When working with clients who are aiming to establish a centralized procurement model, I have seen hesitation in (or complete disregard for) establishing and enforcing company policies that support the new model. There seems to be an assumption that if Procurement is introduced into an organization, then it will be utilized, and utilized efficiently and effectively at that.

The gap between the goals for the Procurement department and actual utilization by stakeholders is due in part to the view of Procurement by many business units as a “three bid” department, meaning everything that is purchased needs to be bid to a minimum of three vendors. While this is a typical start for many Procurement departments to introduce the idea of competitive pricing, it is a very tactical approach to sourcing.  By undergoing a transformation to become more strategic, Procurement is able to drive value through cost reduction, improved quality and service standards, strengthened supplier relationships, and better forecasting, just to name a few.

In order to realize and sustain that value, there typically needs to be a catalyst for use of Procurement in the organization. An often overlooked step is to actually build Procurement’s authority through company policy. Policy sometimes seems like a “dirty word” when companies are accustomed to taking a carrot vs. stick approach, but leadership can tend to lean too heavily on the idea that Procurement will be generating value and assuming that stakeholders will be jumping at the opportunity to drive down costs or manage their supply base better. In an ideal world, it would be great to set up a Procurement practice and have all levels of the company recognize the potential, but that simply is not the case for most (dare I say all) companies. It is very tough for Procurement to gain footing and oversight in an organization that sees the Procurement process as a suggestion or even an impediment to getting the necessary products/services, rather than something that stakeholders and management view as a required part of the organization. I can’t tell you the number of times that I, either working internally in past Procurement roles or working as a consultant with other sourcing departments, have seen Procurement have to justify  to stakeholders the value that the sourcing process can bring or negotiating with department leaders to get advance notice of projects in the pipeline that will have a sourcing component. While Procurement still spends time doing the internal sales pitch even with established company policies, it does give the Procurement function an advantage to, at a minimum, communicate that Procurement’s involvement is company policy and that policy exists because of the value that comes from utilizing the established processes and best practices.

By establishing a company policy, the idea is to begin with the “stick” (e.g. require departments to go through Procurement to source items, get agreements approved), and ideally stakeholders will begin to see the “carrots” of working with Procurement (e.g. savings, improved service/quality, better supplier management). Once the policy is defined, it should be communicated at all levels of the organization with established oversight channels to ensure it is being followed. Executive sponsorship of not only the guidelines, but Procurement as a whole, is critical to ensuring all levels of the organization recognize the new method for purchasing products and services. Early in my Procurement career, a manager of mine told me that because Procurement holds “purse strings”, it will also be a battle to be viewed as an ally within the organization. While leadership may think that establishing hard-nosed rules around sourcing and procurement will only amplify this attitude, if you truly want, or more likely need, a successful Procurement department, the rules are necessary to bring stakeholders on board. In a follow up blog, we’ll review some of the guiding principles around establishing these policies and where the focus should be to ensure a successful policy along with a successful Procurement group.
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