Op-Ed: Improvements In Procurement Capability Are Beset By “Soft” Issues

The global economic downturn has compelled organizations to focus on costs and seek ways to optimize their procurement capability, yet a lack of understanding of the softer issues of business are holding many back.

For most organizations, the single largest or second largest area of costs is procurement from suppliers. Even in boom times, savvy enterprises are constantly looking for ways to optimize procurement spend to boost profitability. Averting fraud and other business risks, like the recent horsemeat scandal, is another reason smart organizations strive to enhance their procurement capability. However, only a minority of organizations are able to achieve this. Many procurement practitioners are beset by organizational challenges – “soft” issues – and struggle to incorporate effectiveness into their functional activities.

Many procurement practitioners yearn for practical solutions that will enable them to navigate organizational dynamics and be more effective and successful on the job. Likewise, business leaders and senior executives responsible for procurement spend are often kept awake at night by challenges of ‘cost control’ and how to improve their procurement capability.

By better understanding the links between organizational goals and effectiveness at both functional and personal levels, organizations can save themselves time, money and effort by creating effective procurement functions that maximize their return on investment and boost employee engagement in tandem.

The recent global recession and the current state of business and national economies offer a great opportunity for procurement functions to find their mojo. The economic challenges of recent times have galvanised boardroom discussions, turning mere exchanges into corporate mandates. It is a shame that procurement still has no de facto seat in the boardroom, enabling more direct influence over those discussions and how the ensuing mandates are executed. In many ways, the absence of a procurement seat at the top table indicates the stature of the function in most organizations.

Of course, in some organizations with leading purchasing practices, the procurement function already plays a key role in shaping and implementing corporate strategies. Benchmarking surveys and trade publications frequently reveal some organizational traits and approaches adopted by such procurement pioneers. In particular, many recent studies illustrate how supply management in such organizations has changed, augmenting enterprise strategies to adapt to new world factors. In such businesses, procurement has been elevated up the corporate ranks. Some studies indicate that over 50 percent of procurement functions in such leading organizations now report to a C-level board executive. The picture is even better in a relatively small proportion of organizations where the most senior procurement executive sits on the executive board – at the time of publication, Siemens AG and Anheuser-Busch InBev are two examples of this tiny minority.

Undoubtedly, boardroom representation is one of the strongest indicators of any function’s esteem in an organization. Procurement has come a long way from the days when a move into the department was, in effect, a relegation to the backwoods of organizational existence. But even as recently as the early 1990s, procurement was still seen as a back-office function immersed in traditional tactical purchasing activities. The more strategic supply management approaches adopted by organizations with leading purchasing practices have helped bolster procurement’s image and get the function closer to the top table. This is a welcome development, not just for mature purchasing practitioners (especially those who for years have felt like their job is akin to banging their head against a wall eight hours a day, five days a week), but also for the development of the profession as a whole.

Purchasing is not yet widely perceived as a premier league profession; certainly not when compared to, say, marketing, law, investment banking or entrepreneurship. But continued efforts by leading companies to exploit the power of effective purchasing have given procurement a more important role in the corporate theatre. The recent economic slump has been an added boost as organizations of all sorts have sought to protect profit margins. Suddenly the spotlight is on procurement and it is shining brightly. Will our performance truly delight the audience?

It won’t be a case of “time will tell.” Rather, only those procurement functions that find their mojo by enhancing effectiveness will indeed delight their stakeholders.

The increased popularity of procurement in many quarters is a good stimulus to attract new talent and help develop the profession further. They say nothing succeeds like success. The more opportunities the procurement function has to succeed, and the bigger its successes, the more bright, young talents it will attract. This is an often overlooked fact in the debates on growing procurement talent. We must remember that in the talent war for new career entrants procurement is competing with functions like human resources (HR), finance and marketing. These are functions that are, arguably, significantly more established and more highly regarded in many organizations. Other functional areas that are relatively new to the corporate landscape, such as corporate communications, are also competitors in the talent war, especially as they are often perceived to be more sexy.

Making purchasing an appealing career path is part of enhancing functional effectiveness and sustaining the collective procurement mojo. No matter how good the bench-strength and competency of your procurement function is today, it is inevitable that at some point some of your best people will leave. Hence, it is vital to nurture a pipeline of emerging talent, just like many top-flight soccer clubs do through their youth academies. And just as any gifted young soccer player has a choice of youth academies to join, so too does any talented young professional, undergraduate or school-leaver have a choice of professional paths to embark on.

Some purchasing people might disagree with my assessment of the function’s standing in most organizations today. My own procurement team at one erstwhile employer didn’t quite get my drift initially. So I encouraged them to do a simple test: to stand at our reception or one of the elevators with a clipboard and carry out a random survey of at least 25 passersby, at any time, on any day of the week, asking each person the following questions:

  1. Do you know where the HR department is at this company? What do they do there; what are they responsible for?
  2. Ask the same questions, but for Finance
  3. And for Marketing
  4. Then, ask the same questions for procurement.

Rightly or wrongly, perception can sometimes be more important than reality, especially in large organizations. Trying to argue procurement’s case in a mire of organizational misconceptions is like complaining about your opponent who turned up to the gunfight with his pistol while you turned up with a knife. Raising the profile of our newly-created procurement function at that former employer was one of our key priorities. We never did do the survey – we didn’t need to; I was eventually able to get the team to understand the importance of our profile, and they got it.

Sigi Osagie helps organisations and individuals achieve enhanced effectiveness and performance growth to accomplish their goals. He is the author of the widely-acclaimed book, “Procurement Mojo – Strengthening the Function and Raising Its Profile,” and can be reached at sigiosagie.com.


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