Why procurement has to stop only talking about ‘savings’ and focus on strategic value

Why procurement has to stop only talking about ‘savings’ and focus on strategic value

Jeremy Smith Blog, Procurement

A look at why the procurement  function needs to move beyond pure cost cutting and better publicise the leadership and revenue growth opportunities it can bring to the boardroom.

It’s no secret that procurement was one of the few functions to emerge triumphant from the financial crisis. Leading businesses faced with increasingly uncertain forecasts found themselves reliant on optimising cost as means to achieve growth.

In this context, the cost savings delivered by procurement helped secure the function’s present level of recognition and various accolades it received along the way. However, leading procurement teams went further and seized the opportunity to deliver value that went beyond their traditional remit.

Despite this, in many businesses the function continues to be associated with short-term, cost cutting exercises, predominantly because this is so much easier to measure than value generation. In my experience, procurement is often its own worst enemy when it comes to perpetuating this image and continues to highlight savings instead of the more strategic operations it drives.

A driving force

There are plenty of high profile examples of procurement delivering value beyond savings. BT’s Better Supplier Forum, for example, was designed to encourage suppliers to put forward their own innovations, but also implement best practice across the entirety of the supply chain. These initiatives are expected to deliver savings, but also stronger, more flexible supply chains and valuable process improvements.

Private Equity owned companies are some of the biggest supporters of the benefits of procurement and whilst it is no secret that most of this is involved in the cost cutting type activities more and more focus is on growth rather than cost reduction and procurement is now being challenged in how they can deliver innovation, support growth plans, provide agility and reduce risk, all whilst organisational value is derived from growth. This is not saying this is not done alongside competitive, yet controlled costs, but are actually spending more, but receiving greater value.

This is the type of success the function needs to publicize. This will not only allow it to cement its place at the board table, but also attract the type of talent it requires to continue evolving. Talking purely about success in terms of savings won’t reel in the multifaceted professionals modern procurement departments need. Nor will it make a case for the function to remain involved in key business decisions.

Getting and keeping the right people

At 4C Associates, we have structured our recruitment process around sourcing the type of talent able to drive and publicise procurement’s success. We hire people able to spot opportunities within challenging business scenarios and who aren’t afraid to innovate. Candidates who are able to analyse data, implement changes and think strategically, are those which tend to succeed.

For procurement, a big part of attracting and keeping this high calibre talent is providing an attractive salary. This in turn can only be done if the function continues to deliver value and earn recognition. According to the latest CIPS/Hays Salary Guide and Procurement Insights Report, procurement salaries increased by an average of 2.5% between 2013 and 2014, compared to a national average of 1.7%. A positive sign, but one which needs to be maintained.

Added value

Of course cost savings, supplier negotiations and price analysis remain core to the value that procurement brings to the table. However, these cannot be seen as the only attributes the function has to offer. Businesses which focus purely on the latter often lose their competiveness in the face of more innovative rivals. Procurement professionals know this and are forward looking.

Leading procurement teams play a key role in business strategy and go beyond simple cost cutting practices. From supply chain optimisation, through to risk management and innovation, procurement is in a unique position to drive revenue growth. It just needs to start shouting about it.