Procurement, the hard way

Years ago I was working my way through college, programming machine tools in a garden furniture factory. One day we were taking delivery of a lorry-load of wood when things got a little bit dramatic. A large bundle of timber was being raised off the bed of the lorry by crane and it split apart, sending pieces of timber cascading all over the place. Several people had to dodge the debris.

Where there had been a neat bundle of timber, about to be deposited outside our workshop, the consignment now resembled a giant game of Pick-up sticks.

The boss was angry: not because the accident had taken place, but because he’d been ripped off. When buying wood by the cubic meter it’s reasonable to assume that much of the wood supplied will be a decent length; this shipment had been a mass of short lengths, and that was why the bundle had burst apart when lifted. While the shipment of timber contained the specified volume, it stands to reason that short lengths are less useful than long ones; you can expect more wastage when making things from short bits, and of course you can’t make some things at all. Quite simply, an equivalent volume of timber is less valuable if it’s made up of short lengths, and less valuable still when it’s scattered all over the car park and in a damaged condition.

Our laconic Irishman, when told to clear up the mess, responded: “Has anybody got a match?”

The boss got on the telephone to the supplier, and expressed his displeasure. A veteran of perhaps twenty years in the woodworking trade at that point, he knew how to get a good deal. In fact, securing a supply of good quality timber – often committing to buy and fixing prices a year or more in advance – was a key factor in the company’s survival at a time when manufacturing in the UK was becoming very expensive. Our hardwoods (typically Iroko, from west Africa) were pricey, but a vital feature of a quality product.

Following heated negotiations, a substantial discount was agreed, and the consignment of damaged wood was brought into the workshop. In the end, everything worked out well, although we had been fortunate that nobody was injured in that cascade of timber.

Being proactive in securing supplies of timber was vital for my employer; every bit as important as the design of new products, and the scheduling of production and deliveries… yet if you look at procurement in Porter’s (1985) Value Chain, it’s shown as a secondary activity. That makes it sound like some kind of necessary evil, forming a component of the overheads of the business, and not a source of competitive advantage.

Porter's Value Chain

The Value Chain (Porter, 1985) – secondary activities are shown as horizontal bars.

I don’t agree with this. While there might be some things that procurement personnel look at very seldom, like choosing your energy supplier, other procurement activity is a constant effort to maintain an affordable supply of quality feedstocks. Personally, I’d change Michael Porter’s model to show procurement as a primary activity, thus:

Modified form of Porter's Value Chain

Modified form of Porter’s (1985) Value Chain

Furthermore, I think we’ve allowed procurement to become synonymous with “buying things”. Procurement isn’t just management-speak for buying. That’s a narrow view because not every business buys the things it needs. A better definition would be “getting hold of things.” If your business is a recycling operation, your feedstock may well be given to you, no purchase necessary… but you still need to secure regular access to adequate quantities.

If obtaining good quality supplies of materials in order to transform them into finished goods isn’t a primary activity, I don’t know what is.

Reference:

Porter, M.E. (1985) Competitive Advantage: Creating and Sustaining Superior Performance. New York: Simon and Schuster

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One thought on “Procurement, the hard way

  1. Even in the UK (especially in the UK?) procurement often represents in excess of 50% of total manufacturing-related costs. Twenty years ago auto manufacturers used to keep the 5-C’s in-house (cylinder head, cylinder block, crankshaft, camshaft, …), ten years ago perhaps the 3-C’s, nowadays primarily pressing and assembly. Procurement is a key process.

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