There is a much-used phrase, which is at best misleading and at worse potentially fraudulent in its description of a procurement environment: ‘Greenfield site’.
Unless used to describe a genuine start-up scenario, it is highly unlikely to be the lush, green meadow envisaged by both the company or the newly-appointed procurement professional.
It implies fertile soil just waiting for someone to grow ‘produce’ including purchasing, supply chain management, vendor appraisal/vendor rating, contractual due diligence processes and so on.
It is usually used to describe the procurement environment within a company of moderate size that has grown to where the managers believe they need someone to come in to drive cost out. It’s true that the majority of senior people in business consider procurement to be about reducing the ticket price but that is a mistake.
True procurement runs from conception right through supplier selection, purchase, utilisation and decommissioning. The roots run deep into an organisation and the fruit is worth it. It’s equally true that reducing costs to your business is a key driver but so is ‘good procurement practice’. And one flows from the other.
Procurement is about more than just tackling price. It’s about managing risk, which is at the root of the upcharge above base cost. For example, if a supplier has to make 10 per cent more product to cover the risk of production yield loss they will cost that in.
The most sustainable way to cut the ticket price is to work with your supply base to reduce their risk. This will enable cost savings to be reflected in a price reduction to you the client, while the supplier maintains their margins.
It is impossible for companies that advertise a ‘greenfield site’ for procurement to have reached the current position having done no procurement activities at all.
What is often the case is that they have done what they thought was best, and often in a decentralised way. This usually includes no contractual due diligence, no supplier selection (favouring the status quo), open acceptance of supplier terms and conditions or even the (incorrect) belief that if they haven’t signed a contract they don’t have one.
Rather than a ‘greenfield’, what the newly appointed and usually very experienced procurement professional is faced with is more like a landfill site: A thin veneer of lush turf covering all manner of bad practices, the instigators and implementers of which feel a high degree of ownership. Their view is often that they have built a sizeable business on the back of these processes and see no reason to change.
The metaphor continues. You’re unlikely to be able to grow anything other than grass in that thin layer of topsoil. To grow something with deeper roots – such as professional procurement practice – excavation and backfilling with fertile soil will be required.
This will take an investment of time, systems, resource and a true willingness to change because it will be disruptive. Farming’s tough. It requires hard work and good, deep soil to harvest healthy fruit.
☛ Earle Thomas is associate director of procurement at BuroHappold. He has also held positions in SME, public sector and FTSE 100 organisations