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As part of The Financial CPO campaign, focusing on procurement's ability to develop and deliver to financial metrics, Procurement Leaders invites BravoSolution's Mickey North Rizza to look at how procurement functions line up on the maturity scale and what the key differences are.
There are some common challenges that all procurement teams face, as they evolve and mature, and organisations typically fall under one of three primary stages on the maturity curve: the reactive stage, the proactive stage or the strategic joint value stage.
I've had the opportunity to get back into the trenches and work side-by-side with procurement teams across many different industries and stages of company growth.
The most telling way to determine the maturity of a procurement organisation is to look at their goals and really understand where they're focused on improving and what they are delivering to the business. Aligning priorities is critical for becoming a more advanced, strategic business function.
Let's take a brief look at each of the three stages.
Stage 1: Reactive. (The least mature)
At this stage, organisations extremely focused on issues within procurement's four walls: addressing leadership challenges, accountability to business outcomes and organisational design. While important, these three issues only cover a small fraction of the internal and external constraints that directly impact procurement's success.
As a result, procurement can only deliver marginal savings – often without the ability to track if negotiated savings were realised. They are so focused on successfully implementing foundational technology like an ERP system – when it's clear that they can do so much more.
Stage 2: Proactive. (The middle of the road)
Leadership, accountability and organisational structure are only the starting point for setting up a procurement team and process for long-term success.
Proactive CPOs are assessing employee skills and talent, business process and methods, technology and performance management – critical pieces that ensure the entire procurement process and team are ready to advance and mature. With a broader picture of procurement health, organisations move beyond the very basics, to have a bigger impact on savings (and how to validate the numbers), working capital, the procure-to-pay process and spend optimisation. Processes are streamlined, the team has the resources they need and they have begun to implement best practices and benchmarks.
However, there is still more room for improvement.
Stage 3: Strategic Joint Value. (Where everyone should strive to be)
At this point, most of the internal factors affecting procurement's value have been addressed. They're now focused on how their value contribution ties into shareholder value, innovation, and value trade-offs. In other words, they have become a strategic joint value to the business.
These organisations have an "outside-in mentality" meaning that they first look at the business strategic plan and goals, and then determine how procurement can make an impact. When a procurement team has such a holistic view of a business and how all the moving parts work together, they're better equipped to become a true differentiator.
There's one important, common factor in every phase: change management. Without the willingness to evolve and grow, procurement teams will be indefinitely stuck in place, no matter how important it is to mature.
What phase do you think your procurement organisation in?