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Procurement is at war

  • General News
  • 1st January 2016

 

Since the beginning of humanity there has always been trade. A caveman noticed the other village had something their own wanted, so they offered something in return. The trade of goods and services is ingrained in our very being, we evolved with collaboration in mind – It’s part of our psychological and physiological make-up and necessary for our survival.

So, what has happened to this mutually beneficial system? Well again, let’s look at history as an example. Desire for something takes two forms: a mutually beneficial relationship or war. In the past ten to fifteen years the procurement industry has taken on the latter aspect. There has been a steep change which has made it harder for suppliers engage and influence the sales process – a critical factor to the establishment of connections with fair relations, a sustainable and reasonable profit margin and ultimately, survival.

A study from a procurement firm recently revealed that only 11% of procurers maintain a close relationship with suppliers and 65% either have a relationship with only their tier-one supplier or don’t have any relationship whatsoever. These facts are truly shocking and confirm this state of war.

Whether driven to it or not is unimportant, but suppliers will be more likely to cut corners to maintain their profits. This leads to a poisonous relationship in which both parties will be more likely to turn a blind eye to unacceptable practices such as slavery, child labour, environmental degradation and low-quality consumer products for the sake of guaranteed low costs and high profits. Only a mutually beneficial relationship founded on transparent communication can prevent this happening.

And though we do have a social responsibility to prevent this happening all over the world, this is no longer ‘someone else’s problem’. Enforced labour (slavery), child labour, poor consumer goods – remember the horse meat scandal? – are on the rise in the UK. The problem has become endemic to the supply chain and touches every corner of the world. The blame shouldn’t be placed squarely on the shoulders of procurement and supply, but their state of war plays a major part in the problem.

Don’t get me wrong, the industry does not condone these practices; they may not even know it goes on, but without firm relationships, the issues are more likely to remain hidden from view. As stated, the problem has its roots in a state of war between procurers and suppliers. With one entirely focused on getting the lowest possible price while the other tries to keep costs down being the basis of their relationship.

It’s an unsustainable and incompatible approach which can only get worse as the gap widens, meaning neither procurer nor supplier feel a sense of loyalty, shared principles or trust, it must simply become about the immediate profit margin. Even if we forget our sense of social responsibility, from a purely business point of view this practice will be disastrous when the inevitable strikes and the reasons behind the profits are made clear to the consumers.

We’re fortunate as we can see the problem from both sides, offering both procurement and supply courses. So we don’t feel the pressure of bias or the lure of immediate profits. But we do know that the longer the relationship the more efficiencies can be found, eventually resulting in profit margins similar to the ‘too good to be true’ – severely crippling unethical practices as their demand plummets. Of course the practice will still persist, but we can attempt to lessen it by calling a truce and ending the mutually assured destruction (M.A.D) brought on by this current state of war.

How do we do this? Well, it’s not easy. The war is now entrenched in business practices notoriously difficult to change and many now depend on the quick guaranteed profits for survival. It’s a question with no concrete answer. A change of mentality is required, to shift the focus away from immediate and obvious profit towards a more sustainable, long term approach to procurement, seeking out the best prices through collaboration to reach shared efficiencies. Simply knowing each other, the products, market influences and potential difficulties can be incredibly powerful and overcoming obstacles together make any situation much easier.

With the growth of global trade and the rapid development of innovative technology, we are now at a crossroads. We can either use these things to repair the relationship through shared efficiencies or use them to develop more sophisticated weapons of war. My hope is that one day we will remember that procurement and supply must be, and can only be compatible when they are both fully dependent on each other. I would enthusiastically greet the end of this trend of obscure communications with the return of a mutually beneficial dialogue between procurement and supply. Only through this can we leave behind the ‘fast buck’ for the sake of the future of the business and the integrity of the global supply chain.

Take a look for more information on Supply Or Procurement courses to secure the future

 

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