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Transforming to a more strategic procurement business

by | September 27, 2016

Typically, Procurement functions operate within a limited transactional based mandate: to purchase goods and services.

By contrast World class Procurement organisations have a far broader and commercially based remit extending to areas of spend such as: strategic Marketing Services (including Advertising, PR and Market Research) Technology Deals, Property Acquisitions, Strategic Partnerships, Restructuring, Acquisitions and so on.

This post explores how to begin to transform to a more strategic procurement function, seen and positioned as a more valued partner in the organisation, with a strategic role at board-level.

Identifying the right CPO

Your typical CPO or Head of Procurement has often had a career that has included the roles of buyer and category manager, and has come from within the industry.

FTSE Businesses need to recruit CPOs who have come from a broader based commercial background with multi industry expertise, a global remit and ideally a second discipline of finance, law or a strategic business background.

Procurement directors or commercial experts who have operated at an executive level over a cross section of businesses and disciplines will bring a level of strategic oversight that can raise procurements profile within the business, and lend credibility in the boardroom

Understanding the operational mandate

It is essential to proactively educate enterprise level organisations around the broader offerings that procurement can deliver, and the benefits it could provide to the wider business. Procurement should be viewed as a function that is strategic and commercial, rather than just transactional, and positioned in a similar fashion to the role of a strategic commercial director.

The directors and key stakeholders of an enterprise organisation need to be taken on a journey where by procurement’s capability to address broader business challenges is clearly articulated and demonstrated, facilitated by a program of senior level coaching and stakeholder engagement (coupled with strategy, policy, finance, sales and direction setting).

Capability at its core

To get the most from procurement, organisations need to ensure the right people are in place. They need to have the relevant cross industry experience, be multi-disciplined, and experienced in having a strategic oversight of business and its enablers. Moreover, they have to be aligned with key stakeholders and business influencers. They need to understand and appreciate the value creation and risk mitigation procurement presents, and align the procurement strategy to the core business strategy and its key drivers.

An extended remit

It is essential to have an end to end mandate to achieve successful and strategic partnerships and collaborations. Whilst a typical procurement function has a brief to provide services in certain areas of expenditure, it doesn’t necessarily have a wider remit into more strategically critical areas such as technology, property, acquisitions, JV’s, restructuring, organisational downsizing , major profit enhancement initiatives and outsourcing.

This function could also extend to areas such as developing more strategic partnerships, to include risk reward mechanisms that reward innovation and creativity, looking at the cost of a product right through the end to end cycle of the supply chain.

Sponsorship from the board

How do you go about getting sponsorship from the board to ensure that they buy into strategic procurement? Recognising a problem is 50% of the solution. Usually triggered by a problem statement for example “Our margins have been squeezed year on year” or “Business is getting harder and our competitors more innovative”.

It is important to make sure the board understands the business case, and is on a journey to understand and embrace procurement, ensuring the capability is used and perceived in the same way as finance.

In summary

These steps are what it takes to begin to turn procurement from a functional part of the day-to-day running of your organisation into a strategic process that can help drive real value and increased profit margins.

But this is just part of the bigger picture. To find out more about how you can turn your procurement function – and ultimately your business – into a World Class one, you can read our latest whitepaper.

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