A good place to start the discussion on this topic is to set the scene by asking the following question: “Why does what is done by Procurement matter?” Both experience and literature lead us to conclude that the answer lies in the following statement: “It matters because what Procurement does, influences sustainability and strategic value creation in the supply chain!” In essence Procurement is ideally positioned as an essential and strategic value management partner in the business! Stereotypical answers such as “well, … Procurement should save money, reduce lead times, improve service levels, etc.”, whilst valid and individually true, patently eschew the more strategic nature of procurement. Those stereotypical answers are singular decoupled outcomes in a complex web of interdependent processes and activities whose total outcomes can be aggregated and more accurately described as Strategic Supply Chain Value Creation. Value Creation itself can be represented by the following important mathematical relationship:
Restated in words, this important relationship of Value Creation can be said to be the aggregate of all long-term Supply Chain Utility Factors (Outcomes in respect of Benefits, Performance, Quality, Functionality, Application, Service, etc.) as inversely modified by the attendant Risks and Costs. In addition it tells us that Increasing Utility Factors, Decreasing Risk and Decreasing Cost, all combine to increase value. Sadly however, many organisations simply focus on cost containment measures, but ignore or marginalise the potential for additional value creation through effective supply chain risk management and improving the supply chain utility factors. Failing to invest in the procurement function’s capabilities in respect of its practices and people competencies has a negative correlation with long-term sustainability. The good news however is, that this trend can be relatively easily reversed with critical strategic thinking and commitment.
The Procurement function can only be strategically relevant and considered as a strategic business partner when it possesses the comprehensive practice capabilities to sustainably deliver increased value to the organisation. This therefore begs several questions such as:
How do we know we possess all the requisite capabilities?
How do our practices compare to leading practices employed by world-class organisations, and where do we stand amongst our peers?
What range of practices do we still need to employ?
How do procurement practices integrate to form a coherently performing procurement function?
What should be driving the competence pathway for procurement practitioners?
How long would it take to progress up the capability ladder into a leading procurement function in order to be considered a strategic business partner in the organisation?
These critically important questions can be thrugh using a tool such as StratoCube’s Leading Procurement Practice Profiling diagnostic. The diagnostic tool, unlike an audit which measures compliance with the organisation’s governance and controls framework, measures the extent to which practices that support long-term sustainability and strategic value creation have been adopted by the procurement function. Unlike the outcomes of a formal audit, which has potentially negative connotations, the Leading Procurement Practice Profiling diagnostic is about taking a snapshot of current practices, gaining insights therefrom, and planning for the future. It is about being proactive and forward looking. It is about building capability and performance, and it is also about opportunity seeking, rather than being reactive (and possibly defensive as in the case of audits). The outcome of the diagnostic says “this is where we are now, and this is where we’d like to be at a defined point in the future, so let’s devise the plan to get there” and it encompasses the entire range of procurement practices. It provides objective information that paves the way for empowering the procurement function and its practitioners, for improving decision making, and for providing a clear and logical approach to competence development amongst procurement practitioners. Indeed, it paves the way to becoming a true strategic partner in the business, recognised for the sustainable value Procurement delivers!
