Alignment
Why Procurement Value Needs to be Defined Differently in Every Business
September 20, 2016
Jordan Early
2 minutes

I’ve been speaking with Marc Bruyninckx recently, he’s an interesting guy with interesting thoughts about the future of business and in particular procurement’s role in forging that future. He captured some of these thoughts in this blog. One of the key points we’ve been discussed has been the need for procurement to drive value into our business.

Now I know this term has been beaten to death on the procurement blog circuit but bare with me.

Consensus is in and everyone agrees that procurement needs to start driving business value, but no one can really explain what that might look like. It’s like when a sports star is asked how he plans on winning the championship and responds with ”we’re taking it one week at a time and I’m just making sure I give 110%”. They’ve said something but what does it mean? What are they actually going to do.

Value aint value.

One of the challenges with the discussion, and indeed the transformation, required to get to value driven procurement is it’s near impossible to define and measure progress. At least from a generic point of view. Denning’s old catch phrase of ‘you can’t manage what you don’t measure’ has left business people on an endless search for stand alone metrics and KPIs. Cost savings, the procurement poster child, is a great example of this. But if we’re looking to measure the true business value a procurement function can provide surely our objectives and measures can’t be stand alone and surely they can’t apply to all procurement teams across the world.

How are you helping?

I believe the question procurement teams need to ask themselves is how are they contributing to corporate objectives. You know the high level ones, the ones that keep the CEO awake at night. Deliver on these and you’re delivering value.

But if your CEO and executive team are working to bring a new product to market as priority number one and you show up telling them that you’ve negotiated another 5% costs savings with your biggest supplier and that hopefully performance won’t be impacted, you can’t really expect them to be impressed can you? Perhaps what you’ve done is good, great even, but if it’s not aiding the achievement of strategic business goals is your work really that relevant? Imagine now if you went to same meeting a said to your CEO;

“I know as a business we’re trying to bring product x to market, here is how I think the procurement can help that to become a reality, I actually have some ideas as to how our suppliers can help us on this journey as well.”

To me, procurement value comes from delivering on corporate objectives. If your high level corporate objective is to pull cost out of the business, then cost savings is probably the right KPI. But if your business is trying to something else, you probably need to change tact.

This comes back to the ‘value aint value’ point and our the corporate obsession with standardised KPIs. Cost savings are transferable, it’s understood across the board. If you delivered 15% cost savings as a category manager in your last job, you probably get a hired for your next job. Delivering true procurement value is not as easy to quantify. It requires explanation. That’s because the value a procurement department can bring to a business is intrinsically linked to that business’s objectives. It’s unique. A pharma company trying to bring a new drug market has different corporate objectives to a mining company trying to improve its safety record or a professional services firm that is in the midst of a merger.
Doesn’t it make sense then that the the procurement activity of these organisations should differ too? Given these challenges isn’t cost saving a bit of narrow lens with which to measure success?

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