'The Deloitte CPO Global Survey Report 2013' makes interesting reading for those of us with a keen interest in the future of Procurement
The Deloitte CPO Global Survey Report 2013 makes interesting reading for those of us with a keen interest in the future of Procurement. Cost reduction is still a top priority for CPO’s but with economic recovery there are emerging issues:
- 85% of CPO’s see new product or market development as a priority;
- 88% are on or exceeding plan in the last 12 months;
- Yet only 61% believe they are somewhat effective at delivering value for stakeholders;
- And just 44% measure internal satisfaction with Procurement
Money is important to Procurement. It is usually a primary KPI with bonuses, promotions, even continued employment based on hitting cost saving targets. But to deliver value for stakeholders, Procurement needs to concentrate on 4 key areas:
- Business strategy
- Creating a vibrant and nuanced supply base
- Customers
- Talent
Business Strategy
Business strategy sets the agenda for all the functions and budget holders within an organisation. Goals are set for the coming year and for the medium to long term. Short term goals may be set by prevailing economic winds or competitor activity and usually feature those financial KPI’s mentioned earlier. The medium term to long term goals tell a procurement team where their organisation wishes to be and what the main focus of each budget holder is likely to be. It is also where procurement buyers can add early and pro-active value to stakeholder’s activities.
Short term work involves the 4 main tools of a buyer: Buy for less; Use less; Re-engineer; Pay less and involve all the market, supplier and spend analysis expected of a buying team.
Medium to long term work involves sitting down with each stakeholder and understanding what their priorities will be and formulating shared plans for ensuring your organisation has the best supply base to help it deliver those plans. This requires a more holistic view of what represents value and what a Procurement function is for. It also means Procurement needs to abandon one-dimensional scorecards that measure success in cash terms and take on the challenge of a more balanced scorecard based on perceived value.
Creating a vibrant and nuanced Supply Base
To be blunt, the supply base you have for the short term may not be the supply base you need for the medium to long term. Supplier and Supply Base reviews should be linked with business and functional strategies at all stages of the procurement process. A typical category review needs to understand how the supply base needs to develop over time – if at all.
Depending on the complexity and risk attached to each sub-group within a category, suppliers may have to be developed, dropped over time, or new suppliers brought in.
Procurement should be managing Suppliers not Contracts. Who are your standard, reliable suppliers? How is spend likely to change over the next 3 years between standard and new products/services? Who are the suppliers with innovative ideas that will help deliver a stakeholders strategy? How engaged are they? How long will these innovations take to develop and where will the intellectual property lie? Is there a commercial advantage in early commitment or not? What needs to alter within your own organisations to make these innovations work? Do your existing suppliers have the capacity to meet your organisations anticipated needs? Do your suppliers know what your strategy is and do they need to? What is the risk attached to these activities and what is the risk of NOT doing them?
A Procurement team that has answers to these questions is adding value for Stakeholders.
Customers
Effective procurement requires a genuinely customer focussed approach to working with stakeholders. It isn’t enough to co-locate and share processes and targets. The majority of CPO’s participating in the Deloitte survey do just that, yet a third of them do not share their own objectives and 56% do not seek feedback from Stakeholders.
Talk to any consumer facing business and they will tell you how vital customer feedback is. Procurement teams should be actively seeking feedback from Stakeholders and using that feedback to inform their own strategy. Objectives should be openly communicated, progress reported and success celebrated. Unless customer feedback is listened to and acted upon, Procurement risks being seen as a separate silo whose value is limited to cost cutting programmes.
Talent
CPO’s responding to Deloitte identified the following key issues impacting their ability to deliver value to stakeholders: misaligned objectives, a lack of internal engagement and influence, a lack of resources. 48% felt their teams lack the skills to deliver their procurement strategy. If that strategy is to flex to accommodate additional priorities like new product/market development and managing risk, then that skills gap needs to be bridged. As technology makes the ‘bread and butter’ procurement work of sourcing and administering the supply chain easier, so Procurement needs to adapt.
It is easy to train someone in Excel and whatever ERP system a company uses. Less easy is developing the influencing and leadership skills needed to ensure Procurement is engaged and delivering value to Stakeholders for the medium to longer term.
If Procurement isn’t just about the money, then great Buyers aren’t just spreadsheet geeks and penny pinchers. Procurement brings change. In order to deliver that change Buyers need to have an abundance of those misnamed ‘softer skills’: influencing, communication, leadership and people management.
