The Point by Buyers Meeting Point
Book Review: Procurement 20/20
“By 2020, procurement’s role will have become even more important for sustaining constant supply, best cost, reduced volatility, faster and improved innovation, and clean corporate-brand image.” (p. 179)
Procurement 20/20: Supply Entrepreneurship in a Changing World is a team effort by four members of McKinsey’s Global Purchasing and Supply Management Practice: Peter Spiller, Nicolas Reinecke, Drew Ungerman, and Henrique Teixeira. If you were at the Institute for Supply Management’s conference in Las Vegas this May, you might have even picked up a copy for free. (Thanks to Cottrill Research’s Jeanette Jones for grabbing my copy!)
This book is an opportunity to get insight into the experience and research of the McKinsey team, most specifically, their seven year Global Purchasing Excellence (GPE) survey. This data provides the numbers to back up many of the things practitioners have known instinctively for years: the pressure for each employee to perform has gone up, as has external spend as a percent of total cost.
- External spend as a fraction of total cost has increased by an average of 40 percent since 1970. (p. 9)
- External spend has also “grown from roughly 60 percent of a company’s total expenditure in 1970 to 85% in 2010. (p. 9)
- Companies on the S&P 500 realize approximately $900K in revenues per employee, a 22x increase since 1970. (p. 9)
- Leaders [as designated by McKinsey’s GPE survey] “invest 29 strategic full-time equivalent (FTE) employees per US $1 billion in spending.” (p. 19)
All of the leading procurement philosophies are reflected, including corporate virtualization, the need to outsource tactical sourcing in order to foster excellence, and the expectation that more training will be needed as attitude and work ethic are prioritized over experience in the hiring process. The authors also address the idea that procurement transformation – a phrase that has yet to be definitively captured and defined – is active preparation for the opportunities and challenges of the future.
In my opinion, the best thing about this book is McKinsey’s willingness to use their years of extensive research to back up some tough love declarations. These statements necessarily separate the leaders from the laggards. Procurement teams must have enough of the right talent, but they must also have the opportunity and drive to leverage it. Although there is no denying the importance of structure and systems, neither (nor the combination of both) is a substitute for superb talent. If, as Ralph Waldo Emerson told us in the 19th century, “A foolish consistency is the hobgoblin of little minds,” an overemphasis on process and technology is the refuge of a sub-par procurement team. Sometimes the truth just hurts.
The unfortunate reality of this well written and documented book is that the professionals most likely to read it are already singing in the “choir.” It will be an uphill battle to get your CEO or CFO to read it, no matter how much they (and their procurement team) would benefit as a result. The best use of the facts, benchmarks, and ideas contained within is to substantiate procurement’s requests for support, influence, and organizational change. Add that to the fact that the $25 price tag is a pittance compared to what a McKinsey consulting engagement costs, and the decision to buy this book becomes a no brainer.