Procurement capability in most organistions is hampered because purchasing decisions are beset by organisational challenges and 'soft' issues. In this extract from Sigi Osagie's new book 'Procurement Mojo', he discusses why procurement still has no de facto seat in the boardroom, despite being a vital component of sustained competitive advantage.
Procurement's influence on the success of the wider enterprise can not be overemphasised. Many business leaders nod sagely when this issue is discussed. But, judging by the status of procurement in most organisations, only a minority have grasped the nettle. Yet there appears to be a general acceptance of the notion that organisations should devote effort and resources to securing top-notch purchasing and supply chain management know-how.
A number of studies, covering organisations of various sizes in different industry sectors, have explored the fit between procurement's role and the strategic development and financial or operating performance of the wider business. The overriding consensus that misalignment between procurement's ethos and the enterprise strategic agenda creates economic and non-economic detriment, is unsurprising.
Those who understand procurement's true value-add already know this. But it certainly helps when our instinctive knowledge or professional judgement (or, common sense, as some would view it) is backed up by empirical evidence: we have ample proof that when purchasing is done effectively it becomes a vital component of sustained competitive advantage. In times gone by it was easy, and appropriate in some situations, to focus organisational and leadership attention on enhancing profitability solely through sales growth.
But in today's world, where the jet engine, the internet and falling telecommunications costs have combined to create a global village, things are radically different. For instance, the continued push for better shareholder returns and higher business efficiencies, combined with competitive pressures arising from a more globalised economy, has created an outsourcing industry that has mushroomed beyond anyone's imagination. Today the global outsourcing market is estimated to be worth over US$600bn; it has increased a whopping five-fold in a decade, and a significant proportion of that market is offshore outsourcing.
Onshore and offshore outsourcing are great examples of the new world factors organisations of all sorts face today in all three sectors – public, private and charity. We are also confronted by other social, economic and geopolitical factors constantly; such as civil unrest and consequent political instability in the Middle East driving up the price of oil, or natural disasters in far-flung places wreaking havoc on our ability to ship products to customers.
For purchasing people, the aggregate impacts of these factors tend to come down to increased complexity – hence risks – in our supply pipelines. The Japanese earthquake of March 2011 is a recent example, one I am sure many buyers of Japanese-supplied stock won't forget in a hurry. The devastation caused chaos for industrial companies of all sorts, from manufacturers of technology products to car producers. A natural disaster some six thousand miles from its Paris headquarters brought some of PSA Peugeot Citroën's manufacturing to a stop – talk about global village!
The recent global recession and the current state of business and national economies offer a great opportunity for procurement functions to find their mojo. The economic challenges of recent times have galvanised those boardroom discussions, turning mere exchanges into corporate mandates. It is a shame that procurement still has no de facto seat in the boardroom, enabling more direct influence over those discussions and how the ensuing mandates are executed. In many ways, the absence of a procurement seat at the top table indicates the stature of the function in most organisations.
This article is an adapted extract from the book ‘Procurement Mojo: Strengthening the Function and Raising Its Profile' written by Sigi Osagie and published by Management Books 2000. For more information, click here.