Proxima Harvard Business Review article – Don’t Downplay Procurement

Well done to Proxima who have got an article from their CEO Matthew Eatough in the Harvard Business Review – well, on the online 'Blog Network' version anyway. Still, you don’t see many procurement related articles there, and this is a concise (750 words) and insightful piece that every procurement professional needs to read.

It’s covering their Corporate Virtualization report we featured at some length a while back. The Proxima-sponsored analysis of leading firms’ financial data found that on average, third party spend accounted for almost 70% of organisation’s total revenues, far more than the 15% or so accounted for by staff costs. That proportion of external spend has increased too over recent years as firms use the market and outsource more work that previously was handled by internal staff – that’s a trend we’ve all seen.

In the HBR article, Eatough takes it from there into a discussion about why “procurement doesn’t register on the C-suite’s radar in a manner proportionate to its growing importance within the organization”.  With 70% of spend going to suppliers, one might think ‘procurement’ would be central to most organisations’ strategy  and operations. But he questions whether procurement departments are ready for the higher profile, even if they can get the recognition from the Board.

He outlines a number of points that are holding the function back, including ‘an unproductive fixation on cutting costs’ and ‘acting without inquiry’, which is a particularly interesting point. Procurement doesn’t ask the most basic questions, he says, to get behind the simple need to buy something. ‘Requests are taken at face value without second thought’, he says.

The article then gets into four ways in which procurement can improve matters. They address the role of procurement; the way procurement is measured; the skills and abilities of procurement; and how the organisation incentivises suppliers to actually want to do business with the organisation.

It is an excellent article. Whilst clearly, you can’t fully explore every issue in terms of either procurement’s current issues or the potential solutions, and there are a few obvious gaps here (little mention of technology, for instance), every word of Eatough’s piece is on the mark.

This is essential reading for procurement people – and we will return to many of these fundamental themes here of course.

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