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Real Value Management

Executive Compass Branding

In the current economic conditions it is vital that value management is at the very top of a businesses agenda. Value of course, is in the eye of the beholder but the article below serves as a good reminder of how waste can slip into an organisation almost unnoticed and that the effects can be devastating.

Gentlemen, some of our tanks are missing. And so are some of our rifles. Not all the night-vision goggles are where we thought they were. And the cupboard containing the laptops is looking a little bare.

Welcome to the fraught world of the UK defence ministry’s wobbly procurement and supply chain management. A leaked draft report into the MoD’s purchasing methods has revealed “endemic” failures, inefficiency and incompetence. And this after the National Audit Office had refused to sign off on the MoD’s annual accounts this summer, as it did not believe that the existence of £6.6bn ($10.8bn, €7.6bn) of claimed assets had been properly verified.

The MoD has rejected the allegation that assets have disappeared into thin air. They were “never physically lost”, the department said. This is a line of argument that may be familiar from many readers’ home lives. The car keys/passports/remote control may not be physically lost. It’s just that you don’t know precisely where they are at the moment.

It is easy to mock the MoD’s difficulties in keeping track of its kit. In the past, some of this department’s procurement has indeed been heroically bad. But the public sector has no monopoly on bad procurement. There is waste and incompetence in the private sector too
A procurement failure that leaves you short of office stationery is embarrassing. A failure that left soldiers in a war zone short of equipment would be scandalous. But I am not about to put on a flak jacket and start making recommendations about how to fight the Taliban in Afghanistan’s Helmand province. I want to ask a different question: why is it that senior management in both the public and private sectors so often fails to think seriously enough about procurement?

Here is an obvious, and unsatisfactory, answer to that one. From the outside, procurement may all look a bit uncool and boring. People do not struggle to get into prestigious business schools and fight their way up the corporate ladder because they are desperate to build a career in purchasing. Ambitious future business leaders may see themselves primarily as innovators, risk-takers, or wealth-creators – not cost-controllers. Procurement is something the little people can do. Leave the big picture stuff to the strategic visionaries at the top.

It shouldn’t have taken a recession to challenge this way of thinking. Now that we are in one, it looks even more glaringly wrong. Suddenly everyone is interested in preserving cash, hammering out the best deal and getting tougher on suppliers. But it is hard to turn a sleepy and neglected purchasing team into a razor-sharp one if the corporate leadership has been complacent about them.

Procurement is asserting itself as a newly invigorated professional discipline. But many businesses do not have the expertise they require. They have not taken procurement seriously enough, and that has proved to be a costly mistake. This has created an opportunity for others, however: the London-based business Buying Team, for example, has grown from just a handful of people a few years ago to one that now employs 130 purchasers in a range of markets, serving corporate clients all over Europe.

What could better procurement do for you? For one thing, it could help shake up suppliers with whom you may have had too cosy a relationship. That means encouraging an empowered procurement team to ask tough questions of the legal firms, management and HR consultancies and marketing agencies with which you may have been working for years. Professional service firms do not enjoy that sort of vigorous interrogation, especially when they think they have an intimate and unbreakable relationship with the client’s chief executive. Tough. They must justify their fees. They should also start talking to the people they have dismissed in the past. (I remember very well the senior management consultant who sighed and said that these procurement types simply weren’t able to grasp the sophistication of the work his consultancy was doing for them…)

Only senior management can change attitudes to procurement by investing it with new authority and confidence, and helping to spread the message that the organisation takes the discipline seriously. Then we will read fewer stories about “missing” tanks and guns.

In the US, the commander-in-chief has turned himself into procurer-in-chief when it comes to military spending. As Supply Management magazine reported last week, Barack Obama is unimpressed with what he regards as a “procurement process gone amok”, which has led to the purchase of a new presidential helicopter.

“Among its other capabilities, it would let me cook a meal while under nuclear attack,” he told veterans in Arizona last week. “If the United States of America is under nuclear attack, the last thing on my mind will be whipping up a snack.”

The president’s message was “pretty straightforward”, he said. “Cut the waste. Save taxpayer dollars. Support the troops. The special interests, contractors and entrenched lobbyists – they’re invested in the status quo and they’re putting up a fight. But make no mistake, so are we.”

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