Think about all the long-term improvements you want to accomplish in your Procurement department: implementing the latest procurement technology, transforming your team into high-performers through excellent training, building strategic relationships with other departments, improving the key performance indicators you use, and all the other projects that you wish you had the time to do.
Are you accomplishing all of those things? If not, why not?
Reasons may vary, but there is a common response among procurement leaders in similar situations. If you're like them, you may have cited "competing priorities" as the reason for falling behind on strategic improvement projects.
Let's examine some examples of such competing priorities. One organization's competing priorities may have included a rejected shipment from a Chinese supplier that forced top procurement team members to go to China for two weeks. Another's priorities might be having a critical supplier whose poor on-time delivery requires constant conference calls because such performance threatens the customer's ability to keep its production line running. And yet another might be dealing with the fallout of a key supplier going out of business without warning, leaving them scrambling to find another source.
Sure, those things were important. They demanded attention. That can't be argued. However, it should be clear that if these things have prevented those Procurement departments from making progress on their long-term improvements, they have allowed the strategic to become victim to the tactical.
One may say, "Tactical? What do you mean tactical? Solving these problems may have prevented those companies from going out of business! Those are strategic issues!"
But characterizing those issues as strategic is actually a mistake. A common mistake. And if you've characterized these types of issues as strategic – and worthy of interrupting work on your key goals – it might be a telltale sign that you should strongly consider separating your Procurement department's strategic assignments from its tactical assignments.
What Strategic Procurement Is Not
Many procurement professionals associate the word "strategic" with the word "important" and the word "tactical" with the word "unimportant." That is not an appropriate dichotomization of those two words.
All of the examples described earlier – the rejected Chinese shipment, the late supplier deliveries, and the out-of-business supplier – are examples of tactical procurement issues. Important tactical procurement issues, but tactical procurement issues nonetheless.
Separating the Tactical from the Strategic
If the people who are responsible for implementing the new technology, the training, the relationships and the new KPI's are also responsible for putting out tactical fires, do you think that those strategic projects will ever get implemented? Not likely. Or at least not quickly.
Therefore, you need to protect your strategic procurement talent from tactical responsibilities. Many leading companies do this in one of two ways. They either organize their Procurement department into two teams: tactical and strategic. Or they simply assign certain associates to tactical roles and other associates to strategic roles. Those that adopt either approach tend to get strategic improvements implemented within the lifetime of the leader.
If you choose to organize in either fashion, don't think in terms of strategic being important and tactical being unimportant. Think in terms of strategic being long-term and tactical being short-term. And don't commit the common organizational error of having your top talent devoted to strategic procurement and your bottom-feeders devoted to tactical procurement.
Because you know what happens to departments that organize like that, don't you? When an important tactical issue comes up, they have to pull their top talent off of strategic projects to solve a tactical problem!
And then does the strategic stuff ever get done? Not usually!
Tactical Operations Benefit from Separation, Too
While freeing up resources to be dedicated to strategic tasks assures that those strategic tasks get the necessary attention and get completed quickly and with quality results, tactical procurement also stands to benefit.
Though I used examples of several different crises that happen in tactical procurement, much of the tactical procurement landscape is characterized by routine transactions. Many organizations measure both strategic and tactical procurement performance, with tactical procurement metrics including things like requisition cycle time, purchase order errors, etc.
When a segment of a procurement team can focus strictly on tactical work, improvement in these tactical metrics can be dramatic.
The Challenges of Tactical-Strategic Separation
Despite the benefits of separating procurement work into dedicated tactical and strategic assignments, there are a few downsides.
The first downside worth mentioning is that tactical work may not appeal to the more ambitious members of your team. They may not find it challenging, and the path to career advancement may appear murky to them. Relegating someone with aggressive career aspirations to a permanent tactical role is a recipe for attrition.
The second major downside is the inherent potential for communication disconnects to affect the quality of the Procurement department's contribution to the organization. For example, if one person negotiates a contract and a separate person is responsible for managing the day-to-day activities of that contract, there is a possibility that what is negotiated may not be enforced and the Procurement organization would be none the wiser. As another example, the person responsible for writing and negotiating the terms and conditions may have little understanding of the day-to-day realities of the supplier relationship and, therefore, may fail to address important operational issues when putting together the contractual agreement.
Overcoming the Challenges of Separation
While there are indeed challenges to separating tactical and strategic procurement responsibilities, those challenges should not dissuade one from doing so for his or her department. Most good ideas will have obstacles, it's just a matter of identifying those obstacles and getting around them.
If you're worried about putting one of your star performers on a tactical team and that star performer becoming dissatisfied and ultimately leaving the company, require a rotation where your top performers cycle onto the tactical team for six months before going (back) onto the strategic team.
This way, your top talent is kept interested, you have resources capable of handling the big tactical challenges that invariably arise, and you can actually bring some of those strategic projects to a successful completion!
Rotation between separate tactical and strategic teams is obviously one viable approach that has worked for many companies. UPMC, an $8 billion global health enterprise, took an alternative approach.
UPMC is an organization that prides itself in bringing in only "A" players to its Procurement department. And it once had separate tactical and strategic procurement teams. However, it learned that long-term, purely tactical assignments for "A" players were not perceived as fulfilling to those employees. Between 2007 and 2009, it experienced turnover of up to 60 percent per year on its tactical team.
This unacceptable turnover rate obviously warranted action. Rather than going the rotation route, UPMC united the tactical and strategic teams yet kept the tactical work distinctly separate from the strategic work.
Now, subteams within the UPMC Procurement department have a tactical procurement specialist and a strategic procurement specialist, each with discrete roles. Today, the employees in tactical roles are better able to visualize a future of performing strategic work. It's not coincidental that the turnover rate associated with job dissatisfaction fell by more than 50 percent – a welcome trade-off. In addition, the aforementioned communication gap was closed because of the now close linkage between those negotiating the contracts and those administering the performance of the contract.
What Does the Tactical Label Imply for Future Staffing?
It's no secret that tactical procurement is a traditional target for process reengineering. Whether it's decentralization, offshore outsourcing or automation, organizations are trending away from having dedicated in-house staff placing purchase orders and expediting.
So it might be natural for anyone working in tactical procurement to feel a distinct lack of job security. But not every organization is myopically hurrying to reduce or eliminate the headcount associated with tactical procurement jobs.
While it is common for organizations' Procurement departments to address the categories of goods and services that it buys that closely relate to the core competency of the organization and/or comprise the most spend – the highly visible "A" categories – it is rare to find a Procurement department that has addressed all areas of spend and achieved its cost savings potential. The resources available to handle strategic responsibility for the A categories are too busy to address the less visible categories – the "B" and "C" categories. This means that there are usually many categories of spend that are undermanaged or even unmanaged.
These undermanaged or unmanaged categories represent ripe opportunities for improved procurement contribution. And having tactical resources freed up to seize these opportunities represents a win not just for the organization that stands to improve its bottom line, but also for the individual who seeks more enriching work.
UPMC serves as a good example of an organization that leveraged automation to deploy more resources on undermanaged categories. By implementing the UPMC eMarketplace, 46 percent of the 380,000 annual transactions previously handled manually by tactical procurement professionals are fully automated. This has allowed UPMC to redeploy 25 of those professionals on strategic sourcing projects that produced greater than $14 million in savings that would not have been attainable had those individuals not been dedicated to strategic work.
"Transaction automation was key to our ability to create a SCM organization structure that optimizes the value we deliver to UPMC and provides meaningful and challenging work for our people," said James Szilagy, UPMC's chief supply chain officer. "I want my sourcing teams focused on building internal relationships and working through our value analysis process to deliver the best products and services at the best total cost, not heads down processing purchase orders."
Let's face it: There will always be some major tactical procurement emergency that arises. If you are deferring strategic projects to put out tactical fires, you probably won't complete a procurement transformation in your lifetime (or at least the period while your company still has the patience to keep you on the payroll).
Separating your Procurement department's tactical and strategic work and then expertly positioning your talent can help ensure that your organization remains focused on making long-term improvements. Dedicating some of your top talent to important tactical issues ensures that those issues are given proper attention. And rotating your top talent between tactical and strategic assignments will keep them challenged, interested and in-touch with business needs.
Like any restructuring, reorganizing work among dedicated tactical and strategic procurement professionals is not easy. But if making that step-change to a world-class Procurement department has been more challenging than you imagined, it may be necessary in order to remain focused on implementing long-term initiatives while managing day-to-day operational challenges and "competing priorities."
About the Author:
Charles Dominick, SPSM, is founder, president and chief procurement officer of Next Level Purchasing, which offers the SPSM (Senior Professional in Supply Management) Certification.