More than three-quarters (80%) of CPOs believe procurement is highly influential and plays a leading role in developing and executing business strategy, according to Procurement Leaders’ recent Business Alignment research. What is striking, however, is the fact these opinions are not supported by evidence.
Just 29% of respondents said their function was involved in all aspects of stakeholder planning.
The research revealed a number of possible reasons behind this disconnect. Respondents said the function continued to struggle when it came to early involvement in the stakeholder project-planning process. This could be attributed to the fact other functions still fail to recognise the value that procurement can bring to a project, despite its past successes.
A difference in opinion between CPOs and their teams when it comes to alignment was another reason suggested for this disconnect. In many cases, there is evidence of good engagement and support at an executive level, but this does not always filter down through the function.
The research examined organisational structures to see if they had an impact on the performance of the function.
Procurement Leaders found that, in many companies, procurement is structured in a noticeably different way to other functions, indicating there is something of a disconnect between purchasing and other functions.
With most procurement staff located at global headquarters, most functions are to a degree centralised, which helps them drive compliance and gain greater visibility over spend. This is in direct contrast to most other functions, which are largely decentralised, with offices based around the globe.
However, this does not mean that procurement should try to mirror what is happening in other functions. Instead, it needs to recognise these differences and ensure that any regional and local team members are party to any category strategies and are in the right position to develop relationships with key stakeholders. It is crucial that the right people are in place – staff who possess soft skills, such as strong interpersonal skills, rather than technical procurement knowledge – in order to drive engagement.
In an ideal world, there would be complete alignment of objectives between procurement and other functions. In the real world, however, this is far more difficult to achieve. But it should, at the very least, be possible for stakeholders across the business to work together.
While savings targets are a given for procurement and will never disappear as a performance indicator, engaging with other stakeholders is a must and should be built upon business goals that align and overlap.
The disconnect between objectives was also highlighted elsewhere in the research. While value creation is what most businesses aim to accomplish, price management remains the real focus for procurement.
This could be linked to the reporting lines of the function. Procurement has historically reported into the chief financial officer and it could be said that this leads buyers to increase their focus on savings. This is the same when the function reports directly to the CEO, with alignment to wider business objectives also missing. However, the research suggests that when procurement reports into the chief supply chain officer, the function aligns more closely with those wider strategic aims.
Despite this, the research did find some alignment when it comes to cost and capital management. This could mark the first step on the journey to closer alignment. As these objectives are achieved and the function proves itself to be adept managing those areas of spend, others, such as value management, will follow.
What is clear is that for such an alignment journey to continue, procurement has to be more closely aligned internally. For example, the study found a discrepancy between CPOs and their reports in terms of what they believe when it comes to spend under management. CPOs said that some 64% of spend in their organisation was going through their procurement function. Meanwhile, directors of strategy said this figure was more like 54%. Those discrepancies have to be closed before the function can progress.
Alignment in businesses is essential for success and this research indicates there is some way to go before this is achieved. The function needs to be meeting with stakeholders across the business to understand the wider business strategies and communicate its own objectives. Do that, and it will open up all kinds of possibilities.
This article is a piece of independent writing by a member of Procurement Leaders’ content team.