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Reporting lines matter for procurement

Category Management & Business AlignmentCPOFunctional PlanningOrganisational AlignmentOrganisational Structure & HeadcountProcess & PerformanceProcurement ExecutiveTeam and Talent+-
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This point in the year, when CPOs’ thoughts turn to the challenges and opportunities ahead, is the perfect time to reassess and challenge what you’re doing and, more importantly, why you’re doing it.

 

I’ve spent the past year talking to CPOs, helping them identify areas in which they can be more agile. In every case, the conversation has always come back to purpose. When I probe further and ask why the answer is always: “That’s the way we’ve always done it”. Procurement chiefs have not considered the purpose and found themselves in a complacency trap.

 

As we’ve gone deeper into the whys and we’ve learned more of the context in which those functions operate, we have started to connect the dots. One thing has become clear in each and every case: reporting lines matter. Some further thought and Remko Van Hoek’s thought leadership article, Building a structure to fit your organisation, helped confirmed this.

 

CPOs tell me there is a burning platform to innovate, leverage smart technology and build a team capable of challenging norms and solving problems – all with the aim of delivering value. As we discuss how to best do that, the conversation quickly moves beyond procurement and shifts to the organisation, which is encouraging.

 

We look at the organisational strategy and how it translates into a functional strategy and structure that can best support it.

 

Often, we come to the conclusion there must be a set of shared objectives and outcomes and, as such, this should be the bedrock of any category strategy or sourcing process. With that, I’ve tried to make sense of the impact that reporting lines can have on a function’s ability to mature, grow and truly enable the business to move forward.

 

You need to consider your reporting lines for four reasons:

  • The majority of CPOs report into the CFO and while that has been the status quo for many years, I would ask you to challenge that structure. CFOs like stability and, when times get tough, they solely focus on the bottom line. If you’re reporting into the CFO, you’re going to feel substantial pressure to deliver savings rather than give yourself the space to focus on value-adding activities.
  • Following this, if the focus of where you report to is savings then that will trickle down throughout your function to category managers, buyers and analysts. That will then become the one thing everyone works towards. You will never, therefore, move the needle when it comes to functional maturity.
  • This will then have a spill-over effect on the business discussions you have as a function. Your category managers will lead conversations with their cost savings targets in mind, rather than any consideration for stakeholder needs and strategy. They will fall short at educating the business on how procurement can do more to add value through supplier collaboration and supplier-enabled innovation.
  • Ultimately, procurement needs to be clear on its purpose and find a home in the organisation where that purpose can be best nurtured and optimised. That will look different in every organisation and will depend on the level of maturity across the business.
  • To change this situation, you need to start thinking about the future and what the roadmap to success looks like. Today, it might mean reporting into the CFO because there is a lot of low-hanging fruit to pick, but tomorrow you might shift your attention to innovation, smart technology, data and analytics, and design thinking, which will require procurement to report into someone else such as the head of innovation, strategy or even digital.

Reporting lines matter, especially if you don’t want to be beholden to cost savings forever.

 

There will be a point of diminishing returns and, at that time, procurement chiefs must have a plan B.

 

This article is a piece of independent writing by a member of Procurement Leaders’ content team.

Roseanne Spagnuolo
Posted by Roseanne Spagnuolo

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