We’ve written much about Wal-Mart’s procurement gyrations and recently wrote both here and here about the efforts of Delhaize to centralize procurement.
Both were problematic for different reasons. Wal-Mart’s procurement changes have been a source of more angst for the supplier base than was necessary in large part because the company has been at war with itself. Personalities have been in conflict and turf battles have been engaged. Things have been done in secret, and getting something as simple as an organizational chart has required something close to CIA clearance. We have had a number of calls from people who work for Wal-Mart asking us about what is going on with some other part of Wal-Mart — even the employees don’t always know.
The Delhaize effort has been controversial because of the distinctive nature of the Hannaford operation from the Food Lion operation. Jim Corby and team have gotten good reviews for the way they have communicated, but we still get calls from Hannaford vendors who are very worried over the long term likelihood of their keeping Hannaford business, a fear that we suspect is in many cases justified.
In contrast Kroger, especially Reggie Griffin, Corporate VP of Produce & Floral Merchandising & Procurement — and just now assuming the position of Chairman at United Fresh — is getting mostly praise from its vendors, although it is also undergoing a massive reorganization to centralize its procurement operation Why? Simple really. It has avoided Wal-Mart’s problems by being clear and transparent with its own team and its vendors. So everyone gets organization charts, Kroger is doing vendor-coaching, everyone seems to know what is happening, etc. — all the things necessary to make the process seamless, or at least as seamless as possible.
Also Kroger benefits because most of its divisions were buying very similar product anyway. So the question is not raised about whether the specifications are now going to change wildly. Kroger also was not a big supporter of many terminal markets, so the issue on the table isn’t whether a whole class of vendors will suffer dramatically as is raised by Delhaize — as Hannaford has long been a big supporter of the Boston terminal markets.
Consolidated procurement in these circumstances makes perfect sense. All too often having people spread around just leads to the development of relationships that may not be in the interest of the company.
Of course, there are risks to centralized procurement as well — mainly the growth of bureaucracy that dissuades people from becoming suppliers.
Seth Godin is a well-regarded marketing expert, and he wrote a blog post titled Get Better at Buying, in which he reminds executives at big corporations of a truth sometimes forgotten:
“…the salesperson isn’t the enemy, and buying from them isn’t charity. The transaction happens because it benefits both sides…”
But Godin points out that selling to big companies is not necessarily an easy thing to do:
“…Ruth Stevens reports that the typical company with more than 1,000 employees has, on average, 21 different people involved in each sale of over $25,000.
Having made sales (when I was younger and more foolish) to ten of the thirty biggest companies in the country, I can testify that 21 might be an understatement. The typical big company’s org chart is a mystery, the process is a mystery and there never seems to be an end to the roster of meetings and people. It’s almost as though these companies don’t want to buy anything.”
Making vendors jump through these hoops is not inconsequential:
First, this is screamingly inefficient. Second, it drives away the great opportunities, leaving the companies with no one but the sales-focused, uber-patient companies willing to put up with 21 different people and a million meetings.
Wal-Mart switched its procurement strategies in no small part because executives there came to the conclusion that restricting the Wal-Mart supply chain to vendors of such competency as to be able to handle a co-managed replenishment program 52 weeks a year was constraining its supply chain in a way that cost it a lot of money.
But a big buyer that is nominally open to all vendors but de facto requires special competency in selling big companies can actually constrain its supply chain even more.
Seth Godin closes with some advice for big buying organizations:
“If you want to increase productivity and discover new opportunities, you’re going to need better vendors. One way to do that is to streamline your buying process and let the folks selling to you know how it works. They’re not the enemy. In fact, they’re your best source for off-the-shelf improvements and innovation you can start using tomorrow.
Whoever buys the best, wins.
Your purchasing department shouldn’t be a backwater… it ought to be an engine of innovation for the rest of the organization.
I’d start by reaching out to companies that might be able to help your company. Give them an org chart. Give them an overview of the best way to sell to you. Issue a newsletter outlining regular news about successful sales and how they were made. Reward your employees when they help a new vendor make a sale that really benefits you. Hassle your employees if they hassle or lie to your vendors.
If a vendor asks, ‘are you serious about buying from us,’ the answer should either be, ‘yes,’ or perhaps, ‘no, thank you.’ But we’re all too busy for power games.
There are a lot of good ideas here, but the most important one is to recognize that having the best vendors is a powerful asset for any company.
There was a time that the CEO of Wal-Mart used to go around saying that Wal-Mart needed its vendors more than the vendors needed Wal-Mart. It is not clear what the current CEO would say to that proposition; it is clear that many retailers could gain a competitive edge by internalizing the thought.
