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How the "Bad times" Can Lead Procurement to Fail (Example on oil prices)

January 23, 2015 by Jeremy Kirsten

Procurement Fails

One other matter that I suggest contributes to Procurement failing; it is my observation and I am unable to point to any study in this regard – that when times are good, then there is a chance for complacency so when there is a full order book, robust contracts and supplier arrangements in place, healthy profit margins, a market leader, a reputation for integrity and product innovation, then it is easy to question the need for a Procurement function.

Yes it is short sighted and unfortunately its value can be bought into question where there is a view that if all is good then profitability is healthy and by extension this can be increased by disposing of a function that is not being recognised.

Two problems with this view:

  1. Procurement is a function needed during the good times as well as the bad.
  2. The short sightedness must definitely have a sting in the tail because when the lean years come – and they always do – then the business has a change of view because there are some risks to business operations that have not been mitigated.

I would appreciate comment from readers and how this scenario has affected them. 

The point that I make here is that it is a very easy and compelling argument for a decision to be made incorrectly. Management does always need to be up to date in terms of threats to the business or weaknesses in the Supply Chain that can have a major effect on growth et al.

We have had the good and lean times scenario discussed. There is another aspect to this scenario and that is the peaks and troughs one encounters with commodities and particularly crude oil. In situations like this, it is always easy to identify the winners and difficult as it is to imagine, not always easy to notice the losers. The first one that comes to mind are those economies that have a great dependency on oil. The question can be put which is “How can this cause Procurement to fail?” There are opportunities for futures to be considered or even to acquire more of the commodity and place it in storage – NB this is all fine and dandy and my suggestion is that it then becomes possible for the Procurement function to be focussed on another opportunity – buying the additional commodity to trade. When this focus is taken off the greater Procurement mission, there is an element of risk in terms of other key categories being ignored.

Making ill-informed or ill advised decisions can result in uncomfortable consequences for the business. Again, this is something that I have noticed before so to what extent this has happened is difficult to determine. It is not that difficult to make bad decisions and if not managed correctly can cause some discomfort for the Procurement and Supply mission. Happy to expand further if requested. 

 

Jeremy Kirsten

Written by Jeremy Kirsten

A highly experienced, passionate & proactive Procurement & Supply Chain Manager, Project Manager, Consultant and Change Manager - I would be delighted to enter into dialogue with Procurement & Supply professionals on like matter.

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