Procurement Can Change the World: Educating the Business to See Procurement's Value Proposition
Procurement Leaders Magazine is celebrating it's 50th issue. As part of that celebration, Editor Steve Hall has written a series of articles on how procurement can change the world. In this piece, he takes a look at the impact procurement has had, and can have on business. We have to say, we like his thinking . . .
Anyone who’s been in procurement for a while can tell you how much it’s changed in a short space of time – looking back at old issues of Procurement Leaders Magazine, some of the topics and trends seem light years away from what’s happening today. Put yourself in the shoes of someone looking in at the function from the outside and you get a sense of why there’s such a gap betweenprocurement’s view on the world and the world’s view on a function and a concept that has made huge strides in a short space of time.
What’s perhaps less helpful is that the old perceptions of what procurement’s purpose actually is, have got in the way of what it might be.
Clearly, we can only be talking about savings here. Arguably, the first real iterations of modern procurement and sourcing processes came through armies and railroad builders as organisations looked for cheap, quick, secure ways to get supplies to where they needed them. But over the years, businesses of all sizes have realised that procurement professionals can be used to drive cost savings from suppliers, especially useful during times of ’belt-tightening’. While that’s been an important part of the lineage of procurement, it’s also something of a curse.
Some CPOs can look back at a career and point to the value they’ve generated beyond those savings. Giles Breault, former CPO at Novartis and co-founder at The Beyond Group, is one such, but he notes that savings are unavoidably part of what procurement delivers. "Companies have grown accustomed to this safety valve that affords the comfortable feeling that when needed, the procurement team can generate just a bit more to make the financial numbers work," he says. "Most corporate leaders to whom procurement reports are very unwilling to give up these year-on-year benefits enabled by procurement."
His argument is that in order to avoid the restrictive effects of that habit, executives have to learn ways of leveraging these achievements in order to afford resources and influence to focus on other organisational goals, like top line results and productivity. This is an education process: demonstrating and teaching what procurement can do for a business that recognises value beyond cost savings.
Carlyle Group’s procurement chief Steve Hrubala is another who holds the view that part of procurements role is updating that external understanding: "I’d suggest that, if organisations still think of procurement’s value as cost savings, it’s because executive leadership is not looking beyond what they are used to seeing, and procurement professionals are not articulating the better KPIs one should use in a more mature procurement role in the business."
In a sense, procurement is positioned like no other to understand the difference between cost and value; to realise the impact that sourcing decisions can have on operational capability; to see the opportunities for supply to impact productivity; to identify the business implications of wider market shifts. In fact, when you get down to it, procurement chiefs and their teams have a vital view on the opportunities and challenges that surround an organisation.
And like with those building the railroads across continents all those years ago, the people charged with securing parts for the track got to know a lot about the price of materials and the threats to delivery. They were ignored at the builder’s peril, but ultimately if the line wasn’t completed it was everyone’s problem. Which is a way of saying, procurement has had a big influence on the world just by being the experts in the supply side of the commercial world and bringing that expertise to bear on the goals of the wider organisation.
Steve Hall is Editor at Procurement Leaders. Steve oversees the publication of Procurement Leaders Magazine and draws on a decade in business publishing, providing quality coverage to senior business leaders. This article previously appeared on the Procurement Leaders blog. Follow Steve on Twitter: @thestephenhall