We continue our series of the top procurement myths here on Chief Procurement Officer. In this series, Pierre tackles the top 25 procurement myths that exist. Make sure to check out previous myths here on the CPO website.
15: Spend Management Belongs to Procurement
Over a decade ago, a vendor named Ariba was trying to create a term for its software "space" that captured what it did, but also differentiated it in the market. "Procurement," of course, was decidedly unsexy for this Bay Area hotshot, and it didn't want to use "supply management" either because that was much too supply- chain centric and direct-materials centric (which Ariba to this day still is not). There was also the desire to capture how to better manage "spend" independent of purchasing’s success/influence – i.e., something that would speak to the finance organization as well. So, it came up with "spend management." It was a resounding success. Procurement always talks about managing spend, so "spend management" is a no-brainer.
However, "spend" means something different to finance and to the business. It means cash outflows in terms of COGS, CapEx, OpEx/SG&A and even M&A – and it means internal spend (salary) as well as external spend. So, who owns this "big spend management?” The budget/business owners and finance own it. And procurement needs to "plug in" at the various points in these spend management processes such as planning and budgeting (which can have a separate CapEx vs. OpEx aspect to it) within FP&A and supply planning within an S&OP/"integrated business planning" process.
So, obviously, procurement doesn't “own” the spend beyond its budget, and tries to influence external spend early and deeply by bringing best practices to the process of supply. However, the real value of more progressive per terminal organizations comes when they influence “big spend management” before the requirements are even set. But, to have this level of influence in strategic planning, product/service conceptual design, enterprise risk management, M&A, etc., you do need to get your house in order and manage third-party spend effectively beyond just purchased cost reductions.
I will leave you with a metaphor that you may find useful that has to deal with ballroom dancing (perhaps I’m watching too much “Dancing with the Stars” lately). Think of Fred Astaire as the business stakeholder and Ginger Rogers as procurement (I know, I know – that’s a tough metaphor). But, as the old adage went, "Fred was great, but Ginger had to do what Fred did, but backwards, and in high heels.” Procurement has to be in lockstep with the business and know the choreography of the various dances that they do (and do it with minimal budget…the "high heels," if you will). Moreover, once a dancer has established true mastery, then that dancer can begin to not just lead, but also help choreograph better dances altogether. This is the difference between procurement strategy and strategic procurement. Procurement strategy merely translates the business strategy to what procurement needs to do. Strategic procurement means that procurement provides meaningful input to the business strategy based on the supply market intelligence that it can bring to the business.