Procurement leaders risk falling into rabbit hole

Procurement underwent a revolution in the 1980s. The emergence of strategic sourcing dramatically altered the relationship between companies and their suppliers, paving the way for increasingly sophisticated ways of improving the procurement function. But according to a report from Booz Allen Hamilton, these achievements have come at a price.

by Booz Allen Hamilton
Last Updated: 23 Jul 2013

The report says that prior to the arrival of strategic sourcing, cost reduction usually meant reducing employee headcount - repeatedly. Strategic sourcing proposed tackling the underlying drivers of cost along the entire value chain - including the supplier network. This not only dramatically increased the understanding of costs and value, but also provided efficient mechanisms to pass on pricing pressure to the suppliers.

In order to achieve this, procurement leaders had to liaise with sales, marketing, manufacturing, logistics and innovation to make changes such as moving to lower-cost suppliers. In effect, procurement was trying to reinvent itself from being a primarily administrative function into a powerful new force for competitive advantage.

But according to the report, this reinvention has stalled in many businesses. It says that many chief procurement officers (CPOs) no longer pursue influence along the supply chain, nor seek to engage their peers and suppliers to tackle the underlying drivers of cost and value. In the process of introducing ever-more sophisticated ways of improving the procurement function itself, CPOs have neglected coordination with the wider organisation - and risk following Alice's steps in Wonderland and falling down their own rabbit hole, the report says.

The report says that procurement is at a crossroads. While the fixation on functional excellence has benefited many organisations, these benefits cannot support the business on their own. Without the broader engagement of suppliers and colleagues, procurement is unable to tackle the underlying economics of supply along the whole value chain.

If they want procurement to fulfil its potential, CPOs must stop focusing on functional depth and start focusing on functional breadth, the report says. It urges CPOs to engage with internal stakeholders and suppliers in order to re-establish procurement as a weapon of competitive advantage.

Source: Booz Allen Hamilton

Review by: Nick Loney

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