60% of C-level executives ‘strongly agree’ that procurement is a C-level priority, compared to just 37% of Middle managers. – Xchanging Global Procurement Study
I am putting a stake in the ground, there needs to be a paradigm shift when it comes to the perception of procurement. On the one hand, there is a lack of transparency, consistency and reliability, and on the other hand there is a heightened importance and strategic significance of the procurement function, which is growing exponentially.
Unfortunately, MENA firms and managers are often not reaping the rewards that procurement offers, such as drastically improved P&L, enhanced product/service quality and sustainable improvements in business performance.
When grading the most strategic and highly valued senior functions within an organization, procurement rarely comes to mind. The term procurement can often be perceived as bureaucratic, back office “penny pinching”, which takes the control away from the business units who require resources quickly to deliver for their clients.
The question is raised as to why there is such an inconsistency and lack of understanding of procurement capabilities, strategies and achievements. This misunderstanding leads to the function being overlooked as the C-level function that it should be.
So, why is procurement critical?
1) Economy focused on efficiency
Market places are volatile. Today uncertainty is the only certainty. The currently low oil price has led to budgetary concerns and slower growth across the MENA region. This equates to less sales, forcing organisations to increase efficiency and look at ways in which they can improve their bottom line, which is at the core of the procurement function. Each year, organisations spend more on the resources they require and the management of this spend is essential. Ultimately, the lack of integration of the procurement function will affect an organisation’s bottom line and reputation.
2) Adhering to governmental pressure
There is increasing external pressure from government for compliance, and a downward pressure internally for risk, financial and performance management in conjunction to corporate and business governance. This stricter external regulatory environment, pressure from increasing competition and increased shareholder expectations has driven businesses to manage their expenses. These include costs ranging from Sales/Marketing, IT, FM and Legal to Travel/Accommodation and other General/Professional Services. Organisations are embracing this evolution by implementing appropriate processes to enable them to evaluate vendors, to ensure they are getting the best price, quality, reliability and timeliness for their money. It is this indirect spend that is essential for procurement to manage within a service driven economy to ensure an organisation's profitability and success.
3) A need for greater transparency
Control is critical and you cannot control what you cannot see, hence why transparency is critical throughout an organisation. Purchasing is no different. Companies require clarity in their processes and spend in order to make informed C-level strategy and decisions. The most practical and successful method of achieving this is through the use and implementation of spend segmentation. Segmenting spend and subsequently suppliers through specific categories, can show exactly where capital is going, where it is being wasted and where improvements can be made.
4) Bidding illegal procurement farewell
Traditionally, business partners made decisions surrounding the vendors they wanted to work with, either by going direct, or pushing their procurement departments to execute the same direction. This style of uneducated and unethical buying has led to various issues and concerns including transparency, depletion of bottom line and even corrupt practices. All of which can be avoided when strategic procurement is used to its full potential.
5) Implementing procurement can be easy
You don’t need to tear down silos internally to implement or transform a successful best practice procurement function. It works best when your procurement function develops a high level of engagement with all of the other core business functions, thus becoming a central component of an organization’s corporate strategy at the C-suite table.
6) The vision is about more than just cost-control
Success is holistic in procurement with an elementary focus on visibility & awareness, compliance & governance, strategic sourcing, savings and value add. Procurement at a strategic level is a true integrated business function that understands and brings innovations to internal stakeholders.
7) Every opportunity has its cost
There is an opportunity cost associated with higher education. The risk associated with non certified or educated professionals spending your money is just as high as any other individual. Strategic sourcing capabilities and best practice need to be learned, harnessed and developed. The Chartered Institute of Procurement and Supply Chain (CIPS) is the leading body for strategic procurement and supply chain and its governance.
For all the above reasons, procurement just makes good business sense. It should be a top priority in every business. So if you happen to be in a managerial role and you are involved in purchasing decisions, collaborate with your procurement team. They offer so much more than penny pinching.
Article written by Usman Qureshi, Procurement & Supply Chain Recruiter at Cobalt.
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