Procurement can do more. Should do more. So say Chief Procurement Officers (CPOs).
Ardent Partners Procurement Metrics that Matter in 2020 findings, sponsored by Ivalua, were presented in a recent webinar with 3 most interesting observations:
- Cash Flow Management and Cost Reduction will be THE priority for CPOs and Sr. Executive Leaders for the 2nd half of 2020 and 2021 (which isn’t much of a surprise given similar findings by Gartner Group summarized here)
- Digital Transformation, Process Improvement and Agility improvement initiatives are not goals in-and-of-themselves; rather, they should be driving Cost Reduction … if not, you’re probably doing it wrong
- 90% CPOs believe Procurement should be performing better
Incredibly, nearly 75% of CPOs believe that Procurement – which is a support function for Business Units – is not well aligned to overall goals. They call out 4 obstacles, which are nearly equally faulted for the gap:
- Staff resourcing
- Alignment
- Budget, and
- Technology
The solution to the key challenges (alignment with business units, cash management, cost reduction and supply chain visibility) should be about improving Procurement’s capabilities, including
- Enhancing Procurement’s Consultative Skills. This is an essential prerequisite as Procurement must engage Business Units (its sole customer) in alignment to a common set of goals & objectives. Procurement must be able to extract, develop and synthesize complex requirements across Business Units into a comprehensive assessment of corporate needs – both for internal alignment as well as for use during the bidding process with vendors.
- Upskill Procurement’s Strategic Sourcing Expertise. It is no secret that most Procurement teams lack Strategic Sourcing expertise. Too many Procurement organizations are unable to break-out of a reactive model – wherein they have become virtual factories turning out one RFP after another, often addressing a minuscule portion of the enterprise spend. A recent LinkedIn post from a recruiter recounted his experience of working through a 45 page MSA and SOW and another 20 page RFP questionnaire for a $5,000 project for a $5-billion revenue client. Needless to say that a) a $5,000 contract should not require 45 page contract, and, far more importantly, b) a $5 billion firm should not be doing a $5,000 one-0ff contract. Unfortunately, this example is not an exception and it goes a long way to explaining why most firms are unable to generate any Strategic Sourcing financial results.
- Improve Data Analytical Skills. This does not mean deploying enabling technology that most of Procurement is unable to manage, interpret or logically assess the output (think RPO, ML, AI and other advanced technology solutions). This does mean that Procurement must return to basics of managing its underlying data and being a good steward of data “health”. It does mean that Procurement needs capability to extract insights from the data, and use those insights to generate value. (Otherwise, if data is not used to create value, then it is worthless).
Procurement organizations that are able to accept the opportunity and those that make the right choices will find themselves as key contributors to the organization and will finally be viewed as valued thought partners. Procurement has the opportunity to
- Generate 20%+ EBITDA improvement, driven principally by deployment of best-in-class Strategic Sourcing approach.
- Align with Business Units to ensure a joint and cohesive approach to managing 30% – 60% of total corporate expenses. Doing so will eliminate the friction and the pejorative view of Procurement that is still widely held today.
- Improve Performance Management to enhance value creation through on-going partnership with Business Units and preferred suppliers.