Today I had a conversation with an old friend, Bobbi Battista, who now works for Tenzing Consulting as a recruiting manager. While talking with her I realized that we first met in Monterrey, Mexico exactly ten years ago in the summer of 1999 when I was working at a diversified manufacturing corporation as an MBA summer intern in the procurement organization, and she had just arrived to perform an, at that point novel, exercise called “Opportunity Assessment” in order to identify sourcing projects ripe for a “reverse auction”. Both terms were really new and Bobbi’s company FreeMarkets, Inc, was at the center of the revolution in those sourcing techniques.
It is extremely telling that the challenges she faced then in running that exercise are exactly the same now. In the ten years since we first met, I have conducted countless spend assessments, first at FreeMarkets (yes, they hired me right after I finished my MBA, thanks in no small part to Bobbi) and then Ariba after they merged with FreeMarkets in 2004. During those assessments I performed myself at some of the biggest corporations in the world, I found extremely difficult to get the message across that without proper understanding of where the money was going, running a productive sourcing practice was futile. Yes, they were getting savings by using brute force negotiations. But no strategic vision.
In these ten years, I’ve seen companies short changing their sourcing teams by squandering resources, hiring mildly talented managers, and requesting the impossible from a group of hard working spend professionals without giving them proper tools to do their work. It seems almost impossible to believe that the vast majority of companies still use Excel to perform a spend analysis, pretty much the same way as they were doing in 1999. We will never know how many opportunities to save money they relinquished. But I’m sure of one thing: if they had invested in talent and tools since 1999, they could have saved several times more money than any investment in people or tools since then.
Strategic sourcing is and will remain an area of opportunity to save money now and in the near future. Companies will remain uncompetitive if they don’t find ways to be more efficient and cost conscious. But what are they doing? They fire “costly” employees in order to make the numbers for their quarter. They suspend investments in technology because they fear the ROI may not be as high as they expected, etc. I see them spending tens of millions of dollars in an SAP implementation that undoubtedly helps them trace their financials but decline to invest a couple of hundred thousand dollars in sourcing technology. They find hard to believe an ROI of 10 to 1 (and lots of times higher). As many at FreeMarkets and afterwars Ariba realized, the vast majority of the first reverse auction we conducted at any company helped pay for a full year of the underlying technology without doing anything else. If there’s a sure thing in investment, that is a full suite of a spend management solution.
But why after ten years we are still struggling to get the message across? Why do companies still need proof of concept for strategic sourcing? I don’t have an answer, but my guess is that the current generation of procurement leadership still recall their days as buyers relying in telex as a communication tool in the seventies and brute force as a negotiation strategy. They still see procurement as a tactical task instead of a strategic core competency. They wanted “numbers” so they went along the SAP train. They needed predictability so they liked MRP systems making crude demand projections. But they thought nothing about enabling their teams to perform their duties better using similar tools tailored for their practice.
Another problem is talent retention at the sourcing departments. I recall training a team of newly recruited sourcing managers at the Latin American headquarters of a big US corporation. I have very seldom encountered a team so focused, avid for knowledge and with clearer objectives than that. They did wonderful things and became an example to the rest of the organization on how a professional team is recruited, trained and performed. But they were too good for procurement. Their careers started to stagnate because the upper management didn’t create the right incentives to keep them working. Promotions were deemed too expensive. So the new recruits either left the company or asked to be transferred to other areas with better career paths. They were 20 people that were recruited after interviewing more than 300 people! After they left their sourcing positions, the company never replaced them with like talent, because it was “too expensive”. After only 3 years, the sourcing department was back to the same old bullying tactics with the vendors and had a lot of friction with the internal clients. Like nothing happened. All that talent and investment, wasted.
I guess my point is that, after all the above ranting, it seems that Spend Management is NOT a mature practice. Corporations needlessly delay their commitment to a more strategic approach and waste time, money and resources in quick fixes and half measures. And that the ones that invested heavily in the area when a visionary leader saw what needed to be done, lacked the capacity to lock the knowledge and disseminate the goodness of our profession.
