Mark Ellis, Managing Partner at 4C Associates considers the steps the function needs to take if it is to drive strategic business decisions.
Procurement has come a long way in the past few years. In some enterprises, the function has gone from being seen as ‘blockers’, ‘bean counters’, ‘policy enforcers’ and ‘enemy of innovation’, to being viewed as a strategic business partner.
However, not all procurement functions have taken a step up and proved themselves to be invaluable to the enterprise. There are a variety of reasons for this and of course, some enterprises 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.
Not a one trick pony
One key issue is how procurement presents itself. If all the function does is speak in terms of savings then that’s how it will be perceived: as a cost cutter. Traditionally procurement has not done a great job of illustrating its triumphs.
Procurement will always need to deliver cost efficiencies and these will remain central to its role and the value it delivers within the enterprise. 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… Next time your team is given the opportunity to present, show something that goes beyond savings.
Old dogs, new tricks
As the economic climate begins to change, enterprises 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.
CEO Michael O’Leary, famous for his controversial outbursts, responded to criticism of the airline being too cost driven, by altering its strategy. Whereas he previously openly pondered the idea of charging passengers to use airplane toilets, he has now implemented a number of measures to win back customers. These services include more generous hand baggage restrictions, more attentive staff and a more customer friendly website. As a result, the airline’s load factor, which reflects the number of passengers, is expected to reach at least 92% in 2016, up 9% from March 2014.
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.
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 enterprises. 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 enterprise 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.