CPOs across the globe seems to unite on the idea that procurement should not be exclusively measured by cost saving. So why is it that when they sit down to put together annual plans, that pressure to commit to greater savings dominates everything in sight?
Many forward-thinking CPOs would argue that the metric should be dropped altogether, and procurement should be focusing on more forward-thinking topics like automation and innovation.
The problem is that CPOs’ beliefs don’t always translate into targets for the function, and senior managers continues to feel pressured to find savings.
It’s a long standing problem: little has changed over the last ten years, and although procurement is trying to move away from being a cost saving function, the leading priority for purchasing executives is still reducing cost. It appears CPOs are afforded little flexibility. But in the moment of committing to annual plans, they have an opportunity to make progress and bring the strategic vision to life.
Making a resilient, effective and efficient strategy plan in total cohesion with the direction of the organisation, with full involvement of all stakeholders, is a vital part of any wider undertaking. Fail to do this and the function gets locked into a cycle of short-term priorities and cost saving-oriented activities that pull focus from having a business impact and hinder the function’s transformation process.
An effective transformation is a key focus of strategic planning. This is where a strategic plan can begin to take flight, as the function transforms. The Q2 ebook Is your strategic plan “business proof”? outlines what need to be considered when you are preparing to start your strategy planning process and help CPOs to developing a strategy plan that works.
But having a vision and a strategy isn’t enough. The ambitions many harbour to find more value and become increasingly innovative will be thwarted if they are tied to a rigid, static, outdated set of priorities. In many interviews with Procurement Leaders, function heads have intimated their intention to break away from the past and build a fundamentally repurposed professional unit focused on value, profit and achieving joint stakeholder success. It seems unlikely that CPOs will be able to develop their functions if that strategic agenda isn’t translated into a carefully considered annual plan.
The annual plan must have the ability to identify and assess risk, complexity and shifting organisation priorities, which will have a direct effect on how procurement teams perform and how well positioned they are to turn this annual planning cycle into a phase of progression. Failing to plan for risk and change in the market leaves teams vulnerable and often in fire-fighting mode. Procurement Leaders research shows that organisations that are weak at planning, typically, are unclear on priorities and strategies, thus making strategic decisions that are reactive and have a far too narrow focus on procurement.
Organisations which are taking the lead in the market, typically have a clear articulated strategy that is well-differentiated from competitors, and procurement teams that have a clear vision of their role in delivering those objectives. Annual planning underpins such objectives, ensuring strategies are delivered effectively, generating the required results for the business.
This article is a piece of independent writing by a member of Procurement Leaders’ content team.