Geo-political re-alignments, evolving trade equations and the global economic downturn are compelling procurement functions to embrace a more strategic role to fuel organizational success
To become integral to strategic decision-making, procurement teams must demonstrate value creation by ramping up performance
Segregation of strategic and transactional activities is crucial to transforming procurement operations, maximizing value and driving competitive advantage
Organizations are facing increasing levels of complexity, especially on account of economic downturn coupled with rising risks and uncertainty. According to a 2019 Global Survey by Deloitte, 61 percent of Chief Procurement Officers felt that procurement-related risks had increased over a span of one year. Adding to the challenges are geo-political changes such as Brexit and evolving trade equations, which have necessitated procurement functions to re-think their modus operandi. It is about time this function moved beyond its traditional role to act as a strategic partner and ensure organizational success.
Total Business Alignment (TBA) is one of the undisputable characteristics of procurement excellence across companies, agnostic of their size, geography and industry. A key part of TBA is having a clear and well-documented vision for procurement teams – one that is tightly aligned with business goals and defined outcomes. This enables focus areas to be prioritized and leads to value-added results.
For example, one a leading consumer goods company is aligning its industry-leading procurement practice with its organizational goal of reducing plastic waste, and creating a circular economy for plastics. The company is establishing practices by which premium packaging can be returned by the customer and re-used. This not only makes the procurement function a strategic partner in fulfilling larger company goals, but helps in cost-saving and sustainability in a fiercely competitive market.
Procurement functions are modeled differently across companies, and their performance or commitment to TBA are agnostic of this structure. In fact, a common characteristic among high-performing procurement teams across companies is the segregation of strategic and executive roles. This enables focus on long-term strategic priorities while enabling the creation of specialized execution teams in-house or as third-party support.
A McKinsey study found that nearly 50 percent of all procurement activities can be automated using existing technologies, thereby freeing up resources traditionally focussed on transactional activities. Organizations can therefore step up their transformation efforts by effectively using existing technologies and clearly demarcating roles within the function.
Defining and tracking the right metrics is a crucial practice among procurement star performers. Moving beyond hard savings, companies need to undertake a comprehensive and balanced approach towards measurement. Key metrics to be considered include:
Reach – access and influence on spending and supplier decisions
Efficiency – the ability to do more things faster with limited resources
Value – delivering cost-saving, growth, quality and sustainability
However, procurement functions need to consciously avoid tracking too many metrics, and put TBA at the core of their measurement efforts for maximum impact.
Procurement represents one of the highest costs on any organization’s balance sheet. That it must have a seat at the table is stating the obvious. Yet, the fact remains that a large percentage of procurement functions are far behind in becoming true strategic partners of the business. Today, Coronavirus has thrown the supply chains of multiple industries in disarray. If anything, it is yet another wake-up call for procurement functions to buckle up and hasten their journey towards the decision table
To know more about what constitutes high-performing procurement teams, read the WNS-CIPS benchmarking study
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