Beyond the Hype: The International Importance and Evolution of Procurement

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Sven Marlinghaus.png"Few corporate functions have undergone such dramatic changes in recent years as procurement.  It is becoming increasingly clear that procurement can - and must - make a significant contribution at strategic level to an organisation's long-term overall success."  These and other issues were recently placed under the spotlight through an international CPO survey, as conducted by BrainNet Management Consultants on behalf of SAP.  

Sven T. Marlinghaus, a partner in BrainNet Management Consultants, states that the survey wanted to establish how "procurement is able to cope with corporate challenges and what support it needs in the process of doing so. To illuminate these issues, people who are both affected by, and the instigators of change in the future of procurement (namely the CPO's of the world's leading companies) were interviewed..."

In the study it was established that the role of procurement has undergone many changes in the last few years that can quite rightly be termed a "paradigm shift". The recognition that the core task of procurement is far more than just cost-cutting is in the process becoming more and more widespread. Procurement also has to increasingly contribute to the creation of long-term values that are crucial for companies' competitiveness and long-term performance security. The logical consequence of this development is the redefinition of the role of procurement within the company. While procurement was still largely being regarded as an administrative / service function in 2000, this image has changed dramatically y in the last few years. Procurement is, indeed, shifting from an administrative to a strategic function.

The evolution of procurement.png
Figure 1:  The Evolution of Procurement.
(Source:  Beyond the Hype - BrainNet/SAP survey).

Some of the findings, as concluded from CPO interviews, showed that:

  • Almost 50% of the companies surveyed believed that the procurement department can now operate on an "eye-to-eye" level with other strategic departments, reporting directly to the Management Board and managing significantly higher budgets than five years ago. (Only a quarter of companies that still maintain that procurement is on an administrative or service level.)
  • Almost half of the CPO's felt that the involvement in cross-departmental management decisions and/or collaboration with corporate management is essential for making procurement an integral part of the corporate strategy and a strong cross-sectional function within the company.
  • The procurement department's growing influence is further reflected in the ever more frequent responsibility for indirect spending, such as consulting or marketing services - previously the undisputed domain of top management or divisional managers.
  • All of the above are drivers which facilitate in changing key requirements that allow procurement to fully develop itself to its potential as a value driver in any and all organisations.

Increasing importance of Procurement.png
Figure 2:  The Increasing Importance of Procurement.
(Source:  Beyond the Hype - BrainNet/SAP survey).


What does all this mean?
Bigger challenges, more responsibilities - so is it all systems go for procurement? By no means. Even today, procurement is only regarded as a key value lever in a third of the surveyed companies. The growing significance and complexity of the tasks that procurement has to accomplish nowadays has not manifested itself in the requisite adaptation of corporate structures and processes.

Logically, eight out of ten of the procurement decision-makers surveyed believe that the key challenges for their department lie in demonstrating the immediate impact of the procurement processes on the company's results within the organisation and bringing procurement into top management's field of vision. Involving the procurement department in sourcing decisions early on and ensuring adequate provision with human, financial and technological resources that are commensurate with the increased level of activity are also among the most important topics on CPOs' agendas. These three tenets - resource allocation, management attention and business impact thus formed the analytical framework for the basis and validity of this study.

In next month's issue read more about SRM solutions and the road ahead for procurement as investigated by the international 2007 BrainNet/SAP survey.

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