Matters of Perception

Nov. 7, 2008
Many procurement teams feel underused and underappreciated, but now could be their chance to shine.

It's always important for manufacturers to have an intimate knowledge of all the key tools and equipment that allow them to make new products every day. That knowledge can help improve their processes and cut costs that otherwise might be overlooked. In many ways that same premise can be applied to the people running all the various departments, which are usually working to achieve the very same goals.

When it comes to the procurement side of things, though, many companies still aren't making that connection. In fact, many procurement professionals are frustrated that their input is not having the strategic impact it could, according to a recent a study from consulting firm KPMG International that surveyed almost 600 senior executives worldwide, including close to 300 procurement and supply chain professionals.

Procurement professionals cite several factors preventing an increased role in their organizations. More than half (54%) cite an overall lack of interest in, or understanding of, the insight that procurement can offer, while 44% point to the failure of others to consult procurement on big purchases. Those surveyed outside the procurement function disagree on many points, with 53% saying procurement is too focused on cost at the expense of value, while 40% see too much emphasis placed on compliance at the expense of innovation.

Regardless of whose account is more accurate, the overall perception of the procurement function is an obstacle that needs to be overcome. According to James Hunter, a partner within KPMG's Australian office, the situation could improve if some of the issues related to skills gaps, leadership and integration at the board-level procurement teams start being addressed.

Top 10 Procurement KPIs

1. Identify cost-reduction savings
2. Percentage of total spend under management
3. Cost avoidance
4. Implemented or realized cost-reduction savings
5. Procurement ROI savings (savings/operating costs)
6. Percentage of suppliers equals 80% of spend
7. Supplier performance (price, delivery, quality, service, etc.)
8. Procurement spend as percentage of revenue
9. Requisition, purchase order or invoice transaction volume
10. Procurement spend per procurement employee

Source: Aberdeen Group

"The maturity of the physical, financial and information supply chains has created the opportunity for global, effective procurement operations," says Hunter. "Procurement teams have often felt underleveraged but now could be their chance to shine -- to show the business what they can really do when they adopt a strategic, proactive and integrated approach."

To do this, procurement teams need to seek a complex balance that manages factors such as tightening economic conditions, demands for cost reduction, commodity prices, supply market risks, increased globalization and business sustainability. Leading companies are increasingly using innovation, global sourcing, more strategic supply planning and full lifecycle procurement to try to strike that balance.

Above all, strong leadership is needed to help align the function's skills with the strategic, long-term plans of senior management. Otherwise, Hunter says it risks being perceived as nothing more than a process-driven function.

"There are two sides to the procurement coin. On one side are the dedicated procurement professionals whose expertise is crucial in keeping costs down," he explains. "On the other side are the more strategic benefits, which can be derived from a function which has its finger on the pulse regarding innovation, opportunities, competitor behavior and the health of its suppliers."

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