How to Get Procurement Strategy Right
July 01, 2011
All over the world, the capabilities of procurement organizations are being tested as never before. They are required to help their businesses deal with the impact of globalization, supply market volatility, supply chain disruption, rising costs of raw materials, regulatory overload, talent shortages, and much more. If ever there was a need for procurement to lead the way, it is now.
The good news is that procurement is better equipped and more eager to meet these challenges than it has ever been. Today, more and more procurement executives have a seat at the top management table. Their organizations’ activities and results are getting attention—and for all the right reasons. Not only do they successfully and consistently contribute to cost reduction, but in an increasing number of companies, they are regularly seeking to understand how they might drive revenue growth and innovation as well.
That said, though, many procurement groups still have blurred ideas of what their true strategic purpose should be. If you ask a dozen different purchasing leaders what their operation is designed to do—and importantly, what it is not designed to do—you will likely get a dozen different answers. Many of those answers will still tend to revolve around cost containment.
So it might seem logical to think that procurement chiefs are clear about their impact on their corporations’ earnings. The trouble is, the purchasing function has the ability to influence corporate profitability only when it is operating at a genuinely strategic level within the company. In the great majority of cases, that is still not so; procurement still does not operate at its full potential. It has not yet gotten the strategy part right.
This article will lay out a systematic approach that enables procurement leaders to more easily create strategies that align with the business strategy and other key functions. The approach helps clarify what procurement’s role should be in each phase of a product’s life cycle in order to ensure that the function is seen as proactive, and focused squarely on value and innovation. In doing so, procurement can control many more of the cost levers, influence the revenue side, and bring innovations to the table over the course of the product’s life cycle.
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All over the world, the capabilities of procurement organizations are being tested as never before. They are required to help their businesses deal with the impact of globalization, supply market volatility, supply chain disruption, rising costs of raw materials, regulatory overload, talent shortages, and much more. If ever there was a need for procurement to lead the way, it is now.
The good news is that procurement is better equipped and more eager to meet these challenges than it has ever been. Today, more and more procurement executives have a seat at the top management table. Their organizations’ activities and results are getting attention—and for all the right reasons. Not only do they successfully and consistently contribute to cost reduction, but in an increasing number of companies, they are regularly seeking to understand how they might drive revenue growth and innovation as well.
That said, though, many procurement groups still have blurred ideas of what their true strategic purpose should be. If you ask a dozen different purchasing leaders what their operation is designed to do—and importantly, what it is not designed to do—you will likely get a dozen different answers. Many of those answers will still tend to revolve around cost containment.
So it might seem logical to think that procurement chiefs are clear about their impact on their corporations’ earnings. The trouble is, the purchasing function has the ability to influence corporate profitability only when it is operating at a genuinely strategic level within the company. In the great majority of cases, that is still not so; procurement still does not operate at its full potential. It has not yet gotten the strategy part right.
This article will lay out a systematic approach that enables procurement leaders to more easily create strategies that align with the business strategy and other key functions. The approach helps clarify what procurement’s role should be in each phase of a product’s life cycle in order to ensure that the function is seen as proactive, and focused squarely on value and innovation. In doing so, procurement can control many more of the cost levers, influence the revenue side, and bring innovations to the table over the course of the product’s life cycle.
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