Procurement isn’t aligned with strategies for business success – Guy Strafford comments

Guy Strafford, one of the directors of Proxima, procurement outsourcing service providers,  has written a very thought provoking piece on their blog. You can read it here. He comments on a Deloitte study, reported in the Harvard Business Review. Now I realise that means I’m reporting on an analysis of a report of a report (!) – but it’s important.

The original Deloitte report studied 25,000 firms over 44 years and suggests that there are three rules for business success. And they’re probably not what we might have expected.

  1. Better before cheaper – in other words, compete on differentiators other than price
  2. Revenue before cost – that is, prioritize increasing revenue over reducing costs
  3. There are no other rules – so change anything you must to follow rules 1 and 2

Strafford then gets into what this means for procurement. As he says...

“Consider the focus of procurement in most businesses.  How is it targeted?  How is its performance assessed?  What do most people believe procurement is there to do?  Typically, the over-riding factor is to drive savings.  Savings, savings, savings”.

But the Deloitte study suggests “savings” have a limited importance in the long run. What matters is quality differentiators other then price, and revenue growth. So, as Strafford says, procurement might actually be getting in the way of success – “procurement itself needs a rethink” as Strafford concludes.

This also relates of course to the story we told yesterday of the myopic, price focused approach we’re still seeing too often in procurement, even in large and apparently progressive firms. If cost is very much a secondary factor to quality and revenue growth, the big question for procurement is this – how can we support those key critical success factors? Because that will be essential if procurement is to gain and maintain the seat at the top table that we all feel is justified.

And do read the whole Strafford article here.

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