What Is Procurement's Value?

- September 17, 2009 1:09 AM
Categories: Spend Management |

One of the first moves made by a newly appointed Chief Procurement Officer at a Fortune 100 company was to find out from his internal stakeholders what they wanted from Procurement — in other words, “What is procurement’s value in the eyes of the customer?” His goal was to build better relationships with his internal business stakeholders in order to enable Procurement to bring more value to the company and become more of a strategic partner.

The CPO didn’t want to just send out a superficial survey that wouldn’t tell him much. He wanted to get deep insights into what his partners are trying to accomplish, how they feel about Procurement, how Procurement could drive more value, and what Procurement could do better. So, he charged a team with conducting in-depth, open-ended customer interviews. The interviews identified not only their perspectives on Procurement — what works, what’s missing, what constitutes value, and what they would ideally like — but also the context in which Procurement’s value can be viewed. This included each customer’s business context and how it’s changing, what impact they’re trying to make, and the pleasures and frustrations of their work. Understanding this context is important because it reveals opportunities to enhance Procurement’s value in the context of the larger system it serves.

To avoid biasing the interviews, the interviewers would ask no questions. Instead, they would get the interviewees to talk about broad areas and follow up on those that had the most “emotional force”. In essence, they would get people talking and follow up on what is important to them. The interviews started broad, identifying the context under which the stakeholders operate and then “funneled” down to procurement and its role. The interviewers probed with statements such as: “Tell me about your work,” “Tell me about what works about Procurement,” “Tell me what’s missing regarding Procurement,” and “Tell me about your ideal Procurement”. Not only did this open-endedness allow for Procurement to learn “what it doesn’t know it doesn’t know” but also allowed the interviewers to probe further the emotion-laden topics that the interviewees brought up.

So, what were the learnings from the research?

When the sixty interviews were completed, the team synthesized the insights into a picture of what was happening. Here is a summary of what they had heard:

Procurement’s Value: Procurement’s value derives from keeping me out of trouble with the suppliers, building flexible agreements that change with the changing needs, handling the negotiations, offering improvement ideas, being an advisor I trust, and getting ‘best value’ (i.e., maximizing benefits for the cost).

What Works: What works about Procurement is that it consists of professionals who understand my business and are collaborators, side-by-side partners who help me get best value for the cost and ensure there’s a full and competent supply base.

What’s Missing: There’s a widespread perception that Procurement is highly cost-oriented, so it’s hard to get them to focus on other things. Some feel that Procurement moves on to savings opportunities rather than sticking around when there are issues. In addition, since customers need to be more nimble, they need Procurement to be more nimble

Ideal Procurement: The ideal Procurement would be a partner that: understands and is very close to our business; gives us advice that helps us avoid problems with suppliers; helps us create flexible contracts that can change with our strategy; helps us address issues with suppliers; helps ensure suppliers are performing well; and, is focused on maximizing value for the cost (in contrast to just minimizing cost).

In one of the more insightful and entertaining aspects of the interviews, (and technically the only question asked — at the end of the interview) participants were asked: “If Procurement were a form of transportation, what would it be?” One person responded, “A bus, because whether it stays on schedule depends very much on who the driver is.” The implication was the variability in capabilities of the different procurement professionals, and the need for training. Another interviewee said, “Procurement is like a UFO — here one day, gone the next. Zapping savings here and then going off to the next project.” The implication here was the need to ensure Procurement is there when needed for supplier issues, etc.

The CPO and his leadership team reviewed the findings and implemented a number of programs that helped Procurement build better partnerships. For example, they streamlined some of the strategic procurement initiatives in order to take less of the business partners’ time and to move more quickly. They also made significant additional investments in procurement systems.

So, what could this mean for you and your organization? It may help you answer key questions such as:

  • Are you in line with what your customers and other stakeholders expect from you?
  • Are you listening?
  • Are you just pushing an ideology/single solution?
  • Should you be doing a diagnostic?
  • How can Procurement become a more valued, strategic partner?

If you would like to learn more about the research findings and implications for Procurement, feel free to contact me at jasonmagidson@wildfirecommerce.com, as I’d be happy to share additional details.

Jason Magidson

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