Spend Matters welcomes another guest post from Joel Johnson of GEP.
The C-suite is getting crowded. At the top levels of an organization, a CPO must compete with an ever-growing group of executives for influence and funding within an organization. Establishing procurement as a key strategic force is essential to ensuring that the department’s value is recognized internally. While procurement will continue to be held accountable for cost savings targets and strategic sourcing initiatives, emerging trends have increased the scope of responsibilities to include input on product development and key manufacturing decisions. These value-oriented activities are a sign of procurement maturity, and they are possible only once a strong foundation of spend and supplier management has been established.
Over the long term, it is essential that CPOs effectively align themselves with the key organizational objectives. Procurement departments must continually deliver on tactical responsibilities, but they should also seek to position themselves as strategic partners to an organization. Here are several approaches for procurement to help build departmental value:
- Insource and/or Outsource Opportunity Identification and Execution: Procurement departments are particularly well positioned to identify and oversee key “make versus buy” opportunities. Not only do these projects align with the core cost objectives of most departments, they also allow procurement teams to fully leverage their insight into external supply market conditions and internal manufacturing processes, capacity, and strategy. Furthermore, procurement is able to play the role of a facilitator for these initiatives, given pre-existing knowledge capital and working relationships with departments such as engineering, operations, and finance.
- Supplier Advancement: The relationship between client and supplier changes as procurement departments evolve and take on a more cross-functional focus. Year-over-year cost reductions from pressuring the supply base are only sustainable for a limited period of time. Substantial value is added by procurement departments, which collaborate with the supply base to ensure ongoing competitiveness with a focus on supplier development through technological collaboration and other continuous improvement and knowledge-sharing initiatives.
- Involvement in New Product Development: Within many industries, specifications are changing at an ever-increasing rate, given an increased focus on evolving customer trends. Given procurement’s understanding of integral factors such as market conditions and supplier capabilities, they deserve a seat at the new product development table. Strategic insights provided by procurement can help ensure realistic time to market projections and adherence to quality standards.
The perception of procurement as a support function is changing drastically. The implementation of streamlined procurement processes supported by technology has helped many departments achieve key cost savings, efficiency, and compliance milestones. This strong foundation has allowed resources at the top of a procurement organization to take a more strategic focus, oriented on how the department can increase its value within an organization. Whether procurement’s strategic contribution is within the realm of organizational structure, manufacturing processes, supplier relationships, or product development, it should closely align with core organizational objectives and remain flexible as those objectives grow and evolve.
For more interesting thinking on procurement, visit the GEP Knowledge Portal.