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Is the word 'procurement' toxic?

Guy Strafford
Jul 24, 2013 12:02:00 PM

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I am not the first to observe that '‘procurement'’ has a branding and reputational problem.  The word means different things to different people.  I can think of several instances where, if I compare the service provided by '‘procurement'’ in two separate businesses, you could be excused for thinking they are operating in totally different areas of business management.

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Some people think highly of their procurement colleagues, and wouldn’t hesitate to seek their support and involvement.  Others treat procurement with disrespect, doing whatever they can to get around them –- and to be frank I can sympathize with some of them.

All of this causes confusion.

Research conducted for us by Nelson Hall, into the perceptions of procurement, found that over 50% of senior finance executives were NOT satisfied with procurement in their business. In particular: procurement’'s "“inability to think and act as a strategic business partner in pursuit of organizational growth, improved performance and enhanced shareholder value”."

The research found that highly effective and successful procurement functions understand that achieving a great deal with a supplier is secondary to delivering an optimum solution for the stakeholder and the business. This means moving away from simply beating up suppliers to focusing inwards onto the organization itself; onto the behaviors of the people within the business; onto the business rules that underpin the activity; onto what is fueling the demand; onto policies and procedures; and onto the approach to risk.  Yet many businesses fail to understand this and take a short term view, targeting the procurement function in the wrong way – focusing them mostly on like-for-like in-year savings.

Peter Smith of Spend Matters has recently written various pieces on the topic of savings as a poor metric, with his latest article, Return of Stupid Sourcing, articulating how in pursuit of savings, the overarching concept of value is often lost and the perception of procurement is damaged, along with any chance of getting a seat at the board.

The reason for senior executives'’ negative perceptions of procurement and constant focus on the toxic metric of savings (as a primary measure) is the result of a misalignment between procurement and the business. A Chief Marketing Officer is not measured on how much budget they don'’t spend in the year, but how much ROI they delivered. Similarly, a Chief Information Officer needs to consider security, risk, compliance, etc. before price. Yet, CPOs constantly lead with savings as their key success indicator.  As a result, the business ends up expecting it, even though it doesn'’t want it.   If all you offer is to run tender processes for a business, do not be surprised if it thinks you are all about price!

The onus is on procurement teams to better align themselves with the business needs they are there to serve.  Concepts such as competitive advantage, control, operational performance, shareholder value, risk, innovation and ROI should be the center of the conversations.  Not seven step strategic sourcing processes, or savings.  No one spends money to save money.

Business executives have their part to play in improving procurement'’s reputation.  They need to better understand how procurement is there to help achieve corporate aims.  How it is connected across their business – inside and out.  How it’'s purpose really is to support the growth agenda, drive innovation, enable risk management and compliance, and get the most out of the business'’ increasingly sophisticated and complex supply network.

My own experience of mentioning the word '‘procurement'’ to senior execs too frequently results in the enthusiasm visibly draining from their faces. (It is what I imagine a Dementer sees in a Harry Potter novel.)

We have written before about how HR went through a phase of being Industrial Relations, then Personnel, before alighting on its latest incarnation name. Perhaps '‘procurement'’ needs to go on the same journey.

So –here'’s my challenge to you:

The best suggestion I receive by August 2, for a new name or brand for ‘procurement’ will win a bottle of vintage Bollinger.  The judge’s decision is final (and I’m the judge).

I look forward to your suggestions!

Guy Strafford

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