Business & Technology Nexus

Dave Stephens on technology and business trends

The Three C’s – Cost, Complexity, and Compartmentalization

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As usual, a day late and a penny short due to the overwhelming interest in my new startup Coupa, I’m pleased to bring you my view on what the “Top 3” issues are holding purchasing departments back.

First, some housekeeping. Michael L. of Sourcing Innovation came up with the idea for this series. Imho, he provides an increasingly valuable service bringing up topics of conversation across blogs dedicated to Purchasing. Despite his Saturday posts, which are “rhymey” in a Weird Al Jankovic meets Lawrence Welk (youngsters may have to look this one up) kind of way, I’m still glad to know him. :)

So what are the Top 3 Bugaboos I think are most relevant to Purchasing Departments today? Procurement Central’s view is:

  • Cost
  • Complexity
  • Compartmentalization

I’ll call these the Three C’s from here on out.

The First ‘C’ – Cost – Never one wanting to err on the side of subtlety, I want to start with the basics. A good Purchasing department controls corporate buying. Its goal is to provide great service to the company while minimizing spending. So any Purchasing department worth their salt is looking at the amount of money they spend per year & the amount of time spent spending the money (did you get that) and is constantly seeking to improve. Now it’s important to mention here that most firms do not have a lot of leverage over their supply base. So negotiating for best value, while important, is more of a process than an art form. On the other hand, the basic blocking and tackling productivity gains that are possible through good automation are right up their alley.

It’s funny, a few old grizzly Purchasing guys shared an inside secret with me – that they sandbag and sometimes milk the savings. They don’t save everything the first year so they can keep on demonstrating value to the CFO. And while that’s too bad, it is true that working the First ‘C’, Cost, is a continual challenge.

The Second ‘C’ is Complexity. In systems, in processes, in organizational structure, and in the Purchasing department’s own objectives.

For most organizations there’s just no need to get fancy in the Purchasing domain. Sure, if you’re a manufacturer and you’re making huge strategic decisions like whether or not to bank on China, how to optimize supplier contracts to hedge against demand fluctuations in global markets, keeping it simple might mean failing to evaluate game-changing opportunities. But for the rest of us, the Purchasing function and its role in the organization are far more straightforward.

On process, fight complexity and resist the urge for customizing procedures such as approval paths for special situations. Make the exceptions exceptional. For systems, error on the side of solutions you know your organization will understand vs. the system with 10,000 features. And measure progress with no more than 3 variables – and preferably just 1. You will likely underestimate the value of focusing the organization on a single, specific purpose.

The Third (and final) ‘C’ is Compartmentalization. Here is where Purchasing Departments often fail to invest heavily enough in communication and outreach with the rest of the organizations in the company. Systems can help ensure groups collaborate, but your people, with an emphasis on customer service while fulfilling your group’s mission, will really make the difference. Examples of groups you should meet with monthly include: Facilities, Operations, Manufacturing, Real Estate, HR, Engineering/R&D, and even Sales. You may not think you’ll have anything to talk about, and yet issues will surface that will help the entire company operate more effectively. And, importantly, you’ll be building the relationships you need to effectively pursue your Purchasing programs.

So there you have it: Cost, Complexity, and Compartmentalization – Three C’s that just might be holding back your Purchasing department.

Thanks again to Michael for organizing the blog series. And, as always, feel free to send me your thoughts and opinions to dave at coupa dot com.

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Written by Dave Stephens

04/29/07 10:44 PM at 10:44 pm

Posted in Coupa, Opinion, Procurement

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