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4 March, 2011 by

What the Future Holds for Corporate Procurement

Procurement is at a tricky point in its evolution; we're starting work on how to invest in an influential and effective function of the future

The Procurement Strategy Council’s (PSC) 2010 research showed clients the importance of investing in mature procurement project portfolios.  We used survey data to compare procurement teams’ efforts in investing in people, processes, and systems (functional maturity) versus investing in a balanced mix of activities that pursue short-run and long-run “breakthrough” value creation (“portfolio maturity”).

What was interesting was that – beyond a certain point – further investments in functional maturity didn’t help Procurement nearly as much as investments in portfolio maturity. Our work showed that procurement teams that were able to integrate a range of more sophisticated, non-traditional projects with more conventional projects (thus creating a mature portfolio) generated three times the savings and four times the number of applied supplier ideas annually than those that didn’t.

Procurement’s Investment Decisions

These results make a compelling argument for chief procurement officers (CPOs) to prioritize portfolio maturity over functional maturity. This doesn’t mean we’re advising the world’s procurement organizations to stop investing in functional maturity; but rather CPOs and their senior teams should spend more time thinking about how to make intelligent functional investments in people, processes, and systems.

We have fielded a lot of questions from CPOs about the future size and scope of the best procurement functions recently, and they are fueled by procurement professionals’ feeling that their function has reached an important turning point in its history.

Some years ago companies used Procurement to coordinate cost savings across complex global businesses; and many procurement teams more than met this objective during the recession. However, leading procurement organizations have shown that the function has the capability to do much more for large firms. The problem is that many senior (and junior) managers don’t buy this argument.

CPOs therefore find themselves treading a fine line between two options: investing “too much” in functional maturity and then being told that a multifunctional shared services center (SSC) could do almost as good a job at a fraction of the cost; and investing so little in the procurement function that it is only able to do transactional work and then, for that reason, is incorporated into an SSC anyway.

Clarity Over Capacity

So it’s likely CPOs will have to make some important decisions in the next 12 months, and we’ve started a major research effort in response. Again, and to be clear, we are not advising CPOs to stop focusing on portfolio maturity but to ensure that the investments they do make all complement the aim of improving portfolio maturity.

Our initial work has looked at CPOs’ efforts to increase the capacity of their teams and to make transactional activities more efficient. This is not a bad goal but we see more successful procurement teams prioritizing “clarity” over “capacity”: by developing a clear and precise link between Procurement’s corporate goals and its investments in functional maturity, they put themselves in a good position to take on multi-year projects that have a material effect on the entire firm’s revenue or cost base.

Please contact me to discuss any of this further and please let us know what you think about our next major research topic through the comments section or by contacting me directly.

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