Common mistakes have been identified that can impede the success of procurement professionals within their own organisations.
Mudit Kumar, VP, procurement and supply chain consulting at GEP, said the last year had seen global firms accelerating investment in their procurement functions to build resilience and flexibility and mitigate supplier risk.
“Procurement is now getting its long sought after seat at the proverbial C-suite table to help its organisation compete in this new, post-pandemic world,” he said.
However, in the rush to adapt to a new market reality, procurement runs the risk of making common mistakes.
Kumar identified five key mistakes in procurement and how to avoid making these errors.
1. Not aligning with the company’s broader strategic vision and goals
Kumar said while there may be slight variations in different industries, there were three steps procurement should take to avoid failing to align with strategic goals.
He said: “First, assess the core business needs and align procurement goals with the broader enterprise mandate. Right now, organisations hard hit by Covid-19, such as retail and the oil sectors, are aggressively resetting cost baseline. Others, such as food and consumer product companies which grew strongly during the last 12 months, are looking for more investments to support growth.
Next firms must baseline the current percentage of spend managed through procurement and “analyse the reasons for why a certain amount of spend remains outside procurement control”, Kumar said.
“Finally, track and develop a glide path toward increasing procurement’s value through metrics such as spend under management.”
2. Reducing the company’s agility and hampering business
Kumar said procurement tended to equate business value with cost savings, which is “the most fundamental error in approach”.
“Myopic focus on savings limits procurement to one-dimensional thinking and causes erosion of trust and partnership with the business leaders,” he said.
“Instead, build a detailed understanding of business needs and third-party partners critical to achieving these goals. In many cases, businesses are focusing on outcomes such as growth, innovation and business continuity. Use your laser focus on costs for less business critical purchases.”
3. Turning off the C-suite
One mistake procurement professionals often make is overusing “procurement speak” to discuss sourcing, procurement metrics and processes.
“What they should be focusing on instead is what value they are creating for the organisation. A key thing to watch out for here is to make sure that procurement connects outcomes to enterprise goals,” Kumar said.
“As an example, procurement-driven savings should be translated to C-suite goals such as EBITDA reduction and operating margin expansion.”
4. Overpromising and under delivering while increasing bureaucracy
Procurement professionals tend to get bogged down with a myriad of different processes to measure those processes which does not add much value, Kumar said.
“Instead, focus on a handful of business outcome indicators, such as savings, spend under management and financial controls adherence, to tie procurement directly to strategic goals and outcomes.”
5. Messing up automation
A siloed focus on automation by procurement can be “outright detrimental to the organisation”, rather than helping with efficiency goals.
“First, this unfolds because procurement automates inherently inefficient processes. It does not improve the business outcomes, and inefficacies get embedded in digital solutions.
“Second, procurement does not pay attention to organisational change. There is always an adoption curve to new technology solutions. Finally, procurement’s financial commitments and ROI assessments are inaccurate because of this narrow approach,” he said.
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