Why Procurement Is a Vital Seat at the Executive Table

Spend Matters welcomes this guest post from Stan Garber, president at Scout RFP.

The element of surprise is something that organizations will always have to contend with. As business leaders, it’s our job to “expect the unexpected” — to plan for unforeseen challenges and direct financial resources accordingly.

As enterprises in today’s global economy grow and expand to new markets, they have one secret weapon to bolster financial stability: procurement. It’s true. Take a look at any successfully growing enterprise, and you can bet that an amazing team of procurement and sourcing specialists is at its center.

It’s no secret that handling large enterprise costs in a siloed, departmental manner is detrimental to the business. Not only is it inefficient, but it also reduces the organization's overall competitive edge and increases its operational expenses. With the office of finance putting more emphasis on cost reduction, vendor consolidation, and impactful suppliers, strategic sourcing has emerged as a top priority in 2017. As such, CEOs are looking for procurement teams who can execute cost effective strategies and manage operations and outsourcing with aplomb.

Steering the sourcing ship — and leaving an indelible and enterprise-wide positive impact in your wake — is no small task. Procurement leaders must navigate the waters of “big picture” corporate goals, financial realities, strategic partnerships necessary for long-term success, and ever-evolving supplier relationships. The sheer size of the role, as well as the outcomes it can produce, has caused procurement to evolve from a back office business function to a competitive business operation with a rightful seat at the C-level table. Let’s explore why.

Bottom Line Impact

The connection between enterprise-wide success and procurement is, particularly as of late, a widely documented fact. A recent IBM Institute of Business Value (IBV) study brought into the spotlight the impact that Chief Procurement Officers (CPOs) can have on a company’s profitability. The study showed that organizations who employ high-performing procurement departments report 7.12% profit margins, as opposed to 5.83% for those with low-performing procurement organizations. Companies with top-performing procurement organizations also showed profit margins 15% higher than the average company. Compared to companies with low-performing procurement teams, the difference is even more marked, with a 22% difference in profit margins.

As these numbers demonstrate, procurement is fundamental to a company’s bottom line success. It makes sense: if a company is overcharged for large scale expenses, its profits will be commensurately (read: adversely) affected. The inverse is true, too. Knowledgeable procurement decisions have a positive effect on the bottom line and lead to better business outcomes.

Insight Into the Business

In order for procurement teams to provide true business impact, they need insight into the entire enterprise strategy. These can only be truly gleaned from within the C-suite. Not only does the C-suite have insight into overarching corporate goals, they have the means and capability to help make those goals happen. For example, if a retail company has set a new growth target for the year, a large-scale technology purchase can help realize that goal. The effects of the new purchase can be far-reaching. Perhaps it helps the marketing team hone in on the best retention strategies, while also informing the design team on what is resonating most effectively with customers and simultaneously supporting the IT team’s mandates for risk. By having access and contributing to C-level insights into overall business strategy, procurement and sourcing can be prioritized and optimized to its fullest potential.

Procurement as a Larger Business Function

Companies are getting more strategically savvy, and the role of procurement is evolving in conjunction with this. Gone are the days when procurement was a back office role focused more on execution than strategy. In today’s modern workplace, it is a necessary C-suite function. A good procurement officer can have a profound effect on the business, just as a poor procurement officer can have an adverse one.

C-level procurement professionals have a crucial role within the enterprise. Because of their role — both as top-level leadership and strategic sourcers — they are uniquely positioned to identify and mitigate vulnerabilities, take advantage of opportunities and champion the importance of procurement from the top down. Informed by a bedrock of data and accompanying analytics, they can work to improve forecasting, find opportunities for saving and keep the improve business outcomes across the enterprise. By championing procurement and elevating it to a C-level role, the impact on the organization will be profound.

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First Voice

  1. Sara Walsh Evans:

    I agree that alignment with executive strategy and direction is necessary; but I don’t believe it is necessary to have a seat on an executive C-suite table in order to be effective and to succeed in procurement.

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