Given the rapidly changing business environment facing all industries, the role of the procurement function and specifically the Chief Procurement Officer (CPO) will need to adapt and change. Will you be ready for the future?
A panel at the Smart Procurement World Western Cape Conference grappled with this very question.
Having leaned on procurement to cut costs during the recession, said the panel, enlightened Chief Financial Officers (CFOs) are now leveraging the office of the CPO more effectively to generate value that goes beyond just cost savings.
The panel agreed that it goes without saying that procurement should be a strategic function. Yet, procurement professionals continue to struggle to justify why they deserve a seat at the top.
Mediacy Mudekwa, Head of Content, Smart Procurement World, unpacks why some procurement functions fail the value test and thus fail to occupy a seat at the top.
Reason #1: focussing too much on savings
Many procurement functions put large savings numbers ‘up in lights’ when contracts are signed. However, organisations focused on procurement-generated savings may miss equally important outcomes, such as enabling process efficiencies, category management and risk management.
In many government and commercial organisations, procurement is being recognised as a fundamental enabler of business strategy and a preferred method for achieving sustainable growth.
While good strategic-level procurement can enable organisations, both public and private, to achieve sustainable cost savings, the value of an organisation’s procurement function should not be measured purely through potential cost savings. Looking solely at (estimated) procurement-generated savings may shift the organisation’s focus away from other equally important outcomes, such as meeting core business/organisational needs (fit-for-purpose procurement), thereby limiting the chances of getting a seat at the top.
Bottom line: rethink the way you look at savings and become a visionary, big-picture professional.
Reason #2: “I couldn’t negotiate a better deal, because the business needed it urgently”
The procurement function’s job is to work with business units ahead of time to manage last-minute demands. There are numerous ways of managing this issue, from contingency stock to framework agreements with a pool of suppliers that should always allow you to meet short-notice demand without exposing you to vendors that will ask unreasonable prices to exploit your need for speed. A procurement function that deserves a seat at the top has gained this understanding and uses analytical assessment to understand why certain items may be required urgently along with the frequency with which these items are required.
Set up an effective Urgent Procurement Situation Policy, which should set out the requirements for your organisation to follow appropriate management and governance practices when goods and services are procured under urgent order.
Bottom line: never compromise your process because of an urgent procurement demand.
Reason #3: failure to bury the CPO
Procurement deserves a new boss: the Chief Value Officer (CVO). The reality is that ‘Chief Procurement Officer’ is no longer an accurate reflection of the job’s responsibilities. CPOs do more now than ever before, thus someone needs to take charge of value. If you need that seat at the top, your procurement function should consider value as being relative to your financial business case.
We have entered a new era of volatility and economic instability. Business objectives are no longer just about mass production. Long-term bottom-line efficiency and value are key to creating a sustainable advantage. In previous years, procurement was focused almost squarely on cost containment. But now, how do you elevate its role to that of a trusted value contributor and business advisor in the context of improving agility and business performance? You will have to demand value from your team, not just volume. The question is: which department do you think demonstrates more traits of a successful CVO than procurement?
Bottom line: bury the CPO and create the CVO.
Reason #4: focussing too little on skills development
Until recently, procurement was seen as a necessity, but only on a transactional corner. In fact, in many developing economies, the profession remains a back-office function and not much has been done to explore and address the challenges facing procurement professionals in developing economies. I believe that exceptional economies are driven by exceptional people.
However, in a recent CIPS Hays Salary Survey, 48% of those surveyed reported that they struggled to recruit the right procurement talent in the last 12 months. There must thus be a renewed effort to up-skill procurement teams, not just for them to understand their core functions, but to be able to examine the critical role played by procurement in business and in regaining control of the economy, while realising government’s top agenda of inclusive growth and transformation.
Bottom line: limited recognition and less focus on skills development for procurement teams affect the influence of and confidence in professionals to drive strategic goals, minimising their chances to get a seat at the table.