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Aligning Procurement to Business Strategy

This may be a no-brainer, but it warrants repeating: Procurement needs to sync to business strategy if a company wants to get the most from these activities, and finally, it seems, more companies are recognizing that.

According to procurement services firm GEP's recent Value Trends: Procurement Strategy research study, conducted by Information Services Group (ISG), aligning procurement to overall business is the top priority of procurement leaders this year. Besides the more traditional concerns of cost and risk reductions and effectively supporting procurement activities, there is a growing sense that companies that can better match their purchasing practices to their business objectives will derive greater value overall.

To make procurement a higher-impact role in their companies, leading chief procurement officers (CPOs) are focusing on managing the procurement framework through the following areas, GEP noted:

  • Sourcing strategy
  • Policy and process design to improve controls and manage risks
  • Spend governance and transparency
  • Transformational deals
  • Supplier management
  • Approach to technology and support

A lack of skills, however, poses problems in fully executing this alignment. CPOs polled acknowledged that while they were proactively addressing and adding value, achieving the goals within various business units was difficult because procurement organizations are “only brought into the contracting process at the time of contract negotiation, if at all.” This means in some cases procurement organizations are called in after requirements are set, market analysis is done and a supplier selected; in these cases, the procurement group has to mitigate risk with limited time and leverage. Other challenges topping the “worry list” include deficiencies in analytical capabilities and tools.

There's also a catch-22 inherent here, too. Neha Shah, executive vice president and co-founder at GEP, said in an interview with me that while procurement organizations are increasingly playing a broader role in meeting corporate business and financial goals, tactical competencies are also expected even though those specialized skills may be lacking.

“The CPOs we work with tell us that tactical execution of procurement programs is not going to win them any medals, yet problems in program execution — such as slow ramp-up or lack of flexibility — are definitely big problems,” said Shah.

Instinctively, I think electronics companies are further ahead on this curve, and have already done some of the heavy lifting associated with this kind of alignment. Or at least I'd like to think they are because these same concepts have been talked about for a long while. (This report surveyed executives from financial services; healthcare and pharmaceuticals; business services; manufacturing, energy, government, and public sectors; media and telecom; and retail, travel, and transportation sectors.)

But then again, who knows? Aligning procurement activities and practices to the business strategy assumes a very basic thing — that companies, and all their employees, actually understand the business strategy well enough to execute against it. And, given the rapid-way companies pivot and re-pivot — usually based on the whims of Wall Street — I'm not always convinced that there is as much procurement-strategy alignment as we would all like to believe.

1 comment on “Aligning Procurement to Business Strategy

  1. shahalam
    May 16, 2014

    The procurement strategy is becoming more ans more popular day by day in the todays's business world. The technology is improving at a rapid pace long with business strategies are also changing.  gel fuel tabletop fireplaces

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