I READ an article earlier, where someone from a major oil and gas service company stated that "the first round of cost-cutting has come from procurement and now we have to work smarter and collaborate with the supply chain to realise true cost efficiency" - or words to that effect.
The first round of cost-cutting has not come from procurement, it has come from purchasing, and poor purchasing at that.
It has also come from budget cuts, and project postponement or cancellation.
Price or rate cutting is not anywhere near the same as genuine cost-cutting.
Purchasing is about placing orders, or "buying".
This is usually carried out by transactional buyers who work purely on price, availability and delivery and often under pressure from technical and operational disciplines to use a specific supplier who already knows that they are likely to get the work or - more worryingly - have already been told to get started with "contract or PO to follow".
Procurement however, is about working with the internal client, for example, technical and operational colleagues, to source goods and services that meet the needs with a balance of technical, cost and administrative efficiency as well as meeting the safety, legal, commercial and legislative requirements of the requirement in question.
It also involves working with suppliers to develop improvements and efficiencies that have enough of a benefit to both parties to warrant being referred to as collaborative.
Procurement is a very powerful toolkit if used correctly.
Combine it with the additional tools that make up the supply chain management toolkit and every organisation on the planet can be efficient if the right behaviours exist between the client and the relative suppliers within the extended supply chain.
Too many companies use the term "procurement" but they are not even scratching the surface toward achieving world-class procurement.
What they are doing is purchasing.
Even that term should only be used loosely for many businesses.
Everyone can purchase. You do that when you go to the supermarket.
But in the supermarket, you are a consumer and the law offers you protection by giving you a number of rights, namely consumer protection rights.
This works on the assumption that consumers are not expected to be au fait with the commercial and legal aspects of the purchase.
With business-to-business however, the SME is treated pretty much the same as the multi-national because they both share a common position as a legal entity.
This is just one of the reasons that some contracts or POs can't always be turned around with short notice after lengthy technical discussions and therefore result in "procurement" taking the blame for holding things up.
Every business could learn how to use effective procurement methods to source goods and services collaboratively, but it is a mindset that needs to be embraced by the whole organisation.
This includes right up to the board, of whom many to date still see procurement as an administrative department rather than a contributor to sales and business retention as much as it is to true cost efficiency.
Over the years, I have witnessed millions being wasted with suppliers or as lost sales to competitors who use the management of their subcontractors and supply chains as a value-add proposition.
I've then suffered the indignity of being told to back off from those on high, for fear of "upsetting" other department heads. I have also had the pleasure of making a real difference and being thanked for it.
All is not lost though.
A number of companies are recruiting "procurement" positions and a number at director level.
Unfortunately, most of these have been in the automotive, aerospace, renewables and public sector and they are recruiting from the oil and gas Industry, which is ironic as many oil and gas companies are looking to recruit from outside the industry and ignoring the talent within.
As an industry, the oil and gas sector is making the right move so one day we will be efficient as an industry.
The question is, will we do it in time to survive?
Collaboration is a mindset supported by behaviours and actions.
Check out our research, comparing behaviours in 2002 at $14 oil with the behaviours being seen this time round.
It’s available as a free download from www.simplyjoined.com