Embedding Procurement Across the Enterprise

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Has procurement reached a point where it can be trusted with measuring its own performance? Notwithstanding the need for practical checks and balances, is your procurement organization looking through the lens of its own performance microscope or is it pacing the halls of finance, waiting for validation?

As procurement becomes increasingly responsible for non-traditional areas of spend and building business cases supporting change, its organizational importance will continue to soar. 

But cost control is a shared responsibility. And unfortunately, sinking your teeth into the myriad complexities related to measuring a procurement department’s performance often yields more questions than answers.

I can’t help but use the following sports analogy. Each player’s performance can be measured on film, game to game and in highly objective ways that can be definitively graded. But what if the team keeps losing? That’s not a rhetorical question. What if the player grades week to week with an “A” but the team is terrible?

Traditionally, procurement has sought to demonstrate its value via cost savings in at least three areas:

  • Purchase demand management. Reduction in consumption by way of better management of specifications, eliminating redundancies and consolidating requirements. Supply utilization and product standards.
  • Supply base management. How do we restructure our supplier relationships to increase competition without damaging the integrity of our partnerships?
  • Total cost management. What programs can be implemented to drive down inventory costs or force the organization through procurement-led make vs. buy decision processes? Are there ways to collaborate with supply partners to reduce capital expenditures?

All of that said, if procurement’s value is going to continue to be defined by realized cost savings, that’s all the more reason why clear, concise frameworks (starting points and endpoints, from reported savings to an expense reduction) must be based in sophisticated and comprehensive spend analytics. These tools measure what procurement professionals can control (i.e., number of suppliers, spend per supplier, spend per cost center/per GL versus historic benchmarks).

But if procurement is ever going to be about something more, then it must physically embedd itself across business functions. A big part of its agenda should be about the co-development of continuous improvement plans — with internal partners. In doing so, it has an opportunity to re-educate the organization on how to measure its total value. Not that there’s anything wrong with project-to-project-based collaborations, but such measures should be recognized as a way to get the process started. It’s definitely not the end game.

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