Cost based transformation in its broadest sense is more than just the procurement of goods and services; it is an opportunity for an organisation to become a world class leader.
And now perhaps more than ever, if considered and operated correctly with the right stakeholder buy-in, procurement is uniquely placed to offer businesses more than just a functional process, but one that is strategically aligned and able to drive real efficiency gains.
This post explores the position of the procurement function of today, and the possibilities of what procurement – when implemented correctly – can become.
Procurement – an evolving journey
Historically, the purpose of the procurement function has been to identify and procure goods and services that articulate and elevate an organisations offering.
In articulating the capabilities around the transformation of a business, and being a key enabler to the generation of incremental profit, procurement has now become the custodian of businesses third party risk and the appropriate mitigation of these risks to the business.
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 and the considerations around risk mitigation and management. They have identified, more than ever, the need for appropriate strategic partnerships and the necessity to embark on a journey of transformation and business change management.
Procurement has recognised that it needs to elevate itself beyond being just the traditional business function and needing to play a more strategic role in the organisation. Having a deeper understanding and critical influence over what areas of the business should be deemed as core versus versus non-core functional services, executive and board level buy in to an end to end remit for all third party expenditure. This is what it takes to move to a world class procurement offering in a world class business.
Catching up with current challenges
The current issue is that procurement as a function and capability hasn’t done enough to respond to the key business and transformation challenges of 21st Century enterprise. In particular, some of the key challenges that procurement face include:
- 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 heads demanding procurement delivers value, growth and innovation without increasing costs
- Public Sector Budget cuts and impact on front line services
- Margin and profit focus requiring an enhanced focus on internal and external costs
- Business restructuring and downsizing opportunities
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, but doing so means a shift in thinking not just from those working within the procurement function but across the board and – specifically – by The Board.
Buy-in is key
There is a wealth of performance indicators and high level characteristics that identify what is meant by “world class procurement” including:
- How effective is the procurement function in the purchasing of goods and services
- Does the procurement function have the right strategic supplier relationships in place that are innovative and are delivering year on year cost, quality and service benefits to the businesses that it serves
- Is the remit of the procurement function sufficiently broad enough for the business to support its commercial propositions and aspirations for growth
- Is the functions remit as a profit enhancer and risk mitigator across the commercial spectrum recognised by the board
- Is the functions profile recognised as a strategic commercial value add entity
These indicators identify the particular focus of procurement’s overall strategic commercial proposition, beyond the traditional areas of the function and highlight the need for recognition and buy-in from board-level stakeholders.
To become world class, Procurement has to manage and influence all elements of third party spend. It also has to be part of the broader strategic business conversation, and have a considered and valid input when significant business decisions are being made at board level. This will enable the function to take on a broader capability, and become a real profit enhancer and risk mitigator.
To find out more about how to make your procurement function World Class, read our latest whitepaper.