Devolution of procurement and supply chain

What is the maturity of Procurement and Supply Chain within your organisation?

Lexia Laracy

Leadership During Transformation- Earning a Seat at the Table

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Procurement and Supply Chain is undergoing a significant amount of change in Australia as the industry matures.  Unlike its counterparts in the UK, Europe and the USA, Procurement and Supply Chain in Australia remains relatively immature and is continually being challenged to prove its value. For this reason, it seems that Procurement and Supply Chain continually has to redefine itself to remain current in the complex and ever-changing commercial environment. One common challenge is the ongoing need to earn its seat at the table.

Over the past few years it seems that Procurement and Supply Chain has become the ‘go to’ department when financial pressures increase. The reason is not because Procurement and Supply Chain is lacking a well-defined value proposition or does not have a clearly defined role within the organisation. What, then, is the reason?

The Chief Procurement Officer – if there is one – generally reports into the Chief Finance Officer or may fall even lower in the organizational hierarchy. For this reason, the engagement of Procurement and Supply Chain isn’t generally hard-wired into business process. In fact, it is quite the opposite with the engagement of Procurement and Supply Chain to be seemingly sporadic in nature and generally undervalued.

The outcome of engaging Procurement and Supply Chain remains highly beneficial when engaged appropriately, due to its agility and flexibility to resolve complex problems. Lack of engagement, and poor positioning within organisational hierarchies, from what I can understand, is due, historically to Procurement and Supply Chain having been positioned as a tactical function.  Its role is facilitating purchases and managing supply risks – with a focus on establishing appropriate commercial terms to ensure continuity of supply and to protect the organisation from financial and reputational risks.

As the Procurement and Supply Chain within an organisation matures, and the level of spend under management increases, processes are formalised into business rules and embedded into organisation-wide systems.  This allows for duplication and streamlining of such processes to automate the mitigation of risk, allowing the business to retake control of its purchasing.

The purchasing processes are then hard wired into the Procure to Pay and Source to Contract systems, alleviating the need for Procurement and Supply Chain practitioners to manage these processes.  In doing this  Procurement and Supply Chain can redefine its value proposition and reposition itself as a strategic function within the organisation.

No longer managing processes, and if successful, Procurement and Supply Chain can become an advisor.  In this capacity is can  provide  guidance to executives on policies and procedures, provide compliance reporting to demonstrate compliance or show missed opportunities, and ensure that processes are defined – including ensuring those embedded in the P2P tools remain effective to manage the changing dynamics of the external market. It is at this stage that the definition of Procurement and Supply Chain can become inconsistent across various organisations.

Becoming a Sourcing Function

The Procurement and Supply Chain function may evolve into one of many different realities. In some organisations, the value of Procurement and Supply Chain is only identified during the Source to Contract phase.  In this scenario, sourcing specialist or consulting roles are established at a point where Procurement and Supply Chain can only influence a small component of the process, thus limiting ability to add value. The value of Procurement and Supply Chain is then aligned to cost reduction initiatives, supporting the finance strategy. However, this is generally at odds with operational requirements.

If not careful Procurement and Supply Chain can become a puppet of the finance function and an adversary to its operational stakeholders.  It can be seen as a function  used to ‘cut budgets’ through cost reduction initiatives, that if poorly executed do not meet the operational needs of the organisation, and lead to unforeseen, unplanned cost impacts later down the track.  This is where the Chief Operating Officer begins to draft the writing on the wall for Procurement and Supply Chain’s function, as a lack of engagement can lead to reduced visibility of operational requirements and an inability to develop a pipeline of initiatives to drive value for the organisation.

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Embracing Category Management practices

In other organisations, Procurement and Supply Chain takes on a more strategic approach.  Roles such as Category Managers are established to develop cross functional working groups, influencing the long-term business strategy through to the specification of the goods and services being sourced.

This approach allows Procurement and Supply Chain to drive operational requirements forward, achieving value for money outcomes, whilst developing strategic partnerships with suppliers driving innovative solutions for complex operational issues. The challenge in this instance is that ‘value’ does not always translate to cost reductions against the general ledger, which may lead to a lack of support from the finance department. This can be particularly challenging if Procurement and Supply Chain sits within the finance hierarchy.

Devolution of Procurement and Supply Chain

In other organisations, the Procurement and Supply Chain function is devolved, and relies on specialists in the business to absorb the Procurement and Supply Chain processes,  requiring them to not only own the functional delivery of their business area, but also the commercial side of supplier engagements. This situation is fraught with risk; and not only reputational and commercial risk.  This scenario can also lead to a silo approach, potentially reducing an organisation’s ability to leverage organisational-wide spend, and limiting its ability to develop strategic partnerships with key suppliers.

So, as a Procurement and Supply Chain practitioner how are you influencing your business stakeholders? What is the maturity of Procurement and Supply Chain within your organisation, and what is the value proposition of Procurement and Supply Chain within your organisation?

When you talk to Procurement and Supply Chain practitioners, there is one common theme- most of us did not start out in Procurement and Supply Chain. We didn’t dream of becoming a Procurement and Supply Chain practitioner, nor did we truly appreciate what the function does until we lived and breathed it day in and day out. Most of us have been encouraged to the dark side – from technical, sales, finance or administration roles and bring with us a deep understanding of the impact Procurement and Supply Chain can have on other areas of the organisation (both good and bad).

What is interesting, however, is that those of us that do come to the dark side and love it generally have similar capabilities and innate strengths that make us successful. We have a thirst for knowledge and curious minds. We love a challenge and are generally catalysts that drive change and challenge the status quo. We also have an innate ability to bring people together to work toward a common goal and deliver results that benefit the broader organisation.

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So, as your organisation matures, and procurement and supply chain practices and governance are embedded into systems and processes, consider the following questions: What is the renewed value proposition for your Procurement and Supply Chain function? How is the Procurement and Supply Chain within your organisation influencing its stakeholders and positioning itself? How has the hierarchical structure of your Procurement and Supply Chain function defined its value proposition, and what influence can you have over this to ensure it earns its seat at the table?

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