The Procurement Reality Check

Recently, my good friend and close business partner, Naseem Malik of MRA Global Sourcing, wrote an article titled “CPO Reality Check: Are You Truly Adding Value?”  This article combines a recent KPMG study  on the state of procurement with an ISM Symposium interview of some industry leading CPO’s to make a business case for where the focus and core competencies of modern day procurement should be.

In reviewing the article and thinking about what it means to be “world-class” in the procurement world, I tend to draw the comparison to income inequality, specifically the “1% versus the 99%”.   It’s estimated that by 2016 the wealthiest 1% will own more than half of the world’s wealth.  In other words, 1% will have more than everyone else combined.  I don’t mention this statistic to get into a discussion on income inequality, but rather to make a comparison on the disproportionate difference between the current “world class” procurement organizations versus all those trying to get to world class.  Comparing the two isn’t apples and oranges, its apples and wallpaper.  They can’t be considered in the same category, unless the categories are “things that exist” and “things that don’t exist” (they both do, in fact, exist).

The CPO’s in the symposium talked about the basics, including category management and savings tracking, but also spoke heavily about the next level work they are doing on issues such as innovation, sustainability and revenue growth contributions.  In some of the companies, the procurement groups had responsibility over “marketable issues pertaining to supply chain sustainability and traceability….taking the lead on these initiatives allows supply management to be a social and marketing asset to the company”. 

Can you imagine procurement being responsible for aligning with sustainability initiatives, creating top line revenue growth by developing a more positive image for the companies they support, and not only managing these responsibilities but reporting on them in a way that is meaningful and has impact for the business?  For most procurement groups, those days are still a long, long way off.

Looking at the other side of the procurement spectrum, also known by me as the 99%, the KPMG survey referenced in Naseem’ s article found that “three quarters of C-level executives were uncertain whether procurement adds value, and more than half were dissatisfied with procurement process compliance….two-thirds of stakeholders say they don’t typically ask supply management to help them meet their objectives, and less than 10 percent believe supply management positively affects transformative change”! 

In other words, 90% think procurement can’t help transform the organization. That statistic aligns procurement with Congress in terms of favorability ratings!  Head lice and root canals fare better in the spectrum of public opinion!

Even at a very basic level, procurement should be looked at as a way to help the business reduce costs, and one would expect that at some point, most stakeholders will need to cut money out of the budget.  Yet only 25% of the time will they go to procurement for help with that –a damning illustration of the effectiveness of the 99%.

To be fair, it’s not easy to get to world class.  Just ask the wealthiest 1% (that weren’t born that way).  For procurement, it can be particularly difficult.  What other group within the organization has so much responsibility that be only be accomplished by getting other departments to willingly participate?  Where else do you have to work so hard to build sponsorship, only to have it easily taken away by competing agendas, misaligned goals or even personality clashes? What other group is expected to produce improved results, year over year, with a scope that should hypothetically continue to shrink based on its own effectiveness? 

Our profession is not an easy one.  Still, there are enough success stories out there to be excited for the future.  As Naseem notes at the end of his article, procurement groups can affirm they are on the right path when “C-suite business partners seek their help in furthering their business agenda”. That’s as good a success metric for the dashboard as any other!