For a procurement function to be truly effective it must have a clear vision and a definitive strategy for the teams to get behind. Fundamentally, this should inspire individuals and ensure all procurement activity has a strategic direction focused on commercial and operational objectives to be delivered against a clear long-term plan.
However, the mere possession of a vision and strategy is insufficient on its own. To bring it to life and embedded, it must be simple, communicated, and understood within the function and across the entire organisation. It is also important the procurement vision and strategy is aligned to the operating model and short, medium, and long-term business objectives so that all stakeholders are working together towards a common goal.
Findings from our Annual Survey
Only 5% of respondents to our Procurement Reinvented Annual Survey reported their organisation had a fully developed procurement vision and strategy. Long-term focus on all value delivery objectives from bottom-line to top-line growth including price, cost, risk, sustainability and innovation was generally weak. At the other end of the scale, a worrying third of organisations reported they either had no vision and strategy or described it as very basic, underpinned by a short-term focus on very limited objectives, most of which were price-focused.
There is a clear link between a well-developed procurement vision and strategy and the level of savings and benefits achieved. All organisations achieving over 10% savings, as a minimum, had a well-developed procurement vision and strategy, with short and long-term focus on most key objectives.
A significant number of organisations (42%) stated their procurement vision and strategy had no or limited alignment to business objectives. This is concerning as the development of any procurement vision and strategy should be in close alignment with the organisations wider business objectives. Only 11% of organisations stated full alignment of procurement policy with short and long-term business objectives. Interestingly, organisations achieving over 15% savings or benefits from their procurement team stated full alignment to all short and long-term business objectives.
What does this mean for your organisation?
The findings suggest that procurement practices and outcomes vary significantly across organisations with those achieving the highest levels of benefits/cost savings having better developed visions and strategies. Not surprisingly, these are also more widely communicated across the procurement function and wider business and more closely aligned to clear business objectives. Improvement is something that needs effort, investment and commitment, leading to good cross-functional and, in the case of large organisations, cross-organisational collaboration and engagement.
A long-term vision and strategy for an organisation serves as the guiding ‘North Star’ for current and future decision-making and is fundamental to the operation of an effective and high-performing procurement function. This requires a clear plan of action, which takes a long-term view and breaks the strategy into sequential steps. However, without a clear vision, a procurement department could face potential challenges and will find it difficult to deliver not merely commercial objectives, but broader operational objectives too.
To ensure the strategy and vision is successful there are several key factors to consider:
- The operating model and organisational design of the procurement function
- Industry and business context in which the function and organisation operates
- Stakeholder engagement in the development of the strategy
- Policies, processes and procedures framing the activity of the procurement function
- Performance measures and metrics that will be used to measure the progress/success of the strategy
- Skills and capabilities required within the function to deliver these outcomes
- Technology supporting procurement activity
- The culture of the procurement team and wider organisation
These Target Operating Model elements will be considered in detail as part of the ongoing series of blogs on the findings from our Procurement Reinvented Annual Survey.
If you would like to understand how to develop a procurement vision and strategy to deliver your long-term goals and objectives, or benchmark your organisation’s strategy against those who participated within our Annual Survey to understand how to improve your current practices to deliver real business value please contact Paul Ireland