Nearly 50% of procurement professionals say their CEO or Managing Director still doesn’t understand the true purpose of the procurement department and the real value it can bring to their business.
According to research involving over 500 procurement professionals* by leading management consultancy, 4C Associates, 48% said that their boss still doesn’t ‘get’ what the procurement team does or can do. 55% say they are treated as a ‘support’ function – there to just cut costs rather than recognised for the strategic value they can add across the business such as developing supplier relationship management initiatives or brand reputation.
Mark Ellis, Partner and procurement transformation specialist at 4C Associates, said “Procurement has come a long way in the past few years. In some enterprises, the function has gone from being seen as a ‘blocker’, ‘bean counter’, ‘policy enforcer’ and ‘enemy of innovation’, to being viewed as a strategic business partner. However, not all businesses are recognising the true extent to which procurement can add value. As the economic climate begins to change, enterprises, which before could thrive by implementing cost leadership models, now need to re-evaluate their offerings.
“Take Ryanair, for example, renowned for its low priced fares. The airline has been forced to alter its strategy. Whereas previously Michael O’Leary openly pondered the idea of charging passengers to use airplane toilets, he has now implemented several measures to win back customers such as more generous hand baggage restrictions, more attentive staff and a more customer friendly website. As a result, the airline last year reported a rise of 66% in its net profit.”
However, according to 4C Associates, responsibility also lies within the procurement department to take a step up and prove themselves to be invaluable to the organisation. The consultancy says that there are a variety of reasons why many functions haven’t done this. Some enterprises are more reliant on sourcing, contracting and suppliers than others, but in many cases following a few steps can help elevate, or solidify, the function and make a significant difference to the way procurement is viewed internally and externally.
One key way procurement can get the recognition it deserves is how the department presents itself. “Procurement will always need to deliver cost efficiencies and these will remain central to its role and the value it delivers within the enterprise. However, if all the function does is speak in terms of savings then that’s how it will be perceived: as a cost cutter. Traditionally procurement has not done a great job of illustrating its triumphs,” adds Mark.
According to 4C Associates, for the function to be viewed more strategically, it needs to showcase other elements of its work to demonstrate the value it brings beyond just making savings.
“While a stagnant economy proved a fertile breeding ground for successful cost reduction strategies, the function needs to adapt to the new environment and demonstrate its versatility if it is to always be seated at the board table. For example, highlight how the department’s risk management programmes minimise the potential impact that a disaster could have on the business bottom line or the added value it can bring to the company’s corporate social responsibility programme and show how procurement is driving innovation within the supply chain, giving the company that competitive edge.”
Whilst changing the perception of the function within the enterprise is paramount, so too is having the capacity to do it. That means developing different skill sets within the function and recruiting people able to reinforce the current team and fill in any capability gaps. It also involves a holistic understanding of the business’ overall vision and objectives and spotting the opportunities for procurement to contribute and to take the lead.
“Evolving with the current needs of the business means taking procurement out of its comfort zone and delivering beyond its current remit,” concluded Mark.