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Procurement Proves Critical in Delivering Organizational Strategy

We have read and talked much about procurement's ascendency in the last decade. The function has moved away from its reputation as the corporate policeman and cost cutter toward being seen in many organizations as a center of innovation and profit.

The chief procurement officer (CPO) too has seen a raised profile within our businesses with a number of leading firms, including Apple, hiring former procurement chiefs into the role of CEO.

While the improvements we've made as a function are impressive, there is still much to be done. World-class procurement is no longer about grinding out supplier negotiations where one party wins and the other loses. The next step in procurement's evolution is to link our activity more closely to strategic organizational goals.

Business, not procurement, leaders

Procurement teams need to shift focus away from achieving procurement metrics such as cost savings and start executing on organizational strategies. We need to better understand our business's high-level objectives and address how we can improve these by engaging suppliers, leveraging contracts, and driving innovation through the supply chain.

In order for procurement to deliver the organizational value it is truly capable of, it must exhibit and quantify the opportunities that lie within the business. Supporting procurement technologies are critical at this phase. 

If procurement teams able to highlight opportunities for organizational improvement and can support these opportunities with strong data sets, we will earn the opportunity to deliver these results. Without the data and supporting technologies, the claims we make will struggle to earn the trust of the wider business.

The importance of the board

It is the board that sets a company's strategic direction, so it is at the board level that procurement must direct its attention and efforts. Procurement should look to develop a sound understanding of the board's objectives and align its activity and strategy in order to ensure the organization achieves these objectives.

Procurement teams can contribute towards organizational goals by utilizing our experience in the following areas:

  • Risk management
  • Corporate social responsibility
  • Cost reduction
  • Revenue generation
  • Innovation

Very few organizations discuss procurement at a board level and fewer still have a procurement representative present at board meetings. In order to break this trend and have our voice heard, procurement teams need to start to execute strategies that directly assist the organization in achieving its strategic goals.

Cross-functional teams

The board may set out the strategy for organizational success, but, at an operational level, cross-functional teams enable procurement to achieve a more strategic role within an organization.

In order for a company to operate efficiently, it is imperative that all of its business units assist each other in working towards common goals. For this process to be optimized, business units need to have open communication with one another in order to build trust and understand the challenges and requirements that exist in other areas of the business. Below are two strategies for creating integrated business units to achieve organizational success:

  • Involving staff from other parts of the business in the sourcing process . By involving people from other parts of the business in the sourcing process, procurement is able to show the full value it brings to an organization. This step also breaks down the traditional stereotypes that operational staff may hold about the procurement function. Failing to engage with the relevant operational team members will mean that procurement runs the risk of operating not as a support mechanism, but as a self-governing business function.
  • Facilitating staff rotations . Moving people in and out of the sourcing organization provides others in the business with the opportunity to understand exactly what procurement is capable of. Correspondingly, having procurement professionals carrying out rotations in other parts of the business allows procurement staff to develop a broader knowledge base that will in turn enable procurement to serve the business in a more effective manner.

While the challenge of creating an integrated, aligned organization may be a daunting one, taking time, planning and substantial resources, the potential benefits from implementing such a solution are huge.

Organizations that are able to align procurement activity with business goals will not only see improvements in efficiency, effectiveness and reduced wastage, they will also realise fringe benefits, such as improvements in employee morale, as staff feel more integrated and connected to the ultimate success of the business.

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