Need procurement function? It's more strategic than you think...
April 1, 2014
Written by Choo Lip Wei
Do you need a procurement office?
The answer to this question lies in your company's strategic intent.
Procurement policies and procedures usually do not feature prominently in many companies’ annual reports nor will they be frequently discussed in high level strategic meetings. This is because market share, dividends, profitability, mergers and acquisitions often sound so much more sexy than procurement. Seldom do cost savings, assurance of supply and governance bring as much joy as an announcement of a big fat bonus.
But that is to be expected. Procurement has long since been a back room operation – where its primary role is to check, report and let someone else make the important decisions. Presently, there are only a handful of Procurement Evangelists pushing the procurement agenda in the corporate world, selling themselves and making their contributions known.
For the longest time, highly successful companies have understood that this is a severely limiting view and have gone on to create seats on their management teams designed with the intention to leverage procurement as a competitive tool in their chosen industry of play.
A well-executed procurement plan could see profits returned to shareholders pockets where otherwise our hard-earned money could be brushed away under the excuse of “necessary expenditures”. A well-executed procurement plan can also see that operations do not shut down because someone has decided to save some money and bought materials from a dubious source. A well-executed procurement plan can definitely see purchase orders being justified according to company’s intent and not according to individual “best interests.”
A highly equipped and adequately trained procurement unit is able to return more savings to the bottom line. Yes, bottom line because you do not need to deduct further for costs. Indeed, a dollar of savings is a dollar to the bottom line. Procurement can be good at this because it hones its contracting and negotiating skills with suppliers day-in and day-out. It is also assists in scanning the business horizon for trends and positions the company to receive goods and services at the best cost-to-performance ratios because it is part of its job. Of course, one could argue that an end user could also do this. But this resource will then have to come out of somewhere, diluting the role that it was meant to play – be it in the creative field or the technology one.
So, should all organisations deploy procurement functions? Or should they leave the procurement decisions to an end user and have procurement just execute the Purchase Order? The answer is complicated but not impossible to solve because you just have to sit down for a while and ask yourself a couple or more strategic questions:
“What is the strategic intent of this company?”
“What do I really want to achieve?”
“How should I utilise my resources?”
“Do I see that my interests are best served by people who are buying for themselves or by people who are responsible for the process?”
There is no right or wrong answers; but there is a strategic intent to be answered here.