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Defining procurement success

Jonathan Cooper-Bagnall
Jun 9, 2015 9:12:00 AM

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Defining procurement success

The Webster's dictionary defines success in a fairly straightforward way – an accomplishment, or meeting of an aim or objective. Success in the procurement field, however, is a more nebulous concept. Perhaps that’s because procurement’s objectives aren’t usually clearly defined. Or perhaps, more accurately, it’s because procurement’s objectives are defined quite differently by its practitioners and the business leaders they serve.

A new study by Oxford Economics illuminates the significant disconnect between each group’s measures for success. Oxford surveyed 500 C-suite executives and 500 procurement employees in 18 countries across North and South America, Europe and Asia. 

A large majority (72%), of C-suite executives surveyed ranked cost savings and cost avoidance as their primary measure for procurement success. Inventory turnover/inventory activity was ranked second with 50% and supplier quality/performance came in just below that at 49%.

Procurement practitioners have far different aims, according to the results of the study. Around 56% of practitioners ranked touchless transactions as their premier performance indicator. Cost saving and cost avoidance and order cycle time tied for second, with 52%.

The executive yardstick for measurement is not surprising. While one can argue (and we have) that value is the truer measure of procurement performance, executives will always seek cost-savings from a cost-center, particularly when purchasing is central to that function.

Encouragingly, the significant nod to supplier quality and performance is an indicator that executives are beginning to understand the important role played by the supplier network to the broader organization. We’ve written about this many times. Corporate virtualization has ushered in an era where organizations externalize their cost base and become increasingly reliant on suppliers for everything from innovation to IP.

In that vein, we’ve also been imploring companies to keep a watchful eye on that growing supplier network, as we’ve witnessed too many well-known companies – and their brand reputations - fall victim to supplier-related failures.

The study suggests that executives are beginning to acknowledge the importance of supplier oversight. In fact, they are even measuring procurement success by how well that function chooses and manages the supplier network.

Practitioners, unfortunately, don’t seem to be speaking the same success language as their business leaders. Instead procurement executives are prioritizing cost savings (which is not sustainable), touchless transactions and increased cycle times.

The disconnect is concerning on multiple levels.

First, the lack of shared objectives suggests that procurement executives and business leaders may be working at cross-purposes. It also suggests that executives will be disappointed in the performance of the procurement team, which does not bode well for procurement gaining a foothold at the executive table.

But perhaps most concerning, it suggests that procurement practitioners haven’t taken heed of the lessons of corporate virtualization and are not actively working toward a supplier management program that will, if not prevent supplier scandals, at least be better prepared to deal with them.

It’s time for that to change. It’s time for procurement executives to heed the call for better supplier oversight. After all, their success going forward will be measured by it.

Learn more about the changing role of the procurement team by watching the on-demand panel discussion outlining the skills and resources required by the procurement team of the future.

As always, if you have any thoughts or comments, please add them to the box below. On-demand webinar

 

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