Procurement needs to get out of its comfort zone

Procurement needs to get out of its comfort zone

Mark Ellis Blog, Procurement

For many years, leading organisations have understood how Procurement can help define a successful business strategy. Modern procurement functions have a holistic view of their organisations, sectors, and changing market conditions. Spotting opportunities, solving challenges and refining processes are the bread and butter of modern Procurement functions. To the point that in many organisations there is a strong direct link between procurement capability and the level of direct expenditure and profit margins.

However, not all procurement functions have taken the opportunity to step up and prove themselves to be invaluable to the organisation. There are a variety of reasons for this and of course, some organisations 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 and how it can create value.

A chequered history and an opportunity

One key issue is how procurement presents itself. If all the function does is speak in terms of cost reduction and savings then that’s how it will be perceived: as a cost cutter and blocker to innovation. Traditionally procurement has not done a great job of illustrating its triumphs. If Procurement does not market itself as a strategic function, with a holistic approach to business and able to contribute long-term value, it will not be seen as one. This is particularly relevant in the current economic climate, where uncertainty reigns supreme and cost optimisation is an invaluable means to sustain growth.

As the economic climate begins to change, organisations which were able to thrive by implementing cost leadership models need to re-evaluate their offerings. Ryanair, for example, made its name by offering some of the lowest priced airline tickets on the market. Its cost leadership strategy is well-documented, however, the airline was forced to make some changes in the recent past. This story of evolution and success is poignant for many procurement functions. Economic downturn certainly helped propel the function to the forefront of strategic operations, however, adaptability is required if procurement is to remain seated at the board table.

Procurement will always need to deliver cost efficiencies and these will remain central to its role and the value it delivers within the organisation. However, for the function to be viewed more strategically, it needs to showcase other elements of its work. Supplier relationship management initiatives, risk management programmes, corporate social responsibility, supporting brand reputation, driving innovation within the supply chain, holistic data analysis solutions, AI opportunities… So next time your team is given the opportunity to present, show something that goes beyond savings.

Times are changing

The key message is not to get too comfortable. As the recent Nobel Prize in literature Bob Dylan would say ‘The Times They Are a-Changin’ and so too must the role of procurement within leading organisations. 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.

There are a number of ways to do this. Changing the perception of the function within the organisation is paramount, but so is having the capacity to do so. 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 also have the ability 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.