The 90% Solution –  Procurement Has To Excel At This Now

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It strikes me after so many years of working with companies and government agencies on elevating the procurement function that we have a major problem that is impeding procurement excellence.

One of the biggest issues I see TODAY is the existence of kingdoms.  Allow me to explain.

The private sector, and much more so in the public sector, is full of kingdoms.  Each kingdom is a division inside, headed by a senior leader.  This senior leader has a budget fit for his or her kingdom.  And they view it as “their” money, needed to run “their” business.

It’s hard to argue with this perspective.  You’ve got highly capable professionals who’ve developed their craft for decades to become brilliant leaders, and the last thing the procurement group should do is to strip their biggest internal customers of budgetary decision-making authority.

The problem is, these groups are in fact not ‘customers’ at all, and you should stop calling them that.

Who are your customers then?

Your customers are the board of directors and the stockholders in the private sector and the taxpayers in the public sector.  Those ARE your customers.  They are the king’s customers as well for that matter, in addition to supply chain customers.

Back to the core problem I want to address in this blog:  Many large companies are being run like many small businesses from a procurement perspective.  Each kingdom effectively runs its own small business procurement operation.

In the public sector, outside of some wonderfully run cooperatives and useful GSA contracts, procurement is run like tens or maybe even hundreds of thousands of small businesses.

The issue is not a lack of smart and capable procurement professionals in either sector.  Not at all.

The issue is that we have allowed budgetary kingdoms develop inside our organizations, and each presiding king knows what s/he wants.  And if in the name of customer service, you get everybody what they want, you too will be running a procurement organization for hundreds of small businesses.

At this point, it no longer matters how good your are or how good your people are, because – to give you an analogy –  you are running a household where everyone is going to the corner convenience store to get a pint of their favorite milk.  Some like 2%, others like 1%, others want whole milk, others want organic, others want free range, and still others want specific brands.  Everyone has their own refrigerator too.

But you wouldn’t allow this in your household, would you?   You’d centralize down to ONE refrigerator and you’d start buying one or maximum two types of milk from a warehouse store and you’d set the expectation that everyone adapt and no more convenience mart purchases.  And though no one would get EXACTLY what they want any longer, everyone will be mostly satisfied.  And you will save a lot of money and be much more efficient as well.

Which gets me to what I’ve developed and practice with my clients: The 90% Solution.

What is The 90% Solution?   This basically states that nobody in the company is entitled to get 100% of exactly what they want unless not doing so will impact market share, revenue, profitability, manufacturing, etc. – which can be the case with certain purchases (capital equipment, direct materials, enabling technology, etc.).   There are other program exceptions as well – things that impact safety, PR, employee wellness, etc., but they are all few and far between.

The cost of customization is too high for everyone to get 100% what they want, from who they want, in the exact spec that they want.  If you do that, you will have a procurement organization full of overqualified expediters who have no ability to aggregate or get strategic.

As long as your internal end user organizations view their budget as their money used to run their kingdom, and as long as you view your ultimate allegiance to them instead of to the board of directors or taxpayers, you will have problems.

READ THIS TWICE:  If you shift to a mission-based procurement model, most of the customized demand can be fulfilled in a more standardized fashion (consistent with The 90% Solution) because you will be focusing on what end user organizations want to accomplish instead of on what they want to buy.

There are other ways to accomplish this as well.  For instance, you can set up broad master contracts with many offerings that please everyone, but with special pricing on a very limited core set of offerings that makes internal divisions gravitate towards those irresistible offers.

Bottom line, this is a part of the leadership position you are expected to take as a procurement executive.  If you are waiting for the CEO to proclaim this position or to back you on it, it’ll never happen.

Leadership in procurement has to come from procurement – and it has to be done using influence, not position power, or you will fail.  End user groups have to come in line because they want to, not because you forced them to.  This is the CPO Challenge.  It’s why you were hired.

P.S.  to CPOs: I invite you to join the ranks of the other Fortune 100 (IBM, Toshiba, Target, Colgate-Palmolive, Daimler Benz, and MANY others) who’ve made the investment in CPSCM™ and transform your procurement organization from a cost center into a Value Added Center of Profit.  100% Online and On-Demand – 30 hours, 12 exams, university approved, see the materials and hear my voice throughout as the private instructor to your workforce.   Contact my organization to get your workforce CPSCM™ Certified now, using 21st century modalities and with leading edge content.  Join the best in the world and don’t look back:  http://www.centerforpscmexcellence.org/

Be your best!

Omid G

“THE Godfather of Negotiation Planning” ~ Intel Corp

 

 

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