Does procurement matter? A sample of one says “not always”

So...  great procurement was rewarded last week at the CIPS SM awards. Well done to everyone.

But does it really matter? Does procurement really contribute that much to overall business performance? I know it's heresy to even ask that question, but at the risk of being a real party pooper, let's look at a firm I know quite well.

They've had a CPO whom I respect highly for some years, and they've been in the frame for CIPS awards (and succeeded) in the last few years as much as anyone.

But here's a graph showing their share price over the last five years, benchmarked against their market sector. As you can see, there was a bit of outperformance, then they and the whole sector crash, then recover, pretty much in synch. But this year, our firm's share price has fallen way below the benchmark.

Company X (in red) versus their industry benchmark - share price for last 5 years

So... would it have been worse without procurement's contribution? Or when it comes down to it, are we still a pretty small element in the overall performance of our organisations? One thing's for sure - an apparently strong procurement function and performance is not enough in itself to guarantee even industry-average performance.

And should the CIPS SM or Procurement Leaders judges take this into account when they look at awards? Of course, that would mean firms like Apple and Google winning every year which I wouldn't actually want to see! But it does make you think...

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First Voice

  1. Ben McKee:

    Peter – I witnessed the transformation of Abbey to Santander. Procurement performed a central role – the cost:income ratio on the takeover was 78% so 78p for every pound generated. 5 years later it was circa 38% nearly best in the industry.

    With lower cost:income ratio at that level it enabled investment in systems and products that took Santander to the fringe of the big 4 banks and propelled the CEO into government-backed Lloyds.

    Procurement was sharp and aggressive and you really had to work hard to justify your budgetary spending..

    Wouldn’t have happened without procurement.

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