purchasing Department Personnel: Procurement and supply chain is much more than acquiring goods and services. If you are a buyer, this will give you an idea of what is next in your career progression should you choose to stay here.

Senior Management (outside of the department): Often, upper-level management may not know, or even care, about the inner workings of an effective procurement department. This may give them an understanding of what we do and our daily challenges.

Senior Management (within procurement): The first draft of this book did not cover as much ground as it does now. However, the more I kept writing, the more I could recollect what I had done throughout my career. For instance, what is considered an effective supplier onboarding process? Is your AVL too big to be expertly managed? Do you have a DVL? Senior procurement management knows all this stuff, and this book is just a place that puts it all together. For them, this might be a good reference source.

Anyone curious about what we do: This book is also for anyone (folks inside or outside the company, suppliers, or people curious about how procurement can be done and interacts with other departments). Indeed, it is not on everyone’s “to-do” list, but some people want to learn what their brother-in-law or sister does for a living.

I read a book about starting a consulting practice in which the author showed that if someone writes and publishes a book, it makes them an SME (Subject Matter Expert). Whether or not that is true is still to be seen, and I will leave that for you to decide! For many years, I have worked in various supply chain positions in multiple companies, industries, and philosophies. Over the years, I have collected much of this information and decided to put it on paper, organize it, and share it.

In doing some additional research, I found that there are very few consulting companies that focus solely on procurement and supply chain management. Several large companies, such as Ernst & Young and Accenture, can do procurement, but they do not focus exclusively on the subject.

I wanted to create something that could be easily understood by both procurement and non-procurement professionals alike. So often, when people asked me what I do for a living, I answered that I was in procurement, and I would be met with confused looks. Many would ask me to explain myself, and I replied, “I buy stuff.” They would nod and walk away. I would then find myself explaining that large and small companies must buy goods and services like everyone else. I then tell them I manage negotiating contracts and issuing purchase orders, and they begin to understand the field! My intent here is NOT to turn the profession on its head but to explain, in simple terms and plain English, the difference, for example, between an RFI and a QBR. These are terms that we will go over soon enough! It may sound like technobabble, but every profession has its version of alphabet soup, of which procurement is no different; it will make sense.

I will also review some concepts I have learned that you can apply to your department or personal life. That is where the consulting part comes in. Although you can use some ideas, every situation is different and must be adapted accordingly. Furthermore, you can apply some of these concepts to your life events, such as buying a new car. Much of this depends on how much time you want to dedicate and how far you are willing to go. I am eager to go far! I once drove to two states (from TX to MO) to save $1,000 on a motorcycle and went from TX to NJ to get not one but two cars! Do you have that kind of determination? See the Procurement Mindset section to learn more!

Throughout this book, I refer to being better, faster, and cheaper. Let us explore some examples of what this might mean:

Better—To improve upon a particular standard or norm. Ensure that the processes and procedures we employ are the best for the job they are called to do. Be an advocate for your people and have the company invest in them to make them technically superior and have the latest thinking on supply chain concepts. Please encourage them to join professional organizations and attend meetings to learn from meeting others in the profession. Employ cross-training throughout the department so anyone can do anyone else’s job. In other words…make them better!

Faster – Figure out the most efficient way to make the process more expeditious and accurate so more volume (Ex, Purchase Orders) can be pushed through with fewer people. Automate where and when possible, especially for inventory orders with suppliers with existing contracts. Buyers should still review, sign, and manage all orders under their care. Have a rule that once a buyer receives a requisition, it will be converted into an order and placed within 24 hours. Requestors should be notified if this cannot be done and why.

Cheaper – Instill in the team that they should seek cost savings whenever possible, even for mundane, everyday purchases. Evaluate the market often to ensure that we, as a company, are receiving the best price possible. Let us explore if a contract or a committed volume can lower our unit price. Track all savings on a Cost Savings Log so it can be reported to senior management. Provide incentives for managers and their direct reports to continually look for price reductions but never at the expense of quality or timeliness of delivery if that is important to the end user.

Procurement oversees the commitment of company funds and resources and must be a trusted department that will do the right thing on behalf of the organization. It is one of the few functions that represent the company externally. A good reputation is paramount, and we should look not to play games but to treat suppliers fairly, equally, and without discrimination. This will go a long way towards having suppliers wanting to do business with the company.

I was once accused (by a supplier, no less!) of negotiating like a used car salesperson. Instead of being offended, I considered that a compliment and a badge of honor! I got a better price! So, call it what you will!

PS: This aspect has driven my lovely wife crazy over the years!

First, let me tell you what this book is and what it sets out to do. This book summarizes the different things we do in procurement, both day in and day out. As I considered organizing it, I discovered many more areas I wanted to explore. It gives the reader an idea of the ground we cover as professionals and our responsibilities. It is far more than just "buying stuff"! I tried to share the knowledge I have accumulated over the years in non-technical terms. I wanted to provide a flavor of the situations that I met. Not everything happens daily, but over several years, you will experience many, if not all, of the things I describe.

Now, let me tell you what this book is not. It is not a complete encyclopedia or definitive textbook on the subject. I have touched upon various subjects, so the reader has an overall understanding and flavor of each situation. By design, I did not go into great detail on many of them, as I wanted to keep the non-procurement readers still interested! I hope I succeeded in doing some of that! Much more on each subject can and has been written here.

I want to review what has been called the “Pillars of Procurement.” They are Operations, Compliance, Strategy, Financials, and Ethics. The various sections and chapters will be identified as such. Much of what we do as procurement professionals falls into one or more of those categories.

One thing to remember is that the Procurement or Supply Chain Department is typically a shared service organization. That is, many, if not all, departments in the company would come to procurement to acquire their items or services. We are spending other people’s money on their budgets, so we must spend it wisely.

I sprinkle in "Real World Examples."  These are actual experiences I have had, and I use them to further explain a concept by applying what occurred in my own experience. You will also find that ethics are critically essential to me. Procurement personnel are in a unique position in that we typically represent the company to the supplier community and are on the front line. Suppliers occasionally push you to see if they can buy at least a piece of the business (or a larger piece!) in ways that are not always legitimate and sometimes below board!

The table of contents will be your best friend when reviewing this book. It breaks down many topics in detail, so you can quickly find what interests you.

I hope you enjoy this book and that it raises some thoughts that make you say, "Aha," or "I never thought of it that way."  The goal is that you learn something. So, without further delay…