What is the purpose of Procurement? The old school purpose of procurement was to save and cut costs. But we are now in 2020, and for at least the past two decades, there has been much talk about the need for Procurement to re-evaluate its purpose and work with business leaders to develop category plans that support business strategy.
That sounds good but, in my experience, Procurement tends to be most successful in doing that when the business strategy is to reduce costs. When that is not the main component of the corporate strategy, Procurement tries to retro-fit some sort of connection between their savings focused approach and corporate strategy. It looks like strategy alignment on paper, but it really isn’t…
Therefore, the traditional Procurement department’s pre-occupations with cost, savings and price often gets in the way. Business stakeholders see that this blinkered savings focus often destroys business value overall. It’s sub-optimisation, in other words.
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Procurement’s assumption is often that if they start with simple savings stuff, they will eventually be elevated to “strategic partner”. But that hasn’t worked, despite many years of tireless efforts.
To become more of a business enabler, Procurement needs to start 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? How can business value be created by leveraging supply markets?
According to research by Procurement Leaders, CPOs very much want to add value beyond savings, but many are not yet achieving that. Creation of business value beyond savings simply isn’t being measured. And, as everyone knows, “what doesn’t get measured doesn’t get done”. It doesn’t get measured because there is no clarity as to what exactly should be measured.
That’s because not enough of those key business questions have been asked of enough key stakeholders. Adding Business value starts by understanding how the business works, what it wants to achieve and what would be most helpful in achieving those goals.
The article How Procurement Can Take a Strategic Approach That Inspires Stakeholders outlines practical steps procurement professionals can take to have higher quality conversations with stakeholders. Conversations that focus more broadly on the value to the business, rather than the traditional narrow focus on savings.
Get our FREE 19-page guide, How to develop an engaging procurement strategy.
