Spin offs and restructuring presents an opportunity to recalibrate procurement

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By: Hemant Nadkarni --

24 April, 2014

Spin offs and restructuring presents an opportunity to recalibrate procurement
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M&As and spin offs are part and parcel of today's business landscape. Abbott hived off its research-based pharmaceuticals business into a new company called AbbVie. Hertz Global Holdings announced it will spin off its construction equipment rental business in early 2015. While Chesapeake Energy has announced plans to spin off its oilfield services business, which will be known as Seventy Seven Energy.

In other cases, traditional businesses are expanding into new growth areas, such as pharma companies are increasingly getting into biotech or traditional chemicals companies are getting into Agrochem or Nutrition etc. All of these present opportunities to rebuild full or part of the procurement organization and increasingly with newer skillsets. Chief Procurement Officers (CPOs) are joining hands with their business partners to build a new procurement organization with centralized strategic sourcing function for better management of procurement.

However, internal stakeholders have lately begun to expect category managers to be business partners as well as change management agents. Category managers are also expected to lend support to risk management, contribute to innovation, sustainability and so on. Such situations represent what Robert Frost once wrote as "Two roads diverged in a wood." From a procurement point of view what do those two roads represent? Traditional procurement organizations are focused around category managers, who have deep experience in their respective categories.

The above shift in expectations places importance on partner relationship management, making business cases and change management skills in addition to traditional procurement skillsets. Of course, it is not easy to find someone who has a blend of all these skills.

So the two roads are 1) Should firms that are looking to rebuild or refurbish their procurement functions hire Subject Matter Experts who understand and leverage current market intelligence for every category they have?; or 2) Should firms hire business-savvy generalists internally and look to bring in category expertise from external specialists (such as market intelligence firms)?

The traditional model is to have solid category specialists in-house and to bring in the business thinking generalists (consultants) from outside. Will the new model be to have business-savvy generalists internally and to bring in category expertise from external specialists?

Can a company afford to hire Subject Matter Experts who understand and leverage current market intelligence for every category it has?

In most cases, probably not. But the company in transformation can afford to leverage third- party resources on an advisory basis that can provide critical market intelligence for specific categories. A company in transformation can either look to hire category specialists, or go for business-savvy generalists to manage their procurement. But in either case, the need for external market intelligence becomes imperative. That's the road less traveled for procurement organizations. And as Frost concludes it could very well make all the difference.




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