Purchasing Transformation

This weekend, while flipping through the pages of the Sunday paper (and lazily watching the Swedish winter athletes excel at various world championships), I ran across a most curious advertisement; at the bottom of the front page of the business section there was an ad that read: Sell your IT department.

Not outsourcing the IT department, sell it. Now, I have little knowledge about the price of an IT department, and even less knowledge if there are any potential sellers out there. The one thing I know is that there is – in fact – a potential buyer of IT departments.

This led me to thinking if there is actually a market of selling other departments as well. Outsourcing has been flourishing in various sectors for decades; IT being one of the most prominent examples. While outsourcing of procurement has yet to catch on, the ad about selling your IT department posed two questions:

1. Can one sell the purchasing department?
2. And if so, what would it be worth?

Just for the record, I’m not a even strong advocate for purchasing outsourcing due to the strategic importance of direct material purchasing and the often very complicated matter of indirect materials and services, but that shouldn’t stop someone from actually considering what may – at first – seem like an undoable thing.

Consider for instance the following scenario; Manufacturing Company A has a low indirect/direct materials ratio, so low that they’ve made the strategic decision not to bother with their indirect spend at all. Now, most purchasing theorists may argue that even the smallest amount of spend makes a difference; and in theory they’re right; but considering the amount of effort required and the minimal benefits someone with their feet firmly planted in the mud will probably come to the decision that it’s to little bang for the buck.

That’s definitely not the case for Service Company B; they have nearly no direct material costs at all – their cost structure is based on personnel and indirect materials. Now ponder the scenario where they want to boost volumes. Most companies look themselves in the mirror and try to do the best with what they’ve got; minimize maverick spend, increase e-procurement coverage, train staff, increase contract coverage etc.

Would they get a better deal if they actually bought the potential IM&S spend volume from Manufacturing Company A? My gut reaction is that it probably wouldn’t work, but that does not say it’s undoable. So the real just might be; who will be the first to take the plunge into the unknown?