Five reasons procurement is misunderstood

By Steve Hall, Editor of Procurement Leaders

You can’t entirely blame a procurement executive for having a chip on their shoulder – they’re responsible for millions, even billions of spend, but yet they risk becoming outsiders in the organisation; siloed off or constrained by the demands of other functions that limit their impact.

Sometimes procurement’s fault is a product of its own misconceptions; functions have grown up delivering easy savings by beating up suppliers and when that ‘low-hanging fruit’ has all been harvested, they’re left without the capabilities to deliver value to stakeholders.

Maybe, then, it’s not just other functions that are learning what procurement is and what it does – teams are learning about themselves. Here’s five reasons that’s been such a difficult journey.

1. Businesses haven’t been built to measure procurement

A recent survey Procurement Leaders ran as part of our The Financial CPO campaign found that 45% of senior executives surveyed stated that price avoidance data is collected for internal procurement use only. Yet, in certain circumstances (e.g. an inflationary environment) this is a significant saving for the wider business. When metrics are ignored or misaligned, there’s potential for effective procurement to look like a waste of time. You might take the view that procurement should know better – and it should – but really the essential conversation is the one that establishes how a business sees procurement in the first place and therefore what success should really look like.  

2. Functions don’t speak the same language

While many procurement managers and executives speak about value or cost, finance might look at savings and cash flow. It’s a cliché to say it, but not only is procurement not always thinking like its counterparts, it’s not giving them information they can understand – worse than that, without a stakeholder-centric mindset, teams can end up putting a lot of effort into tasks that don’t mean anything to the people that matter.

3. Liquidity comes at a price

One of the most common complaints is that value and cost savings are different things, but on the balance sheet they get confused. Just as procurement holds the strings on payment terms, buyers know the damage that 120-day payments will do to the relationships they’ve built, even if finance counterparts are counting the cash. Procurement has to protect the value that those relationships hold, but it can’t do that without clear evidence of what the financial benefits are and how that looks on paper.

4. It’s not clear who should influence what

An SVP of procurement at a financial services company once explained to me that his team found a useful balance in sharing responsibility with AP for sourcing, operations, requisitioning, payments, accounting and reporting. All under one roof. Unusual, perhaps, but it demonstrates how fluid these activities are and, realistically, there are huge advantages to approaching P2P more holistically, even if the change management required is daunting.

5. Procurement has to see everything

Like everyone else, procurement chiefs want to know what’s coming next. But being adaptable to stakeholders’ needs means knowing what they want next and having the framework to deliver. The pressure is on to have mastered the technology and corralled the capabilities that allow decision making to be influenced by the supplier markets as much as the customer-side of the business.

Steve Hall is editor of Procurement Leaders