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Procurement is not primarily about cost

…or spend or price or savings or risk or grip or control. It’s all about performance.
The first and foremost reason you buy is because you require the suppliers’ performance in order to satisfy your customers. With ‘customers’ I mean those who provide you with money. Either by buying your goods and services or by funding you through a budget in return for the (public) service you provide.

So the primary focus in procurement should not be on cost or risk or control or any of these other areas, but it should be on performance related to customer satisfaction.

Now ‘satisfaction’ is a funny thing. It’s all about emotion, not ratio. You cannot calculate it and it is definitely not a fixed number; it changes over time.

Let’s say that you recently changed your telecom provider. The main reason for your move being your former providers’ customer service. Whenever you would call their service desk, they would keep you on hold for at least ten minutes. Such a waste of time. So when your new provider guaranteed you, black on white, that they will answer your calls within five minutes, you jumped at this 50% improvement and changed providers swiftly. And indeed, they are true to their promise. Yesterday you called and it took them a mere four minutes to answer. You are so satisfied with your supplier!

Until just now. Because after I tell you that my provider never takes more than one minute to answer my calls, your satisfaction evaporates. Just like that. Mind you, your supplier’s performance hasn’t changed a bit; they still live up to their contracted promise. Meet their Service Level Agreement so to speak. So from a contractmanagement dashboard measurement perspective, they are still great. But you are not happy anymore. And given the chance, you will quickly switch to my provider.

This is what happens to your customers and your colleagues all the time. Their levels of satisfaction related to supplier performance change. The only way to keep them satisfied, is to obtain flexible performance from your suppliers.

Enter the cost element. Because if money is no object, satisfaction is easily obtained. But usually there are some financial constraints. The basic constraint being that it is economically unsound to spend more than you earn.

So would it be right to state that the primary objective of procurement is to obtain flexible performance from the supply base in order to continuously satisfy (or ‘delight’ as Jack Welch puts it) the customers within given financial boundaries?

If this is the case, then the procurement professional needs to shift focus from cost to performance, satisfaction and flexibility. While quite often the traditional focus on cost will simply hurt or limit the other three.

Which is what many of your colleagues have experienced in the past. And because they, and not the procurement department, are responsible for happy, profitable customers, they’ll not involve you in their doings. They fear more of the same.

Change your focus and become involved. Only then you can contribute and have an impact.