Can Procurement Change?

In a hard-hitting article, "Saving Procurement From Itself", Strategy+Business highlights steps that CPOs must take to address the needs of today's business - and safeguard their own future.

The authors comment: " Procurement is at a crossroads. Its increasingly common inclination to focus on reducing the price it pays for goods and the cost of its own operations has certainly benefited organizations, but the returns on these efforts are diminishing. When procurement has moved beyond its traditional role, fulfilling the promise of its earlier reinvention, companies have prospered. Keeping the attention of colleagues is the CPO’s responsibility, and it will not be easy. Procurement leaders must constantly strive for the kind of breakthrough thinking that benefits their colleagues’ functional and strategic agendas. They must avoid the temptation to look only inward, and instead broaden their reach and take a seat at the strategy table."

This is scarcely new news. IACCM has regularly observed that many traditional Procurement groups are essentially the alter-ego of Sales. Both declare victory when the deal is signed - one claims its commission and the other claims its savings. Neither care too much about whether the outcome of the contract they negotiated is successful - because that is someone else's responsibility.

Of course, such a broad-brush statement is in many cases unfair, but it does fit in far too many cases and certainly reflects the perception many have of the Procurement role. Our maturity assessments suggest that CPOs must drive fundamental changes:

• Their investments in automation are leading down a blind alley, because they focus on control and compliance in an era when excellence is all about superior management of change and uncertainty.
• They must push for greater empowerment. Negotiating with Procurement is often an exercise in frustration because the buyer has no real authority to negotiate terms. That means value is lost and economic benefits cannot be obtained.
• They must ensure that their teams understand and have access to the economic data necessary to evaluate true cost of ownership or operation, allowing them to move beyond narrow price-based assessments.
• Procurement must take ownership of outcomes - and that means remaining involved throughout the relationship lifecycle. One clear reason for this is that change today is so rapid, the relationship (and contract) needs constant re-evaluation.
• CPOs must find analysts, investigators, staff who are interested in openness and transparency, who can hold intelligent discussions with suppliers about risk and how best to mitigate, control or reduce its probability of occurrence.
• Procurement must engage with the market. They need to understand how customer demands will drive the need for business capabilities - and how those capabilities are created (or disabled) by supply relationships.

The global networked economy requires new levels of flexibility; it needs contracts and relationships that create a platform for managing uncertainty and change. These are very different attributes from the traditional expectations of supplier relationships. As the Strategy+Business article observes: "Too often, management invites procurement to participate only after decisions have been made and detailed contracts need to be negotiated and drafted. For procurement to be considered more than a functional tool for other departments, CPOs need to build influence and credibility with their internal management colleagues by showing that what they do adds real value. By engaging with peers — that is, by taking a cross-functional approach — procurement can influence the decisions that impact value all along the chain."

It is this cross-functional approach, executed via a 'center of excellence', that IACCM has been advocating. Procurement needs to demonstrate its confidence through leaders that are prepared to accept broader accountability and true process ownership.