Procurement has not experienced a positive image with C-suites for many years. Seen as being divorced from corporate strategy, procurement is accused of failing to create value.
Enter the procurement torchbearers - professionals who are giving procurement a thorough make-over by aligning procurement very closely with the corporate strategy.
Here’s the problem
A report released in June 2017 by the business performance consultancy Ayming titled Procurement 20201, reveals the startling fact that 83% of respondents do not believe their procurement function is strategically-focused. Furthermore, fewer than one in five executives felt their organization had driven significant value from procurement in recent years.
The survey, conducted across C-suite executives of 200 global corporations, pictures the magnitude of the disconnect between the objectives of procurement departments and their respective company’s wider businesses.
As I speak with senior procurement executives, the common theme in their log of achievements is how they were able to provide year-on-year savings by delivering better, faster and cheaper; by pushing all the risk to suppliers; and by expeditiously applying penalties.
But missing from most of these conversations are achievements surrounding relationships with suppliers. -- undoubtedly the value creation element of procurement.
Achievements they need include making post contract award revenue enhancements; identifying partnering opportunities; creating joint ventured innovations, or making product and service improvements; or perhaps demonstrating how quantified value has been created for both the customer and the supplier -- just to list a few.
Procurement 20201 report also states that 58% of Chief Procurement Officers (CPOs) believe that delivering savings is a key concern for their teams over the next two to three years, but only 28% of CEOs share this view.
This blind pursuit of savings ultimately undermines value.
Relationship – also missing
The benefits of positive long-term relationships in domains such as economics, engineering, marketing and sales is well understood, but it has been resisted by procurement. The emergence of procurement’s strategic sourcing proclaimed the era of arm’s-length transactions and the abandonment of relationships. The true cost of this became more apparent as the revolving door of suppliers encouraged opportunism and spawned a breakdown of ethics, standards and governance.
The Procurement 20201 report shows that 90% of CPOs believe that procurement is capable of value creation with the application of better tools and systems. But this too seems to be missing the mark with only 42% of CEOs agreeing.
the best IT tool is only as good as its handler
Certainly, better IT systems can improve the processes undertaken by procurement, can improve data analytics and can provide tighter integration with supply chains, but ultimately a tool is only as good as its handler and the strategy that they need to deploy.
The road less travelled needs bridges to C-Suite!
There is hope even though so far this is a picture of procurement failing to create -- indeed undermining value creation.
CPOs and other senior procurement professionals need to proactively build bridges to the C-suite to truly understand the overall organization’s objectives and then spend effort to translate these to procurement strategy and execution. These bridges will also need to be built to other department heads especially to those charged with delivering the product or service to the customer.
The ultimate positioning of procurement within an organization will be that of a trusted partner and leader involved in creating value.
Positive and effective supplier relations need to be firmly put back on the agenda so that with time the supply chain can be a part of the value creation solution. As Tim Cummins, CEO of International Contract and Commercial Management Association (IACCM) expresses, “… it is about exploring optimized mutual benefit rather than suboptimal individual gain.”
Some of the rapidly adopted ISO 20400:2017: Sustainable Procurement -- guidance2 released in April 2017 corroborates this view. Although the guidance addresses sustainability as an imperative objective for many global leading corporations, the guidance makes it clear that the entire supply chain is the answer to procurement creating value in line with sustainability.
Several of its various guiding clauses address suppliers and include:
- guaranteeing fair financial treatment of suppliers (including payment);
- promoting sustainable and balanced supplier relationships (including contract);
- treating suppliers and subcontractors equally (fair and open competition); and
- developing business relationships and promoting mediation.
Interestingly, ISO 20400 states that procurement must become strategically aligned with the corporate objectives and the many stakeholders associated with their delivery.
Seven attributes toward creating value
The science of procurement unquestionably remains important, but what the torchbearers appreciate is the need to change the way procurement interacts with the C-suite, other heads of function and the supply chain.
In short, torchbearers demonstrate leadership and value creation. They present their achievements well beyond savings made; they credit the team effort; and they illustrate examples of innovation at their team level and throughout the supply chain.
Seven torchbearer attributes stand out. I have used a general heading for each attribute to standardize how these attributes can articulate from one professional to the other. They are not presented in any order of priority.
- Have strategic conversations
The torchbearer enters into discussions with the C-suite about the overall strategy, the bigger picture - today and tomorrow.
we are in this together
The torchbearer removes the “I am the expert” hat and puts on the “we are in this together hat.” Engaging with the C-suite in this way provides the torchbearer with the best opportunity to understand how value needs to be created and indeed, what is meant by the term ‘value’ in the context of the specific organization.
- Use outsight
Outsight works out future directions, priorities and identifies the stakeholders required to support initiatives. It requires procurement professionals to develop networks, at times diving deep into the business and at other times, moving outside the business, beyond their immediate profession, beyond the industry in which the business exists, beyond the markets where the business trades.
The ability to leverage outsight provides torchbearers with a better sense of the many factors and levers that will impact the success of doing business and working with the supply chains supporting the business.
- Get top talent
As technology takes its ever-increasing place within the procurement function, the required team grows smaller but also needs to become much smarter. Torchbearers seize this opportunity to hire the best talent and make it their core objective. The emphasis is on hiring people who are business solution leaders - focused, enabled and motivated. These people will nurture the most effective supplier relationships, use technology effectively and strive to achieve the common objectives.
embrace diversity... hire well … train and empower
The torchbearers build strong teams around the principles of diversity, because they know from outsight and/or experience that diversity produces a fertile environment for innovation.
They support their teams with clear career development and training structures underpinned with well-defined and articulated values. Torchbearers understand that these are critical ingredients to the glue that binds teams located regionally, internationally or virtually.
- Supplier Relationship Management (SRM) – collaborative from the outset
Good contracts define and set expectations and therefore represent the framework for the relationship. The torchbearers set the tone for a positive, collaborative performance and governance right from the outset by incorporating these principles at the earliest stages of the procurement process.
Torchbearers see SRM as one of their core competencies, growing in worth as supply chains become increasingly global and technologically driven. Well-structured SRM programs drive both value and build reputations. Torchbearers ensure that their teams are trained and become skilful in the best SRM practice.
Leading torchbearers envision a future in which suppliers are embedded in their organization and become the originators of innovation.
- Collaboration – crucial step
Collaboration is seen as the most important, crucial step to a future in which major suppliers are embedded within the organization.
A belief in the benefits of collaboration underpins the torchbearers’ drive in this regard however, it is tempered by either outsight and/or experience that collaboration is not always the most effective way to achieve an outcome. At times the torchbearers will have to just get on with it.
The torchbearers, in their endeavors to tightly align procurement with their organization’s objectives, bring to the table other business functions to assist with developing procurement strategy and at times, its deployment.
Torchbearers will be the first to admit that collaboration is not easy -- has risks associated with it -- but extending the collaborative approach to major suppliers makes it one of the keys to unlocking incremental and measurable value.
- Agility – being flexible, gaining trust
The ability to respond to changing circumstances, customer demands, global trends, and competitive pressures successfully, ethically and without damaging supplier relationships is essential. Torchbearers have a personal capacity for agility and work hard at mirroring it throughout the procurement function and the supply chain.
agility requires the trust of the suppliers
Torchbearers recognize that their agility rests substantially with the supply chain’s willingness to support procurement. For that to happen they understand that procurement must exercise fairness, have a shared risk approach, clearly defined expectations and ultimately trust.
- Bridge building and communications
Torchbearers actively build bridges to the C-suite and to other function heads. Breaking down the perception of being business inhibitors and establishing the new view that procurement is a business enabler takes time and perseverance.
procurement needs more than data centric information flows
But building bridges to ‘show and tell’ the achievements of procurement needs to be balanced with consultation. It means reaching out and seeking information and advice. To be truly effective in creating value, torchbearers must have deeper conversations that lead to insights which in turn potentially facilitate improvements, great or small.
TWO STEPS FORWARD
Torchbearers and other procurement professionals cannot do it alone. Organizations need to take two additional steps to truly empower the procurement function.
Step One: IACCM is at the forefront of leading the charge across global organizations but their advocacy for procurement’s torchbearers needs to be echoed by the C-suite as well as the executive ranks.
It is all well and good for the C-suite to say that procurement is not delivering value or is not aligned with the bigger strategic objectives, but many in the C-suite do not define - let alone understand - the function beyond the worn-out position of making savings.
A step forward would be the C-suite’s effort to redefine procurement to ensure it becomes an integrated element of the overall strategy rather than a standalone unit constantly knocking at the door in the hope of being let in.
Step Two: Torchbearers need a helping hand from their peers in commercial management, business development, marketing, strategy and sustainability.
More importantly, they need a helping hand from the C-suite in applying high-impact mentoring programs that help torchbearers develop more of the skills they need to have mature conversations about strategy.
- Partnering with Raconteur, Ayming canvassed the opinions of 200 key C-suite executives (evenly split between CEOs, CFOs, COOs and CPOs) from businesses around the world, and across an even distribution of company sizes, ranging from an annual turnover of £250 million to in excess of £5 billion. Sectors surveyed included financial services, healthcare, manufacturing, retail, technology and transport & logistics. (Document can be downloaded at Procurement 2020 report).
- Jean Louis Haie, a director of Action Sustainability is one of the international architects of ISO 20400:2017 - Sustainable Procurement guidance. The guidance was developed with contributions from private, public sector, not for profits, procurement, supplier and academics from 52 countries.
ABOUT THE AUTHOR
Richard Sterling has been in the international executive search field for over 25 years and has worked across most industries. He sits on the expert accreditation panel for IACCM and is the AltoPartners’ global practice leader for Contract and Commercial Management. AltoPartners is the global provider of Executive Search and Leadership Advisory services to the members of IACCM
He can be contacted via: firstname.lastname@example.org or on +61 2 8007 5812, (Sydney, Australia).