Recently, while speaking at Oxford University, I attended a talk on the Future of Procurement. I had always felt that Procurement, as an essential function, had been unfairly squeezed under the weight of Finance. Why was it that Procurement seemed to sit under the cover of Finance? Indeed, why do we seem to be owned by only a very small part of our full lifecycle?
All of these questions seemed to rear up once again, when I heard the speaker’s disconcerting views on the Future of Procurement. Procurement, he prophesied, would soon enter a doomsday scenario wherein its very existence would be under threat if we, as procurement professionals, carried on what we were doing, and did not correct our course.
Procurement’s last-ditch attempt in proving its strategic value, he suggested, lay in turning its focus to Innovation Capture. As the vital link between organizations and their suppliers, Procurement could, at once, enable suppliers to develop innovations to meet the needs of these organizations, and ensure that the organizations leveraged these innovations.
All this crystal gazing was, obviously, a million miles away from Procurement — at least as Procurement exists in reality. So, without giving in to wishful thinking, let’s see what Procurement can actually do to alter its own reality.
Keep Your Finger On The Market’s Pulse
Conversations about Procurement typically revolve around “savings”. And ironically enough, savings is what the Chief Procurement Officer (CPO) needs to prove to justify hiring more people. There is literally no other corporate function that needs to justify its existence on the basis of how much money it saves the company.
Savings will not find the next Microsoft; savings will not bring about the downfall of the 12″ floppy drive (showing my age now). However, a Procurement function that is premised on supplier management will help in aligning suppliers with business needs and will, inevitably, see that Flash drive come into being. Having a corporate function that keeps its finger on the market’s pulse will lead to innovations such as the device that you are reading my thoughts on right now.
And savings may still have a place in the new-age Procurement function. For example, the advent of photovoltaic glass built in to buildings came out of the need to save cost on energy.
Capitalize On Risk Management
Risk, a loosely defined buzzword, has, to some extent, allowed Procurement to redefine its role. Procurement has capitalized on various social agendas such as Small Medium Enterprises (SME), Environmental, Anti Bribery and Corruption (ABC) and now the Modern Slavery Act, along with the usual issues associated with supplier probity. Corporate risk mitigation sits so well on the shoulders of the Procurement function. We, in Procurement, have the ability to defend the business against some serious reputation risks as well as financial and operational risks. This has given the Procurement function a higher platform upon which to build its sphere of influence. We really should be seizing this opportunity as a stepping stone to dominate the corporate space.
Get Buy-in From Your CEO
You might say, “Tony, you make some good points. But how could I possibly sell the CEO on your audacious vision?” Well, it’s easier than it looks.
Imagine you are the CEO of a large multinational organisation. Your third party spend is a huge percentage of your expenditure; some suppliers even deliver front line services on your behalf. And looking good in front of your customers is key to sustainable profits.
Knowing that your extended enterprise (the supply base) is made up of large and small organizations, knowing they have all undergone some kind of environmental assessment, knowing that they have all promised to play nice and report bribes, uncompetitive behaviour and validated their own supply chains against slavery and human trafficking — only the CPO can guarantee the knowledge and certainty that these checks and balances have been done. Indeed, it is the CPO who can help the CEO sleep at night.
The same applies when it comes to innovation. Put yourself in your CEO’s shoes once again:
Your CPO has just told you about a supplier who has just invented something that will replace the leading product in the market with an innovation that no one yet knows about. Chances are, you will jump at the opportunity and provide a big Thank You to your CPO for giving the company an enormous competitive advantage over its rivals.
Finally, Stand Up For Yourself. You Have Nothing To Lose & Everything To Gain
I’m not really sure when or how the Procurement function started to sit under the finance function. I assume it was because we started raising purchase orders way back when. CPOs need to reclaim their rightful place within the corporate structure. The CPO’s function is not to be answerable to the CFO. Indeed, his role extends beyond the purview of finance.