Despite the progress made by the profession, many still consider procurement primarily as a cost cutting exercise. How can we change this perception?
Many of those working in procurement have enjoyed the past few years. The financial crisis accelerated the function’s transition to the decision making table and saw many CPOs given more say in terms of business strategy.
But this rapid rise has not always been reflected in the way the function is perceived. Many still view procurement as existing solely to cut costs, regardless of any drop in quality or inability to introduce innovative, new processes. Part of the issue is procurement’s continued reliance on savings as metrics for success. Yes, procurement is primarily focused on saving the company money, but this is far from the only criteria to judge its success.
When it comes to strategic value procurement has to remember not to focus on short-term wins. When it comes to delivering sustainable value, the function must take a long-term view and understand there are strategic savings to be made. Managing risks, fostering innovation and designing supply chains are all examples of key areas where the function can make a significant impact.
Procurement has come a long way from being the holder of the purse strings which every other department dreads meeting. Modern procurement functions offer invaluable support to their colleagues in IT, marketing and a range of other departments. This support goes far beyond keeping numbers in check and has increasingly led to procurement coming up with innovative processes to achieve tasks with limited resources.
This is particularly relevant in the current environment where many departments are nervous about taking risks. One of the increasingly important functions of procurement is to manage these risks and enable their colleagues to invest in innovative new practices. This new role is very far removed from procurement’s reputation as being “anti-innovation”.
Despite this, the function continues to market itself as a cost cutter. Procurement professionals tend to highlight attributes such as spend analysis and compliance when laying out their strengths. Both are valuable skills, but viewed alone do not convey the full impact the function has on a business. Each can also be viewed in a negative light. For some, spend analysis and compliance brings to mind red tape and smaller budgets.
Shifting the perception of procurement from cost cutter to business driver means the function has to align its goals to those of the business as a whole. This means highlighting success factors other than pure savings, as well as building relationships across the entirety of the company. Procurement needs to be viewed as a problem solver, not a function that exists to block others from attempting anything innovative.
How can the function make this step change? One way is to talk to finance and discuss other metrics and KPIs outside of pure savings. Once these have been agreed present the new goals both internally and externally. Show internal stakeholders what the function has delivered and take advantage of any opportunity to publicise added value. This could mean presenting successes to the business at meetings, or presenting at external events.
Part of this challenge is recognising and getting recognition for delivering value, not just savings. Apple’s former COO turned CEO, Tim Cook recognised the value procurement brought to the company and was well aware of how to get the function noticed. For example, Cook reduced the number of key suppliers to just 25 and was then able to convince many to move their plants closer to Apple’s. This led to much faster product to market timeframes, the ability to leverage volume and many other benefits. Cook did not only talk about savings.
The easiest example to consider is marketing. The head of marketing in most companies will not be assessed based on how many savings have been achieved in a given timeframe. No, it is likely that he or she will be judged in terms of return on investment. In a similar vein, procurement cannot simply highlight savings. Risk management, supplier consolidation, development of new revenue streams - each is an example of the value that the function can deliver.
The question is, why do so many procurement functions shy away from talking about this type of value? It would be a real shame if the function’s rapid rise was cut short, because not enough people are comfortable talking about the strategic value delivered alongside savings.
☛ Milan Panchmatia is a director at 4C Associates