The economic downturn has highlighted the role procurement can play as a creator of value but many CEOs still view the function mainly in terms of cost savings rather than as enablers of growth.
Having gained the attention of the board in recent months, the next challenge for CPOs will be to break down this perception and start to replace it with a more strategic image of procurement, where it is viewed as a generator of additional funds and a driver of innovation to accelerate growth.
The following five strategies demonstrate how CPOs can ensure procurement stays on the CEO’s agenda when their business moves into the next growth phase:
1. Vision for growth
Value chain: CPOs need to develop new ways to define and identify needs inside their organisation, assess the capabilities of internal resources to meet those needs and define core competencies. Procurement should then immerse itself in make-or-buy decisions, evaluating needs and capabilities against all available external resources. Whether to in-source or to outsource has always been a key question at the core of procurement’s true strategic value.
Procuring solutions: Here the objective is to look beyond your organisation’s extended enterprise network and move beyond making incremental improvements to products or services by sourcing solutions that leapfrog current best-in-class to create a paradigm shift in customer value.
Innovation: Playing a full role in the innovation process is also vital. This requires CPOs to develop governance structures, organisational alignment and sponsorship to support procurement activities by accessing innovation in external markets, while creating new measures that recognise procurement’s contributions to revenue growth as well as cost savings.
2. Customer relationship management
Meeting customer expectations is vital to growing the business. Procurement must therefore develop a greater understanding of both customers and markets. This means clearly identifying specific customer needs and the expectations their company chooses to meet. Once these are fully understood, procurement can design a more customer-centric supply chain.
3. Supplier relationship management
The key for procurement’s growth strategy is to become the channel by which supplier capabilities are secured to support their company’s growth agenda. This includes:
· Ensuring that supplier selection supports the buyer’s brand values;
· Developing innovative partnerships that access supplier innovation;
· Creating and involving supplier network structures in the planning process for product or service development;
· Securing preferential access to supplier capacity;
· Linking suppliers into the supply chain to improve customer service.
4. Optimise the supply chain
Without an efficient supply chain, companies cannot support the chosen customer needs and expectations or ensure there is sufficient flexibility to meet any unforeseen changes in requirements. Once a company’s growth plan is established, whether it’s rapid new product development, mergers and acquisitions or accessing new markets, it must optimise all aspects of the supply chain that support the achievement of that plan.
5. M&A due diligence
It is an organisation’s ability to deliver savings that ultimately determines whether or not integration will be a success. By ensuring early involvement, procurement becomes uniquely placed to add value through managing customer-side impact; supply chain alignment; supply-side impact, process and system integration and any organisational impact. The procurement programme to capture synergy can last 18 months or so, providing an excellent platform for procurement to stay on the CEO’s strategic agenda.
A well prepared growth strategy can help redefine traditional perceptions of procurement so it is no longer seen as a tactical cost-cutting function but a strategic contributor to the growth agenda. The prize for the CPO is a seat at the table, whatever the economic cycle.
David Henshall (firstname.lastname@example.org) is founder of Purchasing Practice (www.purchasingpractice.com)