By Guest Editor
In the iconic movie, Apocalypse Now, there is a famous battle where the helicopters swooped in on a village while playing "The Ride of the Valkyries" that was meant to be an ironic comment on the Vietnam War. In the original Wagner magna opera "Der Ring des Nibelungen," the Valkyries arrive at a point of apparent victory which later deteriorates into a defeat. Thus, the apparent victory in the helicopter battle would be followed by the eventual defeat in the war.
This classic case of tactical victory eventually resulting in strategic defeat provides an apt illustration of how procurement teams fail in executing long-term strategies when forced to focus on day-to-day operations.
Strategic procurement teams cannot deliver maximum value if embedded and under the organizational control of Operations departments. To avoid this situation, two points should be considered:
How should the various procurement roles be segregated and organized? What is tactical vs. operational, vs. strategic view?
Strategy is generally formulated at three levels: at the strategic, operational, and tactical levels, (or in hierarchical business terms, at the corporate, business unit, and departmental level). If operational or tactical performance metrics drive the strategic sourcing efforts, then one cannot guarantee those goals would perfectly match corporate or business unit strategic objectives. It is like putting the cart before the horse.
The procurement functions need to be controlled at the appropriate level and function in the organization to maximize effectiveness and results. Tactical and operational requirements have to be met at the departmental and sub-business unit levels, respectively. Strategic matters have to be planned taking into account corporate-level considerations when business unit alignment is feasible or with intra-business unit level consideration, sometimes balancing competing demands. Those goods and services that can be standardized across the enterprise should be managed with a corporate mandate. Those goods and services that cannot be standardized without diluting brand value have to be led at the business unit and brand levels.
Regardless, procurement professionals are going to deliver results. There are many examples of heroic efforts that deliver success stories time and again throughout companies. Success is hard fought, but break-through results are rare. Why is that?
There are organizational obstacles that have to be breached. Some of the areas that need to be fixed include:
Tactical purchasing and even operational sourcing (contracting, supplier relationship management) may fit well at the departmental level or the business unit, but strategic sourcing efforts (category management six/seven step methodology, waves of opportunity initiatives focused on cost reduction) have to be driven either by a corporate mandate or a business-unit C-suite executive (such as the CFO) not responsible for operations.
George E. Krauter
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