Having invested a lot of time, effort and resources on understanding sourcing, tendering and negotiation, it turns out these are the easier parts of procurement. A more difficult aspect for the function – engagement with stakeholders inside and outside the business – often fails to get the attention it deserves. The problem then is that procurement risks missing an opportunity to bring more spend within scope, improve compliance, get greater visibility over spend and, above all, ensure the business gets exactly what it needs.
John Walker, global director for investment, supply chain and manufacturing at global snacks group Mondelēz International, says procurement can find it difficult to engage stakeholders because they have different careers outside the main business functions. “Procurement people can tend to speak a different language,” he says.
One consequence is that stakeholders might not know what procurement can offer, aside from cost savings. “Very few managing directors have done procurement and so they don’t fully comprehend the value it can bring. Part of the job is to listen to their concerns and sell the advantages we can offer,” says Walker. “This might be improved quality, compressed delivery times or better production cycles: it is not always cost savings.”
Recent research by Oxford Economics for Ariba and SAP shows that more than two-thirds of senior procurement executives and employees say procurement is ‘becoming more collaborative with other parts of the business’.
But while many businesses recognise the importance of engaging stakeholders with the procurement process, they don’t all have a strategy dedicated to this ambition. But a clear strategy is needed so procurement knows how to start (or improve) the management of multiple, complex and different relationships.
The reasons procurement organisations struggle to get buy-in from business units are two-fold, says Nigel Scorey, CEO of consultancy Procure4. The function will often be associated with a small number of categories at the heart of the business. In food manufacturing, for example, this might be raw ingredients. While procurement might believe the same skills and methods can be applied to new areas of spending, such as IT, in truth there are important, sometimes subtle, differences.
“When buyers are invited to look at new areas, unfortunately they think that because they are experts in one area of spend, that can be applied to media buying, office suppliers or construction,” says Scorey. “But the stakeholder has been buying those categories and taking responsibility for contracts for maybe ten years. It is human nature for them to say: ‘Who are you? You buy raw ingredients, you don’t understand media and advertising. We’ve done that for years.’ Procurement is often trying to apply functional expertise to areas where it has no experience and immediately there is tension.”
On the flip side of the problem of procurement not knowing enough about other areas of spend may lie another issue – stakeholders that don’t currently engage with procurement may only know the function for its core area of expertise. They will not recognise procurement as having expertise in their area and so will be dubious about the value procurement can bring, even though it may lack specialist sector knowledge at the outset.
Long-term suppliers should also, of course, be considered stakeholders. Here, too, the Oxford Economics research shows procurement is collaborating more with suppliers. But suppliers can also find it difficult to accept procurement playing a greater role in the buying process. Initially, they may be reluctant to work more closely with procurement because they think it will inevitably lead to lower prices. But procurement can show how suppliers might help them tighten the supply chain or win extra business. “The supplier can learn that dealing with procurement is better, because they are more professional and don’t change requirements at the last minute,” Scorey says.
The right skills mix
To improve stakeholder engagement, procurement needs to look at its mix of skills. Whether aiming to expand procurement’s scope or showing how procurement can add more value, the function needs to employ or develop procurement people with real domain knowledge in the areas they want to engage with.
The style of communication is equally important. “Procurement people can tend to be quite closed, inward-looking people. They want to ‘win’ against sales people and enjoy the battle,” Scorey says.
But in engaging stakeholders, procurement people need interpersonal skills that are much more subtle. They may need to ‘sell’ what procurement can offer or convince, say, three groups of internal stakeholders that it is in their common interest to buy together, says Scorey.
Then there is governance. It is critical that there is some sort of mandate or incentive from the top of the organisation for different groups to work together. Otherwise there can be tacit agreement with procurement, but little real value gained. “Joint-working sessions might sign off the deal and get the nod from IT, but the product never gets used in the way that delivers value,” Scorey says.
On top of the right domain knowledge, communication skills and governance, procurement professionals hoping to engage stakeholders will need to bring data – not just on spending and supplier relationships, but also on metrics relevant to the business department.
Using data to leverage engagement
Andrzej Hutniczak, Capgemini’s vice president and head of product development, says: “Procurement needs to be able to leverage data and to use analytics. It helps in being able to analyse the business behaviour. It enables procurement to be closer to the business and play the role of true business partner. It helps procurement and stakeholders focus on outcome, not on the one dimension of cost – being able to see the trends and understand what is happening in the market and how that is relevant to the business.”
Hutniczak adds that it is important data is used to bring different interests into alignment, rather than being used in an adversarial way. “You have to show you understand how they are working and how you understand the business. You cannot bring in a report, and say, ‘This is what you are doing wrong.’ That’s not partnering. You need to understand what the department is looking for and then think how to help them.”
Walker at Mondelēz International says the problem surfaces when procurement tries to use its own metrics and make them fit the business unit,” he says.
For example, for some stakeholders and in some industries, cost savings may not be as important as they are to procurement. “In some places, there is zero interest in cost savings,” Walker says.
To understand why, procurement should learn how much of the end product results from external spending. “It is shocking that those responsible for a category might not know. In manufacturing it might be 50%, while in pharmaceuticals it might be 5%. You have to understand how much skin you have in the game when you engage stakeholders,” Walker says.
Whether it is their style of communication, use of data or market knowledge, procurement professionals need to improve how they work with a breadth of stakeholders in order to maximise the function’s effectiveness. With properly engaged stakeholders, procurement will have a route to achieving its full potential for the benefit of the business.
This article has been written by an experienced journalist, commissioned by Procurement Leaders. It is part of a sponsored editorial product, published in partnership with SAP Ariba.