Unlocking the Value of Institutional Memory in Procurement
The realm of procurement is often a treasure trove of critical knowledge, yet this value frequently resides in inboxes, spreadsheets, or even the minds of individuals. The departure of key personnel often leads to the loss of context behind past decisions and established supplier relationships. In this Q&A, Spencer Penn, CEO and co-founder of LightSource, sheds light on why institutional memory is among procurement’s most underappreciated assets and discusses the impact of capturing this knowledge intentionally.
The Nature of Knowledge in Procurement
Supply Chain 24/7: Why is institutional memory so prone to breakdown within supply chain and procurement teams?
Spencer Penn: Knowledge within a company typically exists in two formats: systems or individuals. Institutional memory refers to the implicit, hard-earned knowledge that organizations possess. This can be divided into two categories: explicit knowledge (the structured information found in systems or documentation) and tacit or “tribal” knowledge (the unrecorded insights held by individuals).
| Area | Tacit (Tribal) Knowledge | Explicit (Hard) Knowledge |
|---|---|---|
| Price reality | What we actually pay and can negotiate | Contracted prices and price lists |
| Negotiation leverage | Who holds power in negotiations | Playbooks and documented concessions |
| Operational truth | Real lead times and service expectations | SLAs and KPIs |
| Risk signals | Trust and early warnings | Risk assessments and contingency plans |
| Relationship context | Unwritten commitments between parties | Formal agreements and contracts |
The Challenges of Knowledge Loss
SC247: What typically occurs when key personnel depart, taking their knowledge with them?
SP: When an employee exits, a wealth of information often goes with them. Very few individuals manage to pass on all their knowledge at the end of their tenure, leaving companies dependent on limited knowledge transfer or that which exists in systems of record.
Relying on Outdated Methods
SC247: Why do organizations continue to depend on inboxes, spreadsheets, or personal memories to manage critical decisions?
SP: There are two main reasons: universal accessibility and flexibility. Everyone can access email, and the familiarity with spreadsheets allows for diverse data layout. However, the unstructured nature of spreadsheets often leads to silos of information, complicating data retrieval.
The Difficulty of Documentation
SC247: Why is it challenging to enforce documentation after-the-fact?
SP: Documenting after events is difficult as many enterprise systems are designed to prevent errors rather than facilitate good documentation practices. Critical negotiations often take place in informal environments like emails or spreadsheets, leading to difficulties in later reconstructing the context.
Consequences of Lost Context
SC247: How does lost context manifest in everyday procurement practices?
SP: It impacts procurement in tangible ways, such as:
- Uncertainty over which items were negotiable.
- Forgetting past concessions and their rationales.
- Losing sight of supplier performance under various conditions.
- Revisiting alternatives that had already been dismissed.
- Setting new expectations based on outdated terms.
Benefits of Automatic Knowledge Capture
SC247: What changes occur when information is captured automatically rather than manually documented?
SP: Automatic data capture enhances compliance with systems of record. Achieving a 99% capture rate enhances the quality of information available. Systems should facilitate user tasks while naturally collecting data that informs decision-making.
The Overlooked Asset of Institutional Memory
SC247: Why do you regard institutional memory as a vital yet overlooked asset in supply chain technology?
SP: Institutional memory is often discarded as most tools emphasize transaction records over the context of decisions. When the rationale behind actions fades, organizations struggle with inefficient retroactive data gathering. Properly designed systems should effectively assemble historical context, allowing teams to focus on strategies and value creation.
The Future of Procurement Systems
SC247: How should modern procurement systems evolve to better support teams?
SP: The next generation of systems must shift from reactive to proactive functionalities. Moving past mere record-keeping, these systems should help teams work efficiently and capture institutional memory organically. Proactive intelligence will allow systems to identify risks and opportunities before they manifest, transforming systems of record into strategic assets.
Spencer Penn is CEO and co-founder of LightSource
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