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How to create a world class procurement organisation

by | May 29, 2018

Historically the purpose of the procurement function has been to identify and procure goods and services that articulate and elevate an organisation’s offering. More recently however, through transformational business practices, procurement has become a key enabler to the generation of incremental profit and is now also becoming the custodian of third party risk awareness and the appropriate mitigation of those risks.

This trend has been an evolving journey for the last 50 years. In particular, looking back at the statistics post 2008 when the world experienced the global financial crash, businesses have stepped up their levels of focus on the cost base. They have identified, more than ever, the need for appropriate, strategic partnerships and the necessity to embark on a journey of transformation.

Procurement has recognised that it needs to elevate itself beyond being just the traditional business function and play a more strategic role in the organisation. Having a deeper understanding of what is core versus what is non-core whilst buying-in to an end to end remit for all third-party expenditure (strategic partnerships and joint ventures are examples of an end to end remit) is what it takes to move to a world class procurement offering for a world class business.

Some of the key challenges that procurement face are:

  • A volatile economic environment has made it harder to achieve savings targets• Limited commercial and strategic capability and bandwidth
  • A shortfall in internal process performance
  • Regulatory challenges that govern pricing and availability issues
  • Business restructuring and downsizing opportunities
  • Public Sector Budget cuts and impact on front line services

In this current climate with organisations facing continued challenges around profit enhancement, margin focus and achieving greater capability,  there has never been a better opportunity for procurement to raise its game.

What is a world class procurement function?

We have included some performance indicators that are important in the process of creating a world class procurement function:

  • Effectiveness of the procurement function in the purchasing of goods and services
  • Having the right strategic supplier relationships
  • Is the procurement function sufficiently broad enough for the business to support its commercial aspirations for growth
  • Is the functions profile recognised as a strategic commercial value add entity

World class procurement has a responsibility to manage and influence all elements of an organisation’s third party spend. It is also recognised as a strategic player in the business and is represented at board level alongside traditional board functions such as sales and technology.

Procurement becomes part of the broader strategic business conversation and has a considered and valid input when business decisions are being considered at board level.

How do you transform to a more strategic procurement business?

A typical procurement function is to purchase goods and services for an organisation. From a transformational point of view, there are certain areas of spend that would not necessarily be considered part of the strategic approach such as strategic marketing services to advertising, PR and market research etc.

Procurement needs to be seen and positioned as a more valued partner in the organisation.

A focus on the right skills and capabilities

The typical Head of Procurement or CPO has had a career that has included the roles of buyer and category manager and has typically come from within the industry. Identifying procurement directors or commercial experts who have operated at an executive level over a cross section of business and discipline will help raise the procurement level and perception within the business.

Understanding the operational mandate

It is essential to educate enterprise level organisations around the broader offerings of what procurement could be. It needs to position procurement in a similar fashion to the role of strategic commercial director and viewed as a function that is both strategic and commercial.

The need to invest to achieve the outcomes

Procurement was seen as a subset of the finance function. A world class procurement organisation is seen at the same level, as a peer to finance with its own mandate to help and support the business.

Procurement Transformational Benefits

  • Profit enhancement
  • Risk Mitigation
  • Increased organisational profitability & efficiency
  • Commercial oversight
  • Complex acquisitions and partnerships
  • Developing collaborative partnerships

If you want to be considered as a world class organisation, you absolutely need to have world class procurement as part of your portfolio. In the current financial climate, coupled with the uncertainties around Brexit and the need to compete on world political stage, there’s a compelling opportunity to act now. The opportunity is to make procurement the profit enhancing and risk mitigating function it needs to be.

A credible procurement strategy is only as good as its ability to remain relevant to the business’s needs with aligned and complimentary systems, processes and policies that are relevant to the evolving needs of the business and its market differentiators.

If you would like further information on any of the aspects discussed in this paper then please leave us a message here.