Thumbnail image for BillMichels.jpgIt is a question Bill Michels is often asked by CEOs. His answer: "let the organisation’s expenditure steer your decision."

This is a question frequently asked by the C-suite, who is wrestling with autonomous business units seeking control over their profit and loss, rather than optimising leverage and synergy from the supply base. The answer that I give is always simple and easy to understand: let the company’s’ expenditure be the guide to how you design the procurement organisation. If the company has spend that crosses all business units and is strategic to the business, then it needs technical expertise, global strategy and co-ordination.

The other consideration is having an understanding of regional markets and regional business requirements. This needs to be supported by regional teams, each with a perspective on the region they represent and serve. They can co-ordinate and drive regional strategies, while co-ordinating the implementation of global strategies. There will always be a need to have resources on the ground at the manufacturing location to buy and manage local requirements. A key role of the local procurement teams is input to supplier performance measurement.

While a three-tier organisation is the most effective organisation structure, it must tie in with the overall business objectives and deliver on the needs of the individual business units. The procurement team is the commercial arm of the business, responsible for cost and value improvement; supplier integration and alignment with the business; supplier risk management and performance delivery. This leaves the business unit to optimise conversion, productivity, sales and marketing.

This matrix organisation works at its best when the organisational objectives for the business are clear, aligned and focused.

What sort of organisation should a company have?

Let spend be the guide.

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