Procurement has historically been a major concern for industrial companies and retailers but with global crises, changes in business models and globalization, even industries and business sectors that were not that concerned by procurement are getting more and more interested in understand how to leverage Procurement as a source of additional value creation. Procurement is clearly now a central piece of the business and a priority in CEO’s agendas.
Over the past two years, the Value Sourcing & Supply Chain team has interviewed more than 100 Chief Procurement Officers and senior executives across industries in Europe and North America. We have married the group’s collective insights with our expertise and compiled anecdotes highlighting business initiatives spearheaded by these procurement organizations.
In this Playbook, we explore the evolution of the procurement function’s missions, from its original cost reduction role to risk management and to contribution to growth as a strategic partner. We then turn to the key dimensions of the procurement organization’s operational model, covering strategy, processes, structure, human resources, and management system and tools.
The Maturity staircase of the procurement cost control
Faced with the difficult financial environment of recent years, the Procurement organization's cost reduction mandate is a top priority, and savings remain the main objective. More and more ambitious targets are being assigned to Procurement departments, which remain the driving force in maintaining business competitiveness.
1Is the procurement function radically evolving?
One of the main focuses of the CPO is – and has always been – to manage the cost issues that companies are facing, particularly in a difficult global economy environment. However, in addition, they now need to deal with more risk mitigation coming from suppliers on which companies are more and more liable. A more recent topic, but just as important, is how to leverage outside-in innovation, coming from suppliers, and make it a competitive advantage. Overall, on these three dimensions, what matters most is how to deliver sustainable performance.
2Have all companies reached the same maturity level in the procurement function organization?
Organizations are clearly not at the same stage of maturity. At the primary stage, the procurement function serves mainly a transactional role. However, most advanced companies have truly engrained procurement in their DNA: processes and systems are professionalized and capabilities are aligned with the overall business. Procurement has been re-distributed into the heart of businesses and has become an integrated part of the overall strategy closer to the business needs.
3What are the key challenges for the function?
One of the key challenges for CEO’s and CPO’s is to understand the maturity journey cycle of the function. Industries that are really mature in procurement should go from “step two” to “step three”, that can be considered as a rebalance, keeping very professional systems and processes but giving power back to some categories. On the other end, industries or business sectors that are less mature in procurement have to really globalize properly and create a system that is performing well and balances rights and duties between business and procurement.