The Real Cost of Procurement Staff Turnover

Staff turnover is always an issue – always.  However, some business functions suffer more than others when the event occurs.   

Some business functions have yet to realise the true scale of the loss that this event can inflict on an organisation.  

Let’s take a mythical journey and witness the same events play out every Friday afternoon in a procurement team somewhere.    Our individual, for now, is called ProcurementPerson.      ProcurementPerson has been with the company for four years.  During this time, they have amassed a great deal of significant knowledge about their categories as a category manager.   Some very large transactions – but also quite a number of much smaller value add category specific deals.   They have some great connections in the business areas and have been a source of much support, advice and insight in to how to manage a wide range of category/vendor specific issues and projects.

Reads like a reference.   Quite rightly so.  They did a great job.

However, in our mythical world the clock has ticked round to a Monday morning.   The approach has been to replace ProcurementPerson with a new team member who has some knowledge of the vendors, business drivers and category specific issues.    No one internally was interested in that portfolio for now as a job change.   As in most companies, there is often no handover period - you simply hit the ground running.

The first few weeks is spent locating contracts, catching up with business partners and generally working out the “what next” in the process.   Sound familiar?   It should do.    This one seems benign – but the reality for ProcurementPerson is that the experience is generally the process is anything but benign.   

However, many reading this article would have experienced what can only be described as the “white knuckle” ride of a new role.   Anyone who is ITPerson, HRPerson, MarketingPerson or any other business function would have, at some time, walked in to a corporate firestorm.    For Procurement staff, it may be that contracts haven’t been signed (if they can be found), they may have expired, there is a dispute underway, vendors aren’t complying, business areas are unhelpful and difficult….and so on.      The same scenario plays out weekly somewhere near you…..   It is quite common as an experience.

In the late 1990’s, marketing teams learned very quickly that keeping market intelligence, sales data, documents and direct customer dialogue was the only real means of truly “getting to know the customer”.    Yet, in most procurement teams, every Friday afternoon staff turnover and there may be little or handover detail.    It is hard, if not impossible, to cram many years’ experience in to paper notes or an email.   They same would apply to many other business functions no doubt.   Simply, many years of undocumented interaction, key commercial documents, the softer elements of connecting - all walk out the through the door on a Friday afternoon.

Trying to establish the value of this knowledge loss is difficult and is perhaps incalculable.  An interesting academic research paper by Urbancova and VnoucKova (2011) suggests that from their analysis, a total of 73.0% of respondents mentioned that an employee with critical knowledge who wanted to leave the organization represented a threat.   Technically, ProcurementPerson must easily fall in to that domain.   Several other business functions have the same issue.   Urbancova and Vnouckova suggest that:

“It is possible to conclude that the competitive advantage of organizations currently lies in particular in how employees apply their knowledge, experience and skills that are essential for ensuring the continuity of an organization’s activities. Knowledge continuity ensuring eliminates the threat of loss of knowledge during employee turnover and other personnel changes.”

Yet, every Friday afternoon both business and Procurement staff leave with vast amounts of competitive supplier intelligence.

You simply cannot run a customer facing business without a Customer Relationship Management System (CRM) of some type.  Impossible.   However, in many procurement teams, any consistent adoption of any form of SRM seems some way off.  Call centres manage this simply – generally 6 minutes a call and 2 minutes after call work.  If procurement and business buyers spend just 2 minutes recording key communication details and attaching any associated documents, the accumulated intelligence over one year would be considerable.   It is then retained forever.  How hard can it be?

Like many new technologies, adoption rates for new technology can be poor.   The term supplier relationship management has been around for some time.  Sadly, it’s a much used - but largely misunderstood term.  The earliest SRM systems tended to be a CRM with a differing label.   Like ice cream – we now have endless SRM flavours designed to lure procurement teams in to investing.

 Like ice cream, choice can be a bad thing.  As Stephen Covey points out:

“there three constants in life…..change, choice and principles”

Making the right SRM system revolves around understanding enough about your suppliers, the internal buying culture - and how the organisation needs the process to work.

To make a Supplier Relationship Management strategy function effectively, there are several key decision-making concepts we can highlight:

  • Chose technology where the transaction and Supplier intelligence data capture are close together system wise.
  • This means if staff must access both a PO system and an SRM – it creates overheads and staff simply will not bother;
  • If you have a decentralised procurement function then business units are vital to gathering intelligence on vendors who supply niche or specialised products.
  • Ensure that staff understand the need for this information;
  • Create a mechanism to verify that information is being collected – the chance of anyone who works in buying or procurement having a zero-contact history is…zero.

The value of this acquired intelligence data? 

Entirely calculable.