Back to the Future: Pricing Still Center Stage

The procurement profession has been working to take its rightful place in strategic planning for the organization. Although we've moved forward, with more large organizations naming a chief procurement officer (CPO), the reality of business pressures remain, keeping procurement pros focused, to some extent on pricing rather than strategy.

That was a key takeaway from the recently released Deloitte Global CPO Survey 2016 for its fifth year. The report is based upon responses from 324 of senior procurement leaders from 33 countries, who have a combined annual turnover of $4.4 trillion. “Procurement for last several years has been trying to get out of age old focus on saving money and that's a bit of a surprise,” Brian Umbenhauer, principal and global sourcing and procurement leader for Deloitte Consulting LLP told EBN in an interview. “While it's always there, the expanding agenda seems to be on that one thing as the core responsibility.”

Organizations with a robust and mature procurement strategy, though, are thinking of building procurement up as an internal brand that does more than managing and avoiding costs. “Procurement is at nexus of operations, finance, and technology and is the glue that holds it all together in the most effective organizations,” Umbenhauer said.

The new list of procurement duties includes demand management, compliance, efficiency, and more. “These organizations are starting to think more broadly and CPOs are looking to provide value around new product and market development,” Umbenhauer said. “As these companies are looking to define new markets and products, procurement is getting involved earlier on which is allowing them to exercise some of their muscles that maybe they hadn't in the past.” 

To succeed, these organizations need to put some money where their mouth is—and invest in procurement to add capabilities and capacities that allow them to deliver. “Procurement can't afford to make empty promises,” Umbenhauer said. “That's the biggest challenge.” Survey results underline that statement, with 62% of those surveyed saying that they do not have the skills that they need to deliver on their procurement strategy.

Risk may be another promised land for the procurement function. “Risk has continued to be a huge silo for many organizations,” Umbenhauer said. “Often, procurement has only limited role on risk. It's interesting to peel back they layers and ask why, since there's operational and financial related risk. You would think risk goes hand in hand with fundamental responsibilities in procurement.”

Leading procurement organizations are also looking carefully at the challenge of developing, attracting and retaining talent to the procurement organizations. “At the same time that we're seeing a tapering in America's talent gap in the procurement function, we're also seeing training budgets dramatically reduced. It will be interesting to see if the positive gap-reduction trend can continue,” said Umbenhauer.

At the university level, procurement as a profession lacks visibility, and often is undervalued. Within many organizations, other departments cherry pick high achievers and lure them away from procurement. “Not many people say they want to have career as a procurement professional,” said Umbenhauer. “It's a stop on journey not a destination. That's changing but slowly.”

Finally, technology innovation continues to be the best tool that procurement departments have. Unfortunately, many procurement organizations don't choose technology that best supports business goals. “It was a huge surprise that while they are spending money on technology, they are not spending money in concert with the overall organizational strategy,” said Umbenhauer. 

In the business-to-business space, some key initiatives include self-service portals and use of mobile technology, the survey found. “One possible use of technology is taking supplier collaboration to another level, almost to the point of strategic business planning,” Umbenhauer added.

Take a look at the infographic below that illustrates some of the main findings of the study. Then let us know how the procurement department is evolving in your organization in the comments section below.

— Hailey Lynne McKeefry, Editor in Chief, EBN Circle me on Google+ Follow me on Twitter Visit my LinkedIn page Friend me on Facebook

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