Why are there often clashes between business stakeholders and Procurement? The traditional Procurement department’s pre-occupations with cost, savings and price is what gets in the way. Business stakeholders see that this blinkered savings focus often destroys business value overall. It’s sub-optimisation, in other words.
Procurement’s assumption is that if they start with simple savings stuff, they will eventually be elevated to strategic partner. But that hasn’t worked despite many years’ tireless efforts peddling “Procurement Strategy”. What if they had talked Business Strategy instead? All businesses buy, add value and sell. So, why emphasise Procurement Strategy? Why not just talk about ONE strategy, with an approach for leveraging supply markets in support of that strategy?
What if, for example, the Procurement department at a pharmaceutical company had a programme in place with the sole objective of leveraging supply markets to create more candidate drugs? Would that not be more helpful to top management than a bunch of “Procurement Categories”? Surely, it would then be easier for Procurement to be heard at board level and get the needed resources. The Procurement programme would be a direct extension of what the leadership team is trying to achieve. That’s much preferable to the typical scenario where Procurement tries to retro-fit some sort of connection between their savings focused approach and corporate strategy. The “fit” is neither elegant nor credible.
The first thing to do when taking a Business Focused Procurement approach is asking the right business questions: What’s the company as a whole trying to achieve? What are the agendas of top management? What are the key challenges and success factors? What are the competitive advantages? What does the competitive landscape look like? How can suppliers and supply markets help the company excel? That’s because the primary focus should be on creating business value by leveraging supply markets. Creativity and flexibility rules! So does blue sky thinking.
Business Focused Procurement creates shareholder value and is more likely to have a transformative impact on the company than Savings Focused Procurement. Procurement organisations should consider a functional structure around Business Focused Procurement programmes, rather than categories. That’s because Category Management is flawed. Categories are supposed to be “run like businesses “. But they are NOT business, and often introduce more sub-optimisation into the organisation. Despite its best intentions, in practice Category Management is often just a more advanced version of Savings Focused Procurement.
However, there is still hope for companies who have invested large sums in implementing Category Management. Business Focused Procurement is “the missing link” that will get the Procurement department the craved equal partner seat in the board room. That’s, because Business Focused Procurement programmes can streamline, synchronise and focus the efforts of a category-based procurement organisation in a way that makes sense to CEOs.
Programme implementation needs to be tracked, monitored and adjusted to ensure the intended business value is delivered. This means identifying Key Performance Indicators beyond savings. In fact, the leading KPI must be “business value delivered”, broken down by relevant sub-KPIs, depending on how “business value” has been defined by the leadership team and key business stakeholders.
What get measured gets done. So, these KPIs will shape what Business Focused Procurement means at the operational level. Tools used at that level will likely include the most appropriate aspects of strategic sourcing and category management approaches, but can also go beyond. Essentially, whatever it takes to get the job done.
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