The Problem with Procurement: Misalignment

Spend Matters is pleased to present a guest post from Mickey North Rizza, VP Strategic Solutions, BravoSolutionJoin Jason Busch and Mickey North Rizza this Thursday for a webinar: Shh… Procurement Maturity Secrets: Surprising Lessons from Top Performers.

Every day, I talk to CPOs and directors of procurement about where they are struggling (some things they probably wouldn’t even admit to their bosses), how they define success and what they really want from their team and the business.

The answers vary, but they all agree on one thing: they don’t want procurement to be the old-school, back-office function any longer.

They’re ambitious and driven…but often don’t know where to start on their journey towards success.

If you ever see me and Lora Cecere in a room together, we’re probably talking about this exact problem. Her firm, Supply Chain Insights, just conducted some really interesting research on this and a multitude of other subjects.

The biggest problem that was uncovered: procurement and finance have dramatically different agendas. Finance teams ranked procurement as the most critical function to align with, but procurement didn’t share the sentiment. The different KPIs for procurement and finance are quickly converging into one set of metrics: operating margin, cost of goods sold, cash-to-cash cycle, return on assets and on-time shipments. Two additional metrics procurement should start to think about: return on invested capital and earnings-per-share.

Finance naturally thinks about these things; most procurement teams are still wrapping their heads about how to impact these metrics – after having a laser-focus on cost reduction for so long.

Aligning – on goals, motivations and the data you’re working – separates the best procurement teams, and frankly businesses, from the pack. Mike Hammer, who wrote The Agenda, explains the power for alignment better than I can. He said, “People who are aligned around a common goal but lack the discipline of a well-design process will go nowhere. Likewise, the best-designed process has no chance of survival when people aren’t aligned around the process and its goals.”

But improving the relationship between procurement and finance – and other departments, like R&D, sales, supply chain and IT – is a lot easier said than done. At the end of the day, it’s the future of procurement. Stay tuned for Part 2, where I’ll talk about three ways procurement can start making the shift. Baby steps, first…

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